Virgin Atlantic, the UK’s second largest long haul airline, operates a fleet of 38 aircraft to 30 destinations in Africa, Asia, Middle East, Indian Ocean, North America, the Caribbean and Australia. In a deal which was finalized in 2000, Branson sold 49% stake of Virgin Atlantic to Singapore Airlines for £600.25 million to form a unique global partnership. Richard Branson is still the controlling authority as he retains 51% stake in the airline.
This essay analyses the chief internal and external factors that contribute to the success of the organisation as well as provide a critical assessment on the effectiveness of the strategies employed. It further discusses a couple of strategic options that are available to the Virgin group for the next five years with reference to appropriate academic models and concepts.
Internal Analysis Of Virgin Atlantic
In order to understand the strategies, it is important to analyse the internal environment of the organisation. Internal analysis is done by means of the value chain of the Virgin Atlantic.
Value Chain Analysis
Porter’s (1990) Value chain framework is an interdependent model that helps to analyse specific activities through which an organisation can create value and gain competitive advantage. (Pathania-Jain, 2001). To conduct the value chain analysis, the company is split into primary activities (those that are related with production) and support activities (those that provide the background necessary for effectiveness and efficiency of the firm like human resources management) (Porter, 1985). These activates are discussed below:
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1. Inbound and Outbound logistics:
In Inbound logistics, the key activities are those associated receiving the raw materials from suppliers and managing them within the firm. These activities includes Stock Control (storing and managing fuel, snacks, food and drinks.), passenger service system, facilities planning etc (Fig. 1.1). It provides ample of facilities to its customers, it gives choice of three entrees with main meal, free drinks, an amenity kit for outbound journey, complimentary newspaper of passenger’s choice. The facilities keeps on increasing if you move from economy to upper class. The upper-class passenger gets limo service to travel to airport where check in formalities are already completed before they check in hotel style lobby area and through a dedicated security area exclusively for virgin airline customers. The upper-class UK passengers gets a complimentary airport transfer in chauffeur driven Volvo or Virgin Limo Bike which makes there outbound logistics quiet impressing to customers.
(Source: http://www.virgin-atlantic.com/tridion/images/studentinformationkitmarch2009_tcm4-622791.pdf; http://www.virginatlantic.com/en/gb/allaboutus/ourstory/forstudents.jsp#operation)
Virgin Atlantic is the second largest long haul airline in the UK and the third largest European carrier over the North Atlantic. It operates to many of the top destinations around the world including destinations in the Caribbean, US, India, Far east and Africa. It has won many awards almost in most categories that travel industry offers.
3. Marketing and Sales:
Virgin Atlantic uses a wide range of marketing techniques. Advertising activity includes magazines, TV, taxi sides press, outdoor posters and direct mail. Also promotional schemes plays vital role during traditionally low seasons. To encourage loyalty, Virgin Atlantic offers flying club membership where in members gets free miles that can be exchanged for free flights and other rewards. In addition, Virgin Atlantic also advertises through travel agents and runs wide range of promotional schemes, offers trade incentive, organises trips and social/educational events.
The website (www.virgin.com/atlantic) also plays vital role as it offers full electronic booking, give information on destination, informs mileage balance to members and different promotional schemes.
Virgin Atlantic has won numerous awards for its service and claims to set up new standards of service by pioneering range of innovations. For example, with respect to comfort during journey, its upper-class suite has longest and most comfortable flat bed and seat in airline industry for which alone it won twelve awards. For travelling from airport, virgin Atlantic offers limousine service and Bike service to its customers.
It includes planning and control systems, such as corporate strategy, accounting and finance. (Lynch, 2003). Virgin Atlantic expends heavily on technological solutions and infrastructure. The Finance department analyse the expenses due and financial condition of the group and accordingly plans the expenses necessary for growth of organisation.
2. Human Resource Management:
Virgin Atlantic recruit people by means of newspaper advertisements and through its website. Existing staff can also recommend and earn incentive through the same. Virgin Atlantic gives world-class training to its employees and develops their employees from time to time by organising educational events. Also they recruit and train people with sign language skill to facilitate to disable passengers
Virgin Atlantic not only considers technological developments as vital for growth but also spends a lot on it. It has award winning in-flight entertainment system, travel seats and beds designed to give extra comfort. Also it is continuously working on innovative aircraft design and technological solution to reduce carbon emission
Virgin Atlantic has an efficient procurement department, which obtains quality goods and services at lowest price so that the passengers can avail these world-class facilities at competitive prices. The department takes benefit of large operations of and thus achieve economies of scale. The department also interacts with a number of organisations that provide handling services at airports, Including baggage handling, refuelling, maintenance, cleaner services and security. These services are offered by a number of companies and can help in reducing costs.
(Source: http://www.virgin-atlantic.com/tridion/images/studentinformationkitmarch2009_tcm4-622791.pdf; http://www.virginatlantic.com/en/gb/allaboutus/ourstory/forstudents.jsp#operation)
External analysis of Virgin Atlantic
To have a grasp of the existing market as well as consumer and stakeholder perception, an awareness of external factors is essential. This section will highlight the position that Virgin Atlantic holds with respect to competitors, social perception, etc.
An organisation’s business environment is invariably governed by external factors which can be broadly analysed as Political, Economical, Social and Technological factors. To gain an advantage in the present and future market the organisation needs to reduce inefficiency and retain cost effectiveness (Grant, 2005). As Virgin Atlantic operates within Europe, North America, Africa, Asia and Oceania, these factors differ to a certain degree and the manner in which competitors, political bodies and social groups react and respond to the brand has to be anticipated with some care.
Political and Legal factors
As Virgin Atlantic operates across the globe, it has to adapt its practices to suite national and international laws as well as domestic aviation rules and regulations. The manner in which competitors react to new market shares may also involve political influences. When the United Kingdom opened Heathrow Airport to Virgin, thereby abolishing the London Air Traffic Distribution Rules, angered the chairman of British Airways and lead to BAA donations to the Conservative Party being halted. Virgin also incurred the wrath of Lord King when two unused slots held by BAA at Tokyo Narita International Airport were awarded to the airlines (BAA, 2009).
It must be stated that the brief financial crisis of the early 1990s forced the then Conservative British government to open Heathrow to Virgin despite opposition from BAA. This shows how external economic conditions can sometimes be favourable to a rising organisation in grabbing a hitherto inaccessible monopolised market. One of the main economic factors that affect the airline industry in general is the fuel hike. Conrady (2009) notes that the low cost fuel prices provided to the UK airline industry has greatly assisted in it escaping the fate of many of its European counterparts.
The social perception and acceptance of a brand is of vital importance to any organisation and Virgin Atlantic has managed to do that in a relatively short period. Virgin Atlantic has been vying for the position to instil in the British public the brand image of a national and international organisation. When British Airways announced in 1997 that it will remove the Union Flag from its tailfins in favour of more international images, Virgin was quick to introduce the Union flag prominently in its winglets and noses with the tagline ‘Britain’s Flag Carrier’ thereby challenging BA’s traditional role as UK’s Flag Carrier.
The training of its staff is also a major issue and is vital in gaining stakeholders and achieving stakeholder targets (Nadal, 2009). The service staff need to have proper training to meet the high standards of service which is expected of it by the consumers as a hallmark of the airline industry.
As an industry that heavily relies on technology, the technological factor is the most essential factor in improving efficiency in the longer term. Virgin has managed to introduce more than 700 next generation aeroplanes, which provides a marking contrast to most of its competitors. According to Briggs and Burke (2009) this also minimises maintenance and training costs in the long run. Virgin’s initiative to focus on providing online service will also have a marked benefit as more and more consumers are being introduced into the World Wide Web on a daily basis. Consumers are thereby allowed to get up-to-date information regarding flight schedules and compare airline prices.
Environmental concerns have also been a frequent issue as the airline industry is notorious as a major polluter. Many campaigns have tried to befriend or at least calm the environmental lobbies but more effort must be put into projecting the image of an organisation that is ‘doing its bit’ for the environment. Virgin has focused on informing consumers about the CO2 pollution before each flight. The duty free bags are now composed of a significant proportion of recyclable material in compliance with the Ministry of Agriculture (Wheeler and Elkington, 2001).
Critical assessment of the virgin Atlantic’s strategies
The above-defined analysis conforms the strategy of Virgin Atlantic as being excellent service provider, it makes its path by providing distinct service. The corporate strategy of the organisation is to provide world-class service at a competitive price. The company’s strategy is well supported by statement of Porter (1996), which says that executing the same activities in a different way than that of traditional competitors helps in achieving better position in sustainable manner. The company enters oligopoly market where customer usually receives poor deal and there is a scope of acquiring market by giving better services.
To raise awareness of their products and services and new routes, Virgin Atlantic advertises through TV, press, magazines etc. Another strategy that organisation use is to make customers loyal by making them member of there flying club . The flying club offers numerous world-class facilities which will not only help in satisfying the customer but also gaining customer loyalty. The more customers travel through them, the more miles they get which can be exchanged with free flight and other rewards. They also get special support service and clubhouse access.
Also during traditional low seasons, tactical promotions and price advertising are done to a large extent to maximize the aircraft capacity. In addition to all these, Virgin Atlantic also market through travel agents by offering them familiarisation trips, trade incentives.
(Source: https://www.virgin-atlantic.com/en/gb/frequentflyer/index.jsp; http://www.virginatlantic.com/en/gb/allaboutus/ourstory/forstudents.jsp)
Effectiveness of strategies chosen
According to Johnson (2005) SWOT (Strengths, Weaknesses, Opportunities, and Threats) is a useful tool to examine financial accounts and developing healthy work environment of a company. It is a major step towards any strategic planning in a business. It is considered to be very important source of information for judging and understanding any sort of situations in the organisation. Given below is the SWOT analysis for Virgin Atlantic.
Virgin Atlantic is headquartered in country where competition is enhanced and tolerated due to deregulation
The virgin Atlantic has the head office in the country where the contest is heightened and tolerated due to the deregulation, which means the business is managed without the aid of following government restriction. The important feature of the Virgin Atlantic is the collaboration with Singapore airlines that made them one of the best airlines in the world. This has proven to be advantageous for virgin in many ways like huge market access, restructuring, converging technology to develop new one, gaining knowledge and extending supply etc.
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The strength of the Virgin group perhaps, is its importance to best customer service and innovation combined with brand name gives a big advantage to Virgin Atlantic. Virgin believes in creativity, adding its importance to customer service and innovation with the brand name virgin proves out to be the biggest strength of Virgin Atlantic. Its has introduced many firsts in the business like first to launch entertainment systems, onboard bars which increased social activities in-flight, providing complimentary limousines services, beauty treatments in-flight. It further introduced business economy cabin. It also has a website that dedicated to what a customer can expect from the airline and all other conclusive details of interest.
Virgin has a powerful e-business structure that makes communications simpler and easier with the customers. They continually measure the performance delivered by each crewmember on flights. An additional feather to their cap is the exceptional service tin providing assistance to disabled/visually-impaired passengers. It not only helped in earning good reputation but also winning EASE award consecutive four years.
The major drawback Virgin Atlantic faces is limited market reach as unlike other major international airlines. It operates in limited countries only like UK, Caribbean, South Africa, India, Australia, and US
The companies reach in code sharing is limited hence it is not able to enjoy the benefits of code sharing which the members of leading Global alliance are able to do such as lack of transferable priority status, lack of seamless travel, lack of enhanced frequent-flier program benefits, limited extended lounge access and lack of greater network access. This is because Virgin Atlantic is not part of any leading global alliances.
Virgin Atlantic is one of the few airline companies operating successfully in African countries, gradual liberalisation in UK/south African market leading to 53% rise in flights and 62% increase in passengers. The business has increased incredibly.
There are few more cities, which can be considered for hospitality service based on the smooth record of the airline. Some of the very well known and large airlines have experienced bankruptcy in recent times providing them a great opportunity. Also the European Union is on their side providing to a be great support.
Going forward, Virgin still have a great scope to grow in African market as only the British and African airways in dominating the continent and virgin comes at third position. It should focus on increasing the market share in Africa. Another opportunity available with Virgin Atlantic is attracting customers by aggressively promoting the clubhouse facilities and introduction of its latest Heathrow clubhouse. The number of tourist coming to UK is increasing day by day which is an opportunities available to them but in competitive environment, its quiet tough but strategic and aggressive marketing can make it possible.
The current situation all over the world has lead to increase in competition so there is high possibility of threat due to competitiveness in the market which in turn creates pressure to maintain continuous profit. This would in turn lead to forceful alliances, mergers and acquisitions which might not be in the interest of the company. Other issue of concern is accommodation of passengers on the aircraft. Other threat may be the legislations i.e. changing policies and rules by government in the country where Virgin Atlantic operates. This may slowdown the operations and business of the company. Another major threat is emergence of new airlines, which can increase competition. Also if new airlines or existing competitors adopt Virgin Atlantic’s concept and structure, it will be a major threat to the company
Strategic options for Virgin media:
The Ansoff matrix (Ansoff, 1957) invented by Igor Ansoff who is also known as father of Strategic Management and was first published in Harvard business review in 1957. It presents the product and market choices available to an organization. In this markets may be defined as customers and products as items sold to customers (Lynch, 2003).
Main aspects of Ansoff Analysis
The Ansoff matrix provides the basis for an organization’s objective setting process and sets the foundation of directional policy for its future (Bennett, 1994). The four strategies entailed in the matrix are elaborated below.
Ansoff Product-Market Growth Matrix:
It occurs when an organisation accesses a market with its recent services & products. The market penetration strategy begins with the existing customers of the organization. This strategy is often use by companies in order to increase sales without wandering from the original strategy of product-market. (Ansoff, 1957).
Firm develops new products catering to the same market. This strategy refers to the significant new development of products not just minor changes to the existing products (Lynch, 2003).
In this particular strategy, a company moves beyond its existing customer base in search of new customers for its existing products and services. This strategy involves searching of new segment of a market, searching of new area to attract new customers, different/new use of products and services. (Lynch, 2003).
Another good strategy that comes under market development is selling existing products in new international markets. (for example British firms can consider of selling there products in complete European markets).
Levitt (1983) rightly whispered that world these days is becoming common market and people no matter where they live are demanding similar product and lifestyle. There has been a massive raise in international trade because of globalisation and liberalization. Diversification strategy essentially involves movement of current products and services in new markets (Lynch, 2003; Macmillan et al, 2000).
All four strategic options defined above in the Ansoff’s model bears risk element with them. Although Market penetration is often considered as a low risk strategy but diversification is considered as a high-risk growth strategy as it involves huge investment that increases due to simultaneously movement into new products and new markets. When applied to Virgin Atlantic, this model results in to two vital strategic options available. Product development strategy and the Market development strategy, to become the most successful organization Virgin Atlantic should follow both of them.
The product development strategy suggested through Ansoff’s matrix can be a very good strategy for Virgin Atlantic because of the type of customer base, the company possess. The company has good customer base of upper class families and corporate tycoons. If the company introduce new products or sub products, they can market it to these existing customers. The company should focus on strengthening the relationship with existing clients often known as Relationship marketing. One of the ways to achieve it is being in contact with them, giving them special offers, and at times offering them concession. If they are given special facilities and excellent services then it will develop brand loyalty in them.
Another option available with Virgin Atlantic is market development strategy which involves search of additional geographical regions and additional market segment. If we compare the flights/services offered by Virgin Atlantic with British airlines, there is a large gap. Although Virgin Atlantic is UK’s second largest airline but it operates flights to only 26 major destinations whereas against BA has flights to more than 150 odd destinations. Virgin Atlantic should increase the number of destinations, which can be done after carefully analysing the facts and figures about the population, operations, flights of competitors etc.
Also Virgin Atlantic group should focus on developing country (Asia Pacific Region) as the growth prospects ate higher than developed countries. China and India are two developing countries with highest population and expected compounded growth rate in this region in 2007-2012 will be 5.2%. The manufacturing cost is comparatively low in these countries making them attractive destination for business. Also it will be a sound decision to outsource operational work to these countries.
Virgin Atlantic is famous for luxurious flights as it offers world-class facilities to their passengers but in this competitive environment they are not offering anything price conscious economy class passengers. They should introduce no frills flight with the objective of earning profits on economy of scales. With this strategy they will not only diversify their risk but can potentially capture a new segment using their brand name and service.
To conclude, after analysing internal and external factors of the Virgin Atlantic, it has been observed that Virgin group has grown massively and became world-class brand following the path of virgin group but it is still in path as there is a massive scope of growth which can be realised by combination of two strategies. They are product development and market development and market development. If used appropriately, they can help Virgin Atlantic to
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