THE INTERNATIONAL AIRLINES GROUP`S STRATEGY

THE INTERNATIONAL AIRLINES GROUP’S STRATEGY 13 THEINTERNATIONAL AIRLINES GROUP’S STRATEGY

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Tableof Contents

Executive Summary 3

Introduction 4

IAG SWOT Analysis 4

Strategic Options 7

Strategic Choice 13

Implementation Plan 16

Recommendations 22

Conclusion 22

Appendix 25

Appendix 1: The Safe Model 25

Appendix 2: the strategy process 25

References 26

Executive Summary

(Introduction).There is a lot of competition both regionally and globally in theairline industry. Most of the airline companies are opting to changetheir method of operation to streamline their flights according thecurrent competitive condition in the industry. The InternationalAirline group is in the league of diversifying and differentiatingits services to take advantages of available opportunities. Thecompany’s SWOT analysis identifies the financial strength of thecompany and the market opportunities that it can venture. These willbe key in counteracting the economic crisis faced by many countriesin Europe. The recommendation is that the group should use itsfinancial well-being to venture into new areas and diversify itsservices, and this would cushion it from stiff competition in theregion and the European financial crisis. (Strategic choice) TheBowman’s clock and Ansoff’s strategy are two methods that wouldgive the company a bright future if applied as choices for thegroup’s strategy. The section recommends the use of Ansoff’sstrategy for its suitability. (Strategic option)The strategic optionidentifies the Ansoff’s strategy through its four pillars, that is,market penetration, market development, product differentiation andservice diversification. Findings settled on market penetration asthe most appropriate strategy for the group and recommended itsimplementation through a plan. The implementation plan of thestrategy involves the identification of objectives to and theidentification of the supportive environment for the strategy.(Implementation plan) The implementation plan also discusses thevarious factors that are likely to affect the strategy like theresource availability, resistance to change, organizational culture,structure, and leadership. The plan recommends a recommends asuitable timeline for the implementation of the activities and themanagement commitment to the plan.

Introduction

Theairline industry is gradually inclining to the global perspective.Most of the companies in the industries have interests in variousdestinations with most of them eyeing regional markets. Due toincreased competitions most of them develop customized policies todeal with the arising problems and to maximize their profits. TheInternational Airlines Group, commonly abbreviated as IAG is one suchcompany. The company emanated from a merger between the BritishAirways and the Iberia Airways, and the two came together to takecontrol of the individual markets and extend their services to a newarea. Companies use various strategies to develop. A strategy is aplan of action that identifies a list of activities that facilitatethe achievement of a set goal.

Previously,the two companies operated independently with each having a niche.The need to expand and inflate the capital base to deal withchallenge sin the European economy instigated the two companies tocome together and increase their bargain (Merkert &amp Morrell, 2012P. 855). It is one of the largest in Europe and also the sixthlargest in the world on the basis of returns and market segment. Withover 349 aircrafts, the company reaches to over 200 destinations andit is a choice for many travelers.

IAGSWOT Analysis

Likeall the companies, the airline group has a profiled analysis of thefactors that affects its operations. First, the group enjoys highcapital base since it has stakeholders from two countries, that is,Britain and Spain. Its shares trade in both Britain and Spain andthey are some of the most preferred in the stock market. Secondly, ithas a competitive edge against other companies, and this makes itenjoy a large market segment by reaching out to 200 destinations inEurope. Being the third best performing company in terms of profitand scope in the region, it has a significant control in theindustry.

Aspart of its weaknesses, the company has not integrated a favorableenvironmental control policy. It is sometimes the center of criticismfrom environmental bodies due to tonnes of carbon its jets releaseinto the atmosphere (Budd et al. 2014 P.76).The group has a primeopportunity in the region and the world over due to its financialmuscle.

Theescalating economic crisis in Europe may work well for big companieslike IAG, and it can venture into new areas where other regionalcompanies have not yet reached. The favorable market environment thatfacilitates the entrance of international companies in new marketseither their merger or as autonomous investors is another primeopportunity for the company to ha an international face.

Finally,as part of its threats, the airline group is not averse to theeconomic situation in Europe. There is a reduce need to travel, andmost companies were experiencing reduced profits. Unless the companyintensifies by increasing the number of flights through expansion oftheir operation area, its future prospects of a solid profit patternwill be subject to compromise.

Insummary, the financial strength of the company can be instrumental indealing with the threat of competition and financial crisis byexpanding the market through development. The rationale behind thisis that there is a big opportunity for expansion in the region aspart of globalization. Its reputation in the stock market is likelyto attract new mergers. The strength can also be used to establishcompliance mechanisms to avoid being in the spotlight for pollutingthe environment.

Thereport aims at analyzing the most viable strategy for InternationalAirlines Group and identify the potential strategies to deal with thevarious threats facing it. It will also single out the most favorableand feasible strategy to deal with the identified problem and developan implementation plan for it.

Thereport finds direction in the following objectives

•Toidentify the strengths and opportunities of IAG and how best to applythem to deal with the threats and weaknesses.

•Toanalyze the strategic options faced by IAG and identify the availableopportunities.

•Toidentify the available options from the group’s strategies andsettle for the most convenient.

•Todevelop an implementation plan to the identified strategy.

Strategic Options

Theairline industry is becoming dynamic every day. The strategiesemployed by the companies reflect the competitive and challengingnature of the industry (Yu, 2012 P.6). International Airlines Groupis a merger of two big companies. They came together to takeadvantage of the market and explain their area of operation. Theapproaches occur in three perspectives. That is the past, present andthe future.

Inthe past, the two companies experienced the challenges of operatingalone with curtailed efforts of expansion (IAG, 2012 P. 6).Thelimited capital forced the companies to retain the number of flightsin the area of operation without extensions. The British Airways hada small share in the Heathrow airport and did not have a significantshare in the region. The most viable strategy to counter this was tolook for a partner with local significance together institutecross-country flights. Regional flights proved to be more profitablethan the local destinations and the companies from both countriesproved to be mutually beneficial allies (IAG, 2013 P. 8).

Currently,the group has viable prospects of improving its face in the airlineindustry. The current European crisis has forced some companies tolook for stronger companies to shield themselves from losses or toquit altogether (Burghouwt et al., 2014 P. 16). As part of its growthstrategy, the group is absorbing smaller companies to increase itsshare and slots at the different airports. The first company to givewas British Midland International. The company gave up its shares atHeathrow airport and helped IAG to raise its share from 45% to 54%(Lange et al., 2015 P. 9). Besides this, the number of slots given tothe company rose by 11 and consequently increased the number oflanding that airlines belonging to the group could make at theairport. Vueling Airline Company also gave up its share in Barcelonaand gave the group a strong bargaining power in different airportswhere it operated (Pearson &amp Merkert, 2014 P. 23).

Anotherimportant strategy used by the group to retain and woo more customersis the retention of brand names of the individual companies. TheBritish Airways retain its profile in Britain, and it continues togive the impression to the loyal customers as well as another newtraveler. In Spain, Vueling and Iberia airlines also retained theirprofiles in Spain (Merkert &amp Morrell 2012 P 854).

Thecompany`s future inclines on the ability of the company to takeadvantage of the emerging situations to develop a cushion effect onits profits. One of the strategies that can work well for the companyis the Bowman’s strategy. The strategy analyzes the competitiveposition of a company in relations to that of its close competitors.It is advantageous in that it focuses on cost and differentiationapproaches to a company’s services. The aspects of the Bowman’sclock can describe the possible prospects for the continued operationof the company. First, cost plays an important role creating a bigmarket share in the industry for any company (Nicolaidis et al., 2012P 679). Since the company has an established market segment, it canreduce it prices to different destinations either through permanentdeduction or as a promotional method of reduced prices occasionally.Such a move will help to avert the tendency of reduced flights orpeople opting for the fairly charged flights by other companies(Gwiazda, 2013 P. 85).

Figure1.The Bowman’s Clock.

Secondly,Bowman recommends the differentiation of services that companiesrender to their clients. IAG can use the strategy of beefing up theirservices by giving them unique look in the industry. The group canintroduce a unique aspect to accompany its array of services toattract customers (Shakhshir, 2014 P 977). Most of the times, theservice do no not significantly change the prices of the servicesrendered. An example would be the introduction of unique crewservices onboard. Focused differentiation would also be imperative inhelping the company retain its position in the industry and possiblyimprove it. The airline can focus on the specialized needs ofdifferent travelers and offer them customized services onboard and inthe various destinations.

However,the strategy focuses on gaining a big market share. It is not veryclear on the effects on the company’s profits. Cost reduction wouldlead to an increased market share but it does not explain whether theprofits would have a sustainable positive trend.

TheAnsoff strategy of development can also work for the good of thecompany. The strategy approaches growth from our main areas, that is,market penetration, market development, product development andproduct diversification. The following table shows what the group isalready doing to improve its position.

Market penetration

What the company has done

  1. An intensive continuous marketing in the countries of operation

Product differentiation

What the company has done

  1. Introduction of free WIFI though not in all the aircrafts

Market development

  1. Merging with other companies like Vueling and IBM

Product diversification

  1. Provision of customized services to different classes of travelers

Figure2:Ansoff’s Strategy

Theairline can apply four aspects to deal with various problemsaffecting it. First, the airline needs to penetrate new andunventured markets (Fung, 2014 P. 23).With its large collection ofaircrafts, it has the capability of increasing the destinations tomore than the current 246. The airline group can also intensify itsservices in the established niches through wooing customers to expandthe loyal number. Through the market development, it will earn extraprofits from low-cost efforts since it already enjoys a significantshare of the region (Shaw, 2012. P. 41). As mentioned in the Ansoff’sstrategy, product development is a major input in increasing acompany’s profits. IAG can customize the services to reflect theneeds of different customers. If implemented correctly, the cost ofdelivering the services will be far less than the profits that wouldaccompany it. Lastly, Ansoff proposed diversification of services asa primary strategy towards a company’s success (Prasad, 2014P.45).On this aspect, IAG should focus its services on existing areasand offer personalized flight services as per the demand. The onboardservices should be diversified to meet the needs of differenttravelers and develop a sense of loyalty.

However,the Ansoff’s strategy has various setbacks. First, marketdevelopment increases rivalries in terms of competition. The groupwill intensify the existing competition and this may lead to reducedcosts. Market development is risky in that the new markets have theircustomized challenges. The tendency may have adverse effects on theprojected profits. Product diversification and differentiation mayhave limits since the initial services cannot be changed. Overlydiversified services may be costly to the group.

Strategic Choice

Inorder for the company to deal with eh internal factors affecting it,it would be prudent to work on its background and identify thecompensatory effects of the factors affecting its operations(Whittington, 2014 P. 18). The TOWs model finds a prime applicationin the case of IAG. From this model, the elements of the SWOTanalysis interact with each other. The model gives a comprehensiveapproach of the group’s SWOT analysis and it points out the variousstrengths that can give the company a better edge over othercompetitors. It also gives shows the possible remedies for weaknessesand threats. The strengths and the opportunities neutralize theeffects of the threats and weaknesses. However, the combinations inthe matrix may not always work towards complementing each other.

Figure2: TOWsModel

Internal strengths

  1. High operating profits

  2. Huge capital base

  3. Many aircrafts

Internal weakness

1.poor environmental policies

Opportunities

  1. Growing airline market

  2. Good reputation the industry

SO

  1. The strong financial muscle can take advantage of the available markets.

  2. Good reputation can attract mergers

WO

  1. The opportunity of expanded markets presents an opportunity to adopt the best environmental practices in the various regions and possibly dot the best in the current situation

Threat

  1. The European financial crisis

  2. Competition from other companies

ST

  1. Competition is solvable through market expansion.

  2. The financial crisis can be solved by engaging the strong capital base into new markets.

WT

  1. Overcome environmental weakness by applying finances to invest in low pollution fuels

  2. Cushion the effects of the threat through venturing into new markets to widen the customer base.

Marketdevelopment is the best strategy for the company after a carefulanalysis in the SAFE model. The model looks at the suitability andthe acceptability of the strategy. It also analyses the feasibilityof the identified strategy with reference to the projected outcomes. The model is advantageous for the business in that it identifies thestrengths that the company can employ to implement the best strategy.The three qualities identified in this model give a comprehensiveview of whether the strategy can be achieved and also shows itssuitable features. However, it does not give recommendations for theshortcomings of the efforts towards the strategy. Not everythingworks well for the strategy and this does not find a place in themodel.

Figure3: The safe Model

suitability

  1. The group’s mission is to consolidate travel both locally and globally. In doing so, the company has to extend its operations to new areas. Under the Ansoff strategy, this will include market development through mergers and foreign investment both in the region and around the globe (Agnihotri, 2013 P. 101).

Acceptability

  1. The stakeholders experience as outlined in the 2014 annual report was the establishment of a sustainable dividend payment (IAG 2014 P.10).Such a condition is only necessary if the profits of the company continue to swell.

  2. Venturing into other markets will bring in profits though it involves risk taking. However, the risk is not unbearable by the group since it has a good financial base to cushion any early possible financial drawbacks.

Feasibility

  1. Market development is viable for the company and its practicality is evidenced by the two airlines it has acquired recently and there is a smooth flow of services.

  2. As of 2014, the group earned a profit of 1.3 billion euro which was a positive trend from 770 million Euros in 2013. The earnings and the capital held by the group will enable it to increase its services in the region and across the globe (IAG 2014 P.12).

Marketdevelopment is therefore the most appropriate approach for the groupto have productive future and settle the effects of threats andweaknesses.

Implementation Plan

Thisphase involves the activities towards making the preferred strategyideal. The implementation of the market development consists ofvarious activities like marketing the group to acquire new mergers.

Thevision, mission, and values

Thesuitable vision under this strategy is to be a leading air servicesprovider globally. The vision will find support in the vision ofdelivering quality flight services in Europe and the world over. Thevalues for this strategy will find inclination in the major qualitiesthat the group aims at developing. They include

•Capacitydiscipline

•Costcontrol

•Flexibility

Thestrategy will aim at achieving various objectives

•Toincrease the number of travelers who use the services throughventuring into new destinations.

•Toimprove the services offered by the companies through productdifferentiation and service diversification

•Tointensify and fully exploit the available markets by wooing morecustomers through the delivery of better services.

Policiesfor this strategy

Forthis strategy, fundamental policies with an international reflectionwill serve to make the group better than it is currently andconsequently get increased profits (IAG, 2011 P. 12). They include

Diversity-since the strategy will involve moving out of the already establishedmarkets, the group’s management must embrace the different contextin which different settings find a home. It will require the trainingof personnel to have cultural tolerance so that it does not get abrand name like a British or Spanish institution. Secondly, diversitywill encompass the differentiation of services offered by thecompanies under the group. They will make them unique from others inthe industry. In embracing diversity, the group will continue withits culture of letting companies operate under their initial brandnames especially after mergers (Zikmund, 2012 P. 23).The move willreduce the marketing intensity since the companies are alreadyestablished in their different areas of operation.

Managementcommitment-the strategy will not be successful without the management committingitself to the implementation through the allocation of enoughresources and overseeing the process to the end. Commitment to any ofthe individual parts of the strategy needs to be devolved to theemployees through proper communication of the expected changes. Eachcompany operates in an individual niche and it understands thevarious travel needs of the customers depending on the culturalbackground. Their commitment to provide the best services in theirareas is a primary factor.

Resourcerequirement

Thegroup’s report (2014) indicates that the invested capital by theairlines will rise to 7% from 6.1%.(Ashely, 2012 P. 24). Therefore,the group will have value for the invested capital. Venturing intonew markets will require capital investment. The company has a bigfinancial base. On the primary ranking of airlines on the basis ofcapital and profits, the airline is the third in Europe and sixth inthe world. As of 2014, the profits amounted to over 1 billion Euros(IAG, 2014 P. 14).The group is in a position to venture into newmergers and improve the services as indicated by the strategy. Thestakeholders look forward to a positive trend of dividend payments,and this will be possible in the management intensifies theoperations of the company both regionally and globally.

Structure

Thecurrent management structure of the group will sufficiently managethe anticipated changes. The various directors of the individualcompanies, that is British airlines, Iberia and Vueling will becritical in instituting mechanisms to diversify the services givenoffered by the companies under their authority (George, 2012 P. 32).Due to their diverse nature and diversified settings, the companiesmay require customized services in their different localities. Theirfeedback to the board will serve a great purpose in monitoring thefeasibility and sustainability of the methods. After successfulmergers and retention of brand names, new directors will come onboard to report to the group’s chairman.

Addressingthe expected change

Aspart of the strategy, most of the services being offered by theairlines will change partly or alter completely.The idea will notbe a hard nut since the employees are already acquainted withdiversity which is a primary value of the company. In the group,diversity involves adhering to changes as soon as they occur(Bjelicic, 2012 P. 12)

Culture

Organizationalculture is important in helping organizations attain theirobjectives. International airlines group has a visible culture ofdiversity. The employees who work for the group embrace change as itcomes. It was evident with the merging of Vueling and Iberia whereby,the workers productivity was not interrupted by the process. However,the leadership will have to ensure that the expected changes do notambush the employees. They can do this through the dissemination ofinformation in good time and make the necessary preliminarypreparations for the changes.

Leadership

Thestrategy requires a championed form of leadership whereby each of theindividual companies’ leaders will see to the implementation of thechanges (Aaker &amp Joachimsthaler 2012 P. 21). Services developmentand diversification will require a task force to ensure that onboardservices reflect expected models and report the same to the boardthrough the director. On the same note, the board of directors willhave to select a task force to conduct research on the potentialareas that the group can venture into in terms of resources,competition, and sustainability.

Marketing

Thestrategy’s marketing will take the customized methods by individualcomponents of the group in their respective flight areas. Therationale behind this is that these companies understand theircustomers. The penetration of new markets will require intensifiedadvertising and promotional tours to gain significance in theindustry (Kappes &amp Merkert, 2013 P. 61). As a new airline in aregion, the company will have to employ the services of theirqualified professional so that they draw up the most appropriatemarketing strategies for the different regions. On the same note,potential merging airlines may need the exposure to group’ssuccess as part of the marketing plan to woo them in the group asthey retain their brands.

Implementationplan

Theimplementation strategy will have several tasks that will requiredifferent timelines to implement. The Gantt chart can vividly outlinethe approximate timeline for each activity (Mohammad et al., 2013 P.786).

Task

2015

2016

2017

2018

Marketing the group

Completion of prospective mergers

Marketingof the services delivered will involve activities aimed atacquainting customers with the group’s services in the differentregions (Grundy &amp Moxon, 2013 P. 57). In two years, the group canmarket its services and woo new companies into mergers as well asestablishing itself in new areas. Market development through directinvestments and mergers may require more time than the rest. Thecompany has a vision for 2020 that will make it a leading globalairline. By 2018, the group should have identified and engagedpotential airlines to merge as well as establishing themselves in newareas. The period will allow the groups champion team to comply withthe rules governing the different flight areas as well as carryingout marketing.

TheAnsoff strategy includes four factors of significance. Marketdevelopment may encounter bureaucratic challenges as per theregulations of different countries. The process of acquiring newcompanies inform of mergers may be lengthy and costly, and thecompany may have to part with large amounts of capital. The searchfor favorable niches where competition is not very stiff may alsorequire a lot of research. However, the returns expected from themarket penetration will outdo the costs of venturing. A good exampleis the acquiring of International Midland airline that raised thecompany’s share at Heathrow airport from 45% to 54% (Button, 2014P. 28). The share capital was a major contribution to the group’spositive profit’s positive trend.

Recommendations

IAGmay put in place measures that will ensure a brighter future thanwhat it is experiencing today. First, the group should focus on thestrengths that will enable it to address the threats and takeadvantage of the opportunities. Its strong financial muscle should bean object of venturing into new areas that will lead to increasedprofits.

Secondly,the management should adhere to the implementation plan to achieveservice differentiation and diversification within the first year ofthe plan. Market development and penetration requires a longer spanthan the others. To achieve this, the management should stick to thevalues of diversity and flexibility since they will be encounteringnew markets.

Conclusion

TheInternational Airlines Group has various strengths which if used totake advantages of the available opportunities the group willcushion itself against some threats. The group’s financial muscleremains as an outstanding characteristic among the biggest airlinesin the world. It occupies the sixth position in terms of profits andmarket share. The three companies that constitute the group, that is,British airways, Iberia and Vueling operate under their initial brandnames and this has been a key approach to reducing the cost ofmarketing and dealing with lengthy government bureaucracies. Thebiggest threat facing the group is the continued economic crisisEurope that is reducing the capacity of travelers. However, with theapplication of the right strategies, the group can take advantage ofthe various openings in various destinations and increase theirservices. The result will be increased profit and dividends for theshareholders.

TheAnsoff strategy of market development to be the most suitableapproach to deal with the challenges facing the group (Mintzberg &ampLampel, 2012 P.17).The group, through its powerful financial profitsand conviction, can absorb several smaller companies in differentareas of the world and gain their shares. It will also be advisableto fully exploit the already established flight destinations bywooing customers to add to the existing group. To attract newcustomers, the company can differentiate and diversify its services.To implement this strategy, the group must find direction from a listof objectives that will enable the management to set aside enoughresources for the anticipated activities as well as prepare theworkers for to embrace the changes. In a period of one year, thegroup will have implemented the diversification of services, market,and product development. Market development into new areas throughinvestments and mergers requires more time so that the groupsrepresentatives can deal with policy compliance.

Theimpacts of the strategy will be an increased number of customerswilling to travel with the individual airlines and a consequentswelling of the group’s profits (Dobson &amp Piga, 2013 P.1199).The diversified and differentiated services will attractpeople, and the cost of implementing them will be insignificantcompared to the expected profits. Indicators to evaluate the successof the strategy will incline towards increased travels in the regionand the establishments of new routes. The annual reports will alsoserve a great purpose in this by indicating whether there will be anincrease in profits.

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AppendixAppendix1: The Safe ModelAppendix2: the strategy process

THE INTERNATIONAL AIRLINES GROUP`S STRATEGY

THE INTERNATIONAL AIRLINES GROUP’S STRATEGY 16 THEINTERNATIONAL AIRLINES GROUP’S STRATEGY

Nameof student

Classname

Nameof school

Tableof Contents

Executive Summary 5

1.1 Introduction 7

1.2 IAG SWOT Analysis 9

2.1 Strategic Options 11

2.2 Past strategies used by the group 11

2.3 Bowman’s Strategy and Its application in IAG 12

2.3.1 Cost Reduction 12

2.3.2 Service differentiation 13

2.3.3 Focus differentiation 13

2.4 Ansoff Strategy of development for IAG 14

2.4.1 Previous implementations 14

2.4.2 Future implementation IAG should consider 15

3.1 Strategic Choice 17

3.2 The TOWs Model 17

3.3 The SAFe Model 19

4.1 Implementation Plan 21

4.2 Issues that could be faced 21

4.2.1 The vision, mission, and values 21

4.2.3 Objective of the strategy 22

4.2.4 for this strategy 22

4.2.4.1 Diversity 22

4.2.4.2 Management commitment 23

4.2.5 Resource requirement 23

4.2.6 Structure 23

4.2.7 Addressing the expected change 24

4.2.8 Culture 24

4.2.9 Leadership 24

4.2.10 Marketing 25

4.3 Implementation plan and Gantt Chart 25

5.1 Recommendations 27

6.1 Conclusion 28

References 30

Appendix 35

Appendix 1: The Safe Model 35

Appendix 2: the strategy process 36

ExecutiveSummary

Thereis a lot of competition both regionally and globally in the airlineindustry. Most of the airline companies are opting to change theirmethod of operation to streamline their flights according the currentcompetitive condition in the industry.

Tobe able to set foot and stamp authority in the market, innovation andstrategic planning is inevitable. Many companies currently have shownsuccess in the listing through the application of strategic planning.

Strategyplanning acts as eye opener that shows the company their state whenit comes to development and growth. Through this, the company can beable to find out their weakness and improve on them while makingtheir strengths their strongholds.

Thispaper aims at providing International Airlines Group a strategic planthat will make it more successful in the industry. This plan aims atsetting IAG at a vantage point when it comes to this airlinesindustry through the forecasting and analysis provided by the paper.

Thepaper will introduce the company, what it stands for and the currentposition it hold in the industry. Then using Bowman’s clock andAnsof strategies, the paper will be able to compare what the companyis doing now, what it did in the past and what it can do in thefuture.

Strategicchoice options will also be discussed in the paper. Borrowing fromthe analysis of the strategies above, the paper will be able to comeup a choice based on TOWS analysis and SAFe study on the company.

Thispaper will provide recommendations as it analyses the strategicoptions in fine detail. After wards the paper will be able to come upwith a well thought conclusion that will can applied across board byany other firm, whether in the airline industry or not.

1.1Introduction

Theairline industry is gradually inclining to the global perspective.Most of the companies in the industries have interests in variousdestinations with most of them eyeing regional markets. Due toincreased competition, most of them develop customized policies todeal with the arising problems and to maximize their profits. TheInternational Airlines Group, commonly abbreviated as IAG is one suchcompany. The company emanated from a merger between the BritishAirways and the Iberia Airways, and the two came together to takecontrol of the individual markets and extend their services to a newarea. Companies use various strategies to develop. A strategy is aplan of action that identifies a list of activities that facilitatethe achievement of a set goal.

Previously,the two companies operated independently with each having a niche.The need to expand and inflate the capital base to deal withchallenge in the European economy instigated the two companies tocome together and increase their bargain (Merkert &amp Morrell, 2012P. 855). It is one of the largest in Europe and also the sixthlargest in the world on the basis of returns and market segment. Withover 349 aircrafts, the company reaches to over 200 destinations andit is a choice for many travelers.

Therefore,this is a large business already and the need to come up withstrategies to meet the needs of the market is very vital. The nextsections of the papers will be discussing the SWOT analysis of thecompany. Besides that, strategies will be analyzed to provide IAGwith the best advice on how to move forward and dominate the airlineindustry.

Wewill first analyze what strategies IAG have put in place, criticizethe strategies identifying their strengths and weakness. Then as thepaper ends, it will be able to provide recommendations to IAG companyon which strategy to adopt and which of the existing ones to drop.

TheBowman’s clock and Ansoff’s strategy are two methods that wouldgive the company a bright future if applied as choices for thegroup’s strategy. The section recommends the use of Ansoff’sstrategy for its suitability. The strategic option identifies theAnsoff’s strategy through its four pillars, that is, marketpenetration, market development, product differentiation, and servicediversification.

Thispaper steeled on market penetration as the most appropriate strategyfor the group and recommended its implementation through a plan. Theimplementation plan of the strategy involves the identification ofobjectives to and the identification of the supportive environmentfor the strategy. The implementation plan also discusses the variousfactors that are likely to affect the strategy like the resourceavailability, resistance to change, organizational culture,structure, and leadership. The plan recommends a recommends asuitable timeline for the implementation of the activities and themanagement commitment to the plan.

1.2IAG SWOT Analysis

Likeall the companies, the airline group has a profiled analysis of thefactors that affects its operations. First, the group enjoys highcapital base since it has stakeholders from two countries, that is,Britain and Spain. Its shares trade in both Britain and Spain andthey are some of the most preferred in the stock market. Secondly, ithas a competitive edge against other companies, and this makes itenjoy a large market segment by reaching out to 200 destinations inEurope. Being the third best performing company in terms of profitand scope in the region, it has a significant control in theindustry.

Aspart of its weaknesses, the company has not integrated a favorableenvironmental control policy. It is sometimes the center of criticismfrom environmental bodies due to tonnes of carbon its jets releaseinto the atmosphere (Budd et al. 2014 P.76).The group has a primeopportunity in the region and the world over due to its financialmuscle.

Theescalating economic crisis in Europe may work well for big companieslike IAG, and it can venture into new areas where other regionalcompanies have not yet reached. The favorable market environment thatfacilitates the entrance of international companies in new marketseither their merger or as autonomous investors is another primeopportunity for the company to ha an international face.

Finally,as part of its threats, the airline group is not averse to theeconomic situation in Europe. There is a reduce need to travel, andmost companies were experiencing reduced profits. Unless the companyintensifies by increasing the number of flights through expansion oftheir operation area, its future prospects of a solid profit patternwill be subject to compromise.

Insummary, the financial strength of the company can be instrumental indealing with the threat of competition and financial crisis byexpanding the market through development. The rationale behind thisis that there is a big opportunity for expansion in the region aspart of globalization. Its reputation in the stock market is likelyto attract new mergers. The strength can also be used to establishcompliance mechanisms to avoid being in the spotlight for pollutingthe environment.

Thereport aims at analyzing the most viable strategy for InternationalAirlines Group and identify the potential strategies to deal with thevarious threats facing it. It will also single out the most favorableand feasible strategy to deal with the identified problem and developan implementation plan for it.

Thereport finds direction in the following objectives

•Toidentify the strengths and opportunities of IAG and how best to applythem to deal with the threats and weaknesses.

•Toanalyze the strategic options faced by IAG and identify the availableopportunities.

•Toidentify the available options from the group’s strategies andsettle for the most convenient.

•Todevelop an implementation plan to the identified strategy.

2.1Strategic Options2.2Past strategies used by the group

Theairline industry is becoming dynamic every day. The strategiesemployed by the companies reflect the competitive and challengingnature of the industry (Yu, 2012 P.6). International Airlines Groupis a merger of two big companies. They came together to takeadvantage of the market and explain their area of operation. Theapproaches occur in three perspectives. That is the past, present andthe future.

Inthe past, the two companies experienced the challenges of operatingalone with curtailed efforts of expansion (IAG, 2012 P. 6).Thelimited capital forced the companies to retain the number of flightsin the area of operation without extensions. The British Airways hada small share in the Heathrow airport and did not have a significantshare in the region. The most viable strategy to counter this was tolook for a partner with local significance together institutecross-country flights. Regional flights proved to be more profitablethan the local destinations and the companies from both countriesproved to be mutually beneficial allies (IAG, 2013 P. 8).

Currently,the group has viable prospects of improving its face in the airlineindustry. The current European crisis has forced some companies tolook for stronger companies to shield themselves from losses or toquit altogether (Burghouwt et al., 2014 P. 16). This is when BritishAirways decided to merge with Iberia Airways.

Aspart of its growth strategy, the group is absorbing smaller companiesto increase its share and slots at the different airports. The firstcompany to give was British Midland International. The company gaveup its shares at Heathrow airport and helped IAG to raise its sharefrom 45% to 54% (Lange et al., 2015 P. 9). Besides this, the numberof slots given to the company rose by 11 and consequently increasedthe number of landing that airlines belonging to the group could makeat the airport. Vueling Airline Company also gave up its share inBarcelona and gave the group a strong bargaining power in differentairports where it operated (Pearson &amp Merkert, 2014 P. 23).

Anotherimportant strategy used by the group to retain and woo more customersis the retention of brand names of the individual companies. TheBritish Airways retain its profile in Britain, and it continues togive the impression to the loyal customers as well as another newtraveler. In Spain, Vueling and Iberia airlines also retained theirprofiles in Spain (Merkert &amp Morrell 2012 P 854).

2.3Bowman’s Strategy and Its application in IAG

Thecompany`s future inclines on the ability of the company to takeadvantage of the emerging situations to develop a cushion effect onits profits. One of the strategies that can work well for the companyis the Bowman’s strategy. The strategy analyzes the competitiveposition of a company in relations to that of its close competitors.It is advantageous in that it focuses on cost and differentiationapproaches to a company’s services. The aspects of the Bowman’sclock can describe the possible prospects for the continued operationof the company.

2.3.1Cost Reduction

First,cost plays an important role creating a big market share in theindustry for any company (Nicolaidis et al., 2012 P 679). Since thecompany has an established market segment, it can reduce it prices todifferent destinations either through permanent deduction or as apromotional method of reduced prices occasionally. Such a move willhelp to avert the tendency of reduced flights or people opting forthe fairly charged flights by other companies (Gwiazda, 2013 P. 85).

Figure1.The Bowman’s Clock.

2.3.2 Service differentiation

Secondly,Bowman recommends the differentiation of services that companiesrender to their clients. IAG can use the strategy of beefing up theirservices by giving them unique look in the industry. The group canintroduce a unique aspect to accompany its array of services toattract customers (Shakhshir, 2014 P 977). Most of the times, theservice do no not significantly change the prices of the servicesrendered. An example would be the introduction of unique crewservices onboard.

2.3.3Focus differentiation

Focuseddifferentiation would also be imperative in helping the companyretain its position in the industry and possibly improve it. Theairline can focus on the specialized needs of different travelers andoffer them customized services onboard and in the variousdestinations.

Forexample, for this case IAG would focus of the middle-income earners.Since they control a larger share of the market, their subsidiariesshould ensure that the services they offer have been tailored for themiddle-income earners. This group makes up the majority of spendersin England and Spain. Adding a little touch of first class servicesfor the rich would be an added advantage that will strengthen theirgrip on this focus group.

However,the strategy focuses on gaining a big market share. It is not veryclear on the effects on the company’s profits. Cost reduction wouldlead to an increased market share but it does not explain whether theprofits would have a sustainable positive trend.

2.4Ansoff Strategy of development for IAG

TheAnsoff strategy of development can also work for the good of thecompany. The strategy approaches growth from our main areas, that is,market penetration, market development, product development, andproduct diversification. The following table shows what the group isalready doing to improve its position.

2.4.1Previous implementations

Market penetration

What the company has done

  1. An intensive continuous marketing in the countries of operation

Product differentiation

What the company has done

  1. Introduction of free WIFI though not in all the aircrafts

Market development

  1. Merging with other companies like Vueling and IBM

Product diversification

  1. Provision of customized services to different classes of travelers

Figure2:Ansoff’s Strategy

2.4.2Future implementation IAG should consider 2.4.2.1Penetrating new markets

Theairline can apply four aspects to deal with various problemsaffecting it. First, the airline needs to penetrate new and untappedmarkets (Fung, 2014 P. 23).With its large collection of aircrafts, ithas the capability of increasing the destinations to more than thecurrent 246. It wil increase a grip of the company’s command of themarket. They will be reaching out to many customers. Although thecosts involved are numerous, the results are worth the investments.

2.4.2.2Market development

Theairline group can also intensify its services in the establishedniches through wooing customers to expand the loyal number. One ofthe proposed strategies would be getiing into more mergers with otherplayers in the other industry that affect them directly. A goodexample is the hospitality industry. Through the market development,it will earn extra profits from low-cost efforts since it alreadyenjoys a significant share of the region (Shaw, 2012. P. 41).

2.4.2.3Product development

Asmentioned in the Ansoff’s strategy, product development is a majorinput in increasing a company’s profits. IAG can customize theservices to reflect the needs of different customers. They shouldmake sure they take the capitalist approach and develop a brand thatpeople want to always associate themselves with. They should maketheir customers “slaves” to the brand. If implemented correctly,the cost of delivering the services will be far less than the profitsthat would accompany it.

2.4.2.4Diversification of services

Lastly,Ansoff proposed diversification of services as a primary strategytowards a company’s success (Prasad, 2014 P.45).On this aspect, IAGshould focus its services on existing areas and offer personalizedflight services as per the demand. The onboard services should bediversified to meet the needs of different travelers and develop asense of loyalty.

Theyshould consider creating their own culture when it comes to how theflight crew serves and attends to customers. A code of conduct thatmakes the customers more satisfied will suffice in such a scenario.

However,the Ansoff’s strategy has various setbacks. First, marketdevelopment increases rivalries in terms of competition. The groupwill intensify the existing competition and this may lead to reducedcosts. Market development is risky in that the new markets have theircustomized challenges. The tendency may have adverse effects on theprojected profits. Product diversification and differentiation mayhave limits since the initial services cannot be changed. Overlydiversified services may be costly to the group.

3.1Strategic Choice

Inorder for the company to deal with the internal factors affecting it,it would be prudent to work on its background and identify thecompensatory effects of the factors affecting its operations(Whittington, 2014 P. 18). It will be fundamental for this paper topropose a strategic choice for IAG. The TOWs model and the SAFestrategies will be considered to ensure IAG meets its organizationalneeds.

3.2The TOWs Model

TheTOWs model borrows a lot from the SWOT analysis and it is a reverseof the same process. It unitizes the need of understanding and theexternal environment of an organization and the internal environmentof the organization towards making sure it is well placed in themarket. For instance, in the external environment, this model is usedto analyze the threats and opportunities of firm while in theexternal environment, this model looks to explain the weaknesses andstrengths of the firm.

Thismodel is very effective and can be used in large organizations thatstatic data can be easily accessed. However, the disadvantage of themodel is that it is not robust. Therefore it only groups situationsinto either strengths and weaknesses or opportunities and threats. Asituation cannot fall in between when using the model. A strategytherefore using the analysis can fall under a strength and the sametime a weakness or opportunity. This therefore makes the modelun-adaptive to change (Evanset al, 2012).

TheTOWs model finds a prime application in the case of IAG. From thismodel, the elements of the SWOT analysis interact with each other.The model gives a comprehensive approach of the group’s SWOTanalysis and it points out the various strengths that can give thecompany a better edge over other competitors. It also gives shows thepossible remedies for weaknesses and threats. The strengths and theopportunities neutralize the effects of the threats and weaknesses.However, the combinations in the matrix may not always work towardscomplementing each other.

Figure2: TOWsModel

Internal strengths

  1. High operating profits

  2. Huge capital base

  3. Many aircrafts

Internal weakness

1.poor environmental policies

Opportunities

  1. Growing airline market

  2. Good reputation the industry

SO

  1. The strong financial muscle can take advantage of the available markets.

  2. Good reputation can attract mergers

WO

  1. The opportunity of expanded markets presents an opportunity to adopt the best environmental practices in the various regions and possibly dot the best in the current situation

Threat

  1. The European financial crisis

  2. Competition from other companies

ST

  1. Competition is solvable through market expansion.

  2. The financial crisis can be solved by engaging the strong capital base into new markets.

WT

  1. Overcome environmental weakness by applying finances to invest in low pollution fuels

  2. Cushion the effects of the threat through venturing into new markets to widen the customer base.

    1. The SAFe Model

This model is robust in naturecompared to the TOWs matrix analysis. When conducting this strategicmanagement model, the major concerns here are the macro environmentand the microenvironment. This model allows clear and unambiguousobjectives to be set. The objectives here requires very technicalanalysis and can either be grouped as long term and short termstrategies that we can use (Evanset al, 2012).For the strategy to be accepted, special considerations need to bedone and a score card is given for every strategy. The strategy thatscores the highest mark is considered for application.

This model is very efficient andcan achieve greater results based on its dynamism and specificity. Itis objective enough to set clear attainable goals that are specificto the organization. However, this model has some disadvantages. Oneit requires elite and technical skills for it to be implemented.Individuals here need to be well trained and proficient in researchin order to do the best analysis of each strategy and in the endsettle on one. The skill level required when applying this model andthe work load makes the model time consuming and relativelyexpensive.

Ideas

Suitability

Acceptability

Feasibility

Score

  1. Merchandizing Customers after traveling with IAG

3

  1. Expansion of airline group

2

  1. Advocate for Price reduction for return customers

2

  1. Strategic Mergers With companies in the hospitality industry

2

MerchandizingCustomers with t-shirts, shirts, jackets and bags after travelingwith IAG is the best strategy for the company after a carefulanalysis in the SAFE model. The model looks at the suitability andthe acceptability of the strategy. It also analyses the feasibilityof the identified strategy with reference to the projected outcomes. The model is advantageous for the business in that it identifies thestrengths that the company can employ to implement the best strategy.The three qualities identified in this model give a comprehensiveview of whether the strategy can be achieved and also shows itssuitable features. However, it does not give recommendations for theshortcomings of the efforts towards the strategy. Not everythingworks well for the strategy and this does not find a place in themodel.

Figure3: The safe Model

suitability

  1. The group seeks to increase the sales and its popularity in the airline industry. The proposed strategy is suitable to do that. This is because they will be making a connection with the customer. According to (Agnihotri, 2013 P. 101), this can lead to return customers and referrals.

Acceptability

  1. Merchandizing Customers after traveling with IAG will be another strategy towards marketing the company. They can still maintain their current marketing techniques. However, the risk of extra cost is not unbearable by the group since it has a good financial base to cushion any early possible financial drawbacks.

Feasibility

  1. Marketing and branding is one of the major agenda that the company seeks to achieve. Employing this strategy will ensure the company does this effortless. They will do it with the help of customers.

  2. As of 2014, the group earned a profit of 1.3 billion euro which was a positive trend from 770 million Euros in 2013. The earnings and the capital held by the group will enable it to acquire the products needed and brand them with company’s logo. The cost incurred can be covered by the company’s profit. (IAG 2014 P.12).

4.1Implementation Plan

Thisphase involves the activities towards making the preferred strategyideal. The goal of this section is to ensure IAG expands and grows inany way possible.

4.2Issues that could be faced

Thereare numerous issues that could be faced when trying to carry out theimplementation of this strategy. This section will look at theseissues and through the application of the discussed strategy above,we will be able to identify and define the following facets.

4.2.1The vision, mission, and values

Thesuitable vision under this strategy is to be a leading air servicesprovider globally with the largest client base. The vision will findsupport in the vision of delivering quality flight services in Europeand the world over. The values for this strategy will findinclination in the major qualities that the group aims at developing.They include

•Capacitydiscipline

•Costcontrol

•Flexibility

4.2.3Objective of the strategy

Ourproposed strategy will aim at achieving various objectives

•Toincrease the number of travelers who use the services through ourmerchandizing campaign.

  • To make sure that the company records a large number of new customers per day due to referrals

•Totake advertising and marketing a notch higher by use of Merchandizethat we give to customers. In the long run, it will reduce the costof advertising

4.2.4 for this strategy

Forthis strategy, fundamental policies with an international reflectionwill serve to make the group better than it is currently andconsequently get increased profits through increase of sales from thelarge client base the company seeks to attract (IAG, 2011 P. 12).They include

4.2.4.1Diversity

Forthis strategy, the approach will be very open to trial and error.This will require the company to be very open minded and liberal. Thestrategy requires merchandizing-clothing products that the companywill give to the customers.

Diversitywill be in the way we integrate this strategy in the differentproducts. How a logo can be put on a shirt is not the same way it canbe put on a cap or jacket.

4.2.4.2Management commitment

Thestrategy will not be successful without the management committingitself to the implementation through the allocation of enoughresources and overseeing the process to the end. Commitment to any ofthe individual parts of the strategy needs to be devolved to theemployees through proper communication of the expected changes. Theemployees should be the first to promote the branded clothing that weseek to provide to our customers. Their commitment to market thecompany and its services in their areas is a primary factor.

4.2.5Resource requirement

Thegroup’s report (2014) indicates that the invested capital by theairlines will rise to 7% from 6.1%.(Ashely, 2012 P. 24). Therefore,the group will have value for the invested capital. MerchandizingCustomers after traveling with IAG will require capital investment.The company has a big financial base. On the primary ranking ofairlines on the basis of capital and profits, the airline is thethird in Europe and sixth in the world. As of 2014, the profitsamounted to over 1 billion Euros (IAG, 2014 P. 14).The group is in aposition to venture into getting the clothes, quality for that matterand presenting them for printing.

Anotherresource that will be required to ensure the proposed strategysucceeds is to get the employees to spearhead this campaign. Thismeans every employee and stakeholder should have the right frame ofmind. Innovative in ability and sober in stature to uphold and helpachieve the dreams proposed by the respective strategies discussed.

4.2.6Structure

Thecurrent management structure of the group will sufficiently managethe anticipated changes. The various directors of the individualcompanies, that is British airlines, Iberia and Vueling will becritical in instituting mechanisms to merchandizing Customers aftertraveling with IAG (George, 2012 P. 32). Due to their diverse natureand diversified settings, the companies may require customizedservices in their different localities. Their feedback to the boardwill serve a great purpose in monitoring the feasibility andsustainability of the methods. After agreement, each of the company’swill be allowed to carry out issuance of their merchandizing withtheir preferred name and logo.

4.2.7Addressing the expected change

Aspart of the strategy, most of the employees need to be acquitted tothe new marketing strategy and support it. The idea will not be ahard nut since the employees are already acquainted with diversity,which is a primary value of the company. In the group, diversityinvolves adhering to changes as soon as they occur (Bjelicic, 2012 P.12)

4.2.8Culture

Organizationalculture is important in helping organizations attain theirobjectives. International airlines group has a visible culture ofdiversity and adaptation . The employees who work for the groupembrace change as it comes. It was evident with the merging ofVueling and Iberia whereby, the workers productivity was notinterrupted by the process. However, the leadership will have toensure that the expected changes do not ambush the employees. Theycan do this through the dissemination of information in good time andmake the necessary preliminary preparations for the changes.

4.2.9Leadership

Thestrategy requires a championed form of leadership whereby each of theindividual companies’ leaders will see to the implementation of thechanges (Aaker &amp Joachimsthaler 2012 P. 21 MerchandizingCustomers after traveling with IAG will require a task force toensure that onboard services reflect expected models and report thesame to the board through the director..

4.2.10Marketing

Thestrategy’s marketing will take the customized methods by individualcomponents of the group in their respective flight areas. Therationale behind this is that these companies understand theircustomers. The Merchandizing Customers after traveling with IAG willrequire intensified advertising and promotion in house before thecompany targets the outsiders (Kappes &amp Merkert, 2013 P. 61). Asa new airline in a region, the company will have to employ theservices of their qualified professional so that they draw up themost appropriate branding strategies for the different regions.

4.3Implementation plan and Gantt Chart

Theimplementation strategy will have several tasks that will requiredifferent timelines to implement. The Gantt chart can vividly outlinethe approximate timeline for each activity (Mohammad et al., 2013 P.786).

Task

2015

2016

2017

2018

Getting the required resources from the suppliers.

Branding of the bags, shirts, t-shirts, caps et al

Distribution of the branded Merchandize to the customers

MerchandizingCustomers after traveling with IAG is aimed at attracting as manycustomers as possible to their services. However, the main aim hereis within two years, production of the merchandize has beencompleted. The rest of the time distribution will take place. Theincreased number of repeat clients and the number of new ones thatthe company will get can measure progress. The company has a visionfor 2020 that will make it a leading global airline in terms ofcustomer base and revenue.

TheAnsoff strategy includes four factors of significance. MerchandizingCustomers after traveling with IAG will face opposition from thestaff. As simplistic as the strategy looks like, it is bound to beswept under the carpet. However, companies like Coca Cola, Pepsi, KFChave tried this and it has worked for them (Aakerand Joachimsthaler, 2012).Their sales have tremendously increased due to this strategy.

5.1Recommendations

IAGmay put in place measures that will ensure a brighter future thanwhat it is experiencing today. First, the group should focus on thestrengths that will enable it to address the threats and takeadvantage of the opportunities. Its strong financial muscle should bean object of venturing into new areas that will lead to increasedprofits.

Secondly,the management should adhere to the implementation plan to achieveordering of the clothing products, as much as possible within thefirst year. Merchandizing Customers after traveling with IAG requiresa longer span than the others. To achieve this, the management shouldstick to the values of diversity and flexibility since they will beencountering new marketing strategies.

6.1Conclusion

TheInternational Airlines Group has various strengths which if used totake advantages of the available opportunities the group willcushion itself against some threats. The group’s financial muscleremains as an outstanding characteristic among the biggest airlinesin the world. It occupies the sixth position in terms of profits andmarket share. The three companies that constitute the group, that is,British airways, Iberia and Vueling operate under their initial brandnames and this has been a key approach to reducing the cost ofmarketing and dealing with lengthy government bureaucracies. Thebiggest threat facing the group is the continued economic crisisEurope that is reducing the capacity of travelers. However, with theapplication of the right strategies, the group can take advantage ofthe various openings in various destinations and increase theirservices. The result will be increased profit and dividends for theshareholders.

TheAnsoff strategy of market development to be the most suitableapproach to deal with the challenges facing the group (Mintzberg &ampLampel, 2012 P.17).The group, through its powerful financial profitsand conviction, merchandize customers after traveling with IAG atease.

Toattract new customers and retain them, the company can differentiateand diversify this branded clothing. They should also be of very highquality something that adds up with the reputation of the company.

Toimplement this strategy, the group must find direction from a list ofobjectives that will enable the management to set aside enoughresources for the anticipated activities as well as prepare theworkers for to embrace the changes. In a period of one year, thegroup will have implemented the Merchandizing Customers aftertraveling with IAG.

Theimpacts of the strategy will be an increased number of customerswilling to travel with the individual airlines and a consequentswelling of the group’s profits (Dobson &amp Piga, 2013 P. 1199).The merchandize will attract people, and the cost of implementingthem will be insignificant compared to the expected profits. Indicators to evaluate the success of the strategy will inclinetowards increased customers that travel with the airline each year.The annual reports will also serve a great purpose in this byindicating whether there will be an increase in profits.

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AppendixAppendix1: The Safe ModelAppendix2: the strategy process