Coursework Header Sheet

221107-147

Course
Coursework
Tutor

FINA 1035: Strategic Financial Management

Final Report
DR Liz Warren

Course School/Level
Assessment Weight
Submission Deadline

BU/UG
100.0%
30/03/2016

Coursework is receipted on the understanding that it is the student's own work and that it has not,
in whole or part, been presented elsewhere for assessment. Where material has been used from
other sources it has been properly acknowledged in accordance with the University's Regulations
regarding Cheating and Plagiarism.

000806169
Tutor's comments

Grade Awarded___________ For Office Use Only__________

Final Grade_________

Moderation required: yes/no Tutor______________________

Date _______________

STRATEGIC FINANCIAL MANAGEMENT

REPORT

By: 00806169

Word count: 3096 words

TABLE OF CONTENTS
Header sheet...1
1.0 Introduction..4
2.0 Financial Analysis5
3.0 Marketing Analysis..............................................................................................................6
4.0 Human Resource Management (HRM) Analysis.................................................................9
5.0 Operations Analysis...........................................................................................................10
6.0 Strengths and Weaknesses.................................................................................................11
7.0 P.E.S.T.E.L. Analysis........................................................................................................13
8.0 Porters Five Forces Analysis............................................................................................15
9.0 Markets and Critical Success Factors (CSF)......................................................................15
10. Opportunities and threats...................................................................................................17
11. Strategic Organization of BA.......................................................................................xxx
12. Identification of possible future strategies.........................................................................18
13. Screening of options suitability, acceptability and feasibility.........................................
14. FULL description of recommended strategy ..xxxx
15. Key issues in implementing the strategy ..xxxxxx
References...............................................................................................................................20
Appendices..............................................................................................................................21
Presentation Slides...................................................................................................................

1.0 INTRODUCTION
This Report identifies main Strategic business units (SBU) within IAG. It then identifies the
strategies employed by AIG during the period of 2011 to 2014: for both a single business unit
and for the company as a whole. It will also critically evaluate why or why not these
strategies identified have or have not been adequate for the identified SBU and the company
as a whole. It will also finally evaluate if the business model of the company identified is
relevant for the next five year or more and also make recommendations for the best future
strategy for the chosen SBU and company as a whole base on the analysis already made. It is
important to note that al workings within this report are taken from the Case study unless
referenced otherwise, and that AIGs Reporting currency in Euros ().
International Airline Group (IAG) is an international consolidated airlines group which is
based in London UK with subsidiaries of British Airways, Iberia and Vueling. And it also
runs a Cargo service (IAG cargo), The Avios Loyalty programme, and BA Holidays which
offers packaged Holidays as part of British Airways. This Group was formed in January 2011
as a merger of British airways and Iberia. IAG is registered in Spain but has its shares traded
on both the Spanish Stock Exchange and the London stock exchange and also has its base in
Heathrow London UK. It is also the worlds 6 th largest Airlines group as per revenues (26.7
billion in 2014) and it currently (mid2015) owns 466 aeroplanes which fly to 248
destinations. IAG can therefore be considered as one of the major players within the
International Airlines/Air travel industry.
Strategic Business Units

Operating Segments
Domestic1

1(U K, Spain and Italy)

4

Passenger
Cargo
Others2

Europe
North America
Latin America and Caribbean
Africa, Middle East and South Asia
Asia Pacific
The organisation makes money mainly through the sale of flight passenger tickets, Cargo
services and specialised Holiday packages though British Airways.
2.0 FINANCIAL ANALYSIS.
The below section of the report covers the analysis and the main conclusions derived from
the financial ratio calculations (ratios are presented in the appendix) for the period cover 2010
to 2014.
Operating profit margin has increased from 2.5% in 2011 to a satisfactory margin of 5.1% at
the end of the financial year of 2014.
Net Profit margin has also followed the same trend during the period, where the net
profitability has grown from 3.0% in 2011 to 5.3% in 2014. The net profit margin of the
company has crossed the operational profit margin which is a favorable and a rare situation
(Fischer et al, 2014).
Total revenue of the company has increased from 16103 Mn in 2011 to 20170 Mn
recording a CAGR of approximately 8% during the period under review. The revenue base of
the company has improved from 18569 in 2013 to 20170 in 2014 recording a YOY
growth rate of 8.6% during the year.
Operating profit level has shown a significant growth from 527 Mn in 2013 to 1029 Mn
recording a YOY growth rate of approximately 95% and a CAGR of 32% over the period
under focus.
Finance cost of the company has reduced approximately by 21% during 2014 when compared
with the finance cost incurred by the company during 2013 and has grown only by 3%
(CAGR of 3%) during 2011 2014.

2 Other SBUs includes the BA Holidays programme, third party maintenance and
handling revenues, and aspects
of the Avios customer loyalty programme(AIG Annual Report,2014:80)

Both the current ratio and the quick ratio of the company has improve slightly over the period
under focus (2011 2014).
The current ratio has moved from 0.66 times in 2012 to 0.76 times in 2014 whereas the quick
ratio of the company has moved from 0.61 times in 2012 to 0.71 times in 2014. However, it
should be noted that the current ratio and the quick ratio of the company has faced with a
downfall during 2012. The current ratio of the company has declined from 0.9 times in 2011
to 0.66 times in 2012 whereas the quick ratio of the company has decreased from 0.84 times
in 2011 to 0.61 times in 2012.
The current asset base of the company has improved from 5892 Mn in 2011 to 7427 Mn
in 2014 recording a CAGR of approximately 8% whereas the current liability base of the
company has reflected a growth from 6529 Mn in 2011 to 9801 Mn in 2014 recording a
CAGR of approximately 15% during the period under consideration.
This higher rate of growth in the current liabilities of the company over the growth in the
current assets could have a negative influence over the liquidity level of the business entity
and thus should be kept under constant monitoring through out the period (Delaney and
Whittington, 2005).
Any sudden changes in either the current asset base or the current liability base of the
company should be informed to the higher management and necessary actions must be taken
in order to keep the liquidity levels of the company under control.
The asset turnover ratio and the trade receivable days ratio have been calculated in order to
assess the level of efficiency of the business entity over the period under consideration.
The asset turnover ratio of the company has increased from 1.24 times in 2011 to 1.46 times
in 2014. The highest level of asset turnover was recorded during 2012 which was
approximately 1.48 times. The asset turnover ratio in the Airline industry during the third and
the fourth quarters of 2014 were recorded as .088 times. Accordingly, the company,
International Airlines Group has been able to maintain significantly higher levels of asset
turnover during the period under consideration compared to the industry averages.
The trade receivable days of the company has declined from 26 days in 2011 to 23 days in
2014. This indicates that the length of time which the customers take to settle the balances to

the company has declined which is a positive sign towards the risk level of the company
(Cunningham, 1980).

3.0 MARKETING ANALYSIS

3.1 Pricing

British Airways offers seats in:

Economy class
Premium economy class3 on chose worldwide flights
Business class4
First class5 on chose worldwide flights.
The value contrasts between the diverse seat classes are considerable.
The cost of a Premium Economy ticket is just about 250 % (x2.5) of the cost of an

Economy ticket for the same dates.

Business Class is 700% (x 7) that of a practically identical Economy ticket and the

least expensive First Class ticket is just about 1000% (x10).

Whats more, the most costly First Class is more than 1700 % (x17) that of a

tantamount Economy ticket for the same dates.

Iberia offers seats in its Business Plus and Economy Class on intercontinental flights6.
Vueling offers 3 admission sorts:
Basic admission
Optima admission some adaptability to change flight to another on the same takeoff
date and to pick own seat
Excellence charge complete adaptability to change the date and time of flight and to
sit in a selective seat
3.2 Sales Channels

IAG offers its traveller flights and occasions through its

3Premium Economy furnishes seats with more space and solace than in Economy class.
4Business Class gives access to select air terminal parlour, better suppers and beverages, additional seat space and level beds on long-haul
flights.

5British Airways states that its First Class offers "die hard faithfulness, excellent solace and downplayed British class in each phase of your
flight, from the minute you book to your last destination. From sumptuous parlours to on-board fine eating, we ensure everything meets our
fastidious benchmarks."

6 Business and Economy classes and on every single household flight and on flights to Europe, North Africa and the close East and
Business Club and Economy classes on flights from Spain to Cairo, Lagos, Malabo in Equatorial Guinea , Moscow and Tel Aviv.

British Airways
Iberia
Vueling sites
Intermediate sites7

3.3 Advertising

As showed before, a key part of IAG's amplified flight offerings are by means of code

sharing concurrences with other Onworld cooperation individuals8

This permits British Airways and Iberia to offer, advance and offer seats and gain a
business charge on courses really worked by accomplice carriers in the cooperation.
On the other hand, accomplice aircrafts offer seats on code shared flights worked by

British Airways and Iberia.

English Airways' "Magic of Flying" advert won the Grand Prix in the immediate
promoting classification at the Cannes Lions promoting and media gathering in 20149.

3.4 Brands

In YouGov's mid 2015 BrandIndex rankings, British Airways was evaluated the top

aircraft brand.10
Iberia was evaluated as one of the top carrier brands to enhance its positioning in the

UK.
British Airways has won a few grants including being voted "Best Airline" and "Best
Short Haul Carrier" of 2014 by Business Traveller magazine in June 2014.

3.5 Market Share

As per Euromonitor, IAG accomplished a 3.1% piece of the market share of the
worldwide air traveller market by esteem in 2013 positioning it as number 6 on the

planet.
IAG's offer of European aircraft activity seats is evaluated to be 8.1% in 2015.11

7For example, Trip Advisor and Expedia, travel organizations including pro-business travel organizations and by phone.
8For example, American Airlines the world's biggest by income.

9
10In the UK in front of Virgin Atlantic and Emirates.

Emirates Airlines as of now positioned seventh all inclusive - is rapidly picking up

piece of the pie on IAG and other universal contenders as an aftereffect of monstrous

extension arrangements and interests in framework in the

United Arab Emirates. Frightened by the loss of piece of the overall industry of
lucrative premium travellers to Middle East adversaries, two of IAG's greatest rivals
Air France-KLM and Lufthansa - are wanting to spend more than 4 billion ($4.5
billion) in lodge overhauls trying to capture and turn around the loss of share.

4.0 HUMAN RESOURCE MANAGEMENT (HRM) ANALYSIS

IAG's board is governed by Antonio Vzquez Romero its Chairman following 2010

- with Sir Martin Broughton as Deputy Chairman subsequent to 2010.

IAG's Chief Executive Officer is Willie Walsh who has been in that part following

IAG was formed in 2010.

The CEO's of IAG's working organizations are Keith Williams - Official Chairman of
British Airways, Luis Gallego Martn - Chairman and CEO of Iberia, Alex Cruz
Chief of Vueling and Steve Gunning CEO of IAG load.

4.1 Employees

IAG's normal number of workers amid 2014 was 59,484 605 not exactly the normal

in 2013.12
Iberia has expressed that it "expects a general headcount lessening of up to 5, 4714
workers of which 71 for each penny has been accomplished amid 2014 and the rest of
anticipated that would be finished amid 2015". Iberia's headcount decrease
arrangement is "intended to accomplish profitability and adaptability levels in
accordance with best in-class contenders and should permit Iberia to lessen its
worker unit cost by roughly 35 for every penny in the medium-term" as a portion of
its business "Change Plan" declared in 201213.

11In third place behind Lufthansa and Ryanair - see Annex 8. The expansion of Aer Lingus' assessed offer of seats would build the joined
IAG gathering offer to 9.3%. As appeared in Annex 12, IAG's most astounding offer of its local markets in 2013 was in Western Europe.

12 Some portion of this lessening was as an aftereffect of the work assertion came to by Iberia with all worker bunches in July 2014 and
prior in March 2013 to diminish staff numbers.

13 In the year to 31 December 2014, a rebuilding cost totalling 260 million was incorporated into IAG's accounts in connection to the
Iberia Transformation Plan and the concession to aggregate redundancies for pilots and ground staff. In the year to 31 December 2013, the
practically identical rebuilding cost was 268 million and incorporated into IAG's records.

In June 2014, the Guardian reported that "English Airways is confronting the risk of
restored strikes after lodge group said they were readied to make mechanical move

after their pay cases were rebuked"14

The "Blended Fleet" is a prevalently more youthful team, utilized under substandard
terms and conditions to prior group.15

5.0 OPERATIONS ANALYSIS

Toward the end of December 2014, IAG worked 459 aircrafts.16
Vital to the arranged armada changes, IAG has demonstrated that:
Iberia's long-haul armada is being recharged to expand adaptability and catch

noteworthy fuel funds as a major aspect of Iberia's "Arrangement de Futuro"

The new wide-bodied airplane are set to open noteworthy fuel cost funds by 2020,
whilst additionally adding to IAG's proceeded with endeavors to minimize its

ecological sway
Amid the initial couple of months of 2015, it has taken conveyance of its initial five
A320s institutionalized flying machine which have joined Vueling's armada. The
flying machine are a piece of IAG's harmonization arrangement which goes for

standardizing so as to diminish expenses its A320 armada over the Group.

Notwithstanding the new fuel effective air ship arranged, IAG is focusing on fuel

blaze diminishments however imaginative strategies for sparing weight.17

London Heathrow is British Airways major working centre point in Europe and right
now it has 51% of the 688 every day arrival and take-off spaces there the world's

third busiest air terminal.

Iberia's principle European centre is at Madrid Barajas air terminal and Vueling's at

Barcelona air terminal18

Landing and take-off openings at well-known and occupied air terminals.19

14 The article proceeded "In a consultative poll a week ago among individuals from the Mixed Fleet, 95% of team who voted said they
would go on strike. Around 33% of the qualified team voted in the poll, taken to gage feeling in an armada which unionized quickly under
Unite in 2012.

15 The blended armada idea was set up in 2010 amid the last rush of biting modern activity at the carrier, when expense slicing prompted
22 days of walkouts. British Airways depiction of its "Blended Fleet" idea and the prizes bundle offered are appear.

16

28 over a year prior fundamentally as a consequence of including 32 Airbus A320 planes amid the IAG likewise has set requests for
131 new Airbus flying machine - for the most part Airbus A320s - and 34 new Boeing 787 Dreamliners with choices for a further 278
Airbuses, 28 Boeing 787s and 15 Embraer flying machine. The Airbus A320 family are short to medium pull flying machine conveying up
to 220 travellers and the Boeing 787 is a long range wide bodied air ship.

17 British Airways likewise has made a long haul responsibility to buy every one of the 50,000 tons of plane fuel a year wanted to be
created by Solena Fuels who are developing a propelled office that will change over around 500,000 tons every year of waste typically
bound for landfill into low-carbon plane fuel and different powers.

10

The UK's Airports Commission headed by Sir Howard Davies was approached by the
UK government for its suggestions on the most proficient method to fulfil the
continually expanding interest for air go in the UK when both Heathrow and Gatwick

presently are working at or near limit. 20

The present British Aviation routes and IAG Headquarters building arranged at the
edge of the current Heathrow design would likewise be close to the arranged new
runway and may must be changed significantly or emptied on account of flying

machine clamour.
At the 31 July 2015 presentation of IAG's half year 2015 results , Reuters reported
that " IAG does not bolster the building of another runway at London's Heathrow
Airport, its CEO said, in light of the fact that the expenses of the task does not bode
well for the carrier." Reuters cited IAG Chief Executive Willie Walsh as saying "We
think the expenses connected with the third runway are ludicrous and absolutely from
an IAG perspective we won't be supporting it and we won't be paying for it". An
extended air terminal would be incompletely paid for by higher charges to aircrafts.
"We're not going to bolster something that increments our expenses.

6.0 STRENGTHS AND WEAKNESSES

6.1 IAG strengths

IAG's holding organization structure

Albeit initially framed from the merger of British Airways and Iberia in 2011. While the
Group offers thought to the potential for participation and collaborations between its
auxiliaries, the structure permits every aircraft to work independently and undisturbed by
focal gathering exercises.

IAG holds a main position on the North Atlantic

18 Centre points empower an aircraft to offer non-stop flights to numerous destinations empowering travellers to make helpful one-stop
associations with their next or last destination and fundamentally build system reach. They additionally empower carriers to gathering
upkeep and different administrations together in this manner enhancing productivity and lessening expenses through economies of scale.

19 For example, Heathrow are very prized. They can be purchased and sold and IAG underwrites and deteriorates landing rights gained as
a feature of acquisitions or openings purchased from different aircrafts.

20 It created its report in June 2015 furthermore, suggested the development of an extra (third) runway at Heathrow. On the off chance that
this suggestion is acknowledged by the UK government and the development of Heathrow continues, it is likely that British Airways current
strength of landing spaces will be lessened as different carriers , for example, Easyjet who presently don't fly from Heathrow take a
portion of the additional landing openings accessible after the development.

11

IAG is the main aircraft bunch via seats on the North Atlantic, with a seat piece of the overall
industry of 14% in the middle of Europe and North America toward the begin of the late
spring 2015 timetable (week of 6-Apr-2015, as indicated by information from OAG). Delta is
number two, with 12% and the other Big Three US and European gatherings make up the
following four spots.

Iberia is the main carrier on the South Atlantic

IAG's Iberia is the main individual carrier via seats on the South Atlantic (Europe to Latin
America, barring Caribbean), with a seat piece of the overall industry of 17% toward the
beginning of the late spring 2015 timetable (week of 6-Apr-2015, as indicated by information
from OAG). On the other hand, British Airways is just in eighth spot, with 5%, giving IAG
22%, partially behind Air France-KLM, which incorporates second positioned Air France
(12%) and third set KLM (10%).

IAG is better set in the LCC portion than Lufthansa or Air France-KLM

The majority of Europe's Big Three banner bearer carrier gatherings have minimal effort
aircraft auxiliary operations in the short and medium pull point to point markets. IAG's main
LCC, Vueling, is more free, more container European and more gainful than Lufthansa's
Germanwings and Air France-KLM's Transavia.
6.2 IAG weaknesses

IAG is not yet accomplishing adequate ROIC

IAG's objective for profit for contributes capital (ROIC) in the 2016-2020 period is 12% or
more, both for the gathering and for the individual working organizations. This compares to a
working edge focus in the extent 10% to 14%. Its working edge was 4.1% in 2013 and its
direction/focuses for working benefit in 2014 and 2015 infer edges in overabundance of 6.5%
and 8.5% separately.

British Airways still has a generally high CASK

Despite the work efficiency picks up at British Airways as of late, and its lessening in unit
costs, it stays among the higher expense European carriers, as measured by expense per
accessible seat kilometre, when record is taken of its normal excursion length.
12

Heathrow is limit obliged

As noted over, BA's Heathrow center point is a quality to the degree that sound London O&D
request, especially from premium activity, helps yields. By and by, the absence of extra limit
at the air terminal compels development furthermore keeps charges high. BA has figured out
how to accomplish some development throughout the years through space buys, supported in
2013 by the procurement of bmi. As a gathering, IAG gathering has development alternatives
through Iberia in Madrid and Vueling at Barcelona and its different bases.

IAG is moderately little in Asia Pacific

IAG's universal system is moderately powerless in the Asia Pacific locale. Specifically, Iberia
does not work to the area by any means. English Airways offer of seats in the middle of
Europe and Asia Pacific is around 5%, positioning it as the number five carrier between the
locales (week of 6-Apr-2015, source: OAG).

7.0 PESTLE ANALYSIS

Political
The political environment in which airlines work is very directed and supports the travelers
over the airlines. This is a result of the way that the worldwide aeronautics industry works in
a domain where traveler security is fundamental and where, the prior inclinations towards
monopolistic conduct by the airlines have made the political foundation fatigued of the
airlines and henceforth, they have depended on more tightly regulation of the operations of
the airlines. Further, the worldwide flying industry is likewise described by deregulation on
the supply side significance more rivalry among airlines and regulation on the interest side
importance travelers and fliers are in a position where they can press for more civilities and
low costs.
Economic
The worldwide carrier industry never truly recouped from the fallout of the 911 attacks.
Added to this was the drawn out subsidence in the wake of the dotcom bubble bursting. The
other weakening variable was the changes in the cost of oil due to the Second Iraq War and
13

the consequent spike in oil costs just before The Great Recession of 2008. This last
perspective or the continuous worldwide financial lull has implied that the officially battling
airlines now need to fight with declining traveler movement, rivalry from minimal effort
bearers, high flying fuel costs, work requests, and taking off support and working expenses.
Every one of these elements have made the airlines misfortune making and inclined to
insolvencies and conclusion since they can no more bear to run their operations beneficially.
Obviously, this has additionally brought about more noteworthy combination among the
airlines as they look to influence the efficiencies from the economies of scale and the
cooperative energies from the merger with different airlines.
Social
In the late years, the rise of the Millennial era into the purchaser class has implied that the
social changes of an era used to qualification, moment delight, and all the more requesting
regarding administration has brought about the carriers balancing their expenses with the
expanding requests from this fragment. Added to this is the resigning of the Baby Boomer era
that has brought about the aircrafts losing a lucrative wellspring of salary. Next, the profile of
the passengers has changed with all the more monetarily minded passengers and less business
class passengers who like to influence on the enhanced correspondence offices to lead
gatherings remotely as opposed to flying down to meet their business accomplices
Technological
In spite of the fact that the airline industry utilizes technology broadly as a part of its
operations, they are constrained to the aircraft and the operations of the airlines barring the
ticketing and the distribution perspectives. This has incited numerous specialists to approach
the airlines to make utilization of the advances in technology for the front office and the
client confronting capacities too. At the end of the day, the innovative changes must be
adjusted to incorporate portable advances similarly as ticketing, distribution, and client
administration are concerned. Further, online networking must be utilized by the airlines to
guarantee that the visitor social and mechanical changes don't go by the airline industry.
Legal
As of late, the quantity of lawsuits against airlines from both clients and additionally laborers
has gone up. Further, the controllers are being stricter with the airlines, which imply that they
are presently progressively careful about their systems, and completing their procedures when
they are completely persuaded that they are not damaging any laws. The "one-two punch" of
expanded regulation and more costly lawsuits separated from the legitimate framework
getting to be narrow minded of postponements, security issues, and different angles has just
served to uplift the fears among the airlines as every single move of theirs is being examined.
Environmental
With environmental change entering the social consciousness, travelers are presently tallying
their carbon impression with the outcome that they are currently all the more earth cognizant.
This has brought about the airlines being compelled to receive "green flying" and be more
14

receptive to the worries of the environmentalists. Further, the social obligation activities are
turning out to be more maintained and more under investigation as customers and activists
turn a basic eye towards the airlines and their corporate social obligation.

15

8.0 PORTERS FIVE FORCE ANALYSIS

Porter's five forces is a vital device in examining the aggressive way of the aircraft business
with a specific end goal to survey the position of British Airways in the business sector. In the
meantime, the investigation will empower British Airways to settle on key choices keeping in
mind the end goal to expand benefit.
Strength
High

Force/Threat
Competitive Rivalry
British Airways cooks for both long and short pull flights. Inside of the whole
deal there exists little separation in the middle of BA and its rivals as far as
estimating and administration advertising.
The short pull business sector is more fragmented with numerous little
players
Direct competitive contention is fierce with Virgin Airlines. Virgin Airlines
were forceful in which the organization goes to all lengths to contradict any
move by the British Airways in mergers

High

Medium

Low

Low

Combination of contenders has additionally expanded rivalry.

Supplier Power
There exists two noteworthy plane makers (Boeing and Airbus) with high
measure of competitiveness. This equivalents high dealing power
British Airways are confined with a sole supplier of fuel to the airport .
Need of landing openings is given to noteworthy privileges of existing
clients. British Airways representatives use aggregate bartering through
exchange unions keeping in mind the end goal to expand their dealing power.
Buyer Power
Low grouping of purchasers to supplier mean the purchasers have small
dealing power.
Expand web utilization has opened up mindfulness and cooperation of clients
Lowe cost transporters are seeing surge in purchasers because of financial
conditions
Threat of New Entrants
Significant barriers towards new entry. Environment is too competitive. There
are also high capital costs requirements.
Barriers to exit are in place which deters new entrants.
The failure of recent airlines such as Xl and Zoom is likely to deter new
entrants.
Threat of Substitutes
Substitute airlines for the same are quite less which are direct in nature.
However for the purpose of short haul flights (Eurostar and Ferries)
16

In addition to the same we could note that there are no long haul flight to
specify.
9.0 MARKET AND CRITICAL SUCCESS FACTORS (CSF)
British Airways has long employed a multi-channel distribution strategy. But as one of the
airlines involved in new distribution capabilities by IATA under the particular development, it
became increasingly clear that the transition to the NDC standard would allow the airline to
be more effective in its product distribution through third party channels.(David ,2011)
The new markets that are opening up for BA are making the long haul fights more in line
with the business overall strategy and to check if the short haul flights are profitable by any
means. The new markets which will present to be open for
1.) Approach new long haul flight routes.
2.) Strategies the use of short hauls flights which are not profitable.
3.) Since there is tough competition from low cost flyers, those markets should be tapped
using a different line of safety which will be appealed by the passengers.
Apart from that he key success factors for BA will be as follows,
Differentiation
Airline companies tend to differentiate by providing advanced services. For example,
providing the aircraft with the latest technology, such as wide seats, e-ticketing (as mentioned
in 5 porters section) will attract customers and distinguish the company among other
companies.
Strong brand name
Obtaining a strong brand name plus building a base of loyal customers are the carriers'
companies most concern. It guarantees that customers will stick with the strong brand name
company and ignore any attractive offers from other competitors. Some airline companies
utilize some techniques to have a retain customers, such as offering a flyer mile to win a free
ticket if the points were completed. (ex: American Airline)
Alliances
Airline industry is moving toward establishing alliances between companies. This will let
companies to share resources via linking their networks to build a wide base of customers,
develop services and increase number of routes. Additionally, it results in sharing experience
and decreasing the operation costs. Ex. British Airways is a member of largest airline alliance
known as One world. (Stern , 2013)
Relations with supplier
Airline companies must build a strong relation with suppliers by setting long-term contracts
with them. Such relations will benefit the airlines companies, because this will keep them in

17

the safe side even if there was any change in the pricing strategy (ex. increasing costs) in the
future as there is a contract between them.

10.0 OPPORTUNITIES AND THREATS

Opportunities
British Airways rise in the Skytrax quality system is an important marketing area that

the company can use to boast international image

Most competitors have been forced to exit the market due to the high cost of

competing and the struggle of the global economy.

Reliability in terms of service delivery is still an issue that is faced by most of British

Airways competitors.
Emergence and increasing prominence of new markets such as budget travelling.

Threats
The Open skies agreement has provided a fair competition for most smaller airlines
while also increasing the competitiveness through removal of restrictions on

international routes for all airlines.

Environmental awareness that has constantly risen amongst most consumers is
increasing the pressure on British Airways to reinvent energy policies and apply strict
regulation on flight schedules during off-peak seasons to adopt environmental

regulations.
The global economy has still not shown clear signs of completely recovering from the
turmoil of 2008. The reflection is evident on the dropping value of pound against the

Euro.
Reducing operational costs among competitions is making it hard for British Airways
to settle on previous strategies for profit margin.

18

11. STRATEGIC ORGANIZATION OF BA

From the Opportunities and Threats analysis conducted earlier, it is essential that British
Airways look at a couple of the strategic options to be further pursued; so as to allow the
company to both continue moving in the right direction and to improve on any drawbacks
they are facing in their current set-up. For the right strategic options to be identified, a TOWS
matrix will be suitable for the formulation process.
For the strategic options identification, two strategies will applied through the use of the
TOWS matrix tools. The first strategy will use British Airways internal strengths and
applying it with their external opportunities and threats. This will allow for the company to
use its strengths to improve the companys external factors. The second strategy will consider
the weakness in the company with the external factors like opportunities and threats to
eliminate underlying weaknesses in the company.
In terms of market penetration, British Airways can actually gain market share through
renovation and modernisation of business approaches and the brand image as a whole. At the
same time, improving environmental stance by actually going beyond minimal requirements
in environmental conservation to actually increase the measures will also drive market share.
By placing segment focus strategies, British Airways can actually derive from the fact that
profit margins from business class passengers are the highest for the company and the fact the
services that business class passengers require cannot be replicated by budget carriers makes
it even more possible. (Kyrgidou, 2010)
British Airways product development phase will involve technological advancement.
Introduction of internet access on flights along with improved integration of mobile
computing peripherals such as tablet PCs, smartphones and laptops would be a value
increasing service offering. Complementary services such as concierge services, car rental,
hotel booking and even smaller services such as appointment scheduling and mapping of
routes for foreign tourists would be value added bonuses in the product offering. (Brown,
2005)
Diversification and Market Development can be formed together for British Airways. The
company will need to diversify into substitute services such as ferries or cruise with the same
level of quality that is recognizable from the British Airways brand name. At the same time,
increasing the number of scheduled flights with primary focus on large Asian economies such
as China and India would increase the service offering ranges.
12. IDENTIFICATION OF POSSIBLE FUTURE STRATEGIES
As explained above in section ultimate section of part one, the strategies that will be operated
British Airways a hybrid forum of competitive and product-market strategies will be
implemented in order to establish, quickly and vehemently, market share for the planned
concept. .

19

At inception, under the competitive strategy a differentiation strategy will be pursued , in

order to show case the values of our services likewise showcasing the services offered by BA
more attractive to the consumer. Since the certain routes does not have direct competitor
locally then it will be easier to showcase the aforesaid strategy of differentiation, this will
make believe the true potential of BA and similarly it will establish a feeling in the industry
as a whole that the products and services offered are truly unique and therefore achieve a
strategic goal to make the market close to assuming a monopoly.
In order to establish and follow a differentiation strategy the products and services of BA can
only be gained showing distinctive characteristics present in our products and services, the
characteristics thus showcased will ascertain the clients into truly understanding the potential
of our services and persuade clients/consumers into purchasing our products (Roa, 2009)

20

13. SCREENING OF OPTIONS SUITABILITY, ACCEPTABILITY AND

FEASIBILITY
Once a clear picture of the firm and its environment is in hand, specific strategic alternatives
can be developed. While different firms have different alternatives depending on their
situation, there also exist generic strategies that can be applied across a wide range of firms.
Michael Porter identified cost leadership, differentiation, and focus as three generic strategies
that may be considered when defining strategic alternatives. Porter advised against
implementing a combination of these strategies for a given product; rather, he argued that
only one of the generic strategy alternatives should be pursued.(Mintzberg ,1996)
Suitability
The strategy likely will be expressed in high-level conceptual terms and priorities. For
effective implementation, it needs to be translated into more detailed policies that can be
understood at the functional level of the organization. The expression of the strategy in terms
of functional policies also serves to highlight any practical issues that might not have been
visible at a higher level. (Sweeney, 1994)The strategy should be translated into specific
policies for functional areas such as:

Marketing
Research and development
Procurement
Production
Human resources
Information systems

In addition to developing functional policies, the implementation phase involves identifying

the required resources and putting into place the necessary organizational changes (Snyman,
2004)
Acceptability
Once implemented, the results of the strategy need to be measured and evaluated, with
changes made as required to keep the plan on track. Control systems should be developed and
implemented to facilitate this monitoring. Standards of performance are set, the actual
performance measured, and appropriate action taken to ensure success.(French ,2009)
Feasibility
The strategic management process is dynamic and continuous hence will suite the scenario
explicitly highlighted about BA. A change in one component can necessitate a change in the
entire strategy. As such, the process must be repeated frequently in order to adapt the strategy
to environmental changes. Throughout the process the firm may need to cycle back to a
previous stage and make adjustments.

21

14. Recommended Strategy

IAG is at present positioned in the middle of cost leadership and quality aspects. Therefore it
is required to improve specific level of strategy that market to the brands of the SBUs under
the subset of IAG. With the environment screening it is identified that there is high level of
competition in the market for short haul flights and however there are not the same for long
haul flights which are devised under a certain aspect of thing, it is best to understand there it
is required to identify best strategy to develop the market and predict what the future holds
for the services upheld by the organisation. With the nature of service and competition it is
required to develop the market through cost leadership strategy. Which has to be admitted
with the help from many organisation from the outer aspect and the external stakeholders
should be advised of the implications associated with the said strategy which will be
discussed below, however to run a cost leadership stagey is no easy task, as certain things
have to be realigned with the new strategy, apart from this there are to be a sudden judgment
of the almost all other strategies which will be needed to be aligned with objectives of the
devised strategy . (Bowman, 1997)

15. Key Issues of Implementing recommended strategy

1. Financial Impact The cost to run a competitive strategy is relatively high as there are to
be reliances placed upon certain elements, such as the employability of a public relations
management office a separate marketing/advertisement agency which handle the marketing
front of things, the formation for the above will in self be a costly affair and post review for
the marketing strategy will show the benefits or losses garnered through the strategy
deployed the pros and cons of the same are to be adjudged.
2. Media bluffing certain instances are seen where organisation opt to promise certain
features as a service which are then later as not as expected or advertised and have adverse
effects on the customers , which have the tendency of spreading word of mouth.
3. Compliance Risk when scheduling flights to certain airports or regulations, there are
times, a huge impact is placed in order to obey regulatory commissions, which are a highlight
in todays day and age. Airline even while flying certain airspaces should obey the rules of
the country, such as not servicing alcohol when flying over Iran. These are implicit risks that
are to be taken by the organisation when, they are going ahead with strategic changes.

22

REFERENCES

IAG - International Airlines Group. 2015. IAG - International Airlines Group. [ONLINE]
Available at:http://www.iairgroup.com/phoenix.zhtml?c=240949&p=index. [Accessed
07November 2015].
IAG - International Airlines Group - Investor Relations (2015). IAG - International
AirlinesGroup
Investor
Relations.
[ONLINE]
Available
at: http://www.iagshares.com/phoenix.zhtml?c=240949&p=irol-irhome.
[Accessed
07November 2015].
IAG - International Airlines Group - Annual Reports (2015). IAG - International Airlines
Group
Annual
Reports.
[ONLINE]
Available
at: http://www.iairgroup.com/phoenix.zhtml?c=240949&p=irol-reportsannual.
[Accessed 07November 2015].
Reuters.com. (2015), Business & Financial News, Breaking US & International News |
Reuters.com,
[ONLINE]
Available
at:http://www.reuters.com/.
[Accessed
07November 2015].
Cunningham, J. (1980), Sources of finance for higher education in America, University
Press of America
Delaney, P. R. and Whittington, R. (2005), Wiley CPA exam review, Hoboken, NJ : Wiley
Fischer, P., Tayler, W., Cheng, R. (2014), Advanced accounting, 12th edition, Cengage
learning
Stern, C.W., Stalk, G. (2013). Perspectives on Strategy from The Boston Consulting Group.
[ONLINE]

Available

at:

http://www.valuebasedmanagement.net/methods_bcgmatrix.html. [Last Accessed 27

March 2016]
Snyman, R., Kruger, C. J., (2004). The interdependency between strategic management and
strategic knowledge management, Journal of Knowledge Management,. 8 (1), pp..5
19
French, S., (2009), Critiquing the language of strategic management. Journal of Management
Development, 28 (1), pp.6 17

23

Brown, P., (2005). The evolving role of strategic management development, Journal of
Management Development, 24 (3), pp.209 222
Sweeney,

M.T.,

(1994).

Benchmarking

for

Strategic

Manufacturing

Management, International Journal of Operations & Production Management, 14 (9),

pp.4 15
Kyrgidou, L.P., Hughes, M., (2010), Strategic entrepreneurship: origins, core elements and
research directions. European Business Review, 22 (1), pp.43 63
David F.R (2011), Strategic Management, Florence, South Carolina: Prentice Hall, 2011.
Print.
Mintzberg, Q. H. A. J. B., (1996). The Strategy Process:Concepts, Contexts, Cases..:Prentice
Hall 1996.Print.
Rao, B. P. R. K. S., 2009. Strategic Management and Business Policy, s.l.:Excel Books India.
Bowman, C. a. F. D., 1997. Competitive and Corporate Strategy. Irwin,: London..

24

APPENDICES
8.1 Extracts of the Income statement figures for the years 2011 to 2014 as at 31
December.

Revenues
Total Operating Costs
Operating profit
Finance income
Net Profit before interest and tax
Financial cost
Profit before tax from continuing operations
Tax
Profit after tax from continuing operations
Loss after tax from discontinued operation
Profit after tax for the year
Less: attributed toNon-controlling interest
Equity holders of the parent

2014
20170
19141
1029
32
1061
(237)
828
175
1003
1003
(21)
982

2013
18675
18042
527
31
558
(301)
227
(76)
151
(4)
147
(25)
122

2012
18117
18730
(613)
53
(560)
(264)
(997)
112
(885)
(38)
(923)
(20)
(943)

2011
16339
15932
407
85
492
(220)
503
52
555
582
(20)
562

8.2Extracts of the main balance sheet figures for the years 2011 to 2014(m).

NCA
Purchases
Receivables
Inventory
Current Assets
Total Assets

2014
162225
18
1252
424
7427
23652

2013
14759
12
1196
411
6018
20777

2012
14811
3
1149
414
5026
19837

2011
13861
18
1175
400
5892
19753

Total Equity
Long-term Liabilities
Payables
Current Liabilities
Total Liabilities
Total E&Liabilities

3793
6130
3281
9801
19859
23652

4216
4760
3297
8317
16561
20777

4755
7218
6013
7564
14782
19837

5386
7538
5377
6529
14067
19753

Current Assets-Inventory
Total Assets-Current Liabilities

7003
13851

5607
12460

4612
12273

5492
13224

25

8.3 Ratios analysis calculations for IAG for the four year period 2011 to 2014.

Profitability Ratios

2014

2013

2012

2011

Operating profit Margin% (OPM)

Net profit Margin %( NPM)
Return on Capital Employed (ROCE)
Return on Equity
Liquidity

5.1%
5.3%
7.7%

2.8%
3.0%
4.5%

-3.4%
-3.1%
-4.6%

2.5%
3.0%
3.7%

Current ratio
Quick ratio

0.76
0.71

0.72
0.67

0.66
0.61

0.90
0.84

Asset turnover

1.46

1.40

1.48

1.24

Trade Receivable days

22.7

23.4

23.1

26.2

Efficiency Ratios

Debt and Investor Ratios

Debt to Equity
Earnings per Share (EPS)

8.4 Formulas used to calculate the ratios in appedix8.3

Profitability Ratios

Formulae

26

Operating profit Margin% (OPM)

Net profit Margin %( NPM)

Operating profit/Net sale*100%

Net Profit before interest and

Return on Capital Employed (ROCE)

tax/Sales*100%
Net Profit before interest and tax/
(Total

Assets-Current

Liabilities)*100%
Liquidity
Current ratio
Quick ratio

Current assets/Current Liabilities

(Current assets-Inventory)/Current
Liabilities

Efficiency ratios
Asset turnover

Sales/(Total

Assets-Current

Stock turnover
Trade Receivable days

Liabilities)
Sales/Inventory
Trade
receivables

Trade payable days

end/Sales*365
Trade
payables

at
at

year
year

end/Purchases*365
Debt and Investor Ratios
Debt to Equity

(Borrowing and capital leasing

Earnings per Share (EPS)

obligations)/Shareholders Equity.
Attributed Net Profit/(Authorised
shares-Issued shares)

27

28