1. Compare and contrast Virgin Atlantic Airway’s strategic development with any other (non-virgin) airline. According to (1980), firms are under great pressure to have modern plans to be competitive and should have adequate capability to achieve their target market share. Virgin Atlantic Airways is among the most successful business ventures of the Virgin empire owned by Richard Branson. Its strategic development is rooted on the need to surpass competitors while balancing financial resources, increased revenue and maximum productivity.
As stated, Virgin Atlantic Airways is a cut-price airline that based its success in serving the lucrative traveler segment of the North Atlantic market by providing outstanding and novel customer service experience. The airline introduced luxury i. e. business travel amenities that are not offered to first-class passengers of other airlines such as state-of-the-art reclining seats, in-flight massages, hair stylists, aromatherapists and motorcycle and limo home pick-up service. Also, a luxury boat service was offered to subjugate London traffic jams.
These features among others change the travel experience of customers, may it be from first or economy classes. Virgin Atlantic Airways aims to recreate the mystique of air travel through the amalgamation of one-of-a-kind in-flight luxuries with circus side-show. However, these features are imitated by various industry rivals. The airline is awarded by various institutions for its outstanding customer service. Customer service is undeniably perfected by most Virgin business ventures.
By taking in -consideration the requirement to please customers, the airline management is constantly developing innovative plans and features that will further impressed the customers. As innovations play a very crucial role in strategic development of the airline, it is also noted that competition is the prime mechanism that prompts the management to improve and turn its services to excellent quality. Armed with massive publicity and established marketing communications, Virgin Atlantic Airlines continues to compete with major airlines, British Airways in particular.
The airline industry is characterized with stiff and rapid competition yet a small airline industry like Virgin Atlantic Airways is tough and maintains its strategic position in the market. Financial challenges are affecting most international airline companies yet the airline persistently manages to survive financial disaster by maintaining a competitive edge in superior service. In 2000, Branson sold a 49 percent stake of the airline to Singapore Airlines for ? 600 million for the intention to increase financial capability to emerging divisions of Virgin group.
While the airline was generating a strong positive cash flow, the transition from profit to loss during 2001-02 placed considerable added pressures on the group. This condition resulted to new management plans to be implemented including the doubling of size of airline’s fleet, hiring of 1,400 new employees, and offering alternatives against major competitors. The enduring success in the strategic management process of Virgin Atlantic Airways is not possible if not for the ingenuity of the concept of their vision as a team.
The aims of the whole Virgin business ventures in making a difference in their area of operations are deliberately directed to the top. Thus, they consider organizational planning and decision making as extensive processes. Generally, Virgin uses the forward planning technique, which according to (1992) provides an opportunity to ask the questions like: where are we? how have we got here? and what are we here to do? This kind of planning helps the management in establishing a set of organizational or functional objectives to provide depth to the mission statement and reflect the diversity of the company’s responsibilities.
These describe the objective and the purpose of the whole company. All in all, the strategic development of Virgin Atlantic Airways is directed to the eventual positive and sustainable progression and overall competitive advantages. In contrast, the British Airways considered Virgin Atlantic Airways as its major competitor. Due to the deregulation of the European Airline, many airlines have been able to cope with the changes and make a strategic move of entering in this travel industry. One of the industries that open its market to the airline industry is the British Airways (BA).
British Airways is regarded as one of the UK’s largest international scheduled airline. It is known for being such because of the strategies imposed by the management of the airline industry. One of the strategies utilized by British Airways is its ability to efficiently promote its brand names all over the market place. This strategic promotion has made the airline industry to continuously be known locally and internationally when it comes to travel satisfaction and convenience. Another strategy that can be attributed to British Airways as a whole is its ability to value their customers.
Herein, the company has been able to follow other airline industry to cut their service cost while providing excellent service to their target market. Lastly, the ability to strategically align modern technology and it business strategy is the most important strategy that can be attached to BA. British Airways has competently position its place to be known in both cargo flights industries and passenger flight industries not only in the European community but also in the international level.
In addition, with its strategic used of the concentric diversification which lead British Airways to acquire Go Fly, the company has reduced the cost of marketing entry but increase the profits of the organization as a whole. The acquisition to enter the airline industry to target individual passengers who wants a low cost but excellent service has made British Airlines the number one competitor in the aviation and airline industry. Virgin Atlantic Airways and British Airways will always be compared to water-and-oil in terms of competition.
Yet, it is recognized in the analysis that they constitute similar commitment of providing maximum customer satisfaction, massive marketing communications activities and brand strategy, technological innovations, and strategic management. Most companies like Virgin Atlantic and BA, find it impossible to create any kind of sustainable competitive advantage based on product/service alone. It is common knowledge that every one of the successful companies sought and found a precise understanding of how it could create a customer-centered competitive advantage.
Hessan and Whitely (1996) emphasized the idea to take advantage of the competitive situation not just by being better in how that product/service gets sold, serviced, and marketed at the customer interface. It requires that companies create breakthroughs in how they interact with customers, and design a way of interacting that makes an indelible impression on customers, one that so utterly distinguishes them from others that it becomes a brand in itself.
In the end, Virgin Atlantic Airways’ and British Airways’ ability to accumulate increased financial resources and their reputation in the UK and even world airline industry is the ultimate measurement of strategic development and performance. Cancelled or Delayed Flights In the event that Virgin Atlantic delay a flight for more than 5 hours or cancel a flight within 14 days of departure the following options are available to customers holding confirmed reservations (exclusions are shown where applicable). A Refund of unused flights, if travel has not commenced. All refunds will be credited back to the original form of payment.
Re-book/Re-route at the earliest opportunity Take an alternative flight under comparable transport conditions, to your final destination at the earliest opportunity, subject to the availability of seats in the cabin originally purchased (the option to re-route applies if your flight is cancelled, not delayed). Re-book/Re-route to a later date Take an alternative flight to your destination under comparable transport conditions at a later date more convenient to you, subject to the availability of seats in the ticket class originally purchased and seasonal supplements being paid. If the new fare is lower the difference will be refunded. The option to re-route applies if your flight is cancelled not delayed) Re-book on a Virgin Atlantic flight to another destination Subject to availability. Any additional fare cost will be charged. If the new fare is lower the difference will be refunded. VIRGIN ATLANTIC’S SUSTAINABILITY CHALLENGE environmental Virgin Atlantic is committed to reducing our environmental impacts where we can by becoming a more efficient business, leading the industry to practical and technical solutions and engaging, inspiring and empowering our staff and customers to help us meet this challenge.
THE COMPETITIVE ENVIRONMENT OF VIRGIN ATLANTIC AIRWAYS Introduction The Virgin Atlantic Airways is a UK-based private international airline that started operation in 1982. Flying up to 20 destinations in North America, Asia and Africa, it is 51% owned by Virgin Group and 49% owned by Singapore Airlines (). It competes with other local and international airlines including British Airways, the biggest and leading in UK. In 2005, it posted $2. 5B in sales and $40M net income with year-on-year sales and net income growth more or less at 37% and 900% respectively ().
With this information, it suggests firm’s bright future and industry fair share of the market. However, external and industry environment analysis is a continuous process ( 2003) that every now and then makes prediction and preparedness an integral part of strategic actions of firms to efficiently manage opportunities and threats outside its organization. The External Environment: PEST Analysis In the local environment, local elections to be held on May this year could made Tony Blair’s concentration in national issues such as health and education shift into local issues such as crime, anti-social behavior and environment ().
As a result, transport industries including aviation should consider this early the type of their fuels and fix emission loopholes. They must research oil suppliers that sell environment-conscious fuels and test its efficiency and compatibility with aircraft engines including preparation to possible fluctuations in present fuel costs. In fuel-related issue, the European Union resorted legal action against member countries like France, Germany and Italy of protecting their utility firms against foreign competition ().
As a result, prices of fuels failed to obtain efficiencies of competitive industry making oil prices for the transport sector more costly. Local aviation firms should consider this EU action significant disincentive to their cost-effective strategies because UK, unlike the mentioned countries, fosters foreign imports making oil prices for the industry cheaper. If these countries are able to liberalize the energy sector, possible cost strategy is necessary to retain the prior upper hand.
Research suggests that rural, metropolitan and London population either employed, unemployed or economically inactive dispose most of their weekly budget to transportation along with food and recreation (). Since socio-cultural segment affects economic and political/ legal segments ( 2003), aviation industry could less be influenced by the latter outcomes despite of their ambiguity (will Blair retain position or will EU countries accept the directive) because consumers are willing to pay with little regard to price, instead, value of service.
As a result, it is more strategic to focus on operations than financial structures. Another finding show that 58% of the household population has computers while 49% of which has internet connection with metropolitan areas like London posted the highest incidence ( ). This information is relevant to most huge firms like Virgin Atlantic Airways who heavily relies in e-business with its interactive website wherein customers can obtain flight schedules and book a flight with their finger tips. The other half of the population without computers can be addressed by the firm through other forms of media.
In addition, it can also verify through additional scanning the prevalence of internet cafe in rural areas where household ownership is relatively low. The Industry Environment: Five Forces New entrants in the industry basically face two difficulties: barriers to entry and retaliation from present firms ( 2003) In the aviation industry, particularly the service passenger-based ones like Virgin Atlantic Airways, in modern economies are privately-operated that calls for substantial financial requirements at the fore.
Since travel services are derived demand (), new entrants should be able to cut a share in the pie in the presently saturated market. This endeavor could result to another substantial resource to be deployed. However, with such new entrant engagement, it does not assure of intended results because competitors like Virgin already created strategic links to other country-routes including its alliance with Asian giant Singapore Airlines that makes it easy to create counter-strategy.
Boeing, the largest manufacturer of jetliners and supplier of Virgin’s aircrafts, had recently signed long-term agreement with largest aerospace parts distributor for an Integrated Materials Management (). As a result, Boeing could reduce its inventory and minimize warehousing costs because spare parts will be provided only when needed. A cost reduction strategy from a supplier can assure customers like Virgin of price management scheme, if not, its another supplier, Airbus (the once number one airline manufacturer) could be resorted.
Competitors in the industry have the same capability in terms interactivity of their web pages like Virgin. This is supported almost fifty percent prevalence of internet connection among UK market, not to mention other countries. As a result, the power of buyers to gain access to prices and services of firms increase making them knowledgeable of distinction of one from the other. Companies on their part are obliged to be more competitive especially in maintaining and updating their web sites. The country’s sea transport industry had developed super ferries while the 2003 recorded 17. % increase of UK passengers who took cruise holidays that reached nearly one million in that year (). This development would make sense to airline industry tourism and leisure market especially foreigners that like to see the national endowments. With demand for airline transport rise at faster rate than supply for it, the airline industry is required to effectively allocate its resources in a manner that exploit this supply shortage. Other airline competitors in the likes of AMR Corp. , British Airways and Lufthansa are operating in at least 150 destinations compared to Virgin’s 20 ().
As a result, rivalry among these firms against Virgin is relatively insignificant although strategic actions of Virgin that directly and significantly threat their market could spark retaliation in the detriment of relatively small firm. The firm should focus in its target market and avoid competing with these large firms. Conclusion By studying this external and industry analysis on environmental facts, it could be said that Virgin Atlantic Airways is situated in standard cycle markets wherein its competitive advantage is moderately shielded from imitation.
In general, airline industry belongs to slow cycle markets, however, due to relatively smaller capital and operations of some firms like Virgin, companies within this industry are unable to assure their long-term above average returns because they are relatively vulnerable to general environment (low lobbying power) and relatively unsecured to industry forces (potential entrants or larger competitor predation). As a result, Virgin should focus in a specific market niche or specific routes to obtain value other than price and survive the competition.
BUSINESS REPORT ON VIRGIN ATLANTIC AIRLINES According to (2000), the airline industry is a unique and interesting industry. The reason for this is because it captures the interest of a wide audience because of its glamour, reach and impact on the large and growing numbers of consumers/travelers worldwide ( 2000). The importance of the industry is unquestionable. The industry is worth over US$1,000 billion (directly, indirectly and “induced”), employs 22 million people, and transports and services over 1. 25 billion passengers a year.
A quarter of the world’s manufactured exports by value reach their markets by air. The industry also plays an important role in travel and tourism, the world’s largest industry, employing one in nine workers ( 2000). One of the pioneers of the global airlines industry is the UK airlines sector. According to the (1999), the whole UK aviation industry contributed ? 10. 2 billion to GDP, 1. 4% of the total, in 1998; undoubtedly a huge contribution to the UK economy. During that year, it also supported up to three times as many individual jobs, and directly employed 180,000 people in the UK, 0. % of the total ( 1999). Furthermore, it also exported ? 6. 6 billion of services, 11% of UK exports of services and 3% of total UK exports, transported a further ? 35 billion of UK exports, over 20% of all exports of goods, contributed ? 2. 5 billion to the Exchequer, on a conservative estimate, and invested ? 2. 5 billion a year over the past 5 years, 3% of total UK business investment (1999). The report basically emphasized the great role that the airlines industry performs for UK’s economy. Specifically, behind the results, there are individual companies that contribute to this industry’s success.
One of them is Virgin Atlantic Airways, one of the UK airline industry’s most performing airline companies to date. This paper will provide a business report on the Virgin Atlantic Airways Ltd using available resources from the internet and the company website, and provide a detailed SWOT and PEST analysis of the company. The aim of this paper is to provide a descriptive business overview on Virgin Atlantic Airways. A BRIEF HISTORY OF THE UK AIRLINES INDUSTRY The year 1972 was when British Airways was formed. The British
Caledonian Airways (Bcal) also existed that time as a result of the 1969 UK policy change to introduce competition. The Civil Aviation Authority (CAA) gave some preference on licensing policy to BCal. Until 1981 BA was operated as a public corporation. In spite of rationalization efforts, its financial performance was relatively poor. Since 1979 preparation for privatization of BA started. In 1984 BA became a public limited company. In 1987 the UK government sold the entire stake (1995). The Civil Aviation Act of 1980 required more liberal policy.
But in 1986 BCal ran into financial difficulties, and BA acquired BCal and thereby enhanced its leading position further. In the 1980s major deregulation measures were also taken, such as domestic fare and route licensing deregulation. Many entry barriers into domestic services were dismantled (1995). The exception was access to Heathrow airport because of congestion and the slot allocation system, so that no airline that had not been operating from Heathrow before 1977 would be granted access. This ban was lifted in 1991, but the allocation procedures continue to afford considerable advantage to incumbent operators (1995).
COMPANY BACKGROUND Virgin Atlantic Airways Ltd was established in 1984 by known British entrepreneur (, 2004; Virgin Atlantic Airways Ltd, 2006a). Surprisingly, this new business that established during that time took him only three months to make it a high quality, value for money airline (2004). Some of the ‘firsts in the industry’ that this airline company has offered is providing individual TVs to business class passengers (Virgin Atlantic Airways Ltd, 2006a), which was also known as the first seatback entertainment system in airlines.
Furthermore, in 1984, it was also the first passenger airlines in the UK and in the world to offer complimentary limousines and onboard bars, which according to the company, revolutionized in-flight mingling. In the early nineties, it also introduced other ‘firsts’ in the history of airlines service – in-flight beauty treatments and business economy cabin. In the latest century, it introduced a first solo, around the world, flight and spa and pool services in their Heathrow clubhouse (2005).
The company saw its success by the end of the eighties as it had already served by that time almost 1 million passengers (Virgin Atlantic Airways Ltd, 2006a). Virgin Atlantic is headquartered in Crawley near Gatwick airport in London and has offices in the USA, Caribbean, South Africa, Hong Kong, Tokyo, Shanghai, Delhi, and Lagos (2004). A couple of years ago, in 2003, Virgin Atlantic Airways achieved a ? 1. 4bn turnover, and a reputation for high-tech innovation and quality of service (2004).
Currently, the company has offices in 20 countries and flies passengers to most of the main cities of the world. In terms of information technology, it has a complex and geographically dispersed infrastructure, using Microsoft Windows-based Intel servers, Oracle databases, J2EE application servers, and some 4,000 Windows desktops ( 2004). This shows that in this modern information age, Virgin Atlantic Airways do not lag behind competitors in terms of information technology, as it utilizes modern information technology as a competitive advantage over competitors.
Virgin Atlantic Airways has always been a priority for founder . For instance, despite the fact that Virgin Atlantic was already known for its great service in the early nineties, showed acts of sincerity of improving the company’s service further, as he sold Virgin Music to Thorn EMI and invested the proceeds into Virgin Atlantic (Virgin Atlantic Airways Ltd, 2006a). Despite the hip and rock and roll theme of its website and the overall cliche of the company, it is dedicatedly focused to service as testified by Branson’s strategies over the years.
Furthermore, the awards that the company received over the years also prove that delivering quality services are its main concerns to the customers. Some of the latest awards that the company received, specifically in 2004, are: Business Travel Awards’ Best Long Haul Business Airline; Travel Weekly Awards’ Best Transatlantic Airline; Cargo Airline of the Year Awards – Air Cargo News’ Cargo Airline of the Year; Communicators In Business Awards’ Internal Online Publications – Verb Online; and Design Week Awards’ Industrial Product Design winner – Upper Class Suite Editorial Design winner – Carlos (Virgin Atlantic Airways Ltd, 2006b).
Virgin Atlantic Airways Ltd’s official website reflects the company’s dedication to service. The site navigation has a link to customer relation page where customers can read and learn what types of services they can expect from the company. In includes customer charters on booking, at the airport, during the flight, the other end, refunds, codeshare flights, passengers with special needs, and other concerns (Virgin Atlantic Airways Ltd, 2006c).
For instance, in the booking services, the company ensures to give the customers the following information: the planned scheduled time of departure and arrival of your flight; the airport and terminal of departure and arrival; the number of en-route stops, if any; any conditions attached to the fare you will pay; and the name of the operating carrier and the flight number (Virgin Atlantic Airways Ltd, 2006c). Like other airline companies, Virgin Atlantic Airways also offer a frequent flyer programme for its customers. In Virgin Atlantic, this programme is known as the Flying Club.
This programme comes into three tiers. The first tier is Red, where frequent customers can earn basic benefits. This is followed by Silver, which understandably offers more benefits than Red. Finally, the customer can upgrade to Gold, given that they reach the required number of miles traveled with Virgin Airways. The Gold membership earns points by 50% meaning that customers can avail larger benefits from the company faster (Virgin Atlantic Airways, 2006d). On a recent report by(2005) in the Wall Street Journals, it was revealed that Virgin Atlantic Airways was having a premium service makeover since 2000.
Finally, in August 2005, the company launched its ? 11 million ($19. 5 million) business-class lounge at its Heathrow Airport hub. It basically includes a 45-foot-long bar of granite and marble, hand-stitched yellow leather armchairs, a waterfall and a spa (2005). Approach Like the legendary (CEO who brought up General Electric to the top), is also one of the most popular CEOs around the world. However, unlike does not compile his management strategies, which according to him, are just tasks for him to “pick up the phone and get on with it”.
But according to the (2005) coverage on , his strategies can be compiled from his previous speeches and reports. The following are his formulas: must sound like fun; must offer customers simple, honest and transparent pricing, high standards and attention to detail and professional, but “uncorporate” customer service; if there’s a duopoly, there’s room for competition; must have the “right” people; must be “positive use” of the Virgin brand; must have protection of “downside”; 50/50 financing; keep the portfolio diversified, with each management team focused on its own business and ntrepreneurial goals; brand is the unifier; keep the employees happy ( 2005). PEST ANALYSIS OF THE AIRLINES INDUSTRY The PEST analysis stands for “Political, Economic, Social and Technological” factors that are needed to be analyzed from the industry’s external environment. It is important to cover this to further understand the condition of the airline industry. Political Issues One of the political issues that concern the airline industry is the effects deregulation, which until now is being researched by orders of concerned governments around the world ( 2000).
If government policy forced pre-deregulation airlines to compete on the quality of their services rather than price, then (1995) has suggested that the sole goal of postderegulation policy has been to create cheap, below-cost air fares for consumers. However, this still continues to be an argument along with the rest of the issues brought about by deregulation. Deregulation was based on the contestable market theory ( 1982) which suggested that governments should seek to promote contests for markets, even those where large firm size and limited competitors existed.
Regulation was believed to encourage competition based on service quality rather than price, limit operational flexibility, and create no incentives for improving efficiency and productivity. However, it has been argued that deregulation has shifted competition from service to price (1998). Another political issue that should be considered is that the Department for Transport is actually keeping an eye on airline activities. For instance, in the White Paper released by the DfT (2003) entitled: “The Future of Air Transport”, several key issues in airlines that the government wishes to resolve were stated.
In the third chapter of the paper, environmental issues were mentioned such as noise, noise mitigation and compensation, air quality and climate change. As those issues were, several laws that support those issues were also brought up, exposing the political side of the situation. Some laws are yet to be amended such as the Section 78 of the Civil Aviation Act 1982 “so that controls such as night restrictions could, subject to public consultation, be set on the basis of noise quotas alone, without a separate movements limit” ( 2003).
There are also key international bodies that set the standard of aviation industry within Europe. This includes the European Union, the International Civil Aviation Organization, the European Civil Aviation Conference, and the EUROCONTROL ( 2003). Each has specific power and functions, and may influence the shape of the aviation industry, not only in UK, but also the rest of Europe in the next few years. This shows that there is a great deal of political climate when it comes to setting the standards in the airlines or aviation industry.
New standards to be set will still undergo discussion and debates among these organizations, and among UK’s DfT and other local bodies that look after the country’s airlines industry. Some of the issues that these bodies may tackle include safety, security and service quality in aviation ( 2003). ` On the other hand, among the airline companies around the world, one significant political issue taking place is the emergence of global alliances.
One example of a major alliance that took place is the OneWorld Alliance, which has notable members such as Aer Lingus, British Airways, Cathay Pacific, Finnair, Iberia, American Airlines, Lan Chile and Qantas Airlines (2003). There is also another notable alliance, which is the Star Alliance Global networks, consisting of United, Lufthansa, SAS, Air Canada, Varig, and Thai International (2001). The implication of these major alliances is that many carriers would fear being left behind, forcing them to join the trend (2001).
This could be a danger to isolated airlines as they would have little to offer in terms of resources, strategies and finance. One advantage of these alliances include the enhancement of partner airlines’ productivity (1. 7%), and that allied airlines tend to adopt more competitive pricing after entering an alliance ( 2001). Another advantage is that it enables partner to lower the prices of their services without too much weight on their part. In other words, it enables partner airlines to achieve an average of 5% gain in total factor productivity and 1. % increase in profitability while being able to lower their prices to consumers by an average of 5. 5% (2001). Furthermore, this enables partner airlines to improve profitability by an average of 0. 3 percent ( 2001). However, acquiring these advantages depend greatly on the scope of cooperation in the alliances ( 2001). Economic Issues Similarly, the economic issues in the industry are also mostly concerned with deregulation. The evolution of industry structure plays an important role in determining the robustness and stability of lower air fares in unregulated markets (2000).
Deregulation also keeps airline fares so low as compared to that of other countries. The reason for this is because despite the failure of most entrants since deregulation, investors continue to create new airlines. There is substantial evidence that entry, particularly by low-cost, low-fare airlines, has a substantial effect in constraining fare levels in markets served by the new carriers ( 2000). The second reason is that some in the industry have argued that financially marginal carriers may act in ways that depress prices below competitive levels, inducing contagion in financial distress (2000).
In addition, some industry participants have argued that financially distressed carriers have cut prices in an effort to raise short-term cash, depressing market prices below efficient levels and threatening the financial security of healthy carriers. Another economic concern is the fact that the airline economy of the US is in a huge upset after the September 11 attack. Some of the companies declared bankruptcy while others are still struggling to survive (2003). The contribution of the airline sector to the local and world economy is also another economic issue that should be noted.
In UK, one of its contributions to the economy is its role in increasing jobs, whereas it was reported that aviation directly provided 180,000 jobs in the UK in 1998 – 0. 8% of total employment. 40% of these jobs were in Greater London, where the industry accounted for 2. 1% of all jobs ( 2002). This has increased over the years as attested by DfT. It reported that the aviation industry now directly supports around 200,000 jobs, and indirectly up to three times as many (2006). The airlines industry also greatly contribute to the GDP of the UK economy as the (2002) reported that the “total value-added (i. . the value of its output less the cost of inputs bought in from other industries) by the UK aviation industry in 1998 was estimated to be ? 10. 2 billion in 1998 prices, equivalent to 1. 4% of GDP”. It contributes specifically by region, as it makes a direct contribution as a source of output and productivity growth in its own right ( 2002). The Oxford Economic Forecasting (2002) also argued that good air transport links are important to encouraging inward investment into the UK and to encouraging firms lready located here to base new projects in this country. Furthermore, because it is part of the transport infrastructure, it helps make business transactions faster, creates more options, and provides a boost to the tourism of the country. As transportation infrastructure theory posits, improved transport systems can boost productivity growth across the rest of the economy. The economic prosperity that UK currently experience also have some implications on the airlines industry.
According to (2003), “Economic prosperity brings with it greater demand for travel. As people get wealthier, they can afford to travel further and more often”. Currently, half the population of the UK now flies at least once a year, and freight traffic at UK airports has doubled since 1990 (2003). It has been forecasted that air travel in the UK will continue to increase over the years, but (2003) warns that this is somewhat uncertain as they may be negative factors that the industry may encounter along the way.
For instance, DfT forecasted that market for air travel might mature more rapidly than expected, causing the rate of growth to slow more quickly than forecast. Furthermore, other economic concerns of the industry include the possible increase of flying costs, for instance, due to rising oil prices or due to the costs of tackling global warming. Social Issues In the social factor, the issue of consumer expectation should be given attention. For airlines, the two most important issues are: the reason for travel (business or leisure); and the class of preferred travel (first, business, or economy).
The Frequent Flyer survey in 1997 both business and leisure consumers listed the following ten factors driving overall airline satisfaction: on time performance (22 percent), schedule/flight accommodation (15 percent), airport check-in (15 percent), seating comfort (12 percent), gate location (9 percent), aircraft interior (7 percent), flight attendants (6 percent), food service (5 percent), post-flight service (5 percent), and frequent flyer programs (4 percent) (1998). Today, consumers are more demanding especially in terms of service quality.
Fortunately, the airline industry can be considered as the pioneer of customer relationship management as they are the first sector to introduce the frequent-flyers program to increase the loyalty of customers (2002). However, the airlines of today cannot keep up with the pace of CRM. A survey of 17 major airlines around the world reveals that even the most sophisticated among them have only a basic understanding of who their most valuable customers are, or could be, which factors affect the behavior of customers, and which CRM levers are most effective in ensuring loyalty ( 2002).
They stated that most airlines lack the systems and process to implement CRM. (2002) stressed, based on their research, that data aren’t consistently or accurately collected in any of the mediums that airports use. Furthermore, another problem for airlines is that they rarely know how much their customers spend with their competitors. (2002) stated that building customer database is the key to CRM and should be the easiest part for airlines given that they have loyalty programs. Currently, most airlines still are building or thinking of building data warehouses to store variously sourced databases ( 2002).
Finally, another social factor to be considered is the fact that airlines are still exposed to terrorist attacks. This has a tremendous impact on airline security and economy. This is why two of the utmost concerns of the UK Department for Transport are safety and security ( 2003). Fortunately, the UK airlines industry has a good record in safety, with accident rates kept low despite the rapid rise in traffic levels over the past two decades. The industry continues to follow a high standard of safety, for instance, regular inspections and maintenance of aircrafts.
Safety in the UK airlines industry also improved as a proactive measure on terrorist attacks. For instance, the list of prohibited items in the aircraft cabin has been extended, carrying out secondary searches of passengers and their cabin baggage at the departure gate, requiring UK airlines to fit special intrusion-resistant flight deck doors, and establishing a capability to put covert armed police on UK aircraft where necessary ( 2003). Service quality is another social concern in the UK airline industry.
According to(2003), standards of service are a legitimate element of competition between operators. Airline consumers are now a dynamic part of the industry as they are more empowered than ever, expecting high levels of personal attention and customer service, and more confident in making complaints ( 2003). Technological Issues Technological factors include head to head competition in the technological innovations in the industry. Traveling in air is a dangerous task that’s why aircraft engineers have been researching ways to improve security in airlines.
Technological advances have resulted in automated cockpit procedures to make up for the human errors that usually occur (2000). Sixty eight percent of crashes are attributed to human error. This may include error during aircraft design, manufacturing, maintenance, or installation. Security breaches that result in terrorist activities can also be attributed to human error. This is the reason why technological innovations in safety are important in the airlines industry. Other technological factors include Customer Relation Management in the Internet.
Online solutions alternative to dial-up are also technological factors that may determine competitiveness as an alternative mean can basically cut the cost of the company. According to (2004), a remote access solution could provide significant cost savings by allowing the engineers, who were responsible for maintaining the aircraft, to access essential information on the company’s systems from wherever they were in the world, using remote web access. Fault and service assurance solutions are also technologies that airline companies mostly invest.
This type of technology provides the network management team of an airline a real-time, consolidated view of the network to help ensure the availability of network-based products and services (2002). Another technological concern in airline services today is the integration of electronic flight bag solutions or EFB. EFB is an electronic display system intended primarily for cockpit/flightdeck or cabin use (2003). One of its advantages is that it can display a variety of aviation data or perform basic calculations (e. g. , performance data, fuel calculations, etc. (Aircraft Electronic Association, 2003). EFB is categorized into two classes: Class 1 and Class 2. A Class 1 EFB can be used on the ground and during flight as a source of supplemental information, while a Class 2 EFB can display flight critical pre-composed information such as charts or approach plates for navigation ( 2003). The PEST analysis conducted shows the current conditions of the global airline industry. Among them, the key issues include the deregulation policies, the global alliances of airline companies, service quality and technological needs.
The SWOT analysis on Virgin Atlantic Airways will be based on these issues. One of the interesting facts about Virgin Atlantic Airways is that it was not part or member of any major global alliances during the time of global alliances emergence – meaning it once had strong disadvantage in the late nineties because unlike other huge airline companies, it did not have any ally to cling into if ever something goes wrong e. g. in the financial, technological or management functions of the company.
However, even though Virgin Atlantic Airways had been isolated for a few years, it did one thing that other low-cost airline companies fail to deliver – emphasis on quality service. What Virgin Atlantic lack in allies during the times when airlines are jumping into alliances, it makes up with its strong customer service and relations. These are the factors that will be explored in the SWOT analysis of this company. SWOT ANALYSIS OF VIRGIN ATLANTIC AIRWAYS Strengths One of the strengths of Virgin Atlantic Airways is that it is headquartered in a country where airline competition is tolerated and enhanced because of deregulation.
UK is one of the countries aside from the United States that is in a strong competitive position in the airline market. The United Kingdom and the United States are two of the countries in the world that dominates the airline market and this can be attested with the number of airline brands they have. The market One of the advantages of deregulation is that fares have become considerably cheaper than that of the previous regulated system. Pricing of the airline companies have been flexible.
Because of this deregulated policy, Virgin Atlantic has been able to offer a premium low-cost service package to customers around the world. According to (2006), deregulated fares are so flexible that it have brought down fares 10 to 18 percent lower, on average, than they would have been under the previous regulatory formulas. The savings to travelers have been in the range of $5 billion to $10 billion per year. Virgin Atlantic Airways is fortunate because it can set its own prices according to their preference, which is a benefit for airline companies operating under a deregulated policy.
Another advantage of Virgin Atlantic is that even though they are not part of any major alliances such as OneWorld, the company has made allies with some reasonable airline companies such as Singapore Airlines and Continental Airlines. Combined with their focus on customer service, their alliances with these airlines may be an advantage because they have companies that they can share and acquire new technologies and innovations with, or companies who will be there for support when Virgin Atlantic needs it.
Some of the benefits that Virgin Atlantic can acquire from these alliances may include: more market access; acquiring means of distribution; gaining access to new technology, and converging technology; learning and internalization of tacit, collective and embedded obtaining economies of scale; achieving vertical integration, recreating and extending supply adjust to environmental changes; diversifying into new businesses; restructuring, improving performance; cost sharing, pooling of resources; developing products, technologies, resources; risk reduction and risk diversification; developing technical standards; achieving competitive advantage; cooperation of potential rivals, or pre-emptying competitors; complementarity of goods and services to markets; co-specialization; overcoming legal/regulatory barriers; and legitimation, bandwagon effect, following industry trends (2005).
The healthy condition of the UK airline industry can also be considered as strength of Virgin Atlantic. The UK government is giving importance to the airlines industry and recognizes its impact on the economy. This means that the market is being pushed up through improvements and innovations for the industry. Perhaps the greatest strength of Virgin Atlantic is its dedicated emphasis on customer service and innovation. It is one of the few airlines that introduced many firsts in the industry. For instance, it introduced the first seatback entertainment system in airlines, as well as the complimentary limousines and onboard bars, which basically revolutionized in-flight mingling.
It also introduced in-flight beauty treatments and business economy cabin, and a first solo, around the world, flight and spa and pool services in their Heathrow clubhouse (Virgin Atlantic Airways Ltd, 2006). It can be seen in the company website that it gives importance to the customers as it wrote down the kinds of services that customers will expect from them. The robust e-business architecture that the company has also offers easy transactions with customers (2002). As Lanner (2002) stated: “The airline recognised that passengers would benefit from improvements in services and the introduction of new facilities that meet the needs of the modern business and leisure traveler. Another testament to their excellent service is their excellent reputation for the provision of assistance to their visually impaired passengers, having won the EASE best airline award (for Ease of Access, Service and Employment) for four years, consecutively (2003). Furthermore, it routinely monitors services with a flight performance report form that captures vital information about the quality of service that individual crew members deliver on each flight (2005). A particular online airline passenger forum in (2006) show that Virgin Atlantic’s services are top class. One client praises the company for its prompt responses on inquiry, specifically about compensations such as about the frequent flyer programs. Another client also praises the standard of service that Virgin Atlantic gives in its economy packages, considering the fact that it ‘economy’ is only a low-cost service.
There were also customers who were satisfied with the limo pick-up, stating that it was an experience worth remembering. In other words, Virgin Atlantic boasts creativity. Being innovative is basically one of Branson’s philosophies in business. One example of creativity showed by the company was the avoidance of being a serious corporate company, but instead being a company that offers a lot of fun, has a youthful attitude and an affinity for pop culture ( 2000). Technology can also be one of the strengths of Virgin Atlantic Airways. Virgin Atlantic is technologically advanced as can be seen by the various technology press releases of the company across the web.
For instance, instead of using a dial-up server for IT system, the company upgraded it and invested on a remote server, which basically improved the progress and productivity of the IT team ( 2003). This server cut costs and makes work faster for the company (Whale Communications, 2003). Another example of technological advantage of the company is its investment on EFB or electronic flight bag solutions. Weaknesses The weakness of Virgin Atlantic Airways is that it is not part of any major global alliances. Although it currently has several known partners such as Continental and Singapore airlines, the reach of the company in code-sharing is still limited. The advantages of code-sharing are being enjoyed mostly by members of major global alliances such as Oneworld. The benefits that Virgin Atlantic Airways lack because of the limited odesharing they have include: lack of greater network access; lack of seamless travel; lack of transferable priority status; limited extended lounge access; and the lack of enhanced frequent-flier program (FFP) benefits. Another weakness of the company is that it lacks transparency, unlike other airline companies in UK and around the world. The company does not publicize annual reports, which may be a disadvantage especially to customers who want to know more about them. The image of the company is not that corporate as it prefers “cool” pop culture approaches. While this may appeal to the younger population, it may not appeal to the more mature customers who prefer their airlines as business-like and as prestigious as possible. Furthermore, Virgin Atlantic reach only limited countries unlike other global airlines.
Currently, it only focuses on eleven sites namely: the UK, the US, Australia, China and others. This shows that company has a limited market reach, which could be a disadvantage. (2005) reported that other weaknesses of the company include: cash flow (because Branson seems to always need cash. Singapore Air owns 49% of Virgin-Atlantic); Direct Routes (On longer distance flights, Virgin’s expenses can be very high); One Hub (Having only one point to work from is a disadvantage); and Limited Destinations (Virgin has less flight opinions for airline travel). Opportunities The opening of its hub in Lagos, Nigeria is one of the opportunities that Virgin Atlantic should look forward to.
Virgin Atlantic is basically one of the few airline companies dedicated in serving African countries. Virgin Atlantic played a role in the gradual liberalisation of the UK/South Africa market over recent year, as it has seen passenger numbers increases by 62% whilst the number of flights has risen by 53%. There are more passengers, more flights, more trade and more choice. It is a win-win situation for everybody. However, the problem is that British Airways and South Africa Airways now carry significantly more passengers than before, despite Virgin Atlantic’s entry into the market (Africa Investor Magazine, 2004). If Virgin would improve their performance and ecome more market-aggressive in Africa, it might beat British Airways. This is basically an opportunity since only two airlines dominate the continent, while Virgin stays at third. The persistence of the company in penetrating the African market can lead to the establishment of its brand in the continent. Another opportunity for Virgin Atlantic Airways is that it might have a push on the market with its latest Heathrow Clubhouse. This latest infrastructure may directly appeal upper-class customers, as it contributes to the prestige and first class image of the company. The increasing number of travelers in the UK is also an opportunity for Virgin Atlantic.
The UK air traffic forecasts (1997) predict that there will be 310 million passengers going through UK airports in 2015, up from 129. 6 million in 1995. This is a basic opportunity for Virgin Atlantic Airways to increase its customers. However, this can only be done by strategic and aggressive marketing on their part. Threats One of the possible threats to the progress of Virgin Atlantic is the emerging consumer mindset that it is dangerous to ride airlines because they are susceptible to terrorist attacks, just like what happened in the 9/11 incident. Thus, security measures are grave concerns of passengers and this is one of the firsts that they check before deciding to ride an airline. Another threat is the continued pressure on profits and increase in competition.
According to the report of (2003) on the emergence of airline industry, these increases may force more alliances, specifically mergers and acquisitions, and might even limit companies that lead such consolidations because of market valuations. There may also be concern on limit capacities, specifically on the sizes of seats, or how many passengers an airline can accommodate ( 2003). Further legislations that may force companies like Virgin Atlantic to adjust may be a threat as it may slow down the productivity of the firm’s operations. Other threats the company might face include over flight restrictions, as changing governments and policies in countries where Virgin occupies airspace could be a problem. Also, another threat is the emergence of new airlines, as there are newly formed ones using Virgin concepts ( 2005).
CULTURAL CHANGE Much has been written about the culture of Virgin Atlantic. However, those reports indicate that what tries to incorporate to his crew is to have a sense of belonging to the company, and a sense of fun. Sense of fun means that while his employees have to work hard, they should also have fun and should be satisfied with what they do and what it can offer them. This same philosophy is being applied to their customers. The management philosophy is:” The management’s philosophy at Virgin Atlantic was to never have a passenger be bored”. Of course, this also goes along with another one of philosophy: “always keep employees satisfied”.
Over the years, the employees of Virgin Atlantic have been honed to become more professional than they are. Since the company started, it has maintained a culture of professionalism and giving importance to the needs of the customers. Another culture being molded in Virgin Atlantic over the years is the culture of knowledge. As literatures say, Virgin Atlantic has been dedicated in creating innovative services to customers. They are basically the father of the many “firsts” services in the airline industry. This shows that the culture of the company is one that develops, crafts, and makes good use of the knowledge of its employees. A company that can develop innovative ideas is a company that basically applies good knowledge management strategies.
However, it may face management issues such as the increase of intercultural employees and the management of localized branches. The company not only have to manage a different culture, say for instance the employees in Lagos, it also have to be familiar with the different laws and regulations that that country implements. This indicates that change management could be a necessity to most of the company’s branches today. STRATEGIC MARKETING POSITION OF THE COMPANY Virgin Atlantic is a company with solid financial performance, good name recognition, and committed leadership. The approach of the company in marketing is simple, as it: “…looks for opportunities where they can offer something better, fresher and more valuable.
Virgin moves into areas where the customer has traditionally received a poor deal, and where the competition is complacent. Virgin is pro-active and quick to act, often leaving bigger and more cumbersome organizations in their wake” ( 2005). Some marketing strategies used by the company include: taking advantage of the Virgin brand; personal reputation; the Virgin management style of empowerment and minimal layers of management; network of friends and business partners; small board of directors; and no massive global HQ, as well as these new ventures becoming part of a family of businesses, with empowerment to run their own affairs, but still receive help as need from other ventures if required; and sharing of ideas, values, interests and goals (2005).
Another marketing strategy of the company is by emitting a “hip” attitude, and having an affinity for pop and rock culture. This and other strategies are communicated to consumers through different approaches such as: sales and consumer promotions, special vacation packages, direct mail, public relations, special events, Web events, E-mail pushes, database gathering, plane repainting and collateral items. It utilizes media such as: radio; newspaper; trade/professional; direct mail; point -of-purchase; out-of-home; public relations; sales promotion; interactive/on –line; and plane repainting (2000). INFORMATION SYSTEMS STRATEGY As mentioned earlier, Virgin Atlantic gives importance to technology upgrade to satisfy the needs of the customers.
Some IT strategies of the company are the following: complex and geographically dispersed IT infrastructure, with Microsoft Windows-based Intel servers, Oracle databases, J2EE application servers, and some 4,000 Windows desktops; remote access networks; a global Operational Support System (OSS) that supports more than 70 sites throughout the world and comprises over 200 Compaq servers and around 500 additional critical network devices, including Cisco routers; EFB; and PatchLink Update (give system administrators the ability to assess patch status by groups of computers, application or severity, easing the workload on administrators within the IT department) ( 2004; 2002; 2004). FUTURE DIRECTIONS The company is currently seeking out allies strategically and expanding aggressively on other territories such as Africa and Australia. However, some of the problems that company face on those expansions include the tight competition among local airlines, and the competition among popular international airlines such as British airways. It can be seen that in the future, Virgin will expand more to Asia as the number of competition increases in the West. It can be forecasted that this company will also continue to develop innovative approaches in airline services.
On the contrary, it is also possible that imitators of the “Virgin approach” will increase, putting the company in the position of maintaining its uniqueness and standing tall against imitators. RECOMMENDATIONS Based on the analyses conducted on Virgin, one of the recommendations that can be given is that it should globalize the Virgin brand further. The expansion on Nigeria and Australia was the first step, but it should be followed with more aggressive expansions preferably in Asia or South America. Virgin may also need to expand its own product and service lines and/or aggregate web content from external providers, and also consider alliances and mergers (with telecom companies for example) if the speed of organic growth is insufficient to meet with its required targets. 2005) reported that Virgin’s dependability on should be reduced as this will greatly affect the company in the future when Branson retires. Leadership trainings should be conducted early on to hone future leaders that will use and instill Branson’s energy and creativity to the company. CONCLUSION This report found out that Virgin Atlantic is a strong brand basically because of its corporate image as member of the Virgin companies, its reputation for corporate service, and its reputation for innovation. However, there are also short-comings that Virgin Atlantic should sort out such as the need to form more alliances, continuous development of innovative ideas of services, and the need to further globalize the brand.
In sum, Virgin Atlantic is currently in a strong competitive advantage with the political, economic, social and technological side of the industry. However, every market is fickle as it changes over time. Changes that Virgin should look at are the new regulations being implemented, regulations on specific countries and their difference from other countries, the increase of competition and imitators, the oil price increase, and the increase or decrease of demand for travel. Branson and the rest of the Virgin Atlantic management crew should keep their eyes peeled for opportunities and threats, because by doing so, it will ensure the safety of the company, its reputation and success.
