a) Using appropriate models, analyze the business environment that existed prior to the formation of IAG, particularly emphasizing the key factors that persuaded British Airways and Iberia that merger was an appropriate strategic decision.
The International Airline Group is a multinational airline whose headquarter is located in London, UK. The airline is a product of the merger between British Airways and Iberia. The company has registered offices in Madrid, Spain. Following the merger of the Iberia and the British Airways, IAG has achieved a number of benefits. The merger meant that IAG became one strong force despite the numerous challenges the company faces in the market. Before unveiling its operations following the completion of the merger agreement in early January, 2011, the air transport industry was awash with many individual airline companies, which further tightened competition amid escalating costs. Prior to the launch of International Airline Group (IAG), the business environment was very different from its current stature after the highly anticipated merger between the British Airways and Iberia. According to the 2010 air travel data, the corporation is the seventh in size globally and takes position three in terms of magnitude in Europe. Apparently, the environment that existed before the grand merger differs from the environment that eventually came to play.
The Economic and operating Environment
Prior to emergence of IAG, the two individual companies like many other airlines existed and operated singlehandedly on low capital base. The British Airways is the largest international airline in the UK. For many years, the airline has dominated the global market as the leading premium carrier among a few others. British Airways has significant presence at Gatwick, Heathrow, and London city airports. The company has also expanded its operations to other towns and cities in the UK to ease provision of transport services within and outside the country. With the growing need for better services amid stiff competition, the operation costs became all time high reaching unbearable levels. The costs, which include fuel and maintenance expenses, have forced some airlines to cut operations in certain airports. Iberia has a long history of more than 80 years. Besides, the airline is the largest among the international airlines in Spain operating in several Spanish airports. Due to economic factors, the airline had to cut down operations in Spain.
The escalating costs of operation are partly responsible for selection of places of operation. Before the merger, Iberia was singlehandedly the leading airline on routes between Spain and the Latin America. The airbuses of Iberia flew daily to over 18 destinations in the region. This would further translate into huge profits, as competition was relatively less pulsating. The main airline hub has its hub located in Barajas. This airport serves Madrid and Spain and has the capacity to handle over 70 million passengers annually. Apparently, the airport operates on terminal 4, which is the newest terminal. This makes it one of largest airport terminals in Spain and UK. It conquers over 800 destinations in more than 150 countries. Every country presents a new challenge to the growth in operations and revenues.
Social and political environment
Although the airline has moved gradually towards consolidation, many restrictions as regards regulations by states and countries still prevail. Even before sinking roots deeply into the aviation market as a merger, the airline has its long term mission at hand to fully play vital role in future industry consolidation on regional as well as global front. Social aspects such as cultural practices have considerably hampered smooth operations of the corporation amid growing demand for air transport in the market. With an increase in population of the UK and Spain, the need for alternative forms of transport has been overwhelming in the past few years. The existing social and political environment determines the success of operations of both British Airways and Iberia Airways. Political upheavals in countries of destination have paralyzed operations of the airlines in many countries in Europe and Latin America.
Market structure
The market structure did not favor trade liberalizations thereby making it difficult for different companies to expand operations to new destinations. Although many airlines had a strong enthusiasm to expand business in different countries across the globe, insufficient capital hampered the dream of many companies to venture into such business. Therefore, series of market research various companies conducted were unsuccessful. Before the establishment of the highly anticipated merger between British Airways and Iberian airline, the market structure gave a lot of preference to highly established airlines. The structure was bent towards ensuring airlines that practiced monopoly got a larger market share.
Market liberalization was far from realization even as countries attempted to expand business opportunities to its airliners that primarily operated on small scale (Stiglitz, 67). British Airways, in particular, could not reach most of its dream decision due to several restrictions and barriers countries erected as a way of protecting its infant industries. Apparently, the low capital formation also contributed to the slow pace at which airliners could open up operations in new destinations. Many governments give preferences to land transport in their budgetary allocations and little or no money is allocated to the air transport. This has denied the airports the opportunity to expand their services to accommodate the growing need for their services. The introduction of mergers that saw British Airways unite with Iberia has facilitated service delivery (International airlines). It has increased the capital base of the new formation thus giving room for provision of better services. IAG has accumulated sufficient capital, which has enabled it purchase new airbuses. Hence, its passenger capacity has increased substantially (Li, 58).
Similarly, the Company has come up with new strategies, which will ensure it expands its operations to new destinations worldwide. In order to accomplish this scheme, the airline has purchased over 350 aircrafts and traverses to 200 destinations. Even though the airline operates under different brand names, its London headquarters all duties related to the management of the business venture. The management in cooperation conducts coordination activities with the sub-headquarters situated in Spain and the UK. The airline has directed more airbuses to destinations where air transport services are highly on demand and only a few aircrafts in places where this means of transport hardly thrive.
b) In the context of the highly competitive markets in which IAG operates, evaluate the success of the strategies that it has deployed since 2010, including the initial merger. Tools of analysis should support your answer.
International Airline Group (IAG) operates in a highly competitive market. Despite having one of the longest chain of aircrafts (350), the company still faces challenges that complicates its endeavors to emerge as the market leader in the aviation sector. Emergence of airlines from countries such as the US, South American countries, European countries and Asia among other continents have hampered the company’s ambition to become the market leader not only in the European aviation markets but also in other continents. However, the group has come up with new strategies that would ensure the company management only implements the workable business models.
These strategies aim at enhancing client confidence and simplifying service delivery not only in the UK and Spain but also in Latin America and the rest of Europe continent. The glaring difference in the strategies implement by organizations explains the differences in the style of operations as well as the clear variations in terms of performance at the end of the raining period. Airlines put many factors into consideration when drafting its shot term or long term strategic plans. The outline of the strategic plan illustrates some of the areas the company intends to put much emphasis on considering its long term and short term plans.
The clients, state policies, aviation regulations, and airline’s vision guides its strategic plans. The organization has put in place adequate strategies that would ensure that the Spanish affiliate and UK headquarters publish annual reports as part of its strategic plans. The group has recorded a remarkable success in the competitive market. According to the results of February 2012, the operating profit for the year ended December 31, 2011 was € 485 million (IAG). The pretax profit was € 503 million after exceptional items. In drawing a comprehensible analysis of the company’s strategic plan, it is necessary to conduct a SWOT analysis.
SWOT Analysis of IAG
Strengths
The airline has used its strong capital base to proper to greater heights as one of the largest aviation companies. As a multinational, the company has utilized its strengths in international relations and business to acquire new markets, which have influenced positively on the level of the company’s revenue as well as relations with other multinationals. The company’s capacity to unite two strong forces into one is a fundamental strength. The British Airways and the Spanish Iberia are the individual companies that united to for a single strong force that has controlled the air space for nearly three years.
Since the signing of the highly publicized merger between British Airways and the Spain-based Iberia, there have been considerable advances in service delivery to travelers from different countries booking flights to various destinations in Europe, Latin America and parts of Asia. The merger has provided a new twist to the aviation industry that US-based companies initially dominated. IAG is a company to reckon since its capital base along with better services to its esteemed travelers has subjected the market to a new dimension with the major concern of its management being dominance of the aviation market. The other strength of the company is its ability to organize its operations adequately and sufficient amid concerns about a possible negative impact following open operations with different brand names.
Despite being a single multinational company after the merger between the two UK and Spanish successful airlines, IAG still maintains the different brand names in the new arrangement. In essence, there are airbuses tagged with the brand name British and others with Iberia brand yet they all belong to the International Airline Group. This presents a great challenge to competitors who operate with single brand name yet in the end rifts emerge between the management and the team of employees. Individual airlines face austerity from dissatisfied employees and part of the management team with a section of the management neglecting their work and engaging in unnecessary conflicts that further creates rifts among employees. However, IAG boasts of a remarkable coordination and realistic strategies, which have enhanced the company’s capacity to scale the heights. The corporation’s massive capital has facilitated its expansionary trends leading to opening up of new ventures and stretching out to new markets.
Weaknesses
As much the airline has numerous strengths, it still faces challenges that constitute to the major weaknesses of the airline. Although the company has increased aircraft fleet to inconceivable 350 aircrafts reaching out to over 200 destinations, it has only put much of its focus on the Latin America and European markets. Even though business thrives in the Europe as well as Latin America, the company should take up an initiative aimed at enhancing its popularity in other countries in Africa and Asia. Similarly, the company has failed to conduct a comprehensible strategic market research to unveil the viability of African and Asian aviation markets.
However, the top management has long-term plans with the primary objective being expanding its capital base alongside operations to different continents. Poor coordination of activities is another glaring challenge of the organization. Even though all airlines have their guiding principles, it is important for the stakeholders and interest groups to get involved in the drafting of the schedule. In addition, the public relations section in the organization faces a hard task of facilitating public knowledge and equality of the services. This is partially attributed to the realism about the merger operating using two brand names. Therefore, there are esteemed passengers and potential clients to the company who consider role conflict and unnecessary wrangles to be a result of poor strategies and improper planning. Confusion over airline’s operation using two brand names has contributed to another build up of sluggishness even as the management of the organization attempts to provide a intelligible environment.
The rising operation costs are partly responsible for selection of places of operation. Before the merger, Iberia was singlehandedly the leading airline on routes between Spain and the Latin America. The airbuses of Iberia flew daily to over 18 destinations in the region. This would further translate into huge profits, as competition was relatively less pulsating. The main airline hub has its hub located in Barajas. This airport serves Madrid and Spain and has the capacity to handle over 70 million passengers annually (Böhm, 57). Apparently, the airport operates on terminal 4, which is the newest terminal. This makes it one of largest airport terminals in Spain and UK. It conquers over 800 destinations in more than 150 countries. Every country presents a new challenge to the growth in operations and revenues
Opportunities
Market liberalization especially in the light of merger formation presents another momentous challenge to different organizations. The organization in particular must focus on means by which it can enter into new markets with its over 350 aircrafts. In the end, new markets will provide additional revenue to existing sources (Böhm, 57). The favorable aviation regulations and international relations would facilitate the accomplishment of the set objectives. Although the company has already enjoyed regular flights to over 200 destinations across the globe, market liberalization and minimal trade restrictions in various countries in Europe, America, Asia and Africa would facilitate the company’s decision to improve its levels of revenue. With its huge capital base, the corporation can easily purchase other aircrafts, which will eventually fly to other destinations across the globe.
Threats
The airline faces a range of threats that undermines the accomplishment of some of objectives of the organization. In addition, IAG despite having adequate experience, the changing values of the document might prompt the movie fan that put a lot of passion on other people’s favorites.
c) Based upon the existing business environment, and supporting your answer with appropriate models, analyze and evaluate potential future strategies that IAG could pursue. Which of these strategies would you recommend?
IAG analyzes and evaluates the future strategies IAG could pursue. The organization has exclusive rights to ensure only the appropriate content is included in that page. Therefore, the company carries out the responsibility placed on it to engage in some other ventures with the aim of making sure the airline prospers. Enhancing the development of the airline in new markets is the strategic plan as far as company strategy is concerned. Although all airlines have their guiding principles, it is important for the stakeholders and interest groups to get involved in the drafting of the schedule. In addition, the public relations section in the organization faces a hard task of facilitating public knowledge and equality of the services. This is partially responsible for the realism about the merger operating using two brand names. Therefore, there are esteemed passengers and potential clients to the company who consider role conflict and unnecessary wrangles to be a result of poor strategies and improper planning.
IAG is a company to reckon since its capital base along with better services to its esteemed travelers has subjected the market to a new dimension with the major concern of its management being dominance of the aviation market. The other strength of the company is its ability to organize its operations adequately and sufficient amid concerns about a possible negative impact following open operations with different brand names. Despite being a single multinational company after the merger between the two UK and Spanish successful airlines, IAG still maintains the different brand names in the new arrangement. In essence, there are airbuses tagged with the brand name British and others with Iberia brand yet they all belong to the International Airline Group. This presents a great challenge to competitors who operate with single brand name yet in the end rifts emerge between the management and the team of employees. Individual airlines face austerity from dissatisfied employees and part of the management team with a section of the management neglecting their work and engaging in unnecessary conflicts that further creates rifts among employees.
Overall, the overture of mergers that saw British Airways unite with Iberia has enhanced service delivery. It has increased the capital base of the new formation thus giving room for provision of better services. IAG has accumulated sufficient capital, which has enabled it purchase new airbuses. Hence, its passenger capacity has increased substantially. Similarly, the Company has come up with new strategies, which will ensure it expands its operations to new destinations worldwide. In order to accomplish this scheme, the airline has purchased over 350 aircrafts and traverses to 200 destinations. Even though the airline operates under different brand names, its London headquarters all duties related to the management of the business venture (IAG). The management in cooperation conducts coordination activities with the sub-headquarters situated in Spain and the UK.
Technological advancement constitutes the primary strategic objectives of the organization. The management have developed long-term plan that would see a complete advancement to match the competitors’ levels. For example, booking systems would computerize as well as acquisition of tickets. The essence of applying the modern technology is to make the airline speed up services amid competition from its rivals who are equally equipped with modern form of technology. IAG, like many other corporations must comply with government regulations and international standards in designing the best-sophisticated technology for its services as well as new aircraft models. In addition, different companies have different taste of technology. IAG being such company would therefore diversify in other forms of technology to ease pressure from clients who demand better services relative to services provided to them by rival groups. Apart from modernized forms of technology the organization should invest in, there is an urgent need for expansion of services to new markets across the globe. As rival companies expand top new markets, it is equally important for IAG to conjure fresh markets in Asia and other continents to boost revenues instead of relying too much on European and Latin American market that are already flooded with operations from different but equally competitive airlines.
The strategies aim at enhancing client confidence and simplifying service delivery not only in the UK and Spain but also in Latin America and the rest of Europe continent. The glaring difference in the strategies implement by organizations explains the differences in the style of operations as well as the clear variations in terms of performance at the end of the raining period. Airlines put many factors into consideration when drafting its shot term or long term strategic plans. The outline of the strategic plan illustrates some of the areas the company intends to put much emphasis on considering its long term and short term plans. Prior to the launch of International Airline Group (IAG), the business environment was very different from its current stature after the highly anticipated merger between the British Airways and Iberia. According to the 2010 air travel data, the corporation is the seventh in size globally and takes position three in terms of magnitude in Europe. Apparently, the environment that existed before the grand merger differs from the environment that eventually came to play.
The travellers, state policies, aviation rules, and airline’s vision guides its strategic plans. The organization has put in place adequate strategies that would ensure that the Spanish affiliate and UK headquarters publish annual reports as part of its strategic plans. The group has recorded a remarkable success in the competitive market. According to the results of February 2012, the operating profit for the year ended December 31, 2011 was € 485 million. The pretax profit was € 503 million after exceptional items (IAG). In drawing a comprehensible analysis of the company’s strategic plan, it is necessary to conduct a SWOT analysis.
Work cited
Stiglitz, Joseph E, and José A. Ocampo. Capital Market Liberalization and Development. Oxford: Oxford University Press, 2008. Print.
Li, Zhen. “On The Growth Effects Of Equity Market Liberalization.” Journal Of Economic Development 37.2 (2012): 59-77. EconLit with Full Text. Web. 7 Dec. 2012.
Böhm, Anja. The Swot Analysis. München: GRIN Verlag, 2009. Internet resource.
IAG. International Airline Group. Retrieved from: http://www.iairgroup.com/phoenix.zhtml?c=240949&p=index
“International Airlines: British Airways And Iberia Merge.” International Airlines: British Airways & Iberia Merge (2012): 1-16. Business Source Complete. Web. 7 Dec. 2012.
