Micro and Macro Economics Analysis of British Airways

Microeconomic Analysis Some of the demand and supply factors that have affected the profitability of British Airways as a company over the years include economic conditions, competition from other airlines, rise and fall in global oil prices, changes in government policy, and employees’ expenses. Economic conditions include one important demand and supply factor that affects the profitability of British Airways. For example, in the first few years of the new millennium, global recession has hit hard the company’s profitability. Generally, global recession means that the world’s economy is shrinking. A bad economy means that many people will not have a lot of money in their accounts to tour the world and in the process, affecting the company’s demand. This in the long run affects the profits of the company. Competition from other airlines is also a factor that affects the British Airways’ profitability. In the new millennium, the emergence of many low-cost airlines has really affected the company’s profitability by reducing the demand. … When global oil prices rise, the cost of jet fuel, which is a by-product of the refined oil, will also rise. This will lead to a significant rise in the price of air tickets and in the long run, reducing the demand as well as the company’s profits tremendously. The vice-versa happens when the global oil prices fall. Recently, when oil prices rose, knowing that this would affect the company’s profits tremendously, BA executives took part in an illegal act of fixing fuel surcharges. This led to the fining of BA and the executives charged with a criminal act (Thompson and Martin, 2010, p.298) Government policy also affects the company’s profitability. When the government issues travel advisories to some destinations in the world due to terrorist attacks, the number of travelers to those destinations goes down and in the process reduces the company’s profits that would have been made in travels to those destinations. For example, the terrorist attacks on the World trade center had the government informing people of how the situation on the ground was and in the process, the number of travelers reduced tremendously bringing down the company’s profits. Employees’ expense is another factor that affects British Airways profitability. It forms a big part of the company’s costs which are later passed down to the travelers and which affects demand. For example, in 2002 when the British Airways was restructuring its business operations, it had to have 13,000 job cuts. This job cuts were an attempt by the company to cut its costs by 650 million pounds. This showed how employee expenses as a factor has a big impact on the company’s profitability (Young, 2007, p.42) The market structure in which the chosen company operates in is a