BUSS4 and British Airways - a marriage made in heaven

British Airways could easily be the case study business featured in Section A of BUSS4. The story of BA during 2008 and 2009 fits perfectly with the BUSS4 research focus on strategies in a recession, short v long-term planning and the related issue of stakeholder relationships. And if BA isn’t the chosen example by the BUSS4 examiner, then it becomes a superb basis for research and comparison. Just think of the issues that have come up in the last 24 months:

- Collapse in business & first class travel (linked to collapse in US & other financial markets + income elasticity of demand)
- Increased competition on short-haul routes from Ryanair, Easyjet (who have largely bucked the recession in revenue terms)
- Commodity price rises in 2007 fuel oil price surge in 2008 (fuel is 25%-30% of an airlines operating costs)
- Merger with Iberia (defensive/offensive?)
- Massive cost-cutting exercises
- Industrial action

The turmoil experienced by British Airways is illustrated in this tutor2u chart of the BA share price over the last few years - growing strongly during the boom years of 2005 & 2006, but then sent into a tailspin as the oil price rises started to bite and then the credit crunch took hold:

British_Airways_Share_Price.pdf

I have listed below a series of short, relevant BBC videos which would help students research the BUSS4 issues at BA during 2008 & 2009…

BA’s investor relations website also contains many superb presentations and interview transcripts which would help the more adventurous student get more detailed information on recent BA strategy.

BA profits in massive plunge (November 2008)
http://news.bbc.co.uk/1/hi/business/7714996.stm

Key points:
Bleak trading environment
Operating costs - fuel bill rose rapidly, despite actions to reduce risks (hedging)
Fall in exchange rate (sterling v dollar) has increase fuel costs (which are invoiced in dollars)
Business passenger demand well down - turmoil in financial services sector (Lehman etc) means much reduced business traffic
Slump in share price - potentially affecting ability to raise finance or do deals (e.g. mergers)

BA chairman on recession plans (January 2009)
http://news.bbc.co.uk/1/hi/business/davos/7860475.stm

Key points:
Every firm has to look at survival mode & opportunity mode
Merger with Iberia is about both survival and opportunity
Capacity management - BA cut capacity slighty during 2008, but you have to be careful so you dont damage the long-term business
Price cutting? Prices have fallen - but there is no point operating at a loss

BA nosedives into massive losses (May 2009)
http://news.bbc.co.uk/1/hi/business/8063129.stm

Key points:
Global recession = fall in business & first class passenger demand
Recession is not a short-term phenomenon
Strong dollar = higher operating costs (mainly fuel)
Big deficit in pension fund
Cutting jobs
Grounding planes to cut capacity
Promotional offers to remain competitive
The influences that damaged BA most were beyond its control

Airline gives staff tough choice (June 2009)
http://news.bbc.co.uk/1/hi/puffbox/hyperpuff/audiovideo/england/8117876.stm

Key points:
BA asking staff to work part-time, unpaid for a week or take holiday
Frontline staff not happy
Flexible working - maybe the best way to survive the recession?
Should BA staff take a pay cut - like many staff in other industries had to?

BA chief: Worst year for industry (November 2009)
http://news.bbc.co.uk/1/hi/business/8346087.stm

Key points:
BA reports a loss before tax of £292m for the six months to September 2009
All airlines under pressure from falling revenues & the need to reduce costs
A structural change in the way that consumers behave (value for money)
Employee numbers down without strike action - so far
Need to engage with employees

BA and Iberia airlines agree to merge (November 2009)
http://news.bbc.co.uk/1/hi/business/8358036.stm

Key points:
BA and Iberia airlines agree to merge
Merging to improve market share & get more resilience to economic downturns
Will become the world’s thrid largest airline (economies of scale)
Cost savings - $600m per year (cutting duplicated functions)
But is bigger really better? Does it really provide competitive advantage

British Airways cabin crew vote for Christmas strike (December 2009)
http://news.bbc.co.uk/1/hi/business/8412627.stm

Key points:
Cabin crew vote to take industrial action ahead of key seasonal period
Huge potential cost for BA just after it had made record losses
An “overreaction” according to BA management
Impact on BA customers? (stakeholders)
Cabin crew pay - BA want to cut crew numbers