Download - Virgin Strategy1
UNIVERSITY OF SURREY
FACULTY OF MANAGEMENT AND LAW
School of Management
MSc Programmes
Module Leader:
Dr. Laura A. Costanzo
Academic Year: 2010-2011
STRATEGY MODULE
COURSEWORK
Student URN MSc Programme Surname & First Name
6098320 Management Information Systems Hargley Ikechukwu
6142620 International Hotel management Lu Chenyao
6116950 International Hotel management Markan Abhilasha
6141001 International Business
management
Zhang Mansheng
Industry European Airline Industry
Company Virgin Atlantic Airways
“Your airline’s either got it
or it hasn’t”
Virgin Atlantic | 1
Consulting TeamVirgin Atlantic
Contents1.0 Introduction...........................................................................................................................2
1.1 Company Overview........................................................................................................2
2.0 The Analysis of the External of Environment............................................................3
2.1 The Macro-environment................................................................................................3
2.2 The Competitive Environment........................................................................................6
2.3 Strategic Groups..................................................................................................................8
3.0 The Internal Environment.................................................................................................9
3.1 Swot Analysis....................................................................................................................9
3.2 Resource-Based View of Virgin Atlantic................................................................10
3.3 Value Chain Analysis....................................................................................................11
4.0 Recommendation for the Future..................................................................................13
4.1 Analysing the current strategy.................................................................................13
4.2 Future Strategic Direction..........................................................................................14
5.0 Conclusion...........................................................................................................................16
References...........................................................................................................................................17
APPENDIX 1.........................................................................................................................................20
SWOT ANALYSIS........................................................................................................................20
Appendix 2...........................................................................................................................................24
Value chain Analysis................................................................................................................24
APPENDIX 3.....................................................................................................................................27
Table of Figures29
Virgin Atlantic | 2
Figure 4 Virgin Atlantic SWOT analysis.................................................................................................9
Figure 5 Value Chain Analysis .............................................................................................................11
Figure 6 Generic Strategies..................................................................................................................13
Table 1 UK GDP......................................................................................................................................5
Table 2 UK Consumer Price Index..........................................................................................................6
Table 3 Resource based View..............................................................................................................11
Table 4: Strategic Implications of the resources..................................................................................12
1.0 Introduction
This is an executive report on Virgin Atlantic Airways, which contains an External
and internal analysis of the company’s current competitiveness and concludes
with a recommendations on the future strategic direction of the company.
1.1 Company Overview
Virgin Atlantic Airways Limited (Virgin Atlantic) a part of Sir Richard Branson’s
Virgin group is one of Britain’s largest airlines and Europe largest transatlantic
Virgin Atlantic | Introduction 3
airline. It is 51% owned by The Virgin group and 49% owned by Singapore
airlines. In the first quarter of 2010, the revenue went up by 10% to £532 million
(The Virgin Atlantic Press Office, 2010).
Founded in 1984, and headquarter in West Sussex, near that Gatwick Airport, the
company flies long haul to Europe, Africa, Caribbean, Middle East, Asia and North
America. It is a privately owned company and as such does not publish its
financial records.
Mission Statement
Virgin Atlantic’s mission statement is “to grow a profitable airline where people
love to fly and where people love to work”. This mission is profit orientated,
which is a vital factor in strategic decision.
Virgin has had a history of maintaining its strategic positions in Britain competing
intensely with British Airways.
Virgin Atlantic | Introduction 4
2.0 The Analysis of the External of EnvironmentBy external environment, we mean factors that are beyond the control of the
organization and may impact on its strategic direction, its internal processes and
structure (Pearce & Robinson, 2011). The external environment consists of:
1. The macro-environment: analysed with PESTEL (an acronym for Political,
Economic, Socio-cultural, Technological, Environmental and Legal factors)
2. The industry and competitors : analysed by Porters 5 forces framework
with critical success factors and strategic groupings
3. The identification of opportunities and Threats from SWOT Analysis.
An understanding gained from using these frameworks are useful in future
strategic decision making for Virgin Atlantic.
2.1 The Macro-environment
This consists of all the factors that are beyond the control of the firm and can
have a meaningful effect on the firm’s strategy (Dess et al., 2010). A PESTLE
analysis shows the effect of these factors in the Airline industry.
We would examine this effect on Virgin Atlantic.
Political Factors
These are Government operating regulations within which the airlines have to
work with. The Single European Sky (SES) initiative was created to serve as a
regulator for Air traffic management in the European Union. The European airline
deregulation has created a single market, removing restrictions from member
countries and creating international competitiveness. This would mean reduced
competitive advantage of national carriers like British Airways which is a good for
Virgin Atlantic. However, this has also seen the rise of low-cost airlines that has
increased competition for the major airline companies like Virgin Atlantic.
The recent EU-US “open skies” agreement which opens up the transatlantic
route allowing all European carriers to fly to US has also increased competition
for Virgin Atlantic. This is because this route was exclusive to Virgin and 3 other
Airlines.
Economic Factors
Virgin Atlantic | 2.0 The Analysis of the External of Environment 5
Economic factors are concerned with the nature and trend of the economy in
which the firm operates. (Pearce & Robinson, 2011). The profits from the Airline
industry is expected to fall by 40% this year as stated by IATA, this is due in-part
by the rising oil price. (Bisignani, 2011). Another report suggests that revenues
from UK airlines Industry fell by 19.7% in 2009 with passenger volume shrinking
by 7.4% the same year (Datamonitor, 2010).
Virgin Atlantic was also hit by the economic downturn of 2009, reporting an
operating loss of £132m and revenues going down by 8.6% to reach £2,356.6m
(The Virgin Atlantic Press Office, 2010). They however showed signs of a quick
recovery a year later. Some macroeconomic indicators are shown below.
Figure 11
Virgin Atlantic | 2.0 The Analysis of the External of Environment 6
Table 1
Table 22
Socio-cultural Factors
These are factors that influence the beliefs, values and culture of the society
(Dess et al., 2010).
In a recent survey of UK business class travellers, 74% said children was what
annoyed them most about the first class travel and they are currently
clamouring for 18+ only travel. Travel experts are looking at Virgin Atlantic to
start offering this service. (Business Travel and shows, 2011)
The population of the UK is ageing, with an increase of 1.7million of people aged
65 and over in the last 25 years. (Office for National Statistics, 2010). As these
figures are expected to increase in the coming years, this would affect the
generally reduce the number of travellers in airline business and also increase
the cost of building aircrafts that would support over-age passengers.
Technological Factors
Technology is increasing expected to contribute to the success of the aviation
industry.
Also internet technology is changing way Airlines do business, with low-cost
airlines utilizing it with a cost leadership strategy. However, last December
amidst the cancellations of flights due to snow, virgin surpassed British Airways
in its use of Twitter (an internet social network) to provide personalised customer
service.
Environmental Factors
The aviation industry is one of major contributors to Carbon emissions. But the
entire Airline industry under IATA is united with common goals of saving the
Virgin Atlantic | 2.0 The Analysis of the External of Environment 7
environment. Biofuels are considered as the future way for a sustainable
environment for the airline industry (IATA, 2011).
Virgin Atlantic has been a major voice for a sustainable environment. In 2008,
they were the first airline to test a flight run partly on Biofuel, to show that the
future of Biofuels is closer than we think. From 2008 – 2009, their waste was
reduced by 43% and they have a target to reduce all waste from their aircraft to
50% by next year. (Virgin Atlantic, 2010)
Legal Factors
All European airlines are regulated by the European Union and other bodies. The
CEO of Virgin Atlantic has been appointed as the chairman of the Association of
European Airlines (AEA). This would help boost the image of strong leadership at
Virgin Atlantic and to show that they are law-abiding.
2.2 The Competitive Environment
The “five-forces” developed by Professor Michael Porter of Harvard University
would be used to analyse the competitive environment in the airline industry.
They are listed below;
1. The threat of new entrants
2. The bargaining power of buyers
3. The bargaining power of suppliers
4. The threat of substitute products and services
5. The intensity of rivalry among the competitors.
The threat of new entrants
The initial large capital requirement needed to purchase planes is considerable
high. This serves as a barrier to a newcomer, even though it may not really be a
barrier for an existing airline moving to a new region.
It is important for an airline to hold prime airport slots for take-off and landing at
major airports especially during peak holiday periods. Existing airlines have
already occupied these prime slots making it making it difficult for a new entrant
to gain access. The result been the new entrant relegated to off-peak times.
(Datamonitor, 2010)
With an 8.2% Passenger traffic growth in January 2011 (IATA, 2011), and forecast
expect this figures to rise this could attract new entrants, coupled with the EU
Virgin Atlantic | 2.0 The Analysis of the External of Environment 8
regulations. However, figures from last month’s fuel price show an increase of
over 50% (IATA, 2011), meaning that this would give a poor net profit margin for
new comers thereby discouraging them. Generally, there’s a moderate barrier to
new entrants
The bargaining power of buyers
The growth of online price comparison sites makes it easier for consumers’ to
quickly compare prices and would readily go for the cheaper one. This means
that the low –budget airlines can compete well with legacy carriers like Virgin
Atlantic. This increases the power of buyers (consumers).
There’s little or no switching cost for buyers and this strengthens their power.
Overall, buyer power is moderate.
The bargaining power of Suppliers
Airline manufacturers are the major suppliers in the airline industry. Airbus and
Boeing are the two manufacturers dominating the industry, especially for the
large jetliner category where Virgin Atlantic belongs. The lack of substitute
manufacturers increases the supplier’s power. Also, the safety, quality and
continued maintenance of aircrafts is of utmost important, this further increases
the supplier’s power. Virgin’s fleets are made up of Boeing and Airbus aircrafts.
The rising price of Jet fuel is another important input. In 2009, it accounted for
about 35% of virgin Atlantic’s spend (CAA, 2010). There are also a few number of
suppliers, this also increases the supplier power. Generally, the bargaining power
of suppliers in the airline industry is high.
The threats of Substitutes
Even though rail and bus travel is takes a longer time than air travel, it serves as
a substitute because it’s considerably cheaper than air travel.
Advancement in technology in video conferencing and other protocols are also a
form of substitute reducing considerable business travels.
Generally, the threat of substitute is moderate.
Virgin Atlantic | 2.0 The Analysis of the External of Environment 9
The intensity of rivalry among competitors
There’s intense rivalry in Europe’s airline industry and the differentiating line is
beginning to blur. The industry has many large carriers including BA and Air
France-KLM, this rivalry is made stronger by the presence of low-cost carriers as
making the companies compete on price.
Also, storage costs are the costs associated with unsold seats in a flight. This is
why airliners sell slightly more seats than is available for a flight. With high
storage cost, there’s high rivalry among competitors.
2.3 Strategic Groups
Strategic groups are clusters of firms sharing similar strategy. Strategic grouping
can be used to determine Virgin Atlantic Competitors and how they differentiate
themselves. (Dess et al., 2010). The diagram below shows explains.
Strategic Groups
High
Price
Low
Low Figure 22 Breadth of Product Line High
Adopted from Dess et al, 2009
The figure shows a strategic grouping of major European airlines. We can see
that virgin’s major competitors in Europe are British Airways, BMI British
Midlands, AirFrance-KLM. Appendix 3 gives a fuller detail. The recently concluded
merger between, British Airways and Iberia, would intensify competition for
Virgin. Also, the “no frills” group intensifies competition for Major carriers as they
compete on price.
Virgin Atlantic | 2.0 The Analysis of the External of Environment 10
BMI baby AirBerlin
Ryanair Easy Jet
BMI baby AirBerlin
Ryanair Easy Jet
Air France- KLM, Lufthansa, Alitalia, British airways, BMI, Virgin Atlantic
Virgin Atlantic
Air France- KLM, Lufthansa, Alitalia, British airways, BMI, Virgin Atlantic
Virgin Atlantic
3.0 The Internal Environment
3.1 Swot AnalysisThe SWOT analysis is an acronym for Strength, Weakness, Opportunities and Threats. It’s a very popular tool for getting a quick snapshot of the company. It tends to create a “fit” of the company internal resources (Strength and weaknesses) and its external environment (opportunities and threats) (Pearce and Robinson 2011).
(Barney, 1991)
Virgin Atlantic SWOT Analysis
Figure 44 Virgin Atlantic SWOT analysis
Virgin Atlantic | The Internal Environment 11
Figure 3
A full description of the SWOT analysis is attached in Appendix 1.
3.2 Resource-Based View of Virgin AtlanticAccording to Pearce and Robinson, resources are regarded as abundant ‘asset’
for a company and the assets include ‘tangible resources’, ‘intangible resources’,
and ‘organizational capabilities’. (Pearce and Robinson, 2006) Firstly, ‘tangible
resources’ refers to the substance that people can touch or see, especially in
financial and physical perspectives, which have a close relationship with
customers. (Dess et al, 2010)
Compared with tangible resource, intangible resource is more abstract than
specific. It can be divided in to three main resource, ‘reputation resource’,
‘human resource’, and ‘innovation resource’ (Dess et al, 2010)
In order to make good use of ‘tangible and intangible resources’, ‘organizational
capabilities’ should be mentioned. (Dess et al, 2010)
Therefore, ‘tangible resource’, ‘intangible resource’ and ‘organizational
capabilities’ are the three different types of Resource-based view. However, as
the competitive resources, these should have four criteria. They should become
‘valuable’, ‘rare’ resources and they cannot be imitated and substituted. (Dess et
al, 2010).
The table below shows the classification of the resources of Virgin Atlantic
Virgin Atlantic | The Internal Environment 12
Tangible Resources Fleet: Boeing 747 and Airbus A340Local office buildingsClubhouse (Lounge)Codeshare partnersLimousine Service
Intangible Resources Great Leader: Richard BransonBrand nameInnovative: technology
Organizational Capabilities Innovative check-in processCustomer service.
Table 3 Resources based View3
Resource Valuable Rare Difficult to imitate
Without Substitutes
Strategic Implications
Limousine service
Yes Yes No No Temporary competitive advantage
Clubhouse Yes Yes Yes Yes Sustainable competitive advantage
Codeshare Partners
Yes Yes No No Temporary competitive advantage
Brand name Yes Yes Yes Yes Sustainable competitive advantage
Richard Branson
Yes Yes Yes Yes Sustainable competitive advantage
Fleet Yes No No No Competitive parity.
Table 44: Strategic Implications of the resources
3.3 Value Chain AnalysisValue chain analysis is a strategic analysis of an organization that focuses on
a serial process of value-creating activities. Virgin Atlantic had become the
second largest long haul airline in the UK in only two decades because the
value chain of Virgin Atlantic is very effective. Those activities are divided into
two categories, primary activities and support activities. The primary
activities generally involve operations, inbound and outbound logistics,
marketing and sales, and service.
Virgin Atlantic | The Internal Environment 13
Primary Activities
Support Activities
Adopted from
Support Activities
Support activities are those activities that add value by themselves or by
relationships with the primary activities. They usually include technology
development, procurement, human resource management and general
administration.
A full description of the value-chain analysis is shown in Appendix 2.
Virgin Atlantic | The Internal Environment 14
Procurement: Sustainable Procurement Policy
Technology Development: culture of creativity and innovation
Human Resource Management: great employee benefits
Figure 5
4.0 Recommendation for the FutureIn today’s constantly changing business environment, firms must always look for
ways to gain competitive advantage over their competitors, and to sustain the
advantage in the long run. Michael Porter, one of the leading authors in the area
of strategy, presented three generic strategies that a firm can use to outperform
rivals in the industry and achieve competitive advantage. Below is a framework
for competitive advantage:
Competitive Advantage
Uniqueness Perceived by Customer Low Cost Position
Industry wide
Particular Segment Only
(Dess et al., 2010)
4.1 Analysing the current strategyIn an industry where most airlines offer basically the same thing; the same
service, the same aircraft, Virgin Atlantic has been able to use the
differentiation strategy to create competitive advantage. The differentiation
strategy means that there is an obvious distinction between product from the
company and the others product from the competitors, which is viewed by the
customer as unique and valuable (Dess et al., 2010).
Virgin Atlantic | 4.0 Recommendation for the Future 15
Differentiation Cost Leadership
Focus
Figure 6
As a pioneer of visible customer innovation, being first seems to have become a
trademark of the Virgin Atlantic approach. The long list of firsts some of which
include being the first airline to have individual TVs in all classes, to have no
smoking flights, to have drive-thru check-in, to have an arrivals lounge, to allow
mobile connectivity and SMS texting on board, the first to have at-seat
podcasting the first to fly one of its planes using biofuels and most recently the
first airline to introduce Limousines service for the upper class at both ends, the
theme of their current marketing campaign, “Your airline’s either got it or it
hasn’t. (Innovation Leaders, 2008)
The Virgin state of art clubhouse at Heathrow has consistently won best
clubhouse from numerous bodies. Virgin Atlantic has been a leader in sustained
innovation in this industry. (Innovation Leaders, 2008). All these have made the
company enjoy a fair amount of first-mover advantage in the industry.
Also closely related to its strategy of differentiation, virgin Atlantic also uses a
focus strategy. This means narrowing down the market for a particular buyer
group, to a particular segment (Dess et al., 2010). Much of Virgin Atlantic
differentiation strategy is targeted to the upper class passengers. In fact the
£10million marketing campaign is targeted to build its upper class passengers.
(Marketing week, 2010).
´Having changed the perception of business class travel with the introduction of
its Upper Class service, which provided ‘first class experience at a business class
price’, Virgin Atlantic soon caught the target market’s imagination. As
competitors responded with similar products, Virgin Atlantic then followed up
with the introduction of the Upper Class Suite in 2003. This multi award winning
concept introduced a flip over chair providing a completely flat bed and a wider
seat than any alternative airline. In addition, it also included an in-flight cocktail
bar, on-board massage as well as personal limo services for customers´
(Innovation Leaders, 2008). And also the state of art clubhouse is only for the
upper class.
4.2 Future Strategic Direction
From the analyses above, we have seen that virgin Atlantic combines
Differentiation strategy and focus strategy to create competitive advantage. For
sustained competitive advantage, we would like to propose the following:
Building on its core competencies
Virgin Atlantic | 4.0 Recommendation for the Future 16
Virgin Atlantic should maintain the current strategy of combining differentiation
and focus strategy by building on its award winning core competencies which
include:
A. Innovation and creativity
B. Excellent scheduling service
C. Transatlantic long haul service. (Virgin Atlantic, 2010)
By building on these core competencies, virgin Atlantic can create a sustained
competitive advantage.
Strategic Alliances
In his article in the Harvard Business Review, Ekekwe argued that for
organizations to remain relevant in a dynamic global market there would be a
need to re-strategize and go beyond its core competencies. (Ekekwe, 2011). A
careful analysis of the airline industry shows that virgin Atlantics core
competencies are not enough to give it the necessary scale to create a sustained
competitive advantage. This is because in the recent years, the industry has
been characterized by strategic alliances. The three largest are; Star Alliance,
One world and sky team (Appendix 3). Its main competitors are spread among
these alliances.
One major benefit of these alliances is cost reduction in the value chain
activities, because it gives them economy of scale.
Late last year, virgin Atlantic hired the Deutsche bank to help analyse strategic
options as the company is considering joining the star alliance. This is a
commendable effort, as the alliance between British airways and American
Airlines would thicken competition for them (The Telegraph, 2010).
Virgin Atlantic | 4.0 Recommendation for the Future 17
5.0 ConclusionFrom the critical analysis of the Virgin Atlantic strategy, it is obvious that they
use a differentiation and focus strategy maintaining a first-mover advantage in
the industry. We believe that it is important for them to continue this way
focusing more on their core competencies and at the same time consider a
strategic alliance with one of the big three alliances.
Virgin Atlantic | 18
ReferencesBarney, J., 1991. Firm's resources and competitive advantage. Journal of Management, 17(1), pp.77-82.
Bisignani, G., 2011. Airline International. [Online] International Air Transport Association (IATA) Available at: http://www.iata.org/pressroom/airlines-international/february-2011/Pages/ comment.aspx [Accessed 1 March 2011].
Business Travel and shows, 2011. PR Releases: Business Travel and shows. [Online] Available at: http://www.businesstravelshow.com/en/press/pressreleases/11-02-02/BUSINESS_TRAVELLERS_CALL_FOR_KIDS_BAN.aspx?afcode=btupdate [Accessed 10 march 2011].
CAA, 2010. UK Airline Financial Tables: 2009 2010. [Online] CAA Available at: http://www.caa.co.uk/default.aspx?catid=80&pagetype=88&sglid=13&fld=2009_2010 [Accessed 4 March 2011].
Datamonitor, 2010. Airline Industry in the United Kingdom. Industry Analysis.
Datamonitor, 2010. Virgin Atlantic Airways. Company Profile
Dess, G., Lumpkin, G.T. & Eisner, A.B., 2010. Strategic Management: Creating Competitive Advantages. 4th ed. McGraw- Hill.
Ekekwe, N., 2011. Beyond core competence: Harvard Business Review. [Online] Available at: http://blogs.hbr.org/cs/2011/02/beyond_core_competency.html [Accessed 11 March 2011].
IATA, 2011. Press room: IATA. [Online] Available at: http://www.iata.org/pressroom/pr/Pages/2011-02-28-01.aspx [Accessed 3 March 2011].
Virgin Atlantic | References 19
Innovation Leaders, 2008. Virgin Atlantic. [Online] Available at http://www.innovationleaders.net/va_company_profile.html [Accessed 10 March 2011].
Marketing week, 2010. Marketing News. [Online] Available at: www.marketingweek.co.uk [Accessed 7 March 2011].
Office for National Statistics, 2010. Office for National Statistics. [Online] Available at: http://www.statistics.gov.uk/cci/nugget.asp?id=949 [Accessed 25 February 2011].
Pearce, J. & Robinson, R.B., 2011. Strategic Management: Formulation, Implementation, and Control. Twelfth ed. Singapore: McGraw-Hill.
The Telegraph, 2010. Sir Richard Branson begins strategic review of Virgin Atlantic. [Online] Available at: http://www.telegraph.co.uk/finance/newsbysector/transport/8111295/Sir-Richard-Branson- begins-strategic-review-of-Virgin-Atlantic.html [Accessed 11 March 2011].
The Virgin Atlantic Press Office, 2010. All About Us: Virgin Atlantic. [Online] Available at: http://www.virgin-atlantic.com/en/gb/allaboutus/pressoffice/pressreleases/news/financialresults.jsp [Accessed 24 February 2011].
Virgin Atlantic, 2010. Awards. [Online] Available at: http://www.virgin-atlantic.com/en/gb/allaboutus/ourstory/awards.jsp [Accessed 11 March 2011].
Virgin Atlantic, 2010. Brief Sustainability Report 2010. [Online] Virgin Atlantic Available at: http://changeisintheair.virginatlantic.com/ [Accessed 2 March 2011].
Virgin Atlantic | References 20
Virgin Atlantic | 21
APPENDIX 1
SWOT ANALYSISStrengths
Strong Brand Image
The virgin brand is part of the global virgin group, a worldwide recognized brand,
in the words of Richards Branson, “A brand name that is known internationally
for innovation, quality and a sense of fun - this is what we have always aspired to
with Virgin." Virgin Atlantic brand has continued to win numerous awards,
notable among them are:
1. Best Airline of the year 2010 (British Travel Awards)
2. Leading Transatlantic Airline (World Travel Awards 2010)
3. No.1 for International Airline with best inflight entertainment (Zagat
Awards 2009)
4. Best Airline based in Western Europe (OAG Airline Industry Awards 2009)
All these awards help to boost the brand image and so gives Virgin atlantic
competitive advantage.
Strong Leader
Under the romantic view of leadership, it’s the assumption that the leader is a
key driver for the success for the organization (Gregory Dess, 2010). Richard
Branson, the British entrepreneur is the key driver behind all the virgin brand.
His sense of fun, innovation and gut, has enabled virgin to be as strong as it is
now. He has been known to personally respond to disgruntled customers. while
this may be seen as strength, what happens at the demise of Richard branson?
Will the virgin brand sustain its edge? This are some of the limitation of this view.
Virgin Atlantic | APPENDIX 1 22
Strategic Alliance and code-share agreements
The company has benefitted from a number of partnerships and code share
agreements. One of them is with Singapore airline which owns 49% of Virgin
Atlantic. Passengers can book and fly through either of the airline. And also
virgin can also leverage on the fleet size of Singapore airlines.
Virgin Atlantic recently extended its codeshare agreement with the second
largest airline in Heathrow, BMI. Under this agreement, virgin Atlantic customers
can book flights on virgin and fly BMI to destinations in the Middle East.
Weakness
Private ownership
As a privately held company, virgin Atlantic is limited in its financial capacity to
expand and increase market share. Most of the competitors are publicly listed
companies and as such have recourse to public fund to fuel their expansion
projects.
Lack of scale
Probably as a consequence of it been a Private company, the company lacks
scale as compared with its competitors in the airline industry. For example,
British Airways (BA) flies to about 169 destinations (not including its codeshare
partners); Air-France KLM operates 249 destinations, while virgin Atlantic
operates about 35 destinations (see Appendix 3). Also BA has a fleet size of 233,
Air France-KLM has about 635, and while virgin has about 39. This lack of scale
limits the company’s ability to compete well with these players.
Opportunities
Growth in the Airline industry
The IATA in December last year predicted that the airline passenger would see
an increase of 5.2% this year, however, last week’s report from IATA has this
forecast increased to about 5.6%. (IATA, 2011).
Furthermore, a forecast into 2014 predicts that half of the 800 million extra
people who would travel by air would be in Asia. Virgin Atlantic is well positioned
to capitalize on this growth with strategic alliance with Singapore airline and
Virgin Atlantic | APPENDIX 1 23
Japan’s All Nippon Airways (ANA). This would increase its market share and
increase revenue.
Increase in cargo traffic
Last week, the IATA predicted the global air cargo would rise by 6.1% this year
(International Air Transport Association (IATA), 2011). This presents an
opportunity for virgin Atlantic who last year reported that its cargo revenue was
up by 36%. Also last month, the company saw a 44% increase in its cargo
delivery of roses for the valentine season. (The Virgin Atlantic Press Office,
2010). Virgin Atlantic would really benefit from this as an additional source of
revenue.
Threats
Rising Oil Price
The price of oil has gone up to a high price of $111 last month; this directly
means that the jet fuel would also rise significantly. This is expected to cause a
46% drop in global airline profit from last year as the graph below depicts.
Virgin Atlantic like all other airline would be hit by this threat as it cost in jet fuel
represents a significant portion of its operating expense.
Virgin Atlantic | APPENDIX 1 24
Price Reduction and Mergers
European airline industry domestic market is characterized by substantial price
reduction by the low-cost carriers like Ryan air and easy jet and this has seen
their market share grow increasingly.
Also the recent partnership and mergers going on in the industry presents a real
threat to Virgin Atlantic. Mergers like Air France and KLM, also that of British
Airways and Iberia. These mergers pose a real threat to the virgin’s market
share, as they can benefit from each other increasing their economy of scale.
Virgin Atlantic | 25
Appendix 2
Value chain Analysis
Primary Activities
Inbound
In service organizations, inbound and outbound logistics always means R&D
(research and development) and designs and solutions. As part of efforts to
improve to improve logistics of its supply chain, Virgin Atlantic was the first
airline to implement an RFID tagging technology, to track assets at its warehouse
in London Heathrow airport.
Virgin Atlantic and Boeing, one of its aircraft suppliers are linked by an Airplane
Health Management System. This is an environmental friendly system that
allows them to gather and monitor critical inflight data (Supply Chain Digital,
2008). In an industry where safety and quality is of utmost importance, this is an
excellent control system.
Operations
Last month, Virgin Atlantic, deployed a cutting-edge solution for proactive
operations management. This Aviation Decision Support solution designed by
Weather Service International (WSI) provides virgin to superior global weather
information and flight planning decision support (Weather Service International,
2011).
Also, Virgin has been using environmental friendly operations to achieve
competitive advantage; they were the first airline to start using fair-trade tea,
coffee and chocolates. They have also recently ordered 15 Boeing 787
environmental aircrafts, making it the largest single order in Europe. Their
aircraft seat covers are recycled to produce fashion bags.
Virgin Atlantic | Appendix 2 26
Outbound logistics
Outbound logistics is about distributing products or service to customers or
buyers (Dess et al, 2010). Teaming up with NIIT technologies, Virgin Atlantic
offered the world fastest airline check –in for its upper class wing in heathrow
airport. This allows the upper class passengers walk straight from the chaffeur
driven limo to the clubhouse with less effort.
Virgin has also upgraded its website security with latest SSL certificate security.
This provides a visual reassurance for customers assuring them that their online
transaction is secure by the highest standards thereby increasing buyer trust.
Marketing and sales
Last year, Virgin Atlantic invested £10 million in a marketing campaign in a drive
to boost its value adding benefits among its business class travellers. The theme
of the campaign “Your airline’s either got it or it hasn’t”. This is a follow-up
campaign strategy to their 25th anniversary in 2009 and about £80 million sales
revenue has been made as a result of this campaign (Marketing week, 2010).
It would use TV, cinemas and the internet as a medium for the campaign. It’s
well defined customer segments are First Class passengers are predominately 35
to 45 years old male, travelling on business class offering a limousine service at
both ends. Passengers in Premium Economy are split fairly evenly between
travelling for business or leisure, most are middle aged male. Economy
passengers are a much broader group and travelling mainly for leisure. At the
same time, some less profitable ticket offices were replaced by high performing
telephone reservation and sales centers. Virgin Atlantic also operates a flying
club to encourage loyalty in existing customers.
Service
The customer service of First Class of Virgin Atlantic is superior and constantly
improved to achieve competitive advantage. Virgin Atlantic offers massage,
cleaning and hairdressing services for all First Class passengers. Virgin Atlantic
designed the full fare of Economy Class products in 1992. This product is
targeted to the passengers who are price sensitive but still have comfort
requirements. It had been praised as "the best Economy Class airline" by the
British travel awards (The Virgin Atlantic Press Office, 2010).
Virgin Atlantic | Appendix 2 27
Even for those passengers who buy discount tickets, Virgin Atlantic also designed a
variety of services to make the long journey becomes interesting. The distance
between seats is 31 inches, wider than most of Virgin Atlantic's competitors.
Passengers can order meal at any time, including traditional British snacks such as
fish and chips. There are more than 20 selections of television channel with
different programmes and more than 10 Nintendo games. These comprehensive
services won lots of customers for the company.
Support Activities
Human Resource Management
Virgin Atlantic is an equal opportunity employer. Among the various benefits to
staff to motivate them, virgin gives each staff 7 free flights to any destination
they want in a year. (Virgin Atlantic, 2006)
Further more, Richard Branson, creates a sense of fun amongst the employees,
this makes them work better without undue pressure.
Virgin Atlantic CEO Steve ridgeway is the current of Association of European
Airlines shows that the company maintains cordial relations with trade unions.
Procurement
Virgin Atlantic suppliers are audited based on a Sustainable Procurement Policy;
this This policy sets out a range of conditions, from ensuring that no child labour
is used in the manufacture of the products they buy, to reducing the
environmental impact of their supply chain. So far, over £100million of Virgin’s
Atlantic spends has been covered by suppliers signing up this policy. (Virgin
Atlantic, 2010)
Furthermore, with last month’s implementation of a global e-invoicing solution,
virgin has created a win-win relationship with suppliers where virgin benefits
from a tax compliant invoice receipt and suppliers benefits from enhanced
service delivery.
Technology Development
Virgin Atlantic has a culture of that enhances creativity and innovation.
Technological innovation has permeated every aspect of their business, this
Virgin Atlantic | Appendix 2 28
include the RFID tagging technology at the warehouse, an e-invoicing solutions,
an airline decision support solutions, etc.
APPENDIX 3Competitor Analysis
Virgin
Atlantic
airways
British
airways
Lufthansa BMI Air – France
KLM
FOUNDED 1984 1974 1954 1949 1933
PARENT
COMPANY
Virgin
group
British
Airways plc
Deustche
Lufthansa
British
midland
airways
limited
Air france,
S.A
OWNER Sir Richard
Branson’s
(51%)
Singapore
Airlines
(49%)
Airways
Aero
Association
Limited
n/a UAL co-
operatio
n
Societe air
france
HEAD OFFICE West
Sussex, UK
Harmonds,
England
Duets,
cologne
Houston,
Texas
Atremblay -
france
HUBS LONDON
GATWICK,
LONDON
HEATHROW
LONDON
GATWICK,
LONDON
HEATHROW
Munich
airport &
many more
GUM,
CLE, IAH,
EWR
Paris
Charles de
airport
ALLIANCE N/A ONEWORLD STAR
ALLIANCE
STAR
ALLIANCE
SKY TEAM
NO. OF
AIRCRAFTS
39 233 722 336 112
DESTINATIONS 35 300 410 262 249
Virgin Atlantic | APPENDIX 3 29
MANAGEMENT Stephen
Murphy
(Chairman)
Steve
Ridgway
(CEO) Julie
(CCO) Steve
griffin
(COO)
Keith
wolliams
(CEO)
Martin
Broynon
(Chairman)
Christoph
franz (CEO)
Jeffery
smisak
(CEO &
Chairman
)
Jean cyrl
spitella
(CEO &
chairman)
EMPLOYEMEN
T
7478 35867 105261 41061 104,720
FISCAL YEAR
END
MARCH MARCH DECEMBER DECEMBE
R
DECEMBER
SCHEDULED
PASSENGERS
SERVICE
OFFERED OFFERED OFFERED OFFERED OFFERED
CARGO
HANDLING
OFFERED OFFERED OFFERED OFFERED OFFERED
AIRCRAFT
MAINTAINANC
E
OFFERED OFFERED OFFERED OFFERED OFFERED
LEISURE
TRAVEL
SERVICES
OFFERED OFFERED OFFERED OFFERED OFFERED
Virgin Atlantic | APPENDIX 3 30