Managing Sales and Profitability

British Airways (BA) can remain competitive by bringing timely innovation to its services, motivating employees regularly, and analyzing internal and external environments. The company should assess its policies, outer environment, country-specific factors, and global factors to determine variations or gaps and cope with the changing environment.

BUSINESS
ENVIRONMENT

TABLE OF CONTENTS
Introduction......................................................................................................................................3
Task 1...............................................................................................................................................3
1.1 Purposes of different types of organization...........................................................................3
1.2 Meeting objectives of a stakeholders.....................................................................................3
1.3 Responsibilities of an organization........................................................................................7
2.1 Economic systems which attempt to allocate resources effectively......................................8
2.2 Challenges due to fiscal and monetary policies.....................................................................8
2.3 Impact of regulatory, competition policy and legal changes.................................................9
Task 2.............................................................................................................................................10
3.1 Impact of market structure on the airline industry for price determination and output
decision......................................................................................................................................10
3.2 Interplay of different players and market forces shape organizational responses...............11
3.3 Impact of working practices and culture of different countries on BA...............................11
4.1 Impact of global changes in trade regime............................................................................12
4.2 Impact of global factors.......................................................................................................12
4.3 EU policies on travel, competition or aviation impact British Airways.............................13
Conclusion.....................................................................................................................................14
References......................................................................................................................................15
2

INTRODUCTION
Business environment is a environment which is prevailing in and around the business
organization. Company gets impacted by this environment directly or indirectly because the
factors included in this environment are either controllable or uncontrollable (Allen and Raynor,
2011). There are basically two types of environment that is internal and external environment or
it can be said that controllable and uncontrollable environment respectively. This report has been
emphasized on the business environment of British Airways which is a leading Airlines of UK.
Moreover, the report is consist of the organizational purposes of BA and the nature of the
national environment in which BA operates. Further, discussion has been made on the behavior
of organization against the market environment and the ability of BA to assess the significance
of the global factors which may shape the business activities (Arnold, 2004).
TASK 1
1.1 Purposes of different types of organization
There are basically two types of organization that is public limited and private limited
organization and both of them are formed to serve different purposes which are discussed as
follows:
1. Public Limited Organization: This type of firm are formed by government and their sole
purpose is to provide employment to the people of a nation and to grow an economy of a
country (Campbell and Craig, 2007). The are basically formed for the welfare of the
country and their citizens
2. Private Limited Organization: They are owned and operated by private group and they
have no link with the government. Their sole purpose is to earn profits and generate
wealth for their shareholders. Along with that they are formed to serve customers by
satisfying their need and getting success against their competitors (Casile and Blake,
2002).
1.2 Meeting objectives of a stakeholders
British Airways which is a leading airlines of UK is a public limited company. Its main
purpose is to meet the objectives of its stakeholders in a most effective manner (Didonet, 2012).
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Before meeting the objectives it is necessary that company should defines its vision, mission and
objectives.
Table 1: Organizational Purposes
Vision The vision of BA is to become the world's
favorite airline and also to become the Global
Premium Airline (Fernando, 2011).
Mission British Airways has defined its mission
statement as “one destination which seeks to
ensure their customer fly confident that,
together, they act responsibly in order to take
care of the world where all live in (Halbert and
Ingulli, 2014). Further, the company wants
become the undisputed leader in a world up till
next millennium.
Goals and Objectives Its main goal is to become Global Premium
Airline in which globally the appeal will be
done by BA to all the passengers(Global) that
passengers will receive the highest quality
services wherever they encounter the
airline(Premium) and it will maintain the focus
on aviation with the latest equipments, product
and services(Airline).
Table 2: Meeting Objectives of Stakeholders
Stakeholder Internal/
External
Expectation Objectives Meeting the
Objectives
Impact of
Challenges
Shareholders Internal More profits
by maximizing
To increase
the growth by
BA attempts
to meet the
If there is
economic
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shareholder
value.
15% till July
2016.
objective by
raising the
brand value by
implementing
innovative
services like
GPA
(Herberberg
and Rieple,
2008).
downturn than
shares value
will get
decline which
will impact the
ROI of
shareholders.
Employees Internal To have job
security and
better
incentives so
that their
morale remain
up (Ho, Wang
and Vitell,
2012).
To increase
the increment
up to 10% by
next year and
renew the
employment
contract for 2
more years.
Company
provides best
incentives to
maintain the
morale of the
employees
and plans to
renew the
employment
contract.
During
recession,
company has
to terminate
the
employment
contract which
hamper the job
security of
employees.
Government External Generation
revenue by tax
payment and
enhance the
job
opportunities.
To increase
the Tax rate by
4% and to
grant license
to BA for
increasing its
air-crafts.
Company is
adhere to
proper
payment of tax
and provide
employment
opportunities
without
discrimination
At the time of
depression,
there is lower
profitability
which impact
the
government
because they
do not get
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(Kalkan,
2008).
required taxes
and has to
lower down
the rates.
Customers External They want the
highest quality
services in
return of lower
payment.
Further, they
want complete
security
against
terrorism and
plane crashes
(Kandil,
2006).
To increase
the travel by
BA airlines
and availing
their services
at lower
prices.
Company
provides
excellent
facility at
minimal prices
and also
complete
security is
provided by
employing and
training
effective
pilots.
At the time of
high demand
company's
supply
becomes less
and unable to
meet the
demand.
Moreover
during
inflation prices
becomes high
and impact the
customers'
purchasing
power.
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1.3 Responsibilities of an organization
There are various responsibilities of an organization which they have to fulfill. This can
be understood by Carroll's Pyramid
(Source: Pyramid of Corporate Social Responsibility (Caroll), 2015)
As per this pyramid, BA should fulfill its responsibilities towards the society and other
stakeholders. Company has to become a good corporate citizen and does not waste the resources
of the society. Further, firm should carry out its business in an ethical form so that unfair
practices can be avoided and similarly, customers will get ethical services. Moreover, all the
legal laws and regulations should be followed so that law of all the countries cannot be violated.
(Moon, 2010) Lastly, the economic responsibility towards government and the home country has
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Illustration 1: Responsibility of an Organization

to be followed so that economic peace can be maintained. If all the responsibilities are fulfilled
than it will help the firm to gain competitive advantage and smooth performance.
2.1 Economic systems which attempt to allocate resources effectively
There are basically 3 types of economic system which helps in allocating the resources
effectively which are described as follows:
 Command Economic System: In this system, complete command is in the hands of
government and they only allocate the resources to the other sectors (Ortiz-fournier,
Rivera-Vazquez and Flores, 2009). Public limited company have economies of scale and
private companies do not have control over the resources and whenever they require any
resource, government provide them.
 Free Economic System: This economic system has zero role of government, every
resources are under the control of private sector and they enjoy the privileges of
economies of scale. In this system, there are some chances that resources may get
misused in order to generate high profits.
 Mixed Economic System: The name itself depicts that this economic system have the
roles of both government and private sectors and resources are equally distributed among
both the sectors. The effective allocation and utilization of resources is done under this
economy. UK has this economy and thus, resources are effectively allocated their, thus,
BA does not face any issues for getting resources.
2.2 Challenges due to fiscal and monetary policies
Table 3: Monetary and Fiscal Policy
Policies Type Challenges
Interest rates Monetary policy Interest rates of banks have been increased
form last one decade and due to which BA's
expenses have increased which has lower
down its profitability (Worthington and
Britton, 2009).
Exchange Rates Monetary policy Form last one decade exchange rates are
fluctuating and BA operates its business in
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many countries. Thus, this has impacted the
business of a company.
Taxation Fiscal Policy Tax rates are increasing at tremendous rates
and for this purpose company has to
increase the prices of air seats due to which
customers' are not willing to travel at such a
high rates (Allen and Raynor, 2011). This
has lower down the sales of a company.
Business Investment Fiscal Policy Fiscal policies are determined by the
government ad for which taxes are to be
paid, if company will pay high taxes than it
will not be left with much amount to do
investment. This has constraints the other
source of income for the BA.
2.3 Impact of regulatory, competition policy and legal changes
As a global company BA has to face various regulations, competition policies and legal
changes of all the countries because it is a private limited company and due to which it becomes
mandatory for it to follow all the polices (Arnold, 2004). Accordingly a firm has to design its
structure and internal policy. For instance, the implementation of Fair Trading Act 1973,
Competition Act 1980, etc. has a major impact on the working of BA because company has to
follow all these regulations and for coping up with the competition, company has to bring
innovations all the time. This lay pressure on the company and for this purpose, company has to
incur high cost with reduces its profitability. When the international law gets change, then
company has to again bring changes in its policies which leads to resistance by the employees.
TASK 2
3.1 Impact of market structure on the airline industry for price determination and output decision
There are basically 4 types of market structure in which pricing and output decisions are
determined by market forces which are described below:
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(Source: Market structures, 2015)
Table 4: Market Structure
Market Structure Characteristic Output Decision Price Determination
Perfect competition Products are
homogeneous and
there are many sellers
and buyers (Campbell
and Craig, 2007).
Moreover, pricing is
similar. There is a free
entry and exit of firms.
Output can be o any
number and all the
seats will get occupied
in this market.
Prices are determined
by industry and firms
are price taker.
Monopoly Competition There is a single seller
and many buyers.
Output can be of any
number and in short
run BA will earn
abnormal profits
(Didonet, 2012).
Prices are determined
by the seller itself and
industry is the price
taker in this case.
Monopolistic
Competition
There are many sellers
and buyers but
Airline seats will be of
any number until the
Prices are determined
by different seller as
10
Illustration 2: Market Structure

products and its price
are differentiated.
fixed cost gets
covered.
per their production.
Oligopoly Competition There are few sellers
but many buyers.
Products are
differentiated in this
case.
Airline seats will get
sold so output will be
of any number.
Prices are determined
by the price leader of
an industry.
3.2 Interplay of different players and market forces shape organizational responses
There are some of the players in a airline industry of UK. Togetherly they play several
games which shape the organizational behavior in different manner. If the competition is high
then the BA has to make such strategy which bring other players down for which company has to
design innovative services which may put pressure on the company (Fernando, 2011). On the
pother hand, market forces such as demand and supply also shape the organizational behaviour.
For instance, when the demand of airlines get increases than company has to introduce more air-
crafts and has to employ more personnel to fulfill the demand of customers. This will increases
the profitability of a company. Further, if the demand get decreases than the company has to
reduce its prices to increase their sales which may lead to lower profitability.
3.3 Impact of working practices and culture of different countries on BA
As it is known that BA is a global company and it has to deal with different cultures in
different countries (Halbert and Ingulli, 2014). Thus, the practices and cultures have greater
impact on the working of a BA because every country has its own culture like, in flights,
company could not serve pork in the flights of Middle east as it is restricted their and if it do so
than it may undermine their belief. For this purpose, company has to make their policies
according to each country which will create difficulty in working. Moreover, every country has
their own legal rules and regulations which may create chaos in the working of British Airways
and hence employee turnover may get increase (Kalkan, 2008).
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4.1 Impact of global changes in trade regime
There are various trade organization such as WTO, International civil aviation and
tourism bodies which cause the global changes in trade regime. Due to this, BA has a greater
impact on its working (Kandil, 2006). For instance, to effectively compete in a competitive
environment, company requires good amount of resources but WTO holds all the resources and
allocate equally to all the countries so it is a biggest constraint for the company while effectively
meeting the demand. Likewise, the trade barriers in every country create difficulties for the BA
to trade smoothly with other countries like cargo trading, etc. On the other hand, international
civil aviation bring new policies for the airline industries, which impact the companies policies
in accomplishing their goals. Lastly, tourism bodies have specified certain quotas for the visitors
for the security purpose, this has limited the sales of a company (Moon, 2010). Eventually all
these factors reduces the profitability of a company and also it makes it difficult for the company
to manage its resources.
4.2 Impact of global factors
There are many global factors which has a serious impact on the working of BA. Some of
the factors are discussed as follows:
1. Political Factor: The political imbalance have created disturbance in the working of a
company because in every country there are political issues due to which they changes
tax rates and interest rates so company 's profitability get hampered in total.
2. Legal Factor: The international laws are changing frequently and due to which company
has to change its policies as per the laws. Also, some countries have strict laws such as
health and safety of employment laws, consumer protection laws, etc. Company has to
take care about these laws and if its get violated then company's image may get reduce in
that country (Venter and et.al., 2009).
3. Global Warming: Increasing global warming has impacted the weather and due to which
weather cannot be forecasted. This makes the delay in flights and other issues such as
crashes. Due to this, schedule of flights get disturbed management of BA are impacted.
4. Currency Rates Fluctuations: This is a global company and has to do business with
different currency in different countries. Thus, the fluctuations in rates hamper the
business activity because it might happen that deal get finalized at a different rate and
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after the completion of rate currency rates may fall down. This may reduce the
profitability of a company as there is a risk of greatest loss (Stackelberg and et.al, 2010).
5. Cultural Differences: This is a biggest issue which BA faces because in every county
there is different culture and to cope up with all the cultures it has to employ culturally
diverse workforce which leads to the lengthy process for BA and it may add the cost for
the company.
These are some of the global factor which has a greater impact on the company's working
and as a part of public sector, this company has to take care about all the major factors so that
economic disturbance does not get happen.
4.3 EU policies on travel, competition or aviation impact British Airways
European Union is a union of Europe in which many countries of Europe are its member.
There are various policies of EU which gets apply on every member country. All the countries of
EU can trade freely as there are no trade barriers for the countries trading with each other.
Similarly, the currency used or trading is Euro and no other currency can be dealt with (Raynor
and Allen, 2005).
EU has made some policies about travel, competition and aviation which has a major
impact on the working of British Airways. It has made that competition should be limited
between companies so this has reduced the unfair practices and industry rivalry, however, it has
lead to the reduction of creativity and innovations. On the other hand, aviation policy of EU is
such that airlines should trade within EU members only which has impacted the profitability and
market share of the British Airways. Further, the travel policy o EU is that travel companies have
been given limited quotas of the visitors which has impacted the BA because sales have been
lower down due to this reason (Kalkan, 2008).
Moreover, BA can take several measures to remain competitive in this dynamic
environment such as company can bring timely innovation in their services so that changing
needs of customers can be meet out and also the employees of organization should be motivated
on a regular basis so that they can serve the customers in a better manner which will influence
the customer for the repeat business. This will eventually leads to the increase in profitability and
likewise, company can remain competitive.
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CONCLUSION
After preparing this report of business environment it can be concluded that it is very
essential for British Airways to analyze its company's policies, outer environment and also the
environment of the country in which it is operating. It can also be concluded that company
should assess its internal environment and then its external environment in order to determine the
variations or gaps and company can attempt to cope up with the changing environment.
Moreover, the environment of countries should be assessed so that government policies and
economic status does not create any barrier in the smooth functioning of BA. Before doing
international trade, the global factors should be assessed so that barriers can be removed.
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