British Airways Research Report

TABLE OF CONTENT

1. Title………………………………………………………………………………………… 2
2. Introduction……………………………………………………………………………… 2
3. Change management in British Airway in 2009 – 2011………………… 2

3.1. Organizational context (2009-2011)…………………………………….. 2

3.2. The change management strategy………………………………………… 4

3.3. The nature and extent of the strategic changes………………………. 5

3.4. The strategic change itself as outlined by its management………. 6

3.5. The challenges and management difficulties of implementing such change strategy…………………………………………………………………. 7

3.5.1. Employees’ resistance to change and no communication between its management and employees………………………………… 7

3.5.2. External challenge – competitors…………………………………. 8

4. Conclusion………………………………………………………………………………. 9
5. Bibliography………………………………………………………………………….. 10
6. Title: Research report of change management strategy of British Airways in the period of 2009-2011
7. Introduction

As the result of global financial crisis in 2009-2011, the revenue and operational profit of British Airways which is the leading international airway in UK decreased dramatically. To restore its profitability, British Airways implemented its change management strategy including three steps such as Unfreeze, Change and Refreeze. But, the results are not as its expectation. With the hurry of cutting cost and increasing the revenue, British Airways announced to cut 1,700 jobs in the 1^st step and freeze pay until 2010. This action caused the 22-day strike of crew members and the dispute between BA and its members lasting 18 months.

This research report will mention 5 points that help readers understand the change management strategy of BA when facing the global crisis

• Organizational context (2009-2011): The reason why BA must implement the change management strategy
• The strategic change made by BA management
• The nature and extend of change management: Evaluate about time, communication, result and scope of change management
• The change management strategy: Steps to implement change strategy by BA
• Some difficulties and challenges that BA faced

3. Change management in British Airway in 2009 – 2011

3.1. Organizational context (2009-2011)

Background

British Airway was established as state-owned airway which gathered four other carriers in the period of 1971-1974. Then, it was privatized in 1987 and now is the largest international airway in UK and one of the leading global airways. With the joint venture or partnership with other carriers, British Airway has extensive flight network in over 400 countries and destinations in the globe.

Regarding to its financial situation, before the worsening world financial crisis in 2009, British Airway showed many good financial signs in 2008/2009

– The growth rate of group revenue is 3.1% in comparison with the previous year.

– Compared with 2007/2008, the British Airway profit increases nearly 33.6%.

– While the operating margin in 2007/2008 is 7.1%, that in 2008/2009 is 10.0%

Financial Statement of British Airway in 2007/2008

As being influenced by the global financial crisis in 2009 and the dramatically decrease of revenue and profit in this period of 2009-2011, British Airway needed to change to ensure long-term development, to restore its good signs in finance situation in the past and to continue to be the leading international airway in UK.

Crisis in US influence to British Airway and its strategic management

There are some financial data as evidences of bad financial factor in British Airway in 2009 ~ 2011

– The revenue compared with the previous decreased £998 million (-11.1%)

– In comparison with the group operating loss in 2008/2009, that in this year decreased 11.1%

The reasons for this financial downturn in British Airway are the cost increase and the revenue decrease influenced by the UK’s economic climate and global financial crisis. In 2009, the cost of living was increasing 4% (inflation rate) which is much more rapid than the employee’s income (2.3%). Hence, British Airway faced to the pressure from employee’s requirements of pay increase. Moreover, in this period, the fluctuation of oil prices influenced very much to this industry. While fuel costs usually account for 25% of total cost. In 2011, the oil price increased to $110/barrel.

On the other hand, the revenue in the period of 2009-2011 decreased because of the lower demand of international flights. Because of the increase of living cost and the decrease of salary, the disposable income would be lower than the previous time. Hence, the withdrawing for one-off purchases like holidays, especially foreign holidays was fewer than usual. – “A lot of people are not touching their savings because they do not know what is round the corner” (Giles, Groom & Bounds, 2011). This trend influenced the revenue of big airline, including British Airway. Moreover, the rapid development of technology, some alternative communications such as telecommuting giving customers more choices and more time-saving than usual can influence the demand of using airline service.

For long-term survival and profit restoration, British Airway stimulated customers’ demand by downsizing the ticket fares. To do this, British Airway must cut down the employees’ pay to restore profitability as cost-cutting strategy. And the first action on this strategy is that on 6 October 2009, British Airways cut 1,700 cabin crew jobs as well as reduces the number of long-haul flights from 15 to 14 to save 63 million of Euros per year. Moreover, it also introduced freeze pay from 2010 and recruited 700 new crew members on existing routines.  Beside the reason of cutting cost, the higher employment rate in the globe, including US give British Airways much more power to bargain and deal the lower salary with employees. After voting by thousands of Unite members with the ratio of 9-1, British Airways continue to apply its cutting cost strategy and removing the concessions from Unite members, Cabin crew announced 12-day strike. Then, the strike continued to increase 22 days and the dispute lasted 18 months. So BA was considered and called “management bullying, press slanders, and legal gerrymandering.”

3.2. The change management strategy

According to the statement of CEO – Willie Walsh in British Airway’s report 2010, BA was facing three main challenges such as recession as well as the structural and cyclical changes in Airline industry, the corporate demand about paying short trips to their staff and the wake of banking crisis (British Airway, 2010, pp. 10-11). To overcome above mentioned challenges which caused to the decline of revenue, the first strategy in short-term is the cost driven recovery (BA, 2010, pp. 12). However, this strategy was not about one-off, emergency cost reduction. British Airway had other strategies aiming to long-term recovery. Cutting cost, but not cutting service is the main point in BA’s strategy. It means that they still kept outstanding service to meet the rising demands from customers. BA defined that efficiency and outstanding service are the two main foundations for its future development. Hence, BA focused on strategic service investments and brand image through merger and acquisition.

Mentioning to strategic service investments, in the period of 2009-2011, BA’s investment is to modernize its Cabins to serve what customers want such as more comfortable space and bed. Moreover, it also planned its replacement program which was financed up to 2013 to change its modern fleets to give customers all over the world important environment benefits.

To create the sustainability in its business, BA brought two main networks in North Atlantic and Latin America by merging with Iberia and America Airlines. These transactions are considered structural change in BA. As Willie Walsh said, BA was waiting for the approvals with the long patience so that they can pool their service which can be good for its customers, shareholders and industry. (British Airway, 2010) Go along with the merger of Iberia, British Airway also had strategic change management under creating new corporate brand. Both British Airway and Iberia have been the strong airline brand and been considered strong influencers in the airline industry, hence, BA’s management also had careful plan to build overarching business identity as International Airline Group. This strategy of BA was the same with that of hotel industry which requires any organization to become the expert in managing brand across the globe (British Airway, 2010)

3.3. The nature and extent of the strategic changes

Basing on the Key contextual features of Glaxo which is adapted from Balogun and Hope Hailey (1999), the analysis of change context includes 8 factors such as Time, Scope, Preservation, Diversity, Capability, capacity, Readiness and Power

• Time: Gradual. Strategic changes lasted 18 months and the strike spent 22 days. At the first step, BA cut 1,700 jobs and freeze pay. After 18 months, the dispute was on the verge of being resolved following a breakthrough in crucial talks aimed at ending the long-running row (Telegraph, 2011, May 12)
• Scope: As BA’s change strategic, only crew’s operation and salary are on the strategy. But because of the dispute of the Unite, operation in the whole company was affected
• Preservation: Brand identity and loyalty is the most important point in business. Hence, BA should retain its brand image when implementing its strategy of acquisition and merger and understand that job security is to remain the job.
• Diversity: The changes were applied in all divisions and affected to all people from pilots, cabin crew to shareholders
• Capability: The crew members need to practice their ability of accepting the organizational changes and new regulations in the crisis. Besides that, BA management also needs to invest on training to crew members to upgrade customer services and improve their long-term commitments.
• Capacity: To restore its profit not only in short-term but also in the long-term, British Airway implemented many strategies from cost-reduction, service improvement to global expansion.
• Readiness: Its employees were not aware of the need of changes until they were announced that there would be 1,700 job cuts. Moreover, there were no communication between its management and its staff. Hence, its employees were not ready to change so that there was the dispute between BA and its staff lasting 18 months
• Power: According to annual report of BA in 2009-2010, there were six directors who already had the experience and power in airline industry before. Hence, there would be positive changes implemented by this management team.

3.4. The strategic change itself as outlined by its management.

As knowing about the change management, British Airways spent 18-month negotiation, but not meet the demands of crew members. At the first time, the strike only lasted 12 days, then it extended to 22 days but BA continued to refuse its employees’ requirements. These points show that British Airways didn’t really care about the emotions of its employees, just about the change process which help them restore profitability and keep its leading position compared with other lower price airlines.

On 11 May 2011, as stated, BA agreed to restore crew members’ concessions. “I am particularly pleased that travel concessions will be restored” (Scott, 2011, May 12). Moreover, BA also rewarded employees who were paid with lower salary top-up payment. However, BA’s employees weren’t happy because BA just offered them the perks of striking staffs at the level of new joiners and would restore the seniority for next 3 years. But the most important factor making employees upset is that after this dispute, their trust was in the fragility and it’s not easy to build long-term commitment with BA.

3.5. The challenges and management difficulties of implementing such change strategy

3.5.1. Employees’ resistance to change and no communication between its management and employees

Even though BA’s change strategies were necessary to restore its profits and receive the understanding from employees, British Airway faced the resistance to change. As Willie Walsh shared that his employees understand these strategies, his pilots agreed the cut of payment, especially 7,000 employees volunteered for the reduction of salary (Willie Walsh, 2009). But they were against cost reduction strategy and the extension of working hours. The management difficulty of implementing change strategy is that BA didn’t receive the acceptance from crew members. The BA staffs were not ready to cut 1,700 jobs cutting after the sudden announce of BA management. So they could not understand the purpose of this strategy and react by 22-day strike. So the dispute between BA management and its members lasted 18 months and the strike had been lasting within 22 days. These events showed that the purpose of cutting costs and restoring profitability is not successful as BA thought. The negative effects were much larger than the cost cut. Moreover, BA failed to keep the trust from both customers and crew members. As mentioned above, BA should mention and state clear vision and purpose of change strategy to its staff and give them time to adapt and accept. Simple because crew members are the people who implement and contribute to the success of the company, so it’s better for BA crew members to get to know bigger picture with clear purpose. This is the important part of culture combination in each company. When dealing with disputes, the management should focus on effective solutions to the issues, and avoid victimizing the stakeholders or the unions (Milmo, 2010). In this situation, MA management can use their leadership style to explain the problems and to find out the solutions which can receive the commitments and acceptances from stakeholders and crew members. It means that BA members must overcome resistance to change by using leadership skills following the Universal Theory of Leadership (McClelland, 1973, Green and Young, 2009)

3.5.2. External challenge – competitors

The big challenge British Airway faced is that there were a lot of competitors from low cost airlines. Certainly, to restore profitability, BA not only cut costs but also retained existing customers who easily move on using other airline services when their disposable income decreased. Besides that, British Air must focus on the brand loyalty. However, not as BA’s expectation, even though BA received many supports from public, its consumers were becoming “increasingly embittered, skeptical and less brand loyal” (Rogers, 2010). As the following figure, there is the large decrease of “Brand Index” in the first set of crew strike.

4. Conclusion

British Airway is the largest international airway in UK and one of the leading global airways. In the period of 2009 and 2011, when facing the crisis, the operational costs increased while its revenue went down quickly. Hence, its management planned change strategies from cost reduction to merger and acquisition as well as service investment. Even though the purpose of change strategy as restoring profitability is reasonable in the financial crisis situation for not only BA but also the others, the implementing process of BA happening some problems relating the lack of management skills (lack of communication with crew members). With the sudden announce of cutting 1,700 jobs as well as not focusing on the benefits of staff, the change management strategy of BA is not successful as thought. Hence, British Airways now should learn from this failure and find the ways of overcoming the challenges and difficulties. Anyway, BA must make employees work well and listen, understand and accept the change management.

5. Bibliography
6. Balogun, J. & Hailey, V. (2008), Exploring Strategic Change. 3rd ed. Pearson: London.
7. Barrows, E. & Neely (2011), Managing Performance in Turbulent Times: Analytics and Insight, John Wiley & Sons.
8. Balogun, J and Hope Hailey, V (1999). Exploring strategic change. Prentice Hall
9. British Airways (2010) ‘Who we are’, Annual Report and Accounts. Available at: http://www.britishairways.com/cms/global/microsites/ba_reports0910/overview/who.html
10. British Airways (2010) British Airways 2009/2010 Annual Reports and Accounts, British Airways, pp. 14-18.
11. BBC News (2011), Q&A: What’s the BA dispute about? Available at http://www.bbc.co.uk/news/business-11868081, Accessed on 14 March, 2014
12. Counterfire (2011) British Airways bullies beaten back by Cabin Crew resistance. Retrieved May 11, 2013, from http://www.counterfire.org/index.php/articles/opinion/12672-british-airways-bullies-beaten-back-by-cabin-crew-resistance\
13. DuBrin, A. 2009, Essentials of Management. 8ed. Mason: South-Western Cengage Learning.
14. Michael Grundy, Richard Moxon (2013). The effectiveness of airline crisis management on brand protection: A case study of British Airways. The Department of Air Transport, Building 115, Cranfield University, Bedfordshire MK43 0AL, UK, pp. 4-5.
15. Scotman (2009) Sticky situation: The British Airways crisis. The Scotman, March 14.