Heathrow Airport Business Environment

BUSINESS ENVIRONMENT

Executive Summary

A business organization is directly related to the business environment. Therefore, the performance of a business organization is dependent upon its interaction with its business environment. Even the scope and the direction of the various tasks and activities of an organization are guided by its business environment. The various elements of the business environment pose restrictions and influence the activities of the organization.

This assignment has been written in consideration of Heathrow Airport, which is striving for the revival of the UK’s economy after recession as per the scenario given. The assignment discusses about the impact of the elements of the macro environment on business of Heathrow airport and its suggestion to introduce a third runway as a mode of expansion of the airport to support the revival of the economy.

The assignment focuses on perceiving the impact of the national environment over the business operations of an organization, comprehending the organizational behavior in their market environment and evaluation of the importance of the global factors in shaping the national business activities.

Table of Contents

Executive Summary        

Introduction        

Task 1        

1. Introduction of Heathrow Airport        

2. PESTLE Analysis of Heathrow Airport        

b. Impact of UK’s fiscal and monetary policy on Heathrow Airport (P)        

i. Effect of the European Union policies on the UK’s businesses and expansion of Heathrow Airport (P)        

a. Allocation of resources by economic systems (E)        

d. Pricing and output decisions of Heathrow Airport on the basis of the market structure (E)        

g. Impact of expansion of Heathrow Airport on the International Trade of UK (E)        

f. Impact of business and cultural environment on Heathrow Airport (S)        

e. Heathrow Airport’s response to the market forces (T)        

c. Influence of competition policy and legal mechanisms on Heathrow Airport (L)        

h. Global factors affecting the businesses of UK through Heathrow Airport (E)        

3. Recommendation        

Conclusion        

References        

Introduction^[a]

Business environment is defined as the summation of all the conditions, influences and events that enclose and affect it (Shaikh, 2010). Since, these factors largely influence the organizations; therefore, it becomes necessary for the organization to identify the factors affecting so as to design and define its policies accordingly. A business organization is affected by two types of factors, namely, micro (internal) and macro (external). Similarly, the business environment of Heathrow Airport also posed an impact upon its operations even in the period of recession.

Task 1

1. Introduction of Heathrow Airport

The London Heathrow Airport is owned and run by Heathrow Airport Holdings, Limited. It was established in 1930 with a vision of making it a world class airport. The mission statement of the airport states to provide security and safety the highest importance every time by meticulously evaluating and managing security and safety risks through best practice management systems and audit. Hence, the mission of Heathrow Airport is to make it a safe place to work. The objectives to be achieved by the airport are to ensure safety and security of employees and passengers, to ensure risk management, to ensure environmental information regulations, to avoid discrimination based on disability etc. Heathrow Airport holdings are financially regulated by Civil Aviation Authority (CAA) and Competition Commission (Heathrow Airport, 2015). The security matters are regulated by CAA and the government of UK. The airport has its own managing director and the team to manage the airport. The team is responsible for managing the daily operations of the airport and delivering the outputs of the strategies set up by the airport authorities. The Chief Operating Officer of the airport is Mr. Normand Boivin.

2. PESTLE Analysis of Heathrow Airport^[b]

b. Impact of UK’s fiscal and monetary policy on Heathrow Airport (P)

Fiscal policy is majorly concerned with the taxation and the government expenditure. It is an attempt by the government to affect the economic activities by regulating taxes and the spending of all forms of the government. Monetary Policy is an attempt by the government to use interest rates as a mean to control the macroeconomic variables, such as inflation, of an economy (Myers, 2013). Hence, these two tend to exercise control over the economic activities of the country.

The change in the exchange rate has influenced the international flight operations of the Heathrow airport. Since the position of pound has appreciated, therefore it has brought lot of profit for the airport because of the rent paid by international airlines. Similarly, the rates of interest over the assistance from the financial institutions have negatively affected the operations of the airport. Also, the tax regulations have affected the business operations of Heathrow Airport. The increased taxes have resulted in increasing the taxes over the departing passengers and thereby negatively impacting them; whereas the change in the government spending in improving the airport has attracted more traffic to the airport resulting in substantial growth of profits (Heathrow Airport, 2015). Hence, the current fiscal and monetary policies of UK have hugely influenced Heathrow Airport’s operations.

i. Effect of the European Union policies on the UK’s businesses and expansion of Heathrow Airport (P)

The policies of EU allow its members to indulge into commercial activities inside and outside the country (El-Agraa, 2011).  The industrial policy of EU prevents variations in in different countries occurring by adopting different policies for safeguarding the domestic industries. The environmental policy ensures the protection of the natural resources and environment from the various type of damage done by the industrial operations. The competition policy  tries to prohibit anti competitive contracts between companies as well as anti competitive behavior by large companies which tend to harm the competition due to the independent behavior of small companies and carefully examine the mergers of companies to ensure that whether it is about to result in a non competitive market structures.

The employment and social policy enables the creation of more jobs by the expansion of Heathrow Airport. It also makes the working conditions of the airport more hygienic, healthy and safe to work for the employees. Similarly, the reduction of noise pollution is the concern of the air transport policy of EU (Heathrow Airport, 2015). Therefore, with the expansion of the Heathrow Airport, the airport authorities will have to take care to monitor and control it.

a. Allocation of resources by economic systems (E)

The economic system answers questions like who is the owner of resources, what process of decision making is used for resource allocation and which incentives drive the economic decision makers.

The types of economic systems are Socialist economic system in which the complete power of allocation of the scarce resources to the businesses lies with the government of the country; whereas Capitalist economic system is one in which the government doesn’t have much interference in the business organizations and the resources are allocated with the help of market driven forces. The resources are mostly owned by the organizations themselves. On the other hand, Mixed economic system have a blend of both government planning and market forces which shape the operations and resource allocation of business organizations (Hall & Lieberman, 2009). The resource allocation is most efficient in Mixed economic system. In UK, mixed economic system is followed. Therefore, several operations of the airport, related to finance, security and safety, economic, transport, price, etc. are regulated by the policies of the government, Civil Aviation Authority as well as Heathrow Airport itself.

d. Pricing and output decisions of Heathrow Airport on the basis of the market structure (E)

The three types of market structures are monopoly, in which one seller commands the market and controls the price as well as output decisions; on the contrary, perfect competition type of market structure is one in which the buyer and seller understand that none of them alone can regulate the market prices. The third structure is oligopoly, in which the buyer and seller know that their individual actions can influence the market prices (Stackelberg, 2010). Hence, the pricing decisions are based on the market structures.