Analysis of British Airways in the Context of UK Business Economics

This report provides a comprehensive business economics analysis of British Airways within the context of the UK economy. It begins by addressing the fundamental economic problem of scarcity and resource allocation, examining demand and supply dynamics relevant to British Airways. The report then delves into different market systems, evaluating their impact on the airline and exploring the role of opportunity costs in economic decision-making. It further analyzes elasticity of demand and its significance in market interactions. The report continues by exploring the implications of pricing and objectives on British Airways, comparing pricing strategies across various market structures. Macroeconomic policies and their tools are evaluated in relation to the airline's objectives, alongside an analysis of the UK economy's performance in the global market. Finally, the report assesses the theory of comparative advantages, the merits and demerits of free trade, and the impacts of emerging economies on developed economies, all in relation to British Airways' operations and strategic considerations. The report concludes by summarizing the key findings and implications for the airline.

Business Economics
1

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................4
TASK 1............................................................................................................................................4
1.1 Explaining the economic problem of scarcity and demand resource allocation in managing
UK economy using British Airlines.......................................................................................4
1.2 Discussing the role of supply and demand in UK and how equilibrium in the market
achieved..................................................................................................................................5
1.3 Evaluating the importance of differing market system and evaluating the role of
opportunity costs in economic decision on British Airlines...................................................6
1.4 Explaining elasticity of demand and assess the importance of elasticity in market
interaction in British Airlines.................................................................................................7
M1 Explaining economic problem of scarcity and demand resource allocation in UK.........8
M2 Theories and techniques in evaluating different market systems and how they affect
British Airlines.......................................................................................................................8
TASK 2............................................................................................................................................8
2.1 Explaining the implication of pricing and objective on British Airlines..........................8
2.2 Comparing how price are set in different market structures............................................9
M3 Methods for implication of pricing strategies on British Airways................................11
D1 Justification on how regulations in UK affect market power and British Airways........11
TASK 3..........................................................................................................................................11
3.1 Analysing the changes in UK economy in 21st century and its impact over British airlines
..............................................................................................................................................11
3.2 Evaluating the tools available to meet macroeconomic policies and achieving the
objectives of British Airlines................................................................................................12
3.3 Analysing the performance of UK economy in context with global market..................12
D2 Impacts of UK economy over Free trade:......................................................................13
TASK 4..........................................................................................................................................13
4.1 Evaluating the theory of comparative advantages and merits and demerits of free trade13
4.2 Analyzing the impacts of emerging economy on developed economies.......................14
D3 impact of emerging economics over developed economies...........................................14
2

CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................16
3

INTRODUCTION
UK is highly developed; mainly market oriented and is the fifth largest economy in the
world on the bases on gross domestic product and it comprises 3.9% of worlds total GDP. The
economy of UK in the year 2016 was the 10th largest exporter in the world and 5th largest
importer in world. The whole economy is totally service sector dominated with about 80%
contribution in the GDP. London is the world capital of foreign exchange trading with about
41% share of foreign exchange global turnover i.e. $5.3 trillion per day. The present report is
based on British Airlines which is the largest airline in UK based on the fleet size. It was created
in 1974 after the British Airways Board was founded by British government. All the economic
conditions of UK’s economy will be effecting the operations of British Airways and the role of
demand and supply in UK and how the prices are set by the company.
TASK 1
1.1 Explaining the economic problem of scarcity and demand resource allocation in managing
UK economy using British Airlines.
Problem or scarcity of resource is the basic problems faced by the world economies in
today’s scenario where there a limited resource available in the country but society having
unlimited wants. The said resources are mainly divided into three factors like the land, labour
and capital which are at all the times not enough to fulfil the need of all the people who are living
or migrating in the economical boundary of UK (Naudé, 2013). Demand of the product is the
ability and willingness of an individual to buy and use the product which is made available in the
market.
Resource allocation is the problem of what to produce, how to produce and in what
quantity to produce. Which include the allocation of scare or limited resources in the relation to
the total output in the economy of UK. The economy of UK will certainly be producing that
product with the available scare resources which is giving the priority to the economy which is
the production of consumer goods. Like if UK has to produce both capital goods and consumer
goods with the given resource i.e. land, labour and capital then it will choose that combinations
of the product which is giving the maximum total output to the economy (Mollick, 2013). The
basic economic problem of scarcity in the economy of UK is resources are that there are
4

insuffient resources to satisfy the human wants and needs. The main or central problem of
scarcity of resource:
What to produce? This is the question which comes first if the UK economy is deciding what is
to be done to satisfy the increasing problem of the society.
How to produce? This is the second question is comes after UK economy has decided what to
produce. From what source economy of UK will be producing the decided product. What are the
methods used, what are the tools and techniques used and who will be producing the products.
For whom to produce? The given product will be consumed by whom who are the people who
are in demand of that product in UK’s economy.
1.2 Discussing the role of supply and demand in UK and how equilibrium in the market
achieved.
The term demand is the desire and ability of the individual to purchase the particular
good available in the market. The term supply is the availability of that product in the market
from where the individual will be purchasing the products. Both demand and supply are having
very important role in the economy of UK as without the demand and supply of the product no
company can easily survive in the market (Uhlaner, and Hoy, 2012). If there is the demand of
wheat in economy of UK then they surely be the supply of wheat without which nothing can b
happen.
When in the market condition these both demand and supply are intersecting or meeting
with one another then that market conditions is known as the equilibrium. This intersecting point
or equilibrium in the market is achieved when both demand and supply are equal to one another.
When the demand of wheat is equal to the supply of wheat then it is known as equilibrium.
5

Figure 1 Equilibrium point
In the above figure the point where demand and supply curve are meeting or intersecting
with each other that point is know as equilibrium this is achieved when demand and supply are
equal in the market. Both these demand and supply are very significant in the economy of UK as
they both influence each other and thus affecting the whole economy (Mollick, 2013). As the
demand of a product increases supply of that product also increases and if demand decrease then
the supply also decreases.
1.3 Evaluating the importance of differing market system and evaluating the role of opportunity
costs in economic decision on British Airlines.
In the economy of UK there are different types of market that are existing and they all are
very much important in the market system and there importance are explained:
 Perfect Competition- in this type of market there are many types or buyers and a
number of sellers of the same products. Any one participant in the market will not be able
to set the price in the market as there are many other players as well (Anderson Sweeney
and et,al., 2014). This is important in UK’s economy as it is providing a wide variety of
products at same price in the market but of different quality and same time quantity as
well.
 Monopoly- this is just opposite of perfect competition market in which there are number
of buyers but only one seller who has the full monopoly or rule in the market and on that
of the market share. This is important as the buyer will be having the best quality of that
product and the seller as is having the total control in the market is having the full market
share of profits.
6

 Oligopoly- in this type of market rather of having only one market leader or player there
are a handsful of sellers who has formed their group or collaboration. But on the other
side there are number of buyers of that product in the market (Bosma, 2013). The main
importance is that there will be same price of all the different sellers in the market there
will be no price discrimination whether buyer is buying from A or from B the price will
be same.
 Monopolistic Competition- this is the combination of monopoly and that of perfect
competition market system. Like there are number of buyers and at the same time there
are number of sellers in the market of that product but each one of them will be selling
differentiated product. Each product will be different from each other on some or the
other grounds. The importance of such market for economy is that the buyers are having
numerous choices to select from.
Opportunity cost is the next best alternative of the other on the first one. And is equally
important in the practical life and in that of decision making of the organization. In the decision
making of British airlines this opportunity cost is also very important like in maximizing the
objectives, cost of capital and in accounting as well (Disch, 2016). The decision of the British
airways whether to invest the money or the profits received or to use in the operations and
increase in the customers is the opportunity cost.
1.4 Explaining elasticity of demand and assess the importance of elasticity in market interaction
in British Airlines.
Demand elasticity is the amount of change in demand with the amount of change in the
price of the product. If the price of a particular good or the income of the consumer is changed
by a certain percentage then how much change will be there in the quantity demanded of that
good (Summers, 2014). And this elasticity of demand important for market interaction of British
Airways:
 Determination of output level- change in demand is due to change in price so for
British airways to make profits it is important that the quantity of good and service
should be produced according to the demand.
7

 Determination of price- in the amount the demand of the product will fall there will be
rise of the price of that product and vice versa. So the elasticity of demand is essential in
the formulating of price.
 Determination of factors of productions – the elasticity of price is also required for
determination of the factors of production of British Airways. As there are number of
factors of productions which are generally paid according to the price of the product.
 In demand forecasting- the elasticity of demand will also be important for the demand
forecasting as to analysis what will be the future demand of British Airways according to
the demand elasticity.
M1 Explaining economic problem of scarcity and demand resource allocation in UK.
Problem of scarcity is that issue which would be arising at the time of distributing and
production of products or service in economy. This will be including problems of what and how
to produce and for whom ot produces with specified number of given factor or production within
economy. Whereas demand resource allocation is that problem which would be including
allocation of goods and service within country like that of UK. As country is having very large
population both of residents and non residents so this becomes important for them to distribute
those goods that are having very high demand of products.
M2 Theories and techniques in evaluating different market systems and how they affect British
Airlines.
As British airways is working under perfect competition market where it is having many
rival firms which are having some part of market share with it. These include like that both direct
and indirect competitors Virgin, American, Air India etc., all of them are playing in market of
perfect competition. So this type of market would be affecting many factors like that of its share
of profits and sales as well.
TASK 2
2.1 Explaining the implication of pricing and objective on British Airlines.
The economic condition in UK has adverse impact on different organizations. As the
British airway have the adopted different price strategy for better operation of their
organizations. Their corporate objective is the most important aspect to get succeed in business.
8

For any business the price will be the moat important factor to archive any objective. They have
the implication of price on the basis of different airline services. For examples for the economy
class they have low price which is 376 pound (Newbold, Carlson and Thorne, 2012). While the
firs class tickets price for the return flight to New York is 2728 pounds which is high for the
consumer. As the British airway have the low level price strategies which offer the better price
as compared to their competitors such as virgin airline and American Airlines.
British airway has different corporate objectives such as follows:
 As they have the airline of choices in which British airway give benefits to the premium
customer as they can choose international flight with varieties of offer and additional
discount to them.
 Better services: this main objective of the British airway to give top service to the
customer which they feel more comfort in their flight (Disch, 2016). Also, their main
motive is to meet the customer needs with high service and give various befits in flight.
 Growth in other nation: as they have main objectives is to get the growth in other nation
which will give the more global image and expand their business will bring airline
partnership of other nation to run successfully business.
2.2 Comparing how price are set in different market structures.
Perfect competition
It refers to the market where there are many sellers which will sale the same product to
the customer is known as prefect competitions.
Price can be set under perfect competition: price in the market can be set on the basis
of equilibrium between demand and supply in market with short run and market period as the
market period is the period which will maximum the supply for less existing shares.
Market price of perishable goods:
For the goods like fish will be perishable goods than cannot be form as stock for the next
day. For such goods the price can be change on the daily basis (Bosma, N., 2013.).
Market price for Non-perishable and re produce goods:
9

As in the non-perishable good but the reproducible good are such goods will be form as
stock and it can be sale easily because of carried over the next period. Either the price will be
high or the low according to the seller or buyer negotiations price will be determine.
Monopolistic competitions: It refers the market structure where number of seller will
sale the close substitution products to the customer.: the price of goods in these strict of the
market will be determine by the few sellers because of the less product availability and due to
price factor seller will fix the price.
Oligopolistic competition: as it refers to the market structure where seller are few and
they form a group to set the price (Anderson and Sweeney, 2014). As the competition wills not
perfect still the completion among the seller will be high.
As the marker decision of the British airway will be depends on the structure of market.
As the British airway will be lies under the oligopoly market where seller are few and but the
price will be determine on the basis of organization decision and market factors. If the
organization wants to raise the price depend on the comparison of certain things to attract the
customer.
2.3 Evaluating how UK regulations affect the market power in British Airlines and how
regulations affect the market power.
After UK announced its exit from the European Union the whole economy was disturbed
by this decision and still is trying to recover from that. The aviation industry was also not unhit
by this decision as there was an impact of the Brexit on aviation industry and especially to
British airways (Hill, Cronk, and Wickramasekera, 2013). Before the announcement there were
many who came out in the public support of UK’s continued membership of EU. There was an
immediate effect of Brexit on the British airways as
1. The prices of the flights went down on very rapid bases.
2. The profits were left behind and there was a more chance of wage dumping in British
Airways.
3. Although there was not many changes in the rules of the aviation industry.
10

M3 Methods for implication of pricing strategies on British Airways.
British Airways superior and average procedures offers unrivalled quality for more
noteworthy cost enabling the carrier to contend with other quality aircraft, for example, Virgin
and American Airlines, and construct cost in light of client valuations – The cost is set higher
than others to reflect better item quality and selectiveness. However, as of late the entry of
minimal effort transporters and financial turmoil constrained BA into giving an ease equation to
stay focused. The initial move towards this was in creating subordinate incomes by presenting a
charge for every restricted flight for travellers booking a seat ahead of time for all seats except
top of the line. Indeed, even in the minimal effort equation, BA is as yet maintaining their picture
of value and great client benefit as not at all like the ease bearers, where auxiliary incomes are
the cash creators with sustenance, drink and need boarding all costing additional, BA still give
some level of on board benefit in the cost of their item.
D1 Justification on how regulations in UK affect market power and British Airways.
The regulation which is made by government of UK would certainly be affecting market
power and operations of British Airways on larger extent. As it is having its headquarter at UK
only so this is natural to have impact of regulation on British Airways.
TASK 3
3.1 Analysing the changes in UK economy in 21st century and its impact over British airlines
By considering the economic changes in the UK environment, which are recently being
seen and adopted by citizens in nation. There has been introduction of various laws, legislations,
policies and procedure which in cure with the all the monetary or non monetary transactions held
in the national boundaries (Acs and Carlsson, 2012). It can be said that the country is regularly
growing and strengthen itself in the global market with the help of updated technologies, rise in
the level of education, increasing trend of trade and commerce as well as increase in the interest
of people to choose to travel through aircraft, railways as well as vehicles.
However, in accordance with the changes in the economic level of citizens in UK which
in turn resultantly provokes the corporate industries to make more transactions. Hence, these
things took reforms in the use of travelling for the work or business purpose. Thus, the increasing
trend of using air travelling more preferably which results in making improvements in the
operational area of such industry (Audretsch, Hülsbeck and Lehmann, 2012). There has been
11

installation of various new aircraft which in turn facilitates the services to consumers to make
travelling throughout the globe.
3.2 Evaluating the tools available to meet macroeconomic policies and achieving the objectives
of British Airlines
There has been influence of various macroeconomic actors which in turn affecting of
improving the business objectives. These tools can be understood as follows:
Monetary Policies: In accordance with the monetary and currency transactions in the
country. UK’s legislations power has decided the various policies and procedures in controlling
the economic stability of nation (Disch, 2016). Hence, they mainly focus over the changes in the
interest rates, supply of money ad credit as well as the exchange rates.
Supply-side policies: These policies help in monitoring internal transactions in the
country as well as designing to rules to make market more efficient (Anderson, Sweeney and
et,al., 2014).
Fiscal policies: This policy helps in evaluating the taxation, expense and borrowings
which are monitored by UK government (Geithner, 2014). Hence, this policy helps British
Airways as to have the adequate taxation systems and have many tax benefits such as
allowances, reduction in tax rates etc.
There have been various objectives in the UK’s macroeconomics policy such as:
 The main motives of the country’s government are to make the stability in low inflation
rate such as 2% in terms of CPI. Hence British Airways will be fruitful in supporting the
nation with employing the large numbers of workers and crew members.
 The country focuses over improving the real GDP rate which in term enhancing the
domestic production, thus British Airways need to manufacture the aircrafts mostly form
domestic plants with the helps of available resources.
3.3 Analysing the performance of UK economy in context with global market
In accordance with the country’s economic standard which is making efforts for
improving the etranal stability as well as controlling various monetary and fiscal issues which
will be beneficial in the development or investments? Hence, economic condition of UK in
comparison with the global economies can be understood as:
GDP growth: In accordance with the past few years the country’s has been able to
generated the adequate GDP rates which in turn helpful in lowering down the costs or expense
12

incurred in the nation. Hence, in accordance with the current GDP rate of UK is 0.4% which
helps in increase in the size of economy for 8.1% while the construction and the various
manufacturing units as to suffer (Laubach and Williams, 2016). Thus, British airways will be
facing some short of issues in making the adequate business operation in the country.
Markets: In consideration with the business and currency market there have been several
changes in the investments made by investors as well as changes in the interest rates over shares
and debentures (Mollick, 2013). Hence, there will be huge gap between issuing share and having
the profitable return.
Inflation: Due fall in he prices of various necessary products which in turn highly used
by the citizen such as oil and petroleum as well reduction in the imports of exports rate which are
being helpful for the country in context with having adequate rates over commodities as well as
fair trade and business took place (Naudé, 2013). Hence, it can be said that, due to low rate in oil
products which in turn helpful for British airways to have low costs as well as consumers will
feel free to spend in travelling.
D2 Impacts of UK economy over Free trade:
The influence of various economic factors which has affected the operational practices of
the various economies. The influences of the various elements such as Brexit impacts, global
financial crisis as well as inflation has affected various organisation and individual in the
country. It has influenced the trade practices of entities as well as have higher prices over the
commodities. Thus, Free Trade has the indirect impacts of such issues over the business
activities.
TASK 4
4.1 Evaluating the theory of comparative advantages and merits and demerits of free trade
Theory of comparative advantages: With the help of this theory the concept lies that a
manufacturing unit must product or manufacture the goods or services which are comparatively
lower operating costs than its other rivalry firms. Hence, it could be benefiting the British
Airways in the way that they must decide the rates f tickets and the products and services offered
by them which must belongs to adequate or lower rates than other competitors (Hill, Cronk and
Wickramasekera, 2013). Hence, such things will helps them in gathering the adequate numbers
or consumers or travelers as well as it helps in improving the profitability of the firm.
13

Free trade: These are the agreement which in turn execute or monitor the various axes,,
duties and tariff charges over import and export of the product and services. Hence there will be
several benefits and loopholes of such policy such as:
Advantages:
 It helps in creating the bull in the economic growth of the nation.
 It creates dynamic business environment such as promoting the local industries to make
the profitable earning (Uhlaner and Hoy, 2012).
Disadvantages:
 The policies will b successful if the other nation adopt such rules and regulations but
currently it is not been adopted by various big countries.
 There will be not profitable gains acquired by the small scale industries while importing
any material or goods (Newbold, Carlson and Thorne, 2012).
4.2 Analyzing the impacts of emerging economy on developed economies
In accordance with the caning economic standard or policies in various nations which
impact the other nations in trading and currency rates. Hence, various countries such as USA
Japan, European Union which are to be denoted as leading or developed nation in world wide.
Thus, such countries have the strongest economic power in the world as well as having effective
control over the economic standard of the nation. However, with the impact of BRICS in UK it
can be said that, the countries which are the members of such group as rapidly developing
nations which in turn facilitating the fair trade practices as well monetary support to each other
(Summers, 2014). Hence, United Kingdom is being challenged by various internal or external
obstacles such as inflation, unemployment and market variation which in turn affects the
country’s economic conditions.
D3 impact of emerging economics over developed economies.
China is the fasted growing economy in the world which is good example of emerging
economy. Thus, it will have positive and negative impacts over the business activities.
CONCLUSION
In accordance with the above study over the economic climate of UK as well as various
monetary, fiscal and economic policies adopted by the nation in against with facilitating the
adequate trade practices in the nation. Hence, there was discussion based on British Airways as
14

well as the economic impacts over the operational activities of this industry. Further it can be
said that the firm is running in the adequate manners there may be influence of inflation or
currency rates but the firm is running of the remarkable state.
15

REFERENCES
Books and journals
Acs, Z. J., and Carlsson, B., 2012. Growth and entrepreneurship. Small Business
Economics. 39(2). pp.289-300.
Anderson, D. R., Sweeney and et,al., 2014. Statistics for business & economics, revised.
Cengage Learning.
Audretsch, D. B., Hülsbeck, M. and Lehmann, E. E., 2012.Regional competitiveness, university
spillovers, and entrepreneurial activity. Small Business Economics. 39(3). pp.587-601.
Bosma, N., 2013. The Global Entrepreneurship Monitor (GEM) and its impact on
entrepreneurship research. Foundations and Trends® in Entrepreneurship. 9(2). pp.143-
248.
Disch, L., 2016. Representation.In The Oxford Handbook of Feminist Theory.
Geithner, T. F., 2014. Stress test: Reflections on the financial crisis. Business Economics. 49(3).
pp.201-203.
Gillespie, A., 2013. Business economics.Oxford University Press.
Hill, C. W., Cronk, T. and Wickramasekera, R., 2013. Global business today.McGraw-Hill
Education (Australia).
Laubach, T. and Williams, J. C., 2016.Measuring the natural rate of interest redux. Business
Economics. 51(2). pp.57-67.
Mollick, E. R., 2013. Swept away by the crowd? Crowdfunding, venture capital, and the
selection of entrepreneurs.
Naudé, W., 2013. Entrepreneurship and economic development: Theory, evidence and
policy. Browser Download This Paper.
Newbold, P., Carlson, W. and Thorne, B., 2012. Statistics for business and economics. Pearson.
Summers, L. H., 2014. US economic prospects: Secular stagnation, hysteresis, and the zero
lower bound. Business Economics. 49(2). pp.65-73.
Uhlaner, L. M., and Hoy, F., 2012. The entrepreneuring family: a new paradigm for family
business research.
Online
16

Demand and supply. 2017. [Online]. Accessed through :<https://www.google.co.in/search?
q=demand+and+supply&source=lnms&tbm=isch&sa=X&ved=0ahUKEwjFobi6p7fXAh
UMQY8KHbV5B2UQ_AUICygC&biw=648&bih=635#imgrc=HOMaihMQYqB22M>.
17