Swot Of Virgin Atlantic And The Airline Industry

For its service company is well recognized and has been getting rewards which are providing them with a strong brand image. Zagat, 2009 ranked them as leading players for international inflight services like entertainment and flyer program. Also by travel weekly’s 2009 virgin Atlantic was ranked as the best international airline.

http://www.travelweekly.co.uk/Articles/2009/01/28/30064/globe-travel-awards-2009-all-the-winners-by-category.html

Also in Western Europe, company has been ranked on first place in comparison to British Airways, Air France and Lufthansa. Also in January 2010, company has received award of Best Scheduled Airline and Favourite Airline. A good brand is a competitive advantage for the company to make position in global market and also to compete with its competitors.

http://www.travelweekly.co.uk/Articles/2010/01/20/32852/globe-travel-awards-2010-the-winners-in-full.html

Comprehensive Services

Company provides a good service to its customers. Services like check in facilities, baggage handling, meal catering, and in-flight entertainment. It is one of the largest British companies which provide long haul international airlines. Sometimes they also provide passengers with special treatment i.e. providing them with the special meals, mobility aids and also with the health camps at the time of departure and arrival.

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Virgin Atlantic also offers flying clubs on which they can earns miles and after having a specific number of miles they can have a free ticket. It is one of the largest airlines that provide long haul tours all over the world.

Strong financial performance

Company is enjoying a strong financial performance even during the financial crisis and economy crisis.

2007

2008

2009

Turnover

1,816,200

2,010,900

2,238,800

Profit Before Tax

31,400

6,000

49,800

Profit Margin

1.73

0.30

2.22

In 2009 the company turnover has increased by 10.17% as compared to 2008. Also the profit before tax increased by 87.95% to reach £49,800 in fiscal year 2009 compared to £6000 in 2008. Also profit margin increased from 0.30 to 1.73 in 2009. From the financial analysis we can see that company is enjoying the strong financial performance that has allowed the company to expand its operating activities in both markets i.e. domestic and international.

WEAKNESSES

Private Ownership

It’s really difficult for the company to raise capital as it is private owned, which gives unfavourable position to a company in comparison to publically owned company. Publically owned company have healthier access to capital market, and also superior financial flexibility in funding initiatives. Virgin Atlantic airways needs extensive capital to grows its business market for that they have to be under public ownership rather than private ownership as private ownership provide limited amount of financing option for the company.

Lack of Scale

Virgin Atlantic airways in its operation is lacking behind with large players in the market i.e. large players like British Airways and Air France- KLM operates in 300 and 249 destinations whereas Virgin Atlantic is only functioning in 30 worldwide destinations only. Also British airways and Air France- KLM got fleet base of 245 and 635 aircrafts whereas Virgin Atlantic got fleet base of 38 aircraft only. So we can conclude that its competitors are large in size which gives them a competitive disadvantage.

OPPORTUNITIES

Growth of Global Airlines Industry

With the help of research it has been found that airlines industry has got a tremendous growth in past few years and is expected to grow more in future. Researchers found that airlines industry worldwide had total revenue of $467.4 billion in year 2008. By 2013, the airlines industry globally will get the revenue of $609.3 billion i.e. increase of 23.30%.

In 2008, 2.1 billion passengers travelled with the source of airways. Researchers forecasted that by 2013 the volume of passengers will increase to 2.6billion i.e. by 19.23% since 2008. Right now Virgin Atlantic is only operating in 30 destinations globally. In future as the global airlines industry is growing, it will provide an opportunity to company to increase their operating destinations which help them to increase their revenue and market.

Global travel and tourism industry is growing

Air travel industry is well-known within the transport and tourism industry, as it is the only source of transport for international travellers. With the help of research it has been found that in 2009 over half of the UK population had travel by the source of air travel, which tells that the demand for the air travel is very strong. Even at the time recession, the outlook for the air industry remains stronger for the long term prospective.

With the help of World Travel & Tourism Council’s Tourism Satellite Account research we are able to discovery that the revenue passenger-Km has grown to 11.9% in June 2010. This has helped air industry to recover from the volcanic eruption in April. Also it has been found that the Real GDP for the Travel & Tourism Economy was -4.8% in 2009 and now in 2010 is expected to be 0.5%. Also they have predicted that the world travel and tourism will produce over $13trillion for the period of 2008-2017, i.e. is the average growth of 4.3% per annum. We can conclude that in future increasing of global travel and tourism industry will generate additional revenue for the virgin Atlantic airways.

(http://www.wttc.org/eng/Tourism_Research/Economic_Research/Monthly_Update_of_Tourism_Indicators/)

THREAT

Intense competition and price discounting

Intense competition and price discounting

The airline industry is characterized by substantial price competition, especially in domestic markets.

Carriers use discount fares to stimulate traffic during periods of slack demand.Virgin Atlantic competes

on the basis of price, customer service, costs, frequency and convenience of scheduling, frequent

flier benefits, efficiency and productivity. Some of its major competitors include, AMR, Air France-KLM,

British Airways, Cathay Pacific Airways, Continental Airlines, Delta Air Lines, Japan Airlines System,

Lufthansa and UAL.

In recent years, the domestic market share held by low-cost carriers has increased significantly and

is expected to continue to increase, which is dramatically changing the airline industry.The increased

market presence of low-cost carriers, which engage in substantial price discounting, has diminished

the ability of the network carriers to maintain sufficient pricing structures in domestic markets to

achieve profitability.

In addition to price competition, airlines also compete for market share by increasing the size of their

route system and the number of markets they serve. The increased competition in these markets,

particularly to the extent the company’s competitors engage in price discounting, may have a material

adverse effect on the company’s results of operations, financial condition and liquidity.

EU regulations

The European Union has passed legislation that came into effect beginning early 2005, for compensating airline passengers who have been denied boarding on a flight for which they hold a valid ticket. The legislation also imposes fixed levels of compensation to passengers for cancelled flights, except where the airline can prove that such cancellation is caused by extraordinary circumstances, such as weather, air-traffic control delays or safety issues.

Passengers subject to long delays (in excess of two hours for short haul flights) would also be entitled to assistance including meals, drinks and telephone calls, as well as hotel accommodation if the delay extends overnight. In addition for delays, over five hours, the airline would be required to reimburse the cost of the ticket or provide rerouting to the passenger’s final destination. The imposition of the regulation would significantly increase the expenses incurred by Virgin Atlantic and may affect its profitability.

Rising aviation fuel prices

Due to the rising oil prices globally, the prices of aviation fuel have gone up substantially in the past

few years. The average cost of a gallon of commercial jet fuel in the US has increased since 2000,

from $0.7 per-gallon in 2000 to $1.9 per-gallon in 2006. According to the Air Transport Association

(ATA), at a usage rate of 19.5 billion gallons of fuel a year, each penny increase in price per gallon

adds $195 million in annual costs for the airline industry. Aviation fuel, which comprises the largest

cost component for a transporter, is responsible for the declining margins of most air transportation

companies. As a result, some logistics companies incurred huge overheads while operating in many

low-volume destinations. This trend could impact Virgin Atlantic’s margins too as it is mostly reliant

on air freight business.

Slowdown of global economy

According to the IMF world economy outlook, the world economy will slow sharply in 2008 and in

2009, with the US likely to slide into recession triggered by the current financial turmoil. The IMF

forecasts, that the global economy, which grew by 5% in 2007, will lose considerable speed slowing

to 3.9% in 2008 and 3% in 2009, marking the lowest growth rate since 2002. In the past, the IMF

has called global growth of 3% or less the equivalent to a global recession. Virgin Atlantic operates

through 30 countries globally. A weak global economic outlook is likely to impact demand for air

travel and the company cannot offer any assurances in regards to the performance of its business

model under changed economic conditions. Therefore, Virgin Atlantic’s business is likely to be

adversely affected