Analysis of the Macro and Micro Environment at British Airways Essay

British Air shipway is the largest international scheduled airline in the UK. The company was founded in 1919, and has act to grow and expand since privatisation in 1987, until the global corner hit in 2008. On 23rd January 2009 the UK was officially decl bed to be in recession pursual both consecutive quarters in 2008 during which frugal growth dropped (BBC, 2009). Many handicraftes, including British Airways, have found it increasely surd to survive in the resulting examen macroeconomic environment.The RecessionA recession provide a good deal occur when inflation grows rapidly goods become more(prenominal) expensive at a metre when consumers have little money to spend. As consumers spend less money, append begins to exceed demand at heart the markets. This causes businesses to produce less of their goods, and so require less staff. The unemployment that results from this creates a situation whereby people do not trust the markets and have less money, so stop spending , then creating a vicious circle. UK unemployment figures up to serve 2010 show that unemployment has risen to 8%, the highest figure since 1996.For many people, air fit is a luxury good. This fashion that in times of hardship, where the consumer is reducing their spending, air travel will be an argona that is very hard hit, as many people are 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 parsimoniousness class, where they cleverness previously have flown in business or first class. Business and first class passengers have played a large part in BAs profitability, as they account for a large proportion of the companys profit.Low-cost, budget airlines such as Ryan Air have fare comparatively well, producing profits in a market where very few businesses have been able to. Budget airlines are supplying an inferior good. This means that as consumer income decreases, a demand for the service will increase as the service is seen to be more affordable. Production Costs Over recent eld the cost of fuel has increased dramatically, and as each airport has only one fuel supplier, BA is fashioning within a limited market, where in that location is a lack of price competition 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 be. As demand for air travel has dropped and production costs have increased, BA has found that an increase number of flights are running 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 airports, which would be disgraceful when the market begins to pick up and demand for flights increases again.Willie Walsh, chief executive of BA, believes that a compromise must be found between surviving throughout this difficult climate, and growing the business so that it can prosper once the economy has recovered. Iberia Merger BA has recently signed a merger with Spains Iberian Airlines. This will promote the business to being one of the largest international providers of air travel. It is predicted that the merger will allow the 2 companies to save around ? 50 billion per year, which will greatly benefit shareholders as the profit will be seen to increase, and as well 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 locomote to increase consumer spending. Increased consumer spending is necessary in tell to increase the UKs GDP (gross domestic product) and so ensure that the recovery from the recent recession will continue.Some of these insurance responses from the government included lowering tubful from 17. 5% to 15% as of December 1st 2008 (Finch, 2008). This was a move which was aimed at lowering the price of goods and so encouraging the public to spend more. This would start to regain consumer trust, and also start to ready money back into the market. The major downside to this policy change is that due to a lower governmental income from VAT, the government has been forced to increase the UKs national debt and run a larger budget shortage in pose to keep national services running.There has been considerable debate as to how much this policy actually helped to baffle the UK out of the recession, barely it did encourage consumers to have more faith in the government and the economy and to spend more money. By encouraging a higher rate of consumer spending, the economy is starting to recover this is a positive sign for British Airways as it means that customers are beginning to increase again. As the consumer is re gaining faith in the economy they are becoming 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 pounding has weakened considerably. With the UK economy struggling and consumers having borrowed heavily before the recession, currency traders have flooded the market with sterling, resulting in the pound dropping in value. In an flack to maintain monetary stability the Bank of England dropped the national interest rates 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 needed in order to attempt to keep inflation low and encourage banks to continue to supply loan s, overdrafts and mortgages. This was a move which was needed in order to try and maintain consumer trust, solely the weakening pound has do 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 CEO 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 attacks 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 ever-c hanging high-powered 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 working out new ways in which the company can be run more efficiently, such as by reducing the number of aircraft and raising the efficiency of staff.This style of leaders 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 attain this goal. Motivation Content and Process Theories Motivation theories have been developed so that leaders and managers can understand the theory behind the different methods of prompt their workforce and thus work out the most productive and efficient of these methods.It is a common belief that leaders are born and not made this is supported to some extent by motivation theories as the best leaders will be more perceptive as to how change is modify h is workforce, and the areas in which improvements could be made, as they will have a natural empathy. The best leaders will also be able to use this to the returns 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 optimum capacity, with the lower levels being the first to be fulfilled and the most important. BA has recently asked its employees to consider working uncompensated for up to one 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. Other 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 affect employees at the bottom two levels on Maslows Hierarchy as with reduced income some may 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 horny level. Content theories of motivation suggest that there are three main components which motivate people these are direction (what they want), intensity (how much they want it) and doggedness (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 extrinsic. Content theories place a higher emphasis upon the intrinsic factors, such as the internal drives which motivate people to work. Maslows Hierarchy of Need is one example of this, and Herzbergs 2-factor th eory 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 fair treatment, and will tend to act if they believe they are being unfairly treated when they compare themselves to others within their social network. Vrooms Expectancy theory also works upon a basis of fair treatment, but focuses upon the workers belief that if they put more effort 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 Air ways needs to focus more upon employee satisfaction, particularly within this economic climate, as this will encourage workers to perform at a higher capacity and thus increase efficiency of the company. Threat of future redundancies is a rangy 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 the movement that will be needed to effect 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 departure will outweigh the risk of a month unpaid (BBC, 2009).Resi stance 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 set up 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 traverse this they must show empathy, communication and participation. 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 theo ries of motivation, as it encourages workers to feel that they are receiving fair treatment. unluckily for BA, many employees feel that they are being treated unfairly, leading to numerous recent strikes, which have caused massive further losses to the company.