It was in 1919 when the first British airline was established, the Aircraft Transport and Travel. British Airways first scheduled flight was in August 25th 1919, and its route was Le Bourget - Honslow. The airport was the home of the airline. Later two other airlines were established, the Instone and the Handley Page. These companies had to face many difficulties and also had to face the competition of French airlines with lower fares. In 1976, Concorde started flying with British airways, and the company had a big fleet of planes. In the early 80’s, British Airways faced some serious economic problems but measures were taken and in 1987 the airline was privatised. It is Europe’s third- largest Airline. The Porter Five Forces Model says that the structure of an industry and the ability of firms in that industry to act strategically depend upon the relative strengths of five forces. The current competition has been considered under the heading of market structure. Firms in a highly competitive market might be unhappy with the lack of power they have over various factors like pricing. If they are successful there will be a change in the level of current competition and therefore in market structure. British airways current competitors are considered to be; Easyjet, Ryanair, Virgin Express, American airlines British Midlands (BMI), and Royal Dutch airlines (KLM). BA which used to call itself the worlds favourite airline has been out-manoeuvred by smaller airlines in fiercely competitive budget flight sector, and falling passenger numbers have forced it to overhaul its own market strategy. The cut-throat competition has produced low fares that would not have been dreamed of a few years ago, as airlines try desperately to fill their planes. Easyjet, Ryanair, Debonair, Virgin Express and BA’s own “no-frills” service, Go, were all set up during the 1990s to tap into the growing market of budget flights. Threat of new entry is another of Porter’s Model. It has been shown that the market structure or current competition affects the behaviour of firms in an industry. It is possible that firms in an oligopolistic market might act in a way consistent with perfect competition, because of the threat of potential competition. The sources of economies of scale are usually classified under three headings technical, financial, and marketing. Marketing economies come from spreading marketing costs over a larger output, so the average cost will be lower. Financial economies come from the fact that larger companies find it easier and often cheaper to borrow capital. Some industries require a high initial capital investment to enter, for example the airline industry, where the machinery is very expensive. Switching costs can also be regarded as a barrier of entry. When airline companies lower prices, it can be seen as an example of the introduction of switching costs into the market. Airlines some time ago faced economic problems, especially after the crisis in airlines which started after the attack in September 11th 2001. Despite that, British Airways has now profits again and hopes for better economic results in the close future. The threat of substitute products largely depends upon the nature of the goods being traded in the market and the extent of products differentiation. Industries in the oligopoly market like British Airways face competition from substitutes since there are other ways to travel. The bargaining powers of customers, is the impact that customers have on a producing industry. A distinction can be made between existing and potential customers. Existing customers are particularly significant to firms in the industry. Repeat or new orders are important such as Travel Agents. Customers are constantly booking holidays, withy various airlines across the world. Potential customers for BA might be new to the market or buying from an existing competitor at present, whether they are Business travellers,...
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The Business Environment
Ian Worthington and Chris Britton.
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