Virgin Blue

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VIRGIN BLUE
UNDERSTANDING EXTERNAL ENVIRONMENT
1. Attractiveness of the Industry

1a.Identify the industry, product segments and value chain

The industry is the Australian airline industry (global). Core activities cover providing travel services to leisure travellers in Australia and overseas, including flights, travel insurance, holiday packaged deals, and freight business. Products segments including ▪ Business travel▪ 57.1% of industry revenue

▪ full-fare
▪ business & government travellers
▪ growth of video conference (-) impact on growth
▪ unit value of sale/pax double leisure travel fare
▪ Leisure travel▪ 29.4% of industry revenue
▪ low-fare
▪ leisure travellers
▪ price is an important factor and strong driver for growth
▪ high cost incurred for flight changes
▪ Freight and other▪13.5% of industry revenue
▪ freight transport, time sensitive & high value to weight item & charges on excess baggages, late fee,etc...

1b.What is the current life cycle of the industry?

The Australian airline industry is at the mature stage of its life cycle. This is demonstrated by the low average growth rate of the production, and the low airline operating margins around 2 percent over the last five years. Declining fares in the leisure travel segment due to strong competition have combined with increasing costs to lower profitability over this period. Yield management is critical to profitability due to high fixed costs involved in operating a flight, that is, the marginal cost of passenger on a flight is very low, so having a plane full, with as many full-fare passengers as possible, is important to maximise profitability. Over recent years, there has been consolidation, brand transformation in the industry and more services been introduced to attract higher yield customers. This is evidence of a low growth environment, wherein the industry is at the mature stage of its life cycle, the organisation focus is on efficiency, cost control, and market segment.

1c.What have been the key issues affecting historical industry growth? What was their impact?

Key issues influencing historical industry growth using TEMPLES model

FactorIssuesNature of Impact
-------------------------------------------------
(+/ =/ -)
Technology▪ The growth of video conference- Negative has had a slightly negative impact
on growth in this segmenting recent
-------------------------------------------------
years
Economy▪ Threat of the uncertainties of the global financial- Negative
crisis, changing interest rate and fierce competition
-------------------------------------------------
from low-cost carriers in its domestic market
Market▪ the low density of population and the size of Aus+ Positive
Air travel in Australia is somewhat of necessary
▪ Declining fair in the leisure travel segment due to- Negative
Strong competition have combined with increasing
costs to lower profitability over this period; fierce
competition from low-cost carriers in its domestic
-------------------------------------------------
markets
Politics▪ Being restricted in the ability to expand overseas due - Negative
to Singapore Airline’s right to veto the use of the Virgin -------------------------------------------------
Blue name internationally. SIA had the power to block
-------------------------------------------------
Virgin Australis’s brand due to 49% stake in Virgin Atlantic -------------------------------------------------
that SIA acquired in 1999
Law
-------------------------------------------------

Environment▪ With a launch of the first real low-cost arline in+ Positive
Australia, one class of ticket and minimal on-board,
complementary service, there had been strong growth
in the 2000s in market for travel for leisure, encourage...
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