Analysis of the Macro and Micro Environment at British Airways Essay

British Airways is the largest internationalistic scheduled air lane in the UK. The smart set was founded in 1919, and has continued to grow and expand since privatisation in 1987, until the global recession hit in 2008. On 23rd January 2009 the UK was officially decl ard to be in recession following cardinal uncoiled quarters in 2008 during which economic growth dropped (BBC, 2009). Many coursees, including British Airways, waste found it increasingly vexed to survive in the resolventing testing macroeconomic environment.The Recession A recession will often occur when ostentatiousness grows rapidly dangerouss become more than expensive at a prison term when consumers engender little m maveny to spend. As consumers spend less money, submit begins to exceed demand inwardly the commercialises. This ca pulmonary tuberculosiss businesses to produce less of their goods, and so drive less staff. The unemployment that results from this creates a situation whereby p eople do not give up the markets and have less money, so stop consumption, hence creating a beastly circle. UK unemployment figures up to March 2010 show that unemployment has risen to 8%, the highest figure since 1996.For many people, air travel is a luxury good. This means that in times of badship, where the consumer is reducing their spending, air travel will be an field of operation that is precise hard hit, as many people argon not pickings holidays. For some consumers, air travel is for business purposes, as opposed to recreational. This area of the market has not been hit as hard, although many people are now flying in economy severalise, where they might previously have flown in business or kickoff class. Business and first class passengers have played a large part in BAs clams world power, as they account for a large proportion of the telephoners profit.Low-cost, cipher airlines such as Ryan Air have do comparatively well, producing profits in a market wh ere very a couple of(prenominal) businesses have been able to. Budget airlines are offering an inferior good. This means that as consumer income subsides, a demand for the overhaul will sum up as the service is seen to be more affordable. Production Costs oer recent years the cost of fuel has maturationd dramatically, and as distributively airport has only one fuel supplier, BA is acidulateing within a limited market, where at that place is a lack of price contest to drive the price of fuel down.With demand continuing to exceed the supply of fuel the equilibrium point of the supply and demand curve is continually changing, this allows the fuel suppliers to improver their cost. As demand for air travel has dropped and return costs have increased, BA has found that an increasing number of flights are protractning with too few passengers to catch up with the flight profitable. However, if BA were to decrease the number of flights they would risk losing their slots at the major airports, which would be disastrous when the market begins to pick up and demand for flights increases again.Willie Walsh, chief executive of BA, believes that a via media moldiness(prenominal) be found between surviving through go forth this difficult climate, and growing the business so that it fundament prosper once the economy has recovered. Iberia Merger BA has recently signed a merger with Spains Iberian Airlines. This will crusade the business to being one of the largest international toleraters of air travel. It is predicted that the merger will allow the two companies to save about ? 50 million per year, which will greatly benefit shareholders as the profit will be seen to increase, and as well as benefit customers as the synergy between the routes and aircraft used should offer more choice at a more competitive price (Price, 2010). Government Policy As a result of the recent recession, the government has taken steps to increase consumer spending. Increased con sumer spending is necessary in redact to increase the UKs GDP (gross home(prenominal) product) and so ensure that the recovery from the recent recession will continue. most of these policy responses from the government included wakeless VAT from 17. 5% to 15% as of December 1st 2008 (Finch, 2008). This was a move which was aimed at dismounting the price of goods and so encouraging the public to spend more. This would start to encounter consumer trust, and also start to put money back into the market. The major downside to this policy remove is that due to a lower governmental income from VAT, the government has been constrained to increase the UKs national debt and run a larger budget deficit in order to go forward national services running. at that place has been considerable debate as to how much this policy actually helped to flummox the UK out of the recession, but it did gain consumers to have more faith in the government and the economy and to spend more money. By en couraging a high rate of consumer spending, the economy is starting to recover this is a confirming sign for British Airways as it means that customers are beginning to increase again. As the consumer is regaining faith in the economy they are suitable more likely to pre-book a holiday as they have more money available to them.This cut in VAT has also allowed companies such as BA to either increase their profit margins slightly or lower their prices slightly (BBC, 2009). The Bank of England Since the start of the recent recession, the pound has small considerably. With the UK economy struggling and consumers having borrowed heavily to begin with the recession, up-to-dateness traders have make full the market with sterling, resulting in the pound dropping in lever. In an drive to maintain monetary stability the Bank of England dropped the national interest rank from 5% down to as low as 0. 5% (Bank of England, no date).This also caused currency traders to attempt to trade t heir sterling to a currency returning a higher profitability, such as the Euro (Bank of England, 2010). However, this move was inevitable in order to attempt to keep inflation low and move on banks to continue to supply loans, overdrafts and mortgages. This was a move which was needed in order to try and maintain consumer trust, but the weakening pound has made business increasingly difficult for international companies as importing goods needed to provide their surface has increased thus increasing their production costs, although it does make the service cheaper for foreign consumers.Leadership Theories Willie Walsh became chief executive officer of British Airways in 2005 since then he has faced numerous challenges as the global economy has been hit hard by the recent recession. Walsh was brought in by British Airways as CEO following his success as CEO of Aer Lingus, where he helped to bring the company out of the financial difficulty that it suffered as a result of the terro rist attacks in 2001, by cutting 2000 jobs and finding new ways to cut costs (Saunders, 2008).In the current economic climate, where the industry has been severely hit by the recent recession, a leader is needed who is able to react to an ever-changing dynamic environment. Walsh has proved his ability to do this, and has been quick to react with BA by cutting many jobs as the recession hit, and working out new ways in which the company fire be run more efficiently, such as by reducing the number of aircraft and rearing the efficiency of staff.This style of tetherhip is known as transformational leadership it relies upon a leader who has a concept of the direction he wishes the business to take, and has the ability to motivate and inspire his employees in order to win this goal. Motivation nub and Process Theories Motivation theories have been developed so that leaders and directors can understand the theory behind the different methods of motivating their work force and thu s work out the most productive and efficient of these methods.It is a putting green belief that leaders are born and not made this is back up to some extent by motivation theories as the best leaders will be more perceptive as to how change is impact his workforce, and the areas in which improvements could be made, as they will have a graphic empathy. The best leaders will also be able to use this to the advantage of their company they will be able to motivate their workforce to a higher work capacity level and so promote productivity. Motivation theories work on the basis that employees carry out work for a variety of reasons, which are weighted in terms of their importance.Maslows Hierarchy of Need (shown in the diagram below) suggests that there are 5 levels at which a person must be fulfilled before they will perform at their optimal capacity, with the lower levels being the first to be fulfilled and the most important. BA has recently asked its employees to consider working unpaid for up to one calendar month, in a bid to keep the company afloat. Many employees have resisted this change, with only 800 out of 40,000 staff asked agreeing to this. otherwise options were also put forward to staff, including the option to take unpaid leave or to work part-time these proved more popular with employees.A reduction in salary would come to employees at the bottom two levels on Maslows Hierarchy as with reduced income some may struggle to provide for their physiological needs. This in turn will affect the employee at several levels up the hierarchy they will feel less secure within their job and society, and consequently on a higher more emotional level. capacitance theories of motivation suggest that there are three main components which motivate people these are direction (what they want), potency (how much they want it) and persistence (how far they will go to attain this). Following on from his, it is assumed that people will work for rewards.These rew ards can then be split into two main areas intrinsic and extrinsic. Content theories place a higher emphasis upon the intrinsic instruments, such as the internal drives which motivate people to work. Maslows Hierarchy of Need is one example of this, and Herzbergs 2-factor theory is another. Herzbergs theory relies upon hygiene (extrinsic) and motivators (intrinsic) and suggests that extrinsic factors are important in preventing job dissatisfaction, whereas intrinsic factors are more concerned with self-respect and achievement, thus promoting job satisfaction.Process theories such as J Stacy Adams Equity theory, suggest that people are more productive when they perceive that they are receiving somewhat treatment, and will campaign to act if they believe they are being unfairly treated when they comparability themselves to others within their social network. Vrooms Expectancy theory also works upon a basis of fair treatment, but counseles upon the workers belief that if they put more lather in, their performance will improve, and their manager will reward them fairly, with a reward that is of value to the individual worker.Managers must therefore identify the rewards that workers will place a high value upon, and attempt to minimise any undesirable outcomes. British Airways needs to focus more upon employee satisfaction, particularly within this economic climate, as this will pass on workers to perform at a higher capacity and thus increase efficiency of the company. Threat of future redundancies is a big motivating factor for many employees if process theory is applied, so that employees believe increased effort will lead to fair reward (ie. keeping their job) they may be more likely to perform better.Management of Change Theories regarding management of change focus on minimising resistance to change, as this is more likely to make the proposed change viable. Force field analysis requires managers to assess the pros and cons of change, and the travail that will be needed to consequence this change. For example, with BAs pay freeze and request for unpaid work, there will be resistance to this change, based upon a fear of lower income, but, for some, the fear of redundancies and dismissal will outweigh the risk of a month unpaid (BBC, 2009).Resistance to change is often natural due to a fear of the unknown employees often fear that if they work at a higher capacity this will become the expected normality, which may be difficult to sustain, and can encourage workers to thus work at a lower performance level. Lewins 3-step change process identifies unfreezing (where the status quo is disturbed), movement (where new behaviour is adopted) and refreezing (where the new patterns are established as normal) as the three stages. Unfreezing is perceived to be the most difficult to implement, as this is where a fear of the unknown will have the greatest impact.For managers to overcome this they must show empathy, communication and participat ion. Willie Walsh shows an example of this as he has ensured that all BA employees are kept well informed of all plans towards cost-cutting and voluntarily concord to work for July without receiving his ? 61,000 monthly salary in a bid to encourage workers to do the same. This also uses process theories of motivation, as it encourages workers to feel that they are receiving fair treatment. Unfortunately for BA, many employees feel that they are being treated unfairly, leading to numerous recent strikes, which have caused massive further losses to the company.