TABLE

P E S T ANALYSIS 2009 ). 2010

Up to 2008
P O L I T I C A L E C O N O M IC

1) Increase rate of interest results in reduce customer spending. (R30) 2) Economic growth stood at 1.8%. (R30) 3) Cost push inflation by rise in fuel prices.(R7) 1) The UK has an aging population. (BA.com) 2) Sponsorship to support bid for 2012 games. (BA.com) 1) Online booking services and check-in is increased. (R23) 2) Lowest fuel hedging system as compared to European carriers. (R23 TABLE 2 FACTORS INTENSIVE COMPETITION

1) Sharp decline in UK consumer spending. (R22) 2) Global recession. (R22) 3) Decline in fuel price = strengthening of the dollar (IMF, 2008)

1) Air line industry consolidating at an accelerated pace. (R22) 2) Tighter access to finance due to banking crises. (R22)

S O C I AL

1) Increasing unemployment (Koll ewe and Sager, 2008)

1) Work with over 120 community and conservation organisations worldwide. (R32) 1) 34% of online consumers plan to use price comparison sites. (NMA, 2009). 2) Marketing websites and call canters. (R23)

1) Volatility in the price of oil and petroleum products can have a material impact on operating results. (R31) 2) Reduce foreign exchange exposures arising from transactions in various currencies (R31) ) A large number of requests for free or discounted flights as part of attempts to raise money for charity. (R33) 2) Dream flights. (R9) 1) IT systems for most of our principal business processes. (R34) 2) Long haul aircraft are fitted with the new cabin. (R34)

TE CH N O LO GY

1) Six new Boeing 777-300ER aircrafts. (R23) 2) Multi-channel distribution. (R23)

COMPEITIVE RIVARLY

POWER OF SUPPLIERS Buyer power

Threat of entrants Threat of substitutes

HISTORICALLY HIGH HIGH & LIMITED POWER HIGH BARRIER LOW THREATS FEW SUBSTITUIE LOW THREAT

PORTER S 5 FORCES AIR LINE INDUSTRY  All carries short & long haul flights with little difference with competitors. (R23)  Short haul market is much fragmented with small players.  Direct competition is fierce. (R22)  Consolidation of competitors has increased competition. (R24)  BA has 25 suppliers and procurement team measure high risk across important suppliers.  Priority of landing is given to historic rights of existing users. (R25)  Employees use trade unions in order to increase their bargaining power. (R26)  Internet usage enhanced the awareness and attraction of customers. (R23)  Less bargaining and buying power is seems due to low concentration of buyers to suppliers, key factor is fuel prices and surcharge. (R22)  Barriers to entry as competitive environment, high capital cost and high regularities.  Barriers to exit because of high cost especially after merger. (R17  Few direct substitutes like for  Short haul flights Euro star and ferry. (R23)  Long haul flights No noticeable substitutes. (R23)

Strength

HIGH

HIGH MEDIU M LOW LOW

TABLE 3 VALUE CHAIN FIRM INFRASTRUCTURE  Structured hierarchy.  Multitude knowledge get competitive advantage  What we fly invest in people TECHNOLOGY DEVELOPMENT  Lowest fuel hedging system.  An increase of fuel-efficient aircrafts.  BA and Rolls-Royce programme on alternative fuels.

HUMAN RESOURCE MANAGEMENT

 Investment in customer services training  Speak up opinion to get feedback from employee  Env. engages supports & develops our Colleagues PROCUMENT  Leverage suppliers due to historical relationship.  Efficiencies through large scale advantage.  BA become Official carrier for 2012 London Olympics.

INBOUND LOGISTIC OPERATIONS  Stock control. (R13)  Open skies program  Strong relationship (R23) with suppliers.  Increased baggage  Exploring security. (R23) alternative fuels for  Quick service in industry terminal 5. (R23)  Scheduling & fleet  Online pre booking resource for short & ability (R23) long haul flights. TABLE 4 REVENUE ANALYSES Revenue Divisions 1) Company recorded revenue during FY. 2) Shift in revenue over last FY.

OUTBOND LOGISTIC  Good customer services. (R13)  Large database of airport slots.  Customer division geographically. (R22)  Capacity expand

MARKITING SALES  Through subsidiaries. (R27)  Own BA websites, face book and twitter(R23)  Call centres and offline agents. (R23)  Task persuading

AFTER SALES SERVICE  Club card scheme care customers gaining free miles.  Update communication on different occasions.

2007/08 1) 8,753 m. 2) 3.07% Inc. 1) 1,219 m 2) 5.45% Inc. 1) 1,697 m 2)2% Dec. 1) 821 m 2) 2.24% Inc 1) 659 m 2)2.64% Inc

Ind.Ave. 15% increase -

2008/09 1) 8,992 m 2)2.7% Inc. 1) 1,420 m 2)0.6% Inc. 1) 1,719 m 2)1.3% Inc. 1) 875 m 2)6.6% Inc

Ind.Ave. 11.9% Increase

2009/10 1) 7,994 m 2)11.1% Dec. 1) 1,255 m 2)11.83% Dec. 1) 1651 m 2)3.95% Dec 1) 731 m 2)16.45% Dec 1) 721 m 2)7.68% Dec

1) Revenue in continental Europe during FY. 2) Shift in revenue over last FY. 1) The Americas revenue during FY. 2) Shift in revenue over last FY. 1) Africa, Middle East & the Indian sub-continent during FY. 2) Shift in revenue over last FY. 1) Far East and Australasia revenue during FY. 2) Shift in revenue over last FY.

Ind.Av e. 13.5% Decre ase -

1) 781 m 2) 18.5% Inc DIAGRAME 2 INDUSTRY LIFE CYCLE Growth Shake

DIAGRAME 1 FULE & REVEMUE ANALYSIS Year 06/07 Year 07/08 Year 08/09 Year 09/10 0 1 2 3 4 5

SALE Development

Maturity

Decline

Fuel Cost Revenue BA

.TABLE 5 MAJOR PRODUCTS AND SERVICES  Scheduled passenger services  Cargo handling TABLE 6 BA TOWS ANALYSIS  Aircraft maintenance

TIME  Ancillary service

ENVOIRNMENTAL CHANGE ( OPORTUNITY & THREATS ) CSR Global Competition & Emerging market STRATEGY Recession Price Dis. Growth ST RE NG HT WE AK NE SS ES  Ecnomies of scale  Brand identity  Operations  Marketing & sales  Open skies  Inadequate liq.  Currency disadv.  Firm infrastructur  Low fuel hedging  HRM Environmental Impact scores +5 +4 +3 +5 0 0 0 -2 -3 -2 +17 -7 0 +2 0 +2 -1 -3 -3 -3 -2 -3 +4 -15 +2 +5 +3 +2 +3 0 -2 -3 -3 -3 +15 -11 +4 +5 +3 +3 +3 0 +1 0 -1 0 +19 -1

Technology Achievement +4 0 +5 +5 +4 -2 0 0 -3 0 +18 -5

BP & other Envi. factor + 0 -1 0 +1 +1 -1 -3 0 -2 -1 +2 -8 15 16 14 18 13 0 1 0 0 0

0 1 0 0 1 6 8 8 14 9

TABLE 7 LUFTHANSA, BRITISH AIRWAYS, IBERIA and AIR FRANCE-KLM suffer from swine flu threat - SHARE WRAP table. World s airline, airport & aviation supplier stocks were punished in front of fear of global pandemic on the scale of 2003 SARS outbreak. Airline Fall/Rise in shares Airline Fall/Rise in shares LUFTHANSA -9.3% BRITISH AIRWAYS -7.8% IBERIA 6.6% AIR FRANCE- KLM 6.6% TABLE 8 GLOBAL IMPACT OF SEPTEMBER 11 Description IATA states fall in member airlines Fall 63% Description Radical capacity cut by airlines Fall 9% Description Decline in traffic. (R2) Fall 23%

TABLE 9 COMPARISON OF MERGERS AMONGST OTHER PLAYERS Which European airline mergers might work Potential combination Air France-KLM / Lufthansa Lufthansa / BA AF-KLM / BA Combined Mkt. ( bn) 12 10 8 For Majority slots at 5 of EU largest airports. Complementary routes.Labor/buying synergies Lufthansa s strong balance sheet. Diversifies BA from US and Lufthansa towards US Would be Europe s largest carrier. Majority of slots at 3 of Europe s largest airports. High synergies Affordable SAS to provide traffic for Lufthansa s German hubs. High synergies Against High market share at hub airports. Different working practices. AF partly government owned High market share at Heathrow High market share at hub airports. AF partly government owned. Different working practices

Lufthansa / SAS

High share on Germany-Scandinavia routes. SAS needs restructuring. Both unionized but working practices different British Airways / 5 BA already has stake. Strong transatlantic High route overlap on London-Spain and transatlantic. Iberia market share. Iberia s strong balance sheet British Airways pensions/unions TABLE 10 INDUSRTY REVENUE DIAGRAME 3 Average industry Revenue increase / decrease 2006 2007 's 's Cathay. 5125 (R40B) 6,359 Lufthansa Total Average Inc / decrease Refs:16555 21,680 10,840 18,698 25,057 12,528
HIGH 4-Differentiation 3- hybrid 5- Focused Differentiation

2008 's 7,304 20,736 28,040

2009 's 5,651

Perceived

Product/Service

2-Low price 6

18,600 24,251
Benefits 1- No frills 7

14,020 12,125 Inc Dec Inc 15% 11.9% 13.5% Lufthansa Anual Reports. Cathay pacific annual Reports 2006 07 08 09 COMPARATIVE ANALYSIS Description BA plc 8992 0.22 40627 224 11.6 yrs 2.45% 2.73x Cathay pacific 5651 0.21 26700 116 10.5 yrs 5.04% 0.62x

LOW LOW

8 HIGH

TABLE 11 S.No 1 2 3 4 5 6 7

Lufthansa 18600 0.32 58083 274 13.1 yrs 1.23% 0.67x

AF-KLM 20259 0.19 104720 646 9.1 yrs 20.56% 1.39x

Revenue (m s) Revenue per employee (m s) Number of employees Number of planes Age of planes GP margin Gearing ratio

TABLE 12 BA TOWS COMPETITORS ANALYSIS Environmental change (opportunities and threats)

CSR STRATEGY GLOBAL RECESSION FACTOR COMPETITION & PRICE DISCOUNT GROWTH Emrg.Mkt Technology Development BP& others Env. Factors OVERA LL IMPECT

Lufthansa

-3 global policies

+1 strong partnership

share

+2 advantage with BMI

+4 975 destintions

+2 Mobile boarding pass

0 impact

No

AIR FRANCEKLM VIRGIN ATLANTIC

-5 statement & policies +1 CO2 reduction

+3 KLM Global leader

+2 Fierce Competition

-2 75m costumers -2 major routes

+2 E service&

-1 less impact -1 less impact

-1 less impact than BA

-3 30 routes broken down worldwide

+1 flight entertainment

CATHAY +1 20% fuel +4 stable share price PACIFIC Major efficient S/H AHK TABLE 14 STRATEGIC OPPTIONS STRATEGIC OPPTIONS

+3 more than 110 destination

-4 -2.08% charge EU traffic

+3 self print boarding pass

0 alternative supply chain

+6 high BA compet itor -1 Declini ng -5 needs to moder nize +7 risky for BA

DO NOTHING ( STATUS QUO)

SUTABILITY  B.A is making financial losses so need to change strategy for improvement.

AVAILABILTY

FEASIBLETY  Poor employees relationship  Very competitive industry requires change in strategy to remain in competition.  As per annual report 2010 high debts make it unfeasible to sell the company.  High legal cost for making crew redundant

DIVERSMENT ( SELL OR BREAKUP )

MERGER / ACQUSITION

 No further growth of company.  Bad Effect on brand / Bad repute.  No value Addition for share holders.  Cabin Crew dept. can be out source as in loss.  2) Terminal 5 can be open for other airlines  Competitive industry and current economic environment makes it suitable for merger.  Synergy of 534 million dollars after merger with Iberia in fifth year.

 Market share rose by 7% after news of B.A and Iberia merger.  share holders are not interested in closing down the company.  Negative effect on brand and customers.  Quality staff can be an issue.  Market share rose by 7% after news of B.A and Iberia merger which indicate share holders are not interested in closing down the company

 5.6 billion dollars employee pension plan deficit.  Iberia can walk away from deal.  Cultural gap between two companies.

TABLE 17 - Merger benefit table. Description  Total cost saving. (R16)  Iberia will bring cash amounting. (R16)  Share of the Europe-Latin America market. (R16)  BA and Qantas will carry passengers on 474 aircraft flying to more than 230 destinations. (R16)  Merged company turnover around. (R17)  Number of planes. (R17)  Number of destinations. (R17)

Result $875 million $3 million 20 % 71 million/year 15,000 million euros 419 205

TABLE 18 APPRAISAL OF LEADERSHIP OF WILLE WALSH MANAGERIAL GRID Blake & Mouton Authority Compliance Score (9.1)  Concerns with financial performance  Long Term interest of BA  Taking union to court  Known as Slasher  Bullish management style  Job cut air Lings 2500 Category AII  unilateral decisions  Pragmatic Approach Autocratic Contingency theory  Low LPC, Disliked by staff  Change management move in 2008  Strong position, taking union to court  L M relationship, uncompromisingly direct in his dealings RECOMENDATION Vroom & Yetton M. GII  Participation required  Communication  Coordination, avoiding unilateral  Using knowledge of work in union  Training (T5 chaos)  Need high LPC No sign of country club Score (1.9)  Conflict with cabin crew  Removal movement in past 2008

PARTICIPATIVE LEADER SHIP Vroom & Yetton Model

Situational Variables  Likelihood that cabin crew will accept  No compromise by W.Walsh  Needs participative decision Transforming leadership  W.W working for change  Powerful CEO  Tough since joining B.A  Clear vision but not appealing to all

Organizational culture
 Hierarchal and militaristic (80 s)  Command & control Culture  Past examples: Michelle McGregor, Pensions Manager Salary raised 353,509 514,254  Court cases on executives 2004-6 RECOMENDATION  Learning from past/experience  Former CEO Colin Marshall (90s) example  Training programmes  Participation  Colin s approach, designing people--- Consistency by later CEO

leadership behavior  Consideration-low  Initiating structure  Ohio Style leadership studies  Tired of negotiation(w-walsh)  No apology for focusing on profit (W.Walsh)

TABLE 19 EMPLOYEES RELATION CHALLENGES 1. Over Staffing 2. Higher rate wages British Airways * Senior Mgt and Middle management (E11) * Cabin Crew (E2) * Compared to Gatwick Staff (E11) * Compared to industry average (E4) * Highly attractive reward package (E6) * extra 4.5% contribution from July 2010 (E12 ) * Closure of final salary scheme (E5, E10) * Most of employees represents unions (E8) Manage employee costs increase create Disputes (E7) * 1st class hotel accommodation package * Time off after long haul flights * Higher pay for long haul flight staff (E3) * Travel Perks (E10) *Unilateral decisions Virgin Atlantic * Recruiting more staff as the Airline expanding * Industry average very low compared to BA * provide pension and private medical scheme * unionized but effective Communication with mgt * whole lot of benefit for full-time employees

3. 4.

Much favorable Pension terms Heavily Unionized workforce

5.

Luxurious terms & conditions of work

Poor communication

* Decision making involve staff & management

R2-ilo.org/public/english/dialogue/sector/techmeet/imhct0 R7 article13.com/A13_ContentList.asp?strAction R9 britishairways.com/travel/comreluk/public/en_gb R13 britishairways.com/travel/csr-marketplace R16-businessweek.com/globalbiz/content/dec2008/gb2008124 R17-news-spain.euroresidentes.com/2010/03/merger R21centreforaviation.com/news/share-market/2009/04/28/ R22A britishairways.com/cms/global/microsites/ba_reports/ R23 www.euromonitor.com R22 www.datamonitor.com

R2 www.FT.com R26 investegate.co.uk/Article.aspx?id=200911130700034497C R25 investegate.co.uk/Article.aspx?id=200911130700034497C R27 subsidiaries see notes R28-dailymail.co.uk/debate/article-1289698/DAILY-MAIL-COMMENT R29 - telegraph.co.uk/travel/travelnews/air-passenger-duty R30 News BBc.co.uk R31 www.Ba.com/ar/2009-2010 R32 britishairways.com/cms/global/microsites/ba_reports0910 R33 - http://press.ba.com/?cat=7 R34 - www.bashares.com Investor Update - May 2010