Strategic Management: Virgin Atlantic Airline Case Study

Executive summary:

The principle objective of the current study is to evaluate the business strategy and business environment of Virgin Atlantic. The present study can be considered as useful in identifying the scopes of improvement for the concerned airline company. There are six major sections in the current study. The first section provides a brief on Virgin Atlantic. A critical evaluation of the current business strategy, vision, mission, and objectives are conducted in the second section. The third section presents an in-depth analysis of the internal and external business environment of Virgin Atlantic. This section also contains an analysis of the internal resources, competitors, and customers of Virgin Atlantic. SWOT is considered as a useful tool in identifying internal strengths and weaknesses and external opportunities and threats. PEST is yet another tool used for external business environment analysis. Both these tools have been applied for better analysis of the business environment. The differentiation strategy of Virgin Atlantic has been discussed in section four. The researcher has explained relevant theories in section five that can help Virgin Atlantic in improving organisational performance and overcome existing issues. The researcher has also developed a conclusion based on the findings of the analysis and presented the same in section six. The financial performance of Virgin Atlantic has been affected by the global economic downturn. However, the company has been able to hold a strong market share due to its differentiation strategy. The list of references used in the present study has been mentioned under the heading ‘references’.

 

1.0 Introduction:

Sir Richard Branson established the Virgin Atlantic Airline in the year 1984. It is the second largest airlines company in Great Britain. The Virgin Atlantic wishes to be such an airlines company that people love to get service and where employees love to work. It works hard to maintain its brand loyalty. Virgin aims to serve its customers better by improving its service quality (Shapiro, 2010). It also plans to deduct the airlines fare so that middle class and lower middle class people can afford travelling by plane. It also plans to provide innovative services to its customers. In this case study the business strategy of Virgin Airline is analysed from various points of views to emphasise on its drawbacks and recover those accordingly.

2.0 Analysis of Virgin Atlantic Airline Strategy:

2.1. Business Strategy:

Business strategy is formed in order to achieve desired objectives set by an organisation by utilising its resources (Thomke and Hippel, 2007). This strategy is formed by the management of the company. Therefore, business managers play key roles behind the success of any organisation. Here success means improvement of performance resulting in steady growth. Business managers need to concentrate on whether the employees of the organisation utilize its resources optimally or not in order to achieve various goals and objectives through functions such as planning, organising, directing, controlling, communicating etc (Cross and Baird, 2009). Business strategy is prepared by analysing various factors and by using various theories and models. These are elaborated in the coming sections.

2.2. Evaluation of Strategy of Virgin Atlantic Airline:

2.2.1. Vision, Mission and Objectives:

The mission statement of Virgin Atlantic Airline is “to embrace the human spirit and let it fly” which indicates the true spirit of Virgin Airlines. It is already serving its airline facilities in 31 destinations. The mission is to increase this number as well as the number of its branch offices in the major countries of the world by engaging more employees. It wishes to be such an airlines company where people love to work. Apart from that it wishes to leave a mark in the airlines industry by serving people the best. These are its vision and as in all Virgin Airline have also set some objectives and targets for itself. The most important objective is to deduct the price and improve the quality of its services and thus satisfy its customers (Hmadjian and Incoln, 2010).

2.2.2. Analysis of the Competitive Environment:

The competitive environment is analysed with the help of the Porter’s Five Force Model which is described below.

Threat of new entrants:

To enter in the airlines industry large amount of capital is required for any new comer. This is considered as the key threat. The existing players of this industry occupy the major slots in airports during peak hours while new comers have to occupy slots during off-peak hours by cutting the cost of plane fares to attract customers (Nonaka, 2007).

Bargaining power of buyers:

People nowadays compare the rates of plane fares through internet before booking ticket. Therefore, online ticket booking system has a huge impact on the bargaining power of buyers (Wright et al. 2012). At present people want to avail the low cost airlines system with better service quality.

Bargaining power of suppliers:

The suppliers of airlines industry are the airline manufacturers. There are very limited number of suppliers who produce the materials of Boeing and Airbus. Apart from manufacturing the planes, the safety measures are also taken into considerations by the suppliers (Teece, 2010). Therefore, suppliers possess enough power to bargain with the airlines companies.

Threat of substitutes:

Here the substitutes may be the buses or railways as these are the low cost travelling options for common people. Though travelling by bus or train is much time consuming than travelling by plane however, common people prefer travelling by bus or train due to their low cost service (Palich et al. 2000).

Rivalry among existing firms:

Virgin Atlantic Airline is a UK based airways company. Its competitor can be the airlines companies of United States as there is an age old rivalry between the UK and US based companies (refer to appendix: exhibit1). The liberalisation and deregulation of the European airlines companies have formed a competitive marketing environment for the airlines companies of rest of the world (Nag et al. 2007).

3.0 Analysis of Business Environment and Internal Resources:

3.1. Analysis of the Business Environment:

Any business has its specific environment. The business environment can be broadly classified into two categories. One is micro environment and another is the macro environment. The micro environment consists of the factors that have direct effect on the operation and success of the business (Johnson et al. 2008). The factors may be customers, suppliers, intermediaries, competitors, employees or staffs etc. Analysis of micro environment is essential before forming corporate decisions and strategies. On the other hand macro environment is consists of the factors that cannot be controlled directly. It falls under the external environment and this environment is also needed to be analysed in order to improve the operating capability of the organisation (Amit and Zott, 2001).

3.1.1. SWOT Analysis:

SWOT Analysis is helpful in order to determine the possible strengths, weaknesses, opportunities and threats of any organisation. This concept has two parts, one is internal analysis and another is external analysis (Armstrong and Greene 2007). The internal analysis consists of strengths and weaknesses and the external analysis consists of opportunities and threats. In this case, the concerned organisation is Virgin Atlantic Airline. Its SWOT Analysis is described below:

Strengths:

Virgin Atlantic Airline is the second largest airlines company in the Great Britain and third largest European carrier over the North Atlantic. It operates in 31 destinations across the globe. It has satisfactory brand image and brand name. Brand loyalty is also mentionable. It successfully differentiates its values, services and prices (Capon, 2009). It has well organised structure as well as strong leadership. Those who book their plane ticket with the help of the internet connection are very much familiar with this airlines company. Moreover, its spectacular brand image provides it the universal appeal that attracts variety of customers from all over the world.

Weaknesses:

There are few weaknesses. Most important weakness is Virgin Airline utilises the partnerships and alliances ineffectively for business expansion and growth strategy. It mainly emphasises on the market of UK. The distribution system is expanded and developed in a lousy way (Haberberg and Rieple, 2008). The number of planes that provide services is not satisfactory.

Opportunities:

The opportunities may include merger and acquisition or tie-ups with reputed MNCs in order to expand its business (Johnson et al. 2008). In Europe there is a chance of operating in about 280 airports. There is also an opportunity to expand its business in Asian markets as well as in the markets of Germany, France, and Spain etc. Apart from this the liberalisation and deregulation issues running in the European market is considered to be another opportunity for this company. The demands of flights as well as travel and tourism are increasing day by day which is helpful for the growth of the overall economy of the world. Therefore, this is obviously considered as an opportunity for Virgin Atlantic Airline.

Threats:

The threats can be the low cost airlines companies that try to provide the same facilities at comparatively lower prices; this can be the low cost airlines of Virgin’s home country that is Great Britain. Increasing threat of terrorism in the Middle East has forced passengers not to travel by air. The increasing fuel cost can also prove to be a threat for Virgin. Live chatting, video conferencing have omitted the necessity of business travels (Tribe, 2010). Passengers compare the rates of plane fares through internet. Therefore, such price transparency issues over internet can also be a threat to the Virgin Airline.

3.1.2 Macro environmental analysis:

The macro-economic environment of the company can best be described with the help of PEST analysis. The PEST analysis of Virgin Atlantic Airlines has been discussed as under:

Political environment:

The political environment includes the rules and regulations set up by the Government in order for operating the business across the particular territory. The single European sky initiatives taken by the European Union has served a very important part in order to manage the traffic in the European region (Tribe, 2010). Moreover, the deregulation and liberalization of the European airline industry has removed the barriers of restrictions among the member countries. It has created a healthy atmosphere for the companies like Virgin Atlantic Airlines to operate business. According to the view of Johnson et al. (2008), the EU-US open skies has increased the level of competition for the company like Virgin Atlantic Airlines. It has provided the free route for Virgin Atlantic Airlines and three other air lines.

Economic environment:

Economic environment affects the profitability of an organisation. As stated by Haberberg and Rieple (2008), the demand of a particular service depends on the economic scenario of a particular country. As per the survey of IATA in the year 2011, due to the rise of the oil process the profits of the airline industry may decrease by at least 40%. Moreover, the down turn of the economic conditions also can hamper the revenue generation of the air lines industry. Therefore, the profitability of Virgin Atlantic Airlines can also be affected due to the adverse economic conditions. In this context, Capon (2009) mentioned that rise of the inflation level may also affect the volume of customers travelling through airlines. The overall revenue from the air lines industry may contract by 19.7% due to the poor economic conditions. Due to the economic condition, Virgin Atlantic Airlines may cause a loss of £ 132m.

Social and Cultural Environment:

The social beliefs, values and changes in the cultural styles can affect the business of an organisation. For instance, the study has revealed that a major portion of the children are interested in travelling in the 18+ only travel rather than in the first class. Moreover, as mentioned by Armstrong and Greene (2007), in the upcoming years about 1.7 million of the UK population will reach in the age of 65 years. Therefore, the social changes may impact the revenues of the airlines companies like Virgin Atlantic Airlines.

Technological Environment:

The success of the air line industry can largely be affected due to the technological advancement. The Virgin Atlantic Airlines has implemented innovative and sophisticated technology to p[provide the best services to the passengers. As stated by Amit and Zott (2001), the internet technology has changed the way of business of the air lines industry. The low-cost air lines have adopted the internet technology in order to implement the low-cost strategy. However, it has impacted the profitability of the Virgin Atlantic Airlines. Moreover, with the help of the better technology the air lines companies can save the operating costs.

3.2 Analysis of internal resources:

As defined by Koufaris et al. (2011), the resources of the organisation are termed as the abundant asset classes including the tangible, intangible assets as well as the organisational capabilities. In that VRIN framework could serve best understanding about the organisational resource optimisation.

Type Resource / Capability Valuable Rare Cannot be imitated No substitutes
Tangible Local office buildings
Clubhouse
Fleet: Boeing 747 and Airbus A340
Limousine Service
Codeshare partners
Intangible Richard’s Leadership
Innovative technology
Strong brand name and reputation
Capabilities Leadership capabilities
Strong organisational structure
High quality customer service and customer focus

 

Referring to the above outcomes it has been obtained that the internal sources that generate the competitive advantages for Virgin Atlantic are the leadership quality, sound reputation and brand identity, the clubhouse and the diversified customers services. However, the other factors could also generate the competitive advantage where the same could be limited by the competitors and environmental obsolescence.

3.3 Analysis of competitors:

British airways:

British airways have mainly targeted the premium range of the customers. On the other hand, Virgin Atlantic Airlines has been providing the best quality of survives to the mass. Virgin Atlantic Airlines has prepared the strategies in order to provide the first class services at the price of business class. However, according to the view of Johnson et al. (2008), the similarities of both the airlines are delivering the services to the customers at every point. Both the companies have been trying to be the leader of London in terms of the air lines operation.

AMR Corporation:

ANR Corporation has been successfully managed the operation across the globe like the Virgin Atlantic Airlines. However, AMR has been concentrated on expanding the operation most of the cities at a rapid arte compare to that of the Virgin Atlantic Airlines. As mentioned by Nag et al. (2007), in terms services to the premium customers, AMR has been taking the competitive advantage over the Virgin Atlantic Airlines. However, Virgin Atlantic Airlines has been providing the fringe benefits to the customers at a cheaper rate compare to that of the Virgin Atlantic Airlines. In terms of the services to the economic class, Virgin Atlantic Airlines has enjoying the competitive advantages.

Air France- KLM S.A.:

The main aim of the Air-France-KLM S.A. is to upgrade the business to the next level. However, both the air lines have been focusing on the competitive prices in order to attract the common mass of people. Air France-KLM S.A. has been focusing to reduce the debts rather than spending money for providing the additional benefits to the customers like Virgin Atlantic Airlines.

3.4 Analysis of customers:

The customers’ profile of Virgin Atlantic airlines is diverse in nature as the organisation serves a number of global countries including Asia, Africa and North America (refer to appendix: exhibit 2) In this context, Ganesan and Harrigan (2010) stated that the organisation having diverse customers’ demography is affected by the differentiated cultural values and different preferences of the organisation. The key cultural issues that the firm is currently facing are cultural meal preferences, in-flight services, presence of native language crew aboard planes, the subtle differences affecting the communication including tone and body language of both the staffs and passengers. Moreover, the organisation has executed feedbacks to address the issues.

4.0 Distinctiveness analysis:

Differentiation strategy is the distinctiveness of the organisation while operating in the intense competition. Virgin Atlantic has initiated offering the additional services over the basic ranges where the competitors like, British Airways, AMR Corporation and Air France serves only the traditional services to its passengers. Burdus (2010) found that Virgin Atlantic is the first airline company offered the no smoking flight. Moreover, the firm has recognised as pioneer in customers innovation like, individual TV, mobile connectivity and in-flight messaging service. On the contrary, use of bio fuels has led the company to attain competitive positioning and longer sustainability due to its environment friendliness. In-flight cocktail bar and personal limo services have enabled the firm to deliver “a first class experience at a business class price”.

5.0 Backup analysis using suitable recommendations:

Referring to the above discussions regarding the organisation the following options could be recommended for its better strategic implementation.

Improved competencies:

Virgin Atlantic needs to improve its strategies through maintaining the current differentiation strategies with the combination of focus strategy. Referring to this fact, Harrigan (2007) stated that the existing core competencies could be improves through creativity and incorporation of innovation. In this context, Virgin Atlantic could incorporate flexible scheduling and extended long-haul services to achieve sustainable competitive advantages.

Strategic alliance:

According to Mittal and Kamakura (2008), effective strategic alliance enables the firm to reduce costs in its value chain through creating the economies of scale. Therefore, to remain relevant in the dynamic global market Virgin Atlantic needs to go beyond the core competencies. Quelch and Loisa (2008) recommended to go for the alliance with ‘One world’, ‘Star alliance’ and ‘sky team’. In that case, its competitors have reinforced the competition through business expansion.

Airline fleet and destinations:

It has been observed that BA operates in 75 countries with larger fleet of 234 airbuses in about 147 destinations where Virgin Atlantic serves 31 destinations with 38 aircrafts. Therefore, the orgsbiation needs focusing on the fleet widening and the destination expansion that higher number of customers in wider regions could be attained.

Marketing strategy:

Virgin Atlantic has attained the competitive positioning due to its unique marketing strategy over the BA and thus, the organisation has achieved competitive customers’ base. In this context, Shapiro (2010) suggested to review its global advertising and existing marketing strategy to change as required. However, greater competition with BA could provide the norm of industry growth.

6.0 Conclusions:

The entire study has analysed the business strategy of Virgin Atlantic where it has been observed that the organisation has paid attention to realize its mission, aims and objectives through its strategic plans and right corporate direction. The competitive position of the organisation has been assessed using SWOT and PEST framework where the competitive environment in context of Virgin Atlantic has been evaluated through porter’s five forces model and porter’s components for the competitors. Instead of having sound market position the firm has potential growing potential.

 

 

References:

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