Business Strategy of Virgin Atalantic Airlines

TITTLE: ‘‘THE AIRLINE INDUSTRY’’ (VIRGIN ATLANTIC AIRLINES)

Contents 1) Introduction to airline industry 2) Drivers of globalisation using yip’s model 2.1 Market globalisation 2.2 Cost globalisation 2.3 Globalisation of government policies 2.4 Globalisation of competition 3) Localisation- arguments against globalisation 4) Pestle Analysis 5) Porter’s 5 forces analysis and their application to Airline industry 5.1 Rivalry amongst Existing Firms 5.2 Threat of substitution 5.3 Threat of new entrants 5.4 Power of customers 5.5 Power of buyers 6) Opportunities and Threats of Airline industry 7) Internal analysis of Virgin Airlines: Strengths and Weakness 8) Financial Statics of Virgin Atlantic Airline 9) Strategic Changes of Virgin Atlantic Airline 10) Conclusion 11) Bibliography *1) INTRODUCTION TO *AIRLINE INDUSTRY http://www.investopedia.com/features/industryhandbook/airline.asp 2) DRIVERS OF GLOBALISATION USING YIP’S MODEL {draw:frame} 2.1 Market Globalisation: 2.2 Cost globalisation: http://adg.stanford.edu/aa241/intro/airlineindustry.html 2.3 Globalization of Government policies: http://findarticles.com/p/articles/mi_qa3766/is_200110/ai_n8986735 2.4 Globalisation of competition: http://adg.stanford.edu/aa241/intro/airlineindustry.html 3) LOCLISATION- ARGUMENTS AGAINST GLOBALISATION Asia is the most regulated market and is dominated by national flag carriers. Domestic fares are strictly regulated but international fares are less so. The US, by contrast, has been deregulated since 1978 and it is a market-driven industry. Domestic traffic is almost completely deregulated (except for specific issues like safety), but international traffic is governed by constraining bilateral agreements www.vocationallearning.org.uk/teachers/subjectspecific/supportpacks0405/pdf/tour_resources_d.pdf+deregulation+in+airline+industry 4) PESTLE ANALYSIS: POLITICAL FACTOR:

Bibliography: *1) INTRODUCTION TO *AIRLINE INDUSTRY http://www.investopedia.com/features/industryhandbook/airline.asp 2) DRIVERS OF GLOBALISATION USING YIP’S MODEL {draw:frame} 2.1 Market Globalisation: 2.2 Cost globalisation: http://adg.stanford.edu/aa241/intro/airlineindustry.html 2.3 Globalization of Government policies: http://findarticles.com/p/articles/mi_qa3766/is_200110/ai_n8986735 2.4 Globalisation of competition: http://adg.stanford.edu/aa241/intro/airlineindustry.html 3) LOCLISATION- ARGUMENTS AGAINST GLOBALISATION Asia is the most regulated market and is dominated by national flag carriers. Domestic fares are strictly regulated but international fares are less so. The US, by contrast, has been deregulated since 1978 and it is a market-driven industry. Domestic traffic is almost completely deregulated (except for specific issues like safety), but international traffic is governed by constraining bilateral agreements www.vocationallearning.org.uk/teachers/subjectspecific/supportpacks0405/pdf/tour_resources_d.pdf+deregulation+in+airline+industry 4) PESTLE ANALYSIS: POLITICAL FACTOR: http://books.google.co.uk/books?id=cVu4E4eB5lAC&pg=PA50&lpg=PA50&dq=political+factors+airline+industry&source=web&ots=4vLQOblWFr&sig=BT-uHKjLV7YAGV3sQHqrCY-E6cw&hl=en&sa=X&oi=book_result&resnum=10&ct=result#PPA50,M1 ECONOMICAL FACTOR SOCIAL FACTOR TECHNOLOGICAL FACTORS: Video Conferencing: As to the requirement of the business class, a lot of business people have to travel a lot around the world to attend the meetings and conferences to boost their business. They are the main backbone of the airline industry as the airline companies get heavy revenue from them as being the passenger of the business class. But as to the modern age of science and technology airline industry would have to suffer badly in the near future as these business people are now-a-days relying on the aspect of video conferencing as it had made their life much easier and convenient. Now they don’t have to travel so frequent from country to country as they are managing it straight away from their respective offices through the Video Conferencing. So in future the airline industry has to accept telecommunication companies as being amongst their most formidable competitors. ENVIRONMENTAL FACTORS Source: Airline Marketing and Management, fifth edition (PESTLE FACTORS) http://books.google.co.uk/books?id=cVu4E4eB5lAC&pg=PA50&lpg=PA50&dq=political+factors+airline+industry&source=web&ots=4vLQOblWFr&sig=BT-uHKjLV7YAGV3sQHqrCY-E6cw&hl=en&sa=X&oi=book_result&resnum=10&ct=result#PPA76,M1 {draw:frame} (Airline Marketing and Management, By Stephen Shaw, Published by Ashgate, 2007) *5.3 Threat of New Entrants*: 5.4 Power of customers: 5.5 Power of Suppliers: 6) OPPORTUNITIES & THREATS OF AIRLINE INDUSTRY Opportunities: Increasing online reservations: Improvements in telecommunications, electronic networks, multimedia, Internet access, connectivity, and interactivity have created several new opportunities to offer services Airlines books tickets through its websites which provide cost effective customer service, including online reservations. Through this system company can significantly increase the number of transactions on its proprietary websites and reduce on the commission it is required to pay outside operators for reservations made through them. Threats: http://excellence.qia.org.uk/VLSP4/pdf/tour_resources_d.pdf http://www.datamonitor.com/companies/company/?pid=C00F1CDB-4C6F-4BA5-997B A82D60E1071C Intense competition: The airline industry includes a large number of players; with many of them having worldwide operations. There are many large airline chains such as BA, Cathay Pacific, and Lufthansa. Furthermore, a large number of independent airlines especially in the European region provide acquisition opportunities to large chains. Merging in the airline industry would strengthen competition and result in loss of revenues. Intense competition threatens to wear away the group’s market share and reduce its profitability. http://www.datamonitor.com/companies/company/?pid=C00F1CDB-4C6F-4BA5-997B A82D60E1071C *7) *INTERNAL ANALYSIS* OF VIRGIN ATLANTIC: *STRENGTHS & WEAKNESS Strengths Strong financial position: The Company has witnessed strong financial performance during the last few years. Its revenue increased at a CAGR of 9.5% to reach £2,140 million in fiscal 2007 as compared to £1,630 million in fiscal 2005. The net profit of the company increased at a CAGR of 32.5% to reach £46.8 million in fiscal 2007 as compared to £20.1 million in 2005. Moreover, the net profit margin of the company also increased from 1.2% in 2005 to 2.1% in 2007. This increase was primarily due to increase in number of business travellers. Strong revenue growth indicates that the company has been able to expand its operations in both domestic and international markets. http://www.datamonitor.com/companies/company/?pid=C00F1CDB-4C6F-4BA5-997B-A82D60E1071C Weakness: Lack of scale: The Company lacks scale of operations as compared to its competitors. The company operates 30 destinations whereas, its competitors British Airways and Cathay Pacific Airways operates 147 and 104 destinations worldwide. The company has a fleet base of 38 aircrafts which is far less than its prime competitor, British Airways and Cathay Pacific which has a fleet base of 242 and 102 aircrafts respectively. Furthermore the company employs 7,479 people which are significantly less in number as compared to its prime competitors, British Airways and Cathay Pacific which employs 42,750 and 25,100 respectively. The company therefore lacks the scale to compete successfully with these players. The company 's competitors can use their resources and capabilities to weaken the market position of Virgin Atlantic. (http://web.ebscohost.com/ehost/pdf?vid=5&hid=21&sid=6829bffb-c97f-4d74-afffb2827304add8%40sessionmgr3) Core Competencies The Virgin brand name is highly respected, nonetheless, and the core constituent that drives the success of all the operating companies. Motivated by the group’s underlying focus on quality, innovation, and differentiation efforts, the Virgin group has been very successfully in diversifying its businesses. A brief core competency analysis shows that the Virgin group boasts core competencies that span across all the operating companies. Most remarkable, of course, is the influence of Mr. Branson’s unconventional management style, business philosophies, strategies, and values. The Virgin group of companies, though diversified, shares many of the same core competencies; of course, distinctive competencies and competitive advantages may differ between the businesses. Core competencies of the Virgin group of companies include 1) Superior brand and representation, 2) diversified product and service portfolio, 3) Creativity and innovation 4) Superior customer service and, most of all, 5) Uniqueorganizational structure or lack thereof. Some distinctive competencies include Virgin Atlantic’s superior offerings for business class customers surpassing first class services of competitors and Virgin Retail’s one-stop mega stores offering music and entertainment related products. The two greatest competitive advantages are driven by Virgin’s superior reputation, brand name and a combination of related and unrelated diversifications ' ' 2) Economies of scale through value links throughout the portfolio of business. http://www.oppapers.com/essays/Virgin-Atlantic---Strategic-Memo/143561 8) FINANCIAL STATICS 0f virgin Atlantic Airlines: {draw:frame} http://www.virginatlantic.com/en/gb/allaboutus/pressoffice/presskit/index.jsp Virgin Atlantic has managed a pre-tax profit of 41.6 million pounds ($76.1 million) on record annual sales of 1.91 billion in end February 2006. More than double the figure for 2004-05. The carrier shared that a rise in business class travel helped more than double its pre-tax, pre-exceptional performance, which stood at 20.1 million pounds for the year ago period. COMPARISON WITH KEY RIVALS (British Airways, Delta Airways, Cathay Pacific) BRITISH AIRWAYS DELTA AIRWAYS CATHAY PACIFIC http://www.datamonitor.com/companies/company/?pid=C00F1CDB-4C6F-4BA5-997B-A82D60E1071C After analysing the financial reports for the annual year 2007 of Virgin Atlantic with its key rivals (British Airways, Delta Airways, Cathay Pacific) one can conclude that Virgin Airlines is making good profits and growing well year after year. It could lead the company to the heights in airlines industry and could become one of the best airlines around the globe in near future. 9) STRATEGIC CHANGES There are three key success criteria that are recommended by Johnson et al (2008) to assess the viability of strategic changes. They are suitability, acceptability, and feasibility. 10) 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. The Virgin group of companies is remarkable in many aspects. Providing customers with superior products and services and a smile is synonymous to the Virgin brand. However, it is with much need, that Virgin should re-evaluate its diversification strategies and focus on core values and competencies. 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 also focus in a specific market niche or specific routes to obtain value other than price and survive the competition. The aviation industry is segmenting; regional centers are being served point to point. Traditional airlines are reducing costs, thereby using certain aspects of the business model of low fare airlines, < e-ticketing - distribution - e-commerce > but also business class, full fare economy, best buy, one way fares and supplementary revenue. 11) BIBLIOGRAPHY: Books: Airline Marketing and Management, By Stephen Shaw, Published by Ashgate, 2007 Competitive strategy, M.E. Porter, Free Press 1980 Total global strategy II, 2003 EBook: Airline Marketing and Management, fifth edition (PESTLE FACTORS) http://books.google.co.uk/books?id=cVu4E4eB5lAC&pg=PA50&lpg=PA50&dq=political+factors+airline+industry&source=web&ots=4vLQOblWFr&sig=BT-uHKjLV7YAGV3sQHqrCY-E6cw&hl=en&sa=X&oi=book_result&resnum=10&ct=result#PPA76,M1 Internet sources: http://www.investopedia.com/features/industryhandbook/airline.asp http://adg.stanford.edu/aa241/intro/airlineindustry.html http://excellence.qia.org.uk/VLSP4/pdf/tour_resources_d.pdf www.vocationallearning.org.uk/teachers/subjectspecific/supportpacks0405/pdf/tour_resources_d.pdf+deregulation+in+airline+industry http://www.reportlinker.com/p052393/UK-Airlines-Sector-PEST-Analysis.html http://www.oppapers.com/essays/Virgin-Atlantic---Strategic-Memo/143561 http://www.virginatlantic.com/en/gb/allaboutus/pressoffice/presskit/index.jsp http://www.m-travel.com/news/2006/06/business_travel.html http://findarticles.com/p/articles/mi_qa3766/is_200110/ai_n8986735 http://findarticles.com/p/articles/mi_qa3766/is_200110/ai_n8986735/pg_2 http://www.virgin-atlantic.com/en/gb/allaboutus/ourstory/history.jsp http://web.ebscohost.com/ehost/pdf?vid=5&hid=21&sid=6829bffb-c97f-4d74-afff-b2827304add8%40sessionmgr3 http://www.virginatlantic.com/en/gb/allaboutus/pressoffice/presskit/index.jsp http://www.bashares.com/phoenix.zhtml?c=69499&p=irol-reportsannual http://news.delta.com/article_display.cfm?article_id=10959 http://www.datamonitor.com/companies/company/?pid=C00F1CDB-4C6F-4BA5-997B-A82D60E1071C http://news.bbc.co.uk/1/hi/uk/7259004.stm http://www.abcmoney.co.uk/news/272005315.htm