Analysis of the Macro and Micro Environment at British Airways Essay

British Airways is the largest world(prenominal) scheduled airway in the UK. The decree 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 formally decl atomic number 18d to be in recession following cardinal unbowed quarters in 2008 during which economic growth dropped (BBC, 2009). Many byplayes, including British Airways, strike found it increasingly unwieldy to survive in the depart behinding testing macroeconomic environment.The RecessionA recession will often occur when ostentatiousness grows rapidly sobers become much than than expensive at a sentence when consumers establish less(prenominal) m iy to spend. As consumers spend less money, submit begins to exceed demand at bottom the markets. This ca habituates businesses to produce less of their goods, and so contract less staff. The unemployment that results from this creates a situation whereby peop le do not verify the markets and have less money, so stop spend, and then creating a uncivilised circle. UK unemployment figures up to March 2010 show that unemployment has risen to 8%, the highest figure since 1996.For galore(postnominal) people, air travel is a luxury good. This means that in quantify of nastyship, where the consumer is reducing their spending, air travel will be an part that is actually hard hit, as many people ar not taking 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 miserliness furcate, where they might previously have flown in business or starting line class. Business and first class passengers have played a large part in BAs expediency magnate, as they account for a large proportion of the guilds profit.Low-cost, compute airlines such(prenominal) as Ryan Air have figure out comparatively well, produci ng profits in a market where very some businesses have been able to. Budget airlines are suming an inferior good. This means that as consumer income reductions, a demand for the operate will augment as the service is seen to be more affordable. Production Costs over recent years the cost of fuel has amplifyd dramatically, and as each airport has only one fuel supplier, BA is fixing within a limited market, where at that place is a lack of price disputation 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 increase their cost. As demand for air travel has dropped and end product costs have increased, BA has found that an increasing number of flights are buy the farmning with too few passengers to make the flight profitable. However, if BA were to decrease the number of flights they would risk losing their slots at the major air ports, 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 compromise mustiness be found amid surviving through turn out this difficult climate, and growing the business so that it send packing prosper once the economy has recovered. Iberia Merger BA has recently signed a merger with Spains Iberian Airlines. This will bring forward the business to being one of the largest international go outrs of air travel. It is predicted that the merger will allow the two companies to save virtually ? 50 million per year, which will greatly benefit shareholders as the profit will be seen to increase, and besides 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 consumer spending is necessary in order to increase the UKs GDP (gross municipal product) and so ensure that the recovery from the recent recession will continue. just about of these insurance policy responses from the government included baleful VAT from 17. 5% to 15% as of December 1st 2008 (Finch, 2008). This was a move which was aimed at trim backing the price of goods and so encouraging the public to spend more. This would start to ascertain consumer trust, and also start to put money back into the market. The major downside to this policy intensify is that due to a lower governmental income from VAT, the government has been strained to increase the UKs national debt and run a larger budget deficit in order to save up national services running. in that respect has been considerable debate as to how much this policy actually helped to strike the UK out of the recession, but it did advocate consumers to have more faith in the government and the economy and to spend more money. By encour aging a higher(prenominal) rate of consumer spending, the economy is starting to recover this is a despotic 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 proper 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 wounded considerably. With the UK economy struggling and consumers having borrowed heavily onwards the recession, bullion traders have make full the market with sterling, resulting in the pound dropping in apprize. In an flack to maintain monetary stability the Bank of England dropped the national interest rate from 5% down to as low as 0. 5% (Bank of England, no date).This also caused currency traders to attempt to trade their sterling to a currency returning a higher profitability, such as the Euro (Bank of England, 2010). However, this move was requisite in order to attempt to keep inflation low and assist 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 operating 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 terrorist att acks 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 dynamic 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 on the job(p) out new ways in which the company good deal be run more efficiently, such as by reducing the number of aircraft and aerodynamic lift the efficiency of staff.This style of leadership 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 learn this goal. Motivation topic and Process Theories Motivation theories have been developed so that leaders and double-deckers can understand the theory behind the different methods of motivating their wor k force and thus work out the most productive and efficient of these methods.It is a everyday belief that leaders are born and not made this is support to some extent by motivation theories as the best leaders will be more perceptive as to how change is change his workforce, and the areas in which improvements could be made, as they will have a congenital 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 cons ider 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. different 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 tint employees at the bottom two levels on Maslows Hierarchy as with reduced income some whitethorn 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. subject matter theories of motivation suggest that there are three main components which motivate people these are direction (what they want), ecstasy (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 rewards can then be split into two main areas intrinsic and external. Content theories place a higher emphasis upon the intrinsic agents, 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 plumb treatment, and will hunt to act if they believe they are being unfairly treated when they equalise themselves to others within their social network. Vrooms Expectancy theory also works upon a basis of fair treatment, but focalizees upon the workers belief that if they pu t more political campaign 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 go 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 t he style that will be needed to strength 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 par ticipation. 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, guide to numerous recent strikes, which have caused massive further losses to the company.