Q.

1 Case Study : Off to a Flying Start

In an interview on the BBC Breakfast with Frost on 8 September 2002,Rod Eddington, the Chief
Executive of BA, tried to be optimistic even though he knew that the troubles for the Worlds
Favorite Airline were far from over. The interview took place three days before the first
anniversary of 11 September and reflected on how the events in New York had affected
international airline industry, and in particular BA .The impact on air travel, customer confidence
and the industry as a whole was inconceivable.

No major international airline escaped unscathed. The international travel reservations company
Amadeus (www.amadeus.com) estimated that bookings had slumped 28% worldwide, and 74%
in USA alone. On 16 September 2001, five days after the event, Continental Airlines made
12,000 workers redundant. Within days, American Airlines (www.americanairlines.com),
USAirways (www.usairways.com),VirginAtlantic (www.virginatlantic.com) and BA started
what would eventually become a prolonged redundancies when they followed Continental
Airlines (www.continental.com) by cutting 10% of their workforce. Three weeks later Swissair (
www.swiss.com) grounded all its flights after running out of money.Belgiumss Sabena went
bust on 7 November. US Airways & United Airlines filed for bankruptcy barely eight and twelve
months later respectively. Having depended heavily on the boom in transatlantic flights for its
growth in 1980s, the implications for BA of the sharp fall in traffic across the Atlantic is
extremely serious.

Although it was natural to blame the plummeting demand for air travel on the events in the New
York, many international airline operators were already under severe pressure from intense
competition, excess capacity and sluggish global demand. At that time, BA had recently come
out of a painful internal restructuring programme which had cost thousand of jobs including that
of its formal Chief Executive Robert Ayling as well as the massive redundancy pay-outs. Under
competitive pressure from no-frills airlines from Europe, BA set out to focus on two segments of
the market-transatlantic flights and business travel-in an attempt to rejuvenate its business. It was
as many critics claimed a sensible strategy since nearly two-thirds of BA passengers belong to
these profitable segments. But the strategy did not work as global demand was declining fast.
BAs most important transatlantic partner in the One World strategic alliance ,American Airlines
which was supposed to channel thousands of passengers to BA, was in no position to help as it
was itself in serious financial trouble.

With passengers now apprehensive about flying and with the global economic slowdown, the all
important business travelers in Europe and the USA has either stopped flying or were forced to
fly economy. The loss for BA turned into a gain for the no-frills airlines, notable Ryan air
(www.ryanair.com) and Easy jet (www.easyjet.com) ,which were now taking up business
travelers as well as cost conscious leisure passengers. In 2001,BA generated 470 million pound
operating profits helping to subsidize the chronic losses (172 million pounds) of its operations in
Europe. By May 2002, demand for transatlantic flights had dropped BAs losses hit 300 million
pounds while Ryanair & Easyjet were in profit.

A series of massive redundancies, mothballing planes and route cuts for unprofitable destinations
seem to have begun to turnaround BAs fortune with a reported pre-tax profit of 230 million
pounds for 2004,from 153 million in 2003.The company is leaner and in the words of Eddington
, more robust to survive whatever bumps come their way. The future is not as certain with the
continuous threat of global terrorism, rising cost of fuel and ambivalent global economic climate.
Insurance costs are rising and in some cases it has been reported that the premium is up 10 times
the normal rate. Improving airport and in-flight security for passenger requires heavy long term
investment too. For BA, which operate over 300 aircraft, these costs amount to millions of
pounds a year. Competition is likely to be fierce against the no-frills operator as well as strong
charter carriers such as Britannia (www.Britannia.com), Airtours(www.airtours.co.uk) and My
Travel (www.mytravel.com) . there are uncertain time ahead for BA.

Questions

1. What are the major market changes that contributed to the troubles of the Worlds
Favourite Airline? Could the company have prepared itself for these changes?
2. In what ways did the company respond to resolve its problems ?To what extent do you
think it has responded to its problems?

Q.2.Differentiate between Tariff and quota. Explain the impact of tariff and quota on domestic
consumers, domestic firms and International Firms.

Q.3 Explain how Trumps changes in HI-B policy is going to make impact on Indian software
firms operating in U.S market.

Q.4.What are the major reasons for Internationalization of firms activities? Give examples?

Q.5.Explain how external economic and financial environment affects International business of a
firm.

Q.6. If India exports textiles to USA and import capital goods which trade theory can explain such pattern
of Trade? Explain this theory with the help of suitable illustration and diagram.

Q.7.Write short notes :

i) Cross-cultural issues in International Business.

ii) Comparative Advantage Theory.
iii) Voluntary Export Restraints.
iv) Difference between multinational and global companies.
v) Role of subsidies in International Trade?
vi) Antidumping duties?
vii) Drivers of Globalisation.