V POLYTECHNIC OF NAMIBIA SCHOOL OF MANAGEMENT SCIENCES DEPARTMENT OF MARKETING AND LOGISTICS MARKETING SECTION STRATEGIC MARKETING MANAGEMENT: ANALYSIS ... & DECISION MAKING BACHELOR OF MARKETING & HONOURS PROGRAMMES-21 BMRK & 08HMAR COURSE CODE: SMG811S NQF LEVEL: 8 DATE: June 2015 DURATION: 3 Hours MARKS: EXAMINERS: Mr. V. Somosu & Ms. C. Chipeio MODERATOR: Prof. A. Ghamsari 15r OPPORTUNITY QUESTION PAPER (This Question Paper consists of 2 pages (front page included); this does not include the main case study and its appendices) INSTRUCTIONS Answer all questions and sections in this question paper Use the case-study given to you earlier which is also provided herewith plus its appendices (35 pages in all) to this question paper as your guide to answer this paper Be as precise as possible in your answer by going straight to the point. Read each question very carefully for a proper understanding of it before attempting it. The use of calculator is allowed Please note that there is no box to think outside of!! AN OPEN BOOK EXAMINATION!!! SMG8115151 OPPORTUNITY-EXAM-2015-QUESTION PAPER 2/2 CASE ANALYSIS -BRITISH AIRWAYS-BA 100 MARKS Question 1: Using relevant theoretical framework/model (s), critically evaluate British Airways existing sources of competitive edge, core competences and value proposition. 30 Question 2: From your pre-worked audit and SWOT analyses, critically assess 3 (three) strategic marketing options available to British airways in the context of key issues facing the airline industry, in order to maximise profitability and growth. 30 Question 3: Recommend, with justifications, 1 (one) strategic option British Airways should adopt. 10 Question 4: Critically evaluate 3 (three) organisational constraints and risks that may limit British Airways' ability to compete, and propose relevant strategies to deal with these constraints and risks. 18 (1.5 marks for each constraint (3) and risk (3) =9 and 1.5 marks for each relevant strategy to constraints (3) and risk (3) =9) Question 5: Calculate the comparative market strengths of the 2"d, 3rd and 4th largest UK airlines/operators for the year 2012 (their relative market shares in terms of number of passengers). 12 (4 marks for each operator's comparative market strength) Total paper marks Best of Luck ANALYSIS AND DECISION Contents CASE STUDY Background - The UK Airline Industry 8 British Airways 8 Candidate brief Vision and organisational culture 10 Scenario Strategy 11 You are a self-employed Marketing Consultant who has been hired by British Airways. Key trends facing the British airline industry 12 You have been asked by British Airways (BA) to undertake a strategic marketing audit to analyse both internal and external factors impacting the future of the organisation, Including Customer behaviours and preferences 13 consideration of core competences, competitive advantage and value creation. Changes in value proposition 14 You should also consider the changing nature of the airline industry and the key issues and risks that would impact upon BA in developing its future vision and strategy. External global issues 16 BA is seeking insights into how it can maximise profitability and growth and maintain its British Airways' main competitors 16 competitive position as a brand leader and successful innovator. You have been asked to consider how the organisation can work with its stakeholders to maximise opportunities. Risks to British Airways' and competitors' future performance 20 Consideration should be given to the organisation's financial position, its strategic risks, organisation risks and mitigating strategies to overcome risks. Appendices 22 Grade descriptors 40 Page 5 Page6 Appendices The UK Airline Industry Background 1 Headline financial details for British Airways and competitors 22-23 Overall, the airlines industry continues to experience a financially uncertain period. Global 2 Passengers uplifted at UK airports, 2007- 2012 24 recession has reduced passenger demand - although there are promising signs of recent recovery and while jet fuel costs have gone from representing 10% of an airline's operating 3 Passengers uplifted, by UK airport, 2007-12 25 costs just over a decade ago to nearer 35% now. 4 Most popular overseas travel destinations for UK residents, 2007 - 12 26 To survive, some smaller airlines have had to merge with financially solvent competitors, resulting in a much smaller marketplace. Taking just the US market as an example, ten 5 Purpose of flights taken over the past 12 months, April 2013 27 airlines controlled more than 90% of capacity in 2000, but by 2012 a 'Big Five' -largely created through mergers- now fly 85% of passengers. 6 Number of times flown in the last 12 months, April 2013 27 Airlines continue to cut flights to reduce capacity, especially on smaller aircraft. Other ways Destination regions, types of airline and classes of travel flown in the 7 28 airlines are ensuring they stay in the black are fare increases and ancillary - or 'add-on'- last 12 months, April 2013 charges like bag fees, where additional costs are added to the headline or advertised price. The good news for travellers is that there are fewer flight delays and cancellations. 8 Important factors in choosing an airline, April 2013 28 9 Likely incentives for choosing a particular airline regularly, April 2013 29 Many industry experts seem to be agreeing that changes in the number of airlines controlling the industry, fare increases, and capacity reductions that began in 2008 are not a Length of time people are prepared to spend travelling by budget brief phase, but rather perhaps new 'normals' that could remain for years to come. 10 30 airline, April 2013 British Airways 11 Agreement with attitudes towards air travel, April 2013 30 British Airways is the UK's flag carrier airline and its largest, based on fleet size and number 12 British Airways Plc twelve month results 2012 31 of international flights. It is not, however, the largest based on total numbers of passengers flown - a title lost to easyJet in 2008. Since its inception, British Airways has been centred 13 British Airways Plc consolidated balance sheet 31-32 at its main hub at London Heathrow Airport, with a second major hub at London Gatwick Airport. 14 British Airways Plc consolidated cash-flow statement 33-34 British Airways was launched as a state-owned company in 1974, with full privatisation 15 British Airways Plc consolidated income statement 34-35 following in 1987. Its roots stretch back to the earliest years of commercial airlines, when four pioneer airlines - Handley Page Transport, British Marine Air Navigation Co Ltd, Daimler New uses of digital technology: BA uses new tech for outdoor Airways and Instone Air Line Ltd -joined together to form Imperial Airways Limited, which 16 36 campaign began operations in 1924. The airline developed routes throughout the British Empire, from the UK to India, some parts of Africa and later to Australia. Introduction of new bigger planes: British Airways details A380 and 17 37 787 plans for 2014 In 1939, the UK government joined Imperial Airways together with British Airways- originally a collection of much smaller private aviation companies - to form the nationalised 18 Airports Commission reveals expansion shortlist 38-39 British Overseas Airways Corporation (BOAC). Further government rationalisation led to the ----- -- ----- --------- - ---- merger of BOAC with British European Airways (BEA) to form the single national carrier British Airways from 1 April 1974. By the 1990s, following privatisation and the global impact of using the supersonic airliner Concorde, British Airways had become the world's most profitable airline. However, the coming of budget airlines, a strong pound and the rising price of oil all took their toll, with British Airways' turnover and profitability dropping accordingly. In 2010, it was confirmed that British Airways and Iberia Airlines had agreed to merge, making the combined commercial airline - known as International Airlines Group (IAG) -the third largest in the world by revenue. The two airlines agreed to retain their separate brands and, at the time of the merger, the newly formed group had over 400 aircraft and flew to more than 200 destinations across the globe. Page7 PageS British Aitways' strong brand image gives it a significant competitive advantage and has Fuel prices remain volatile and are likely to increase in the medium-to-long term. Kerosene helped drive higher sales growth in both domestic and international markets. However, jet fuel accounts for a major element of operational expenditure, so the fact that fuel prices intense competition remains a threat to its operating margins. are expected to rise from $12.7 per million British thermal units (btu) in 2009 to $23.7 per million btu in 2017, and $27.6 per million btu in 2030 can only threaten to impact seriously As well as being the UK's largest international scheduled airline, British Airways is one of the on British Airways' profitability and margins over the period. world's leading global airlines. It retains a carefully-built strong brand image, winning first place, for instance, in the 'Favourite Airline' category of 2012's Global Travel Awards. It has All airlines are subject to a variety of extensive regulatory and legal compliance also won recent British Travel Awards for best short-haul airline and best airline for requirements across the world. Additional laws and requirements, often connected with customer service. Such brand recognition allows British Aitways to charge higher premium governments' aspirations to environmental sustainability, remain likely, and in turn would prices than its competitors, and this supports relatively higher margins. impose increased obligations on British Aitways. In 2012, British Aitways derived 44% of its revenues from the UK market, 20% from the Vision and organisational culture USA and Canada, 16% from continental Europe, 10% from Africa, the Middle East and India, 7% from the Far East and Australasia and the remaining 3% from the rest of the British Aitways is now part of International Airlines Group (IAG), following its merger with Americas.