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Business Environment – British Airways

Although parts of British Airways (BA) can be traced back as far as 1916 it wasn’t until 1974 that the BA we know today was formed as a totally nationalised company. In February 1987 and after 8 years of planning Margaret Thatcher privatised BA. Over one million applications were received for shares in the airline, offered at 125 pence, making the flotation 11 times oversubscribed. Freed from the constraints of Government ownership, BA announced a merger with British Caledonian in July.

During the next four years BA underwent significant re-branding, especially in the business market. They also introduced new Boeing planes and developed an international marketing campaign with United Airlines. Over these four years, through massive investment BA was becoming one of the strongest players in the market; it made profits the likes of which could never have been made while the company was in the hands of the government.

BA last year flew 529,807 flights to around 263 destinations in 97 countries. The remainder of this essay is going to deal with BA over the ten years between 1991 when the Gulf War broke out and the end of 2001, just after the September the 11th attacks. In 1991 the gulf

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war and an increasingly bad worldwide recession depressed revenue and profit for BA. This meant that ’91 was the first year since BA was privatised that they made less profit than the previous year.

However they still had massive assets including 8 UK airports and were responsible for around 70% of UK passenger traffic and 85% of air cargo. The company’s business strategy and marketing campaigns remained pretty constant but put extra special emphasis on safety and security. This was mainly due to threats made by terrorists during the gulf war to highjack planes, a threat that wouldn’t really be realised until September 11th 2001. The impact of the gulf war on BA was an estimated loss of 2.8 million passengers and revenue of 25 million pounds.

This year was described as “the most difficult year since records began” (BA Reports and Accounts, 1991-1992, inside cover). Despite these setBAcks BA managed to increase their shareholders earnings per share by 1. 6% and expand capacity at their Stanstead, Gatwick, Heathrow and Glasgow airports. 1992 saw another year of recession in the UK making it the longest and deepest since the 1930’s; however growth increased from minus two point five percent in 1991 to minus one percent in 1992.

This was heralded as the beginning of a recovery period in the UK economy and along with predictions from the then Prime Minister, John Major and Chancellor of the Exchequer, Norman Lamont that the UK would return to growth imminently greatly increased consumer and business confidence. Of course over confidence is a dangerous thing and on September 16th 1992 the UK was forced to leave the exchange rate mechanism; the very thing that John Major had predicted would lead us out of the current recession.

Black Wednesday as it was called led to one of the biggest political and financial crisis of modern times. BA were still suffering from the previous years set backs and weren’t helped by the above situation. Turnover increased but profits decreased significantly, this was due to the poor economic situation forcing BA into aggressive marketing strategies including “the biggest ticket give away ever” and a reduction in some fairs to try and get passengers back on board.

In an attempt to cut costs the number of people employed by BA fell by 4053, from 53,013 in 1991 to 48,960 in 1992 (BA Reports and Accounts, 1992-1993, p. 1). BA shares took a knock when in July Lord King announced he was to step down after 12 years as Chairman. However new business strategies were developed including a 3 year plan to improve the profitability of Gatwick and plans to acquire a 49. 9% share of (TAT) European Airlines. In 1993 economic conditions improved and with it increases in revenue, profit and number of employees for BA (see figures 1, 2 and 3).

It was also a massive year for investment and expansion by BA including an alliance and 25% stake in USAir, a 25% share of Qantas (Australian airline), an almost 100 million pound investment in maintenance facilities in Wales and the opening of numerous new routes and destinations. To pay for this BA raised approximately 442 million pounds through a rights issue and launched the “BA Dream Ticket”, its biggest ever-sales drive, to capture an additional i?? 100 million revenue from the world business travel market.

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