MGSM860 Strategic Management - Minor Individual Assignment
Virgin Australia will become a majority foreign-owned airline after the federal government allowed the cashed up Middle Eastern carrier Etihad to raise its stake to 10 per cent from 4.99 per cent. It will take the combined ownership of Virgin’s three biggest shareholders - Sir Richard Branson’s Virgin Group, Air New Zealand and Etihad to 55 per cent. The two airlines have a code-sharing arrangement; the companies offer 24 flights per week between Australia and Abu Dhabi. Macquarie Equities analyst Russell Shaw said Etihad’s next move may be to push for a board seat to protect its interest in the alliance with Virgin flights to Abu Dubai and Europe. Virgin has applied to the Australian government to begin code share flights to some European ports with alliance partner Singapore Airlines. Etihad would prefer to have all traffic flowing over their hub so raising their stake in Virgin might give them more say and more sway. Porter’s five forces analysis is a framework that draws upon industrial organisation economics to derive five forces that determine the competitive intensity from external and internal sources. Porter’s five forces include three sources from ‘horizontal’ competition (threat of substitute products, the threat of established rivals, and the threat of new entrants) and the two ‘vertical’ competitions (the bargaining power of suppliers and the bargaining power of customers). The airline industry is very competitive and Michael Porter’s five forces model will be used to analyse the intensity of competition and the profitability of the strategic direction Etihad has taken. Etihad’s alliance with Virgin is both on domestic level and international routes to Abu Dubai (and extends it to Europe). By increasing its stake to 10% in Virgin, Etihad has entered the Australian domestic travel market as the new comer with very low cost of entry. The airline industry is one of the most expensive...
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