1. INTRODUCTIONBritishAirways (“BA”) is the United Kingdom (“UK”) based international scheduled andpremium airline which is the largest airline based on the fleet size (273) andsecond largest based on passengers carried as it serves 183 destinationsincluding 6 domestic destinations (En.wikipedia.org,2017). Its base is situatedin London with major airports including Heathrow, Gatwick and London Cityairports. It became a part of the International Airlines Group (IAG), one ofthe largest airlines in the world, in January, 2011 by merging with Iberia.
Itworks with many airlines with codeshare arrangements, joint business venturesand partnerships to broaden its airline networks. It has also sponsored manyairlines such as Qatar Airways as it is the founding member of the oneworldalliance (Annual Report, 2016). In this essay we will study differentmacroeconomic factors such as GDP, CPI and monetary policy of the UK economyand discuss the effects of these factors on British Airways. We will drawconclusions about how the BA is going to perform in the future.2. UK Economy after 2008 recessionMacroeconomics study is important to drawconclusions whether the economy of the country is blooming or not by usingdifferent phenomena such as Gross Domestic Product (GDP), inflation, pricelevels, unemployment rate, etc. GDP is the monetary measure of consumption (C),business investment (I), government spending(G) and net exports (NX) whichmeans it is the market value of the entire finished products produced in acountry quarterly or yearly, excluding the household work and the things thatdo not have any market value).
The general formula for GDP is as follows – (EncyclopediaBritannica, n.d.)Y = C + I+ G + NXAccording to Investopedia, ‘Inflation is the rate at which the general level of prices for goods andservices is rising and, consequently, the purchasingpower ofcurrency is falling’ (Staff, n.d.).
Therefore,GDP and Inflation (CPI) go hand in hand. Whereas there is an inverserelationship between inflation (CPI) and unemployment which is demonstrated bythe Phillips Curve.The Great Recession (2018) caused these factorsto fluctuate all over the world. From the graph we see that in the UK it causedthe inflation rate to increase in 2008 and then decrease in 2009 but still theGDP year on year growth declined in 2008 and 2009 by 0.6% and 4.3%respectively. This was caused because of the unemployment rate in these yearsas it kept on increasing and also due to cost push which generated stagflation.
But over the period the GDP of the country peaked in the year 2014 by 3.1%.There was a little fall in the GDP growth after 2014 but these fluctuations arecommon in the short run. The GDP in 2017 Q1 and Q2 saw a growth of 0.
3% and Q3grew by 0.4% because of the slowdown of Brexit, while the economy grew by1.5%. We can say that in the long runthe GDP has grown and the UK is now stable and out of the grasps of recession. TheUK does not follow Phillips Curve thoroughly. As you can see from the graph,the inflation rate and the unemployment rate are not always inverselyproportional to each other.
But in 2017, the inflation rate increased by 3.1%and the unemployment rate decreased by 4.3%.
Figure 1 (Data Source: Office for NationalStatistics (UK), n.d.) Figure 2: Data Source (graph): (Ons.
gov.uk, 2016) and (Ons.gov.uk, 2016) 3. EFFECT OF RECENT ECONOMIC POLICIES IN UK(2017)Government policies have a huge impact on the economy of thecountry. Since the Brexit vote, sterling has moved upward and due to this TheBank of England has increased its interest rate from 0.
25% to 0.50%. The changein the monetary policy of the country impacts the economy, the high interestrates have impact on various areas as well. The money borrows faced a losswhereas the money savers had a profit. The house prices increased compared tolast year.
People had to think about spending money which impacted the demandof the product as the price that people were to pay increased. People shiftedon more economic options such as Primark for clothing. This ultimately effectedthe GDP in the year 2017. The trade performance also decreased in July 2017 butthe overall trade deficit remained same. The wages did not rise but theunemployment rate decreased for this year. The exchange rates also decreased by20% (as much as in December 2008) and this will be reflected in the long run.Figure 3: (Source: Oecd.
org, n.d) 4. IMPACT OF BRITISH AIRWAYS SINCE 2008Figure4: (Data Source Iairgroup.com, n.d.)Thesource of the data for the following years is: (Iairgroup.com, n.d.
)2008-2009:Manyeconomic factors changed due to recession like the rise in oil prices,taxation, interest rates, etc. These factors hit airline industries and BA was,one of the company among many other companies, affected by it. In 2008, the company experienced arecord profit (Milmo, 2009) but thisgrowing profit was interrupted by the recession.
The company had the worstfinancial performance for the year 2009. Its revenue increased by 2.7% to £8992million and the company experienced a loss of £380 million for this period. Dueto the Great Recession, the company lost its premium members, who have alwaysbeen their priority, and the passenger number declined by 4.3%. However, thepassenger revenue rose up by 3.
1% to £7836 million. The company had to reducethe number of operating flights as passenger number and the seat load factor wasdeclining. Also, the fuel costs during this period inflated by 44.5%.