PDM CASE STUDY ANSWER SHEETS What effect the new alliance

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Sales and Distribution Management

Case 2 :- Service Differentiation at British Airways
Since, 1990s international airlines saw increasing competition and providing services became a major factor to differentiate and a key to success. Carriers lost billions of dollars and needed to raise the airfares. Some airlines executives believed that improved service package would make increased fares more acceptable to the customers. Adopting this approach, companies started focusing on services rather than competing on price dimension. No one did it better than British Airways and in an annual poll conducted by a magazine, business travelers rated British Airways as providing the best service.
British Airways has come a long way since 1982 when it lost $1 billion, an industry record. When Colin Marshall took over CEO in 1983, everyone in the industry made fun and laughed at the carrier. Comedians referred to it by its initials BA, as Bloody Awful. Employees morale had hit rock bottom, thousands of employees were laid off, and those remaining were embarrassed to work for the world s worst airlines. Marshall s first challenge was to restore pride. To send a clear message to the employees and potential customers, he ordered newly designed uniforms for all personnel. The planes were repainted with bright stripes with the motto To fly to serve.
Marshall ensured that the airlines lived up to its new motto. He launched a major campaign to change the employee s attitude towards the service. He guessed, that many passengers, especially business travelers, wanted better service. He therefore, required all employees to participate in a two-day seminar, Putting People First, which put the airline employees in the role of the customers. In the seminar, employees discussed their own experiences with poor service.
Immediately, British Airway worked to overcome more obvious problems, such as uninteresting food, poor cabin service, and insufficient legroom. But Marshal also examined the less obvious. For example, the research revealed that passengers like to be called by names. BA employees spent several months observing passengers on flight from London to Glasgow and Manchester. The customers satisfaction score went up about 60 per cent when ticket agents addressed customers by their name. This was the beginning and BA ticket agents were expected to call customers by name whenever the opportunity arose. Multilingual employees were placed at the London s Heathrow Airport to help passengers. British Airways set up booths at JFK Airport in New York City so that they could videotape the passengers comments about British Airways service. Finally, at present, the airlines changes flight schedules according to the customers convenience.
British Airways also revamped its Concorde flights, Marshall decided to use British Airways seven Concorde aircrafts, which were losing money. This was to symbolize, the revitalised image of the airline. The company redecorated the planes and hiked fares by 30 per cent more than the first class fares that conventional jets charge. Since Concorde could cross Atlantic Ocean in half the time it takes by other jets, British Airways concentrated its advertising on the importance of time to business travelers. As an outcome, BA s Concorde achieved over 60 per cent occupancy, which was the break-even point on transatlantic routes.
British Airways also invested $40 million to improve first-class service. The airlines redesigned cabin interiors and put a video terminal at each seat. The new wine cellar offered an improved selection; menu allowed first-class passengers to eat when they wished.
In discussing service, the British Airways CEO recalled the famous Twentieth Century Limited, the train that ran from New York to Chicago. Conductors would pay to the passengers $1 for every minute the train was late, no matter who or what was to be blamed. Air traffic delays and weather problems would make it next to impossible for airlines to make the same offer. Marshall said, We could promise to make the delays completely painless with concentrated service attention. Think how many customers you could acquire for life, if and when the guarantee is cheerfully, quickly, and easily paid. The improvements at British Airways drew the attention of managers from other airlines and other services industries. The changes also turned the company around. In 1991, profits for British Airways were at an industry high of $496 million. Its average revenue per passenger, $396, was among the best in the industry. In terms of passengers carried and miles flown, British Airways became the largest international airlines in the world.
British Airways would like to provide its much lauded service to the passengers across the world. In July 1992, it finalized an agreement with US Air to form a transatlantic alliance. But it withdrew its $750 million bid for 44 per cent of US Air, as it became clear that the U.S. government would not approve the deal. The proposed deal resulted in protests from major U.S. airlines, which claimed that the British would have a substantial head start in becoming the first global airlines. British Airways second bid of $300 million for 19.9 per cent of US Air was approved in March 1993. Together, the two carriers were to serve 339 cities in 71 countries.
Questions
1. Analyse the case and identify reasons that made the British Airways a laughingstock in the industry? Why was it necessary to change the employees attitude toward service?
2. What effect the new alliance would have on the services offered by other airlines?
3. Why would a passenger pay 30 per cent more to fly the same destination?

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