Political, legal and social factors impacting LLC and IAG
The following report will consist of some of the social, political and legal factors that could potentially affect Leeds City College and International Airlines Group as a business. I will also go over which factors are having the most significant impact on the business and how the businesses are trying to adapt and change in order to try and negate the impact of these factors and how they may capitalize on some.
International Airlines Group like many businesses in the current economic climate has seen a dramatic change in the way they have to do business due to several social factors. The most prominent of the social factors is the alteration in consumer buying habits due to the recession, as many people have a lower amount of expendable income due to the rise in cost of living prices such as food and energy bills combined with lower wages and high level of unemployment.
The reason that this makes this social factor the most severe for IAG is that while most businesses have to deal with this change a large part of the British Airways customer base is that of business clients.
Therefore due to businesses looking to cut costs to help with lower revenues many are no longer willing to pay for employees to travel first class and turn to the budget airlines. For example BA released a statement to investors regarding the future of the business ‘What we have been living through in the last two years is the deepest downturn this industry has ever faced. The International Air Transport Association (IATA) is forecasting revenues for the industry as a whole will fall by 15 per cent’ (British airways, Q1, 2010). In order to accommodate for the shift in the market due to the social factors IAG has taken to a ‘Cost driven recovery’ which refers to them relying on cutting costs in order to deal with the sharp decline in revenues that the airline industry has seen. While many were sceptical as to the success of this cost driven recovery and the severity of the cuts IAG has seen ‘underlying profitability improve in the third and fourth quarter because we moved extremely quickly to take cost out of the businesses’ (British airways, Q4, 2010). So while they have come up against adverse social factors they have managed to adapt to these changes and in fact have a far more efficient and cost effective business as a result.
Another social factor that is impacting IAG as a company is the growing support for greener energy and thus more carbon efficient aircraft that do less damage to the environment and in some cases consumer may choose different methods of travel that are better for the environment. Which has led to a more competitive travel market especially in the European market as the Eurostar provides an alternative to air travel for holiday makers. Therefore further increasing the pressure on IAG as its target market and consumer base have more choice when travelling, which could result in even lower revenues for the business in an already struggling market. This also implicates a legal factor as Carbon emissions are not only a social factor as the EU has stated that all airlines flying two and from Europe must purchase a permit and pay a fraction of the carbon they emit in order to operate within Europe. Therefore this dramatically impacts upon IAG as its operation is based in Europe therefore they will be subject to this law which sees them having to pay for ‘15% of the carbon they emit’ (Guardian, 2011).
Therefore this could significantly increase IAGs costs which would be detrimental to their recover and survival as a business and there is potential for this cost to rise even more in order to help reduce global carbon emissions as required under the 1997 Kyoto protocol. In attempts to prepare for this outcome of both the social and legal factors IAG has invested a lot in developing more fuel efficient aircraft and ‘a £597 million reduction in our fuel bill’ (British airways, Q4, 2010). For example BA has a plan of sorts regarding their future growth called One Destination and this quotation from the opening statement ‘One Destination is our commitment to grow our airline in a responsible way towards the environment, local communities, partner organizations and individuals.’ (British airways, One Destination) Clearly shows that they have taken these factors into consideration and its influencing their business decisions. So therefore IAG is already prepared for any changes that may occur in the law and legislation so will not be greatly impacted should any more changes occur and they can in fact use this as an advantage. As their competitors may be less well prepared for these changes and have to go through radical changes in order to accommodate them which could cost them time and resources, while IAG can use the resources on promotion and make it clear they already meet the standards required.
A political factor that is having a significant impact upon IAG is that they rely on politics to allow them to continue to expand and increase the number of flights and destinations they offer customers. As in order to expand their business and increase their value and profitability they require the support of the government in order to build new airports and expand existing ones. The most prominent example of this political factor having a negative impact on IAG is the delayed Heathrow expansion which is ‘hurting aviation industry’ (Guardian, 2012). As many airlines including BA are based out of the airport and there is great demand for the expansion. There isn’t a great deal IAG can do to deal with this external factor as without the political help they can’t expand their services. However IAG have managed to use the social factors to their advantage as while most airlines managed to adapt to the change in economic climate some such as BMI baby didn’t. So IAG purchased the failing airline witch also operated a large number of its flights from Heathrow therefore allowing BA to expand their services by purchasing the failing airline for its Heathrow slots. This therefore helped them significantly as not only did it allow them to expand it allowed them to do it without their competition being able to do the same. The external factor that has had the most significant impact on IAG are the social ones that all businesses are currently facing as a result of the banking crash back in 2009 as people and businesses had less to spend and where looking for ways to cut down on expensive.
Therefore with BA being seen as a more upper class airline its target market of businessmen were turning to the budget airlines in order to reduce their expenditure in an attempt to reduce the impact of a slower market. As a result of this BA joined with Iberia to form IAG as they believed together they could overcome the downturn in the airline market. They also came to the realisation that their core business model would have to change in order to negate the impact of less people flying with them and in general, so they looked to make a cost driven recovery by reducing expenditure to improve profits. IAG has not only managed to survive the economic downturn and the shift in consumer spending habits, they have managed to increase their value and improve their business. As they have managed to make a far more cost efficient business and have been able to beat out some of the competition and expand. An example of this was the purchase of BMI and its Heathrow services therefore increasing the number of flights they can offer customers that their main competitors such as virgin air cant.
Therefore increasing IAGs position in the market and strengthening the business and with it profits and share value. Leeds City College has also been subject to changing external social factors especially the change in consumer buying habits even though it isn’t a profit driven business in the same way that IAG is. However the colleges still rely on students to gain funding and while nothing has really changed in that regard the raise in the cost of living has made getting a job seem like the more suitable option over staying in education.
In order to prepare for the potential of lower student numbers and therefore less funding LLC will have to budget appropriately and in accordance with the funding they receive for the number of students enrolled at the college. This could involve less subsidisation for trips, printing budgets and even potentially redundancies. This also ties in with political factors as the different political groups in the UK have very different views on education and where it should be going, so should the next election come around and a new political party come in the college may once again have to adapt to the changes. This could be positive or negative depending on the choices made by the political party in power for example they could increase the education budget and allow for further expansion and the creation of new funds to help those enrolled or it could be the opposite and the college may have to deal with further cuts in education. As far as being able to prepare for these changes there isn’t a whole lot the business can do other than ensuring it’s as cost efficient as possible without compromising the quality of service it provides to the students. So should the budget be cut they are ready for it and if it’s increased they have new funds to help the students with and spend in other areas.
Leeds City College has also been exposed to other external factors including that of legal changes to the education sector and therefore the college, as the current government has changed the law regarding the compulsory education leaving age from 16 to 17. Meaning that all must remain in some form of education until they are 17 a year longer than previous generations, this can be seen as both as a positive and negative for LLC as in the short term there is potential for confusion in students and what options are available to them. However in the long term it can be a positive as more people have to stay in education and therefore there is a larger potential market for the college’s services and therefore opportunities for the business to expand in relation to demand. In order to prepare for the changes in the legalities of the education sector LLC must ensure that the options are made clear to students about what options they actually have as many could be under the impression that they have to stay in the school they already attend. Therefore without the correct promotion of the change in the rules the competitive aspect of the education sector at this in particular stage could be lost. In summary for Leeds City College I believe the factor that is having the most significant effect on the business is the social factor caused by the current economic climate that has resulted in people having less expendable income. As it has resulted in the college having to rethink how it runs and attempt to either make cost efficiency cuts or find ways to increase the revenue they earn.
As a result Leeds City College has turned to increasing the revenue it earns in order to deal with this factor and they are achieving this through the increased use of effective marketing that targets 16-19 year olds as they are funded through government grants whereas those over this age are not. Therefore its harder to persuade those who have to pay to join the college and enrol in comparison to those that get it for free in the current economic climate. Overall LLC is coping very well with these changes as it has seen an increase in students of this target age and the marketing has helped them stay competitive with the competition from other colleges and sixth forms in the area, therefore reducing the impact of this social factor and helping Leeds City College to be successful in spite of these external factors.
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