The macro environment will be described by the PESTEL analysis, which helps to analyze general, long-term market influences. This is the best tool to analyse the external environment. It serves as a basic analytical tool for knowing market decline or growth. The framework helps to understand the impact of legal, political, economical, social and technological factors for the business environment. It helps to understand how the external environment may create opportunities or threats for an organization. The six different environments are often referred to as PESTAL and allow a PESTAL analysis to be conducted this allows the organisation to review and consider the environment in which it operates. The PEST factor that has contributed to the airlines industry for many years, but has brought a drastic change was from the disaster on September 11th 2001.
(P)olitical:
Airlines have to work within an operating restrictions. Alliance with other airlines increases the reachability of the airlines on top of it route alliance helps the alliance members to embark on political benefit mutually.
Last decade was one of the testing times for the airline industry in terms of security with events like terror attacks across US in 2001 and in UK in 2005 which caused political imbalance and crisis. Customer confidence was all time down due to the terror attacks in the past 10 years and has resulted in strict safety laws in the US and European skies for airlines.
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Currentlys even the product and price are in the control of the government with the restrictions on flying. Though the open skies policy does exists it is not adopted by majority of the players and is still biased. Although great reforms have taken place, giving BA opportunity to grow and compete with other airlines. BA being a deregulated company needs processes which allow fast decision making.
BA must consider the influence of the political factors along with the ecological and environmental issues with more emphasis on legal regulations on employee and customer interest.
Political environment concerns the role of the government and its affects in an organisation it also includes the extent to which the government intervenes in the economy. Due to the terrorist attack many airlines such as British Airways stopped flights to certain countries such as the middles east and the main countries involved with the fear of their planes being attacked. This is therefore caused up a political stir with the fact that Britain’s fear them maybe the next victims of terrorist attacks. This has had a negative effects on the airlines as they have lost out on a lot of money because of the stoppage of flights to certain destinations.
The authorities have had to make sure that certain rules have been put into place to make sure that the airlines are safe and that they abide by the rules. British Airways have had to rely on the political and environment effects on the feedback that they get to decide on what course if action to take on the airline.
(E)conomical:
The amount of economic activity in the economic environment is extremely important. The economic environment for airline industry in Europe can be described as difficult. In particular, challenges arise from the co-occurrence of adverse natural factors (especially for BA the ash storm).
The global economy experienced a sharp downturn during the last decade, and this affected the air travel demand.
In 2008 the economy of the developed countries as well as from the emerging markets experienced a dramatically decrease in growth. The airline industry lost a huge part of its usual profits. These changes lead to a change in demand; costumers are not ready and not able to pay former prices for the airlines. Some competitors of BA decrease there price level already.
The demand for air travel is characterised by a high income elasticity.Therefore, as the world economy grows, the demand for air travel will also improve.
The political situation in Iraq has helped to drive oil prices to a record high and for BA, the oil price rise might add £100 million to their costs. In response, the cost of fuel surcharges is always at risk . BA is in the business of transporting people to and from worldwide destinations for both business and pleasure. If the international economy slows down, business trades less and fewer business people will use planes. Equally, people may choose less ‘exciting’ holidays.
Capacity in Europe outstrips demand, which leads to rate wars, equaling lower yields for companies. Economically, alliances lead to a control on capacity, therefore reducing competition and increasing yields. Alliances also reduce the near term possibilities of airport expansion. By code sharing airlines are able to not only split costs but to offer services and enter markets, they might ill afford to do on their own. This leads to less aircraft at airports, less space being required, and is another way in gaining access to prime airports, which can expand no further.
(S)ocio-Cultural (Demographical / Sociological):
On an average older fliers in European countries force airlines to develop new strategies in relation to their target groups. This is also required in view of the fact that higher numbers of commuters and the demand of lower cost airlines show an attitude change regarding airlines, potentially causing image problems for companies giving higher-cost air service.
Airline customers use brand appeal as the main factor when they come to use airline service. Thus, this changing demand and lifestyle influenced airlines to concentrate on the look of their airlines and build powerful brand to gain small gain rather than loosing market share.
The social and cultural influences on business vary from country to country however it is important that such factors are considered and include demographic and cultural aspects. These factors affect customer needs and the size of potential markets. Demographic changes have resulted in the development of the ‘grey’ market who are spending more on leisure and travelling. Lifestyles, tastes and fashions are all changing; customers require opportunities to visit new and interesting, often long-haul, destinations.
(T)echnological:
In the airline industry, companies are forced to invest huge sums into R&D measures to foster technological development and be cutting-edge. Currently, the focus lies in the fields of security and alternative energies.
Advance technology is used by BA to increase engineering and the service quality of the flights which are the route to competitive advantage.
In order to profitably satisfy customer needs, an organisation must understand its external and internal situation including the customer, the market and its own capabilities. Furthermore, it needs to understand and adapt to the dynamic and uncontrollable factors of the environment in which it operates.
The technological environment is ever changing and therefore it is essential that a structured, detailed and continuous analysis of the principal dimensions of the technical environment is made.
Technology in this industry is fast moving and very expensive. Alliances, give the opportunity for joint investment ventures, such as shared check-in systems.
(E)cological:
In view of high media covering, ecological influences become increasingly important. Especially airline companies have to show that they responsibly use the available resources and care for the environment. Following, BA reduced fuel and energy consumptions, which required improvements in engine technology and aerodynamics.
BA is the airline which started reporting their environmental results 2 decades back. They make sure that they have least impact on the environment by more efficient operations, latest technology-engines and alternative fuels. They have goals of having zero waste to landfill in UK-2010, reduce the average noise per flight, cut down the CO2 emissions by half-2050 and improve in carbon efficiency by 25%-2025. For the ecological factors they have developed special programes for controlling climate change by controlling the carbon dioxide emissions. In order to make world a nicer place to live they are concentrating on recycling and reducing their waste material.
(L)egal:
A significant legal factor affecting BA is the power of trade Unions. BA has suffered many strike actions (August 2004 and August 2005) and is aware of the implications that the trade unions can cause.
The walkout that recently happened in March 2010, expected to last three days, had forced the airline to cancel thousands of flights. A total of 1,100 flights out of the 1,950 flights scheduled to operate during the walkout were canceled. The airline had leased planes and crew from rival carriers to take up some of the shortfall. The Unite union of cabin crew had gathered some support from unions in the United States, Germany and Spain for its action – taken to protest a pay freeze and changes to working conditions – but the other unions had so far stopped short of pledging direct action that would affect BA’s ability to refuel and service its planes.
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Talks broke down over a pay freeze and staffing changes. Analysts estimated that BA had lost more than 25 million pounds because of canceled tickets and the cost of contingency plans, which include leasing fully crewed planes from other airlines. Prime Minister Gordon Brown called for the strike to be called off immediately. Unite had planned a second, four-day walkout to begin March 27 and had said more strikes will be scheduled for after April 14 if the dispute was not resolved. It had pledged not to walk out over the busy Easter period.
This is a case of cabin crew crisis but is because of the legal problems that BA faces quite often on regular basis. Firm resolution to this problem should be found to reduce risk and increase the returns.
PESTEL analysis is a useful strategic tool for product development, sales planning, executing strategies and operational planning as well. It checks that the firms result are in line with the external impact of changes.
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