Impact of European Union Policies on Airlines

The aviation industry has been significantly impacted by global terrorism, with passengers expressing concerns about safety. The European Union (EU) has implemented strict safety rules and regulations, which has led to a good safety record for European airlines compared to those operating in other regions. Despite this, there are still many airlines that do not comply with these regulations. Additionally, the business environment for small and medium-sized enterprises (SMEs) is favorable when they have access to incubators. Overall, the aviation industry faces various challenges, including concerns about safety and competitiveness.

BUSINESS ENVIRONMENT
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TABLE OF CONTENTS
INTRODUCTION................................................................................................................................3
TASK 1.................................................................................................................................................3
1.1 Purpose of VAA....................................................................................................................3
1.2 Interest/objectives of VAA stakeholders and strategies to meet them..................................4
1.3 Responsibilities of VAA to its key stakeholders and strategies of the company to achieve
them.............................................................................................................................................4
TASK 2.................................................................................................................................................5
2.1 Ways in which economic systems attempts to allocate resources effectively.......................5
2.2 Impact of fiscal and monetary policy on VAA and its activities...........................................7
2.3 Ways in which EU/UK competition policies can or have impacted the activities of the VAA
.....................................................................................................................................................7
TASK 3.................................................................................................................................................8
3.1 Ways in which market structures helps in determining the pricing and output decisions of
VAA.............................................................................................................................................8
3.2 Impacts of change in demand/supply on VAA tickets...........................................................9
3.3 Ways in which business and cultural environment shape the behaviour of VAA...............10
TASK 4...............................................................................................................................................10
4.1 Benefits of international trade to UK business organisations, and to VAA & BA..............10
4.2 Factors in which global factors affect VAA and BA...........................................................11
CONCLUSION..................................................................................................................................12
REFERENCES...................................................................................................................................13
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INTRODUCTION
According to Ballard and et.al., (2012), business environment refers to all external and
internal factors which are not in the control of business and it also makes an impact on the business
functioning. It includes competitors, government, customers, suppliers, and the political,
technological, social and legal factors, etc.
With a motive to attain deep understanding of varied elements of business environment,
present report is prepared. It has been based on Virgin Atlantic Airways (VAA) which is one of the
prominent British airline that established in 1984. It is owned 49% by Delta airlines and 51% by
Virgin Group. Its fleet size is 41 and employs around 9,231 employees and earned revenue of £2.93
billion in 2014 (virgin-atlantic, 2015). In this report, business environment of Virgin Atlantic Airline
(VAA) has been discussed. Further, in this report factors like stakeholder analysis of the firm,
various strategies of VAA and the impact of fiscal and monetary policy on the company have also
been studied in this report.
TASK 1
1.1 Purpose of VAA
The prime purpose of VAA is to make profit in a socially standard manner by allowing the
people to travel various countries. However, another objective is to provide top-quality service and
to achieve a considerable growth by meeting the needs and demands of the customers. The prime
purpose of organisations like Red Cross Society is to render services to all the members of the given
population. Red Cross Society is a registered charity which provides help to the people in at the
time of crises in UK well as overseas. It is committed in helping people without any discrimination
and regardless of their nationality, religion, ethnic origin or political beliefs.
BASIS VIRGIN ATLANTIC AIRWAYS RED CROSS
Industry Airways Service
Services Airline services Humanitarian aid
Purpose Growing profitable airlines where
people wish to fly and where
people wish to work as well.
To relieve the suffering caused by disasters
through training, selecting and providing
committed and competent personnel by
organising humanitarian programmes
throughout the world (British Red Cross,
2015).
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Aim Earning profits Serving the people in crisis
1.2 Interest/objectives of VAA stakeholders and strategies to meet them
It is essential for various organisations to recognise the interest of various stakeholders.
Therefore, development of strategies and mission for Virgin Atlantic is a crucial task. On the
contrary, Búciová, (2010) inferred that it is required to highly emphasize on the needs and
requirements of the internal stakeholders like shareholders and employees; and the external
stakeholders like suppliers, unions, community, general public, customers, government, etc.
Stakeholders Objectives Strategies Employed
Employees  Satisfaction towards job
 Sound working environment
 Implementation of improved and unique
information technologies
 Enhancing the morale of employees by
practicing open communication and
sanctioning flexible working at workplace
Customers  Quality services and
competitive price
 Safety and security
 Quality hospitality services
 Use of updated IT software and applications
 Delivering services at economic price in
order to meet with the demand of customers
with respect to low cost airline
 Installing necessary equipment for ensuring
health and safety (Moraru and Rusei, 2012)
Government  Adhering with legal norms  Practicing the regulations that been
developed within the context of health and
safety of passengers.
General
Public
 Enhancing the quality of life
and standard of living
 VAA focuses on various CSR concern such
as Gold Standard Scheme, etc.
1.3 Responsibilities of VAA to its key stakeholders and strategies of the company to achieve
them
Responsibility Why it is a responsibility Strategies used by VAA to achieve it
Equal
Opportunity
According to the employment
equality law of UK, it is considered
illegal to differentiate a person on
Cited company aims to developing an
inclusive environment and hence it has been
focused as one of the key aspects of business
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the basis of 'protected
characteristics' such as disability,
civil partnership and marriage,
belief or religion, sexual
orientation, age, gender
reassignment, race and sex.
culture. It is dedicated towards
implementing the diversity policy and
ensures that all employees treats each other
with honesty, equality and with due respects
(Westney, 2011).
The company also works for delivering fair
and sound work culture in order to ensure
that morale and productivity of employees
can be enhanced. In this regard, company
employs workforce from different religious
and culture background.
Externality
Pollution
It is a social concern which has to
be performed by every individual to
maintain a balance between the
ecosystems and the economy.
It has adopted and implemented the Gold
Standard Scheme along with a Swiss based
charity that aids in raising fund for energy
solution in varied developing countries. The
Gold Standard methodology has been taken
into account in order to shift from fossil
fuels to renewable energy sources.
Health and
Safety
As per Health and safety at work
Act, 1974, the health, welfare and
safety of the persons at work should
be secured and adequate protection
should be provided to them.
The company offers adequate IT
applications, technologies and equipment to
ensure the health and safety of the
employees. In addition to it, appropriate
training are also impart within organization
through which employees are able to work
safely and as per the industry standards
(Virgin-Atlantic, 2015).
TASK 2
2.1 Ways in which economic systems attempts to allocate resources effectively
Nandakumar, Ghobadian and O'Regan, (2010) inferred that, economic system is a structure
in which a nation or a state allocates its resources its services and goods among the society. It can
be referred to a plan of the country for its goods, service and the manner in which its economic plan
is carried out. In this regard, three types of economic systems prevail around the world. They are as
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follows:
 Free market economy: In this economy, the state and national government play a very
negligible role. Customers and their purchasing decisions aids in driving the economy. In
such system, assumptions of the market play a significant role in deciding the correct path
for the economic rise of the country. It aims at eliminating or reducing subsidies for a certain
industry, degree of regulation controlling various industrial sectors and pre-determination of
prices for various commodities. In this regard, key feature of this economic system is the
absence of central planning. Here, decisions made through market are highly dominated by
the demand and supply (Jennings, 2014). The character of government in this economy is to
ensure stability of the market so that, it can carry out the business activities in proper
manner.
 Command economy: The command economy is also known as planned economy. Its main
aspect is that all the decisions regarding distribution, service prices, production and
community, all are taken by the government. This economy is directed by the government
and the market forces play a minor role in this economy. It is less flexible as compared to the
free market economy and due to this reason, it gives a slow reaction to the fluctuating
pattern of demand and supply and to the changes in the need of customers (Androniceanu,
2013). However, its motive is to use all existing resources to develop production rather than
allocating the resources either for marketing or advertising.
 Mixed economy: It combines the elements of both free-market and combined economy in
one consistent system. This signifies that some elements from both the markets are taken
into account for forming this type of economy. This system prevails in several countries
where neither the business entities nor the government controls the economic activities of
that nation and both the sectors play a crucial character in economic decision-making of that
nation. In this economy, there is elasticity in varied areas and government control in rest of
the areas. It includes social and capitalistic economies economic policies and often prevails
in such societies which seek to balance a huge range of economic and political views
(Varum and Melo, 2012).
Mixed economy results in allocating the resources effectively as it covers some features
from both the markets for forming this type of economy. VAA operates in a mixed economic system
only and there is a less intervention of the government as it is a private company. However,
government only interferes when price is set very high against the services been offered.
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2.2 Impact of fiscal and monetary policy on VAA and its activities
Fiscal Policy: It is a government spending policies that certainly makes an impact over
macroeconomic conditions. It deviates government spending, interest rates and tax rates for the
purpose of controlling economy.
Impact on VAA:
One of the fiscal policies which are directed towards the airline industry represents the fees
and excise taxes charged on the air tariff. These fees and taxes are been determined by the
government for improving the airports, providing security to airports and airlines, raising funds for
FAA, delivering services to international customers and supporting services at air-park facilities.
The government has made many amendments in this policy to ensure that the needs and demands of
the consumers are being met (Gupta, 2013).
In the last few years UK airlines industry has faced continued challenges. This is reach to the
extreme case when government forced more taxes on travellers who are going from the UK,
alongside with the other expensive that charged by airport in the world (Rand and Tarp, 2010). Due
to this external challenges, VAA has to suffer a lot. So, make their passengers attached with their
services, they have to raise the level of good customer experience from their service by not charging
any extra cost.
Monetary Policy: It is an action of bank currency, central or other regulatory committee
which determines the rate and size of growth of money supply that in turn hampers the rate of
interest. It is preserved through the actions like increase in interest rate, change in the amount which
is required to be kept in the vaults or bank reserves by the bank.
Impact on VAA:
Current monetary policy that developed by the regulatory bodies came in the form of
stimulus check of the economy. During economic shortfalls of the economy of the country,
travellers will have less available resources to enjoy their travel. However, airline industries can
achieve economic success by adapting the ever changing environment of the economy and by
managing the opportunity cost successfully.
At the time of recession, the government can reduce the tax rates and other government
expenditures for encouraging the people to spend their money on the goods and services. However,
the flow of money in market at the time of recession can also be maintained through quantitative
easing and by reducing the interest rates as well (Zeng, Li and Duan, 2012).
2.3 Ways in which EU/UK competition policies can or have impacted the activities of the VAA
EU Competition Law is regarding the guideline of competitive markets in European Union,
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to make sure that the companies are not operating in the race of creating a monopoly market and
cartels that may destroy the economic interests of the society.
Contents of the policy:
 Fix prices: The fixed prices of VAA helps it in maintaining a standard of its services
provided, but, it also results in attracting less number of customers as compared to the
competitors who provides services at a cheaper price.
 Cartel: Cartels helps in providing the customers with new, better and modified facilities by
the joint efforts of some manufacturers, but it may also have some adverse effects like, the
manufacturers may create a monopoly of prices in the industry.
 Limit production, market, technical development or investment: Due to less
innovation and technical development in the company's services, make it outdated as
compared to other companies in the industry (Richards and et.al., 2012). According to this
competition policy, company should focus on technological innovation which promotes
dynamic efficiency in the various market.
TASK 3
3.1 Ways in which market structures helps in determining the pricing and output decisions of VAA
 Oligopoly: This market is generally dominated by few number of large suppliers. Extent of
concentration of market is very high in oligopoly. The firms in this market structure produce
branded products. In the oligopoly market, the price of the product and output decisions is
totally based on the competitors pricing. Sometimes, in this market, there is a barrier to the
entry of new entities. The liberalisation of European airline market resulted in reduction of
barriers to entry. These new entrants leased the aircraft for keeping the costs low. It can give
rise to a variety of different outcomes. In some circumstances, the firm can employ
restrictive trade practices for raising the prices and restricting the production.
 Monopoly: In this, a single seller owns nearly all market for a certain service or product. In
this market, the producer may produce a volume which is less than the amount that would
maximise social welfare. The prices are determined by the seller only as he is the only seller
of the goods and services in this type of market so he has the advantage to get maximum
profits (Bates, Silverblatt and Kleban, 2010). When comes up with new product or services
which is acceptable by the consumer it gives them power to make the modification in the
output decision.
 Perfect competitive market: In this type of market, large number of small firms having
perfect knowledge of the technology and prices, sell identical products. There is freedom to
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enter and exit these markets. It provides an excellent benchmark which can be used for
analysing the market structure of real world. In this type of market, a lower price is charged
from the consumers and resources are allocated optimally.
 Monopolistic competition: In this type of market, many producers sell differentiated
products with no substitutes. In this, companies adopt the prices provided by the rivals and
do not consider its impact on other companies. The producers have a high degree of control
on the price of the products in these markets. Individual firm has the choice to sell a larger
output by reducing price of the product or by greater sales promotion efforts (Lindsay, Tan
and Campbell, 2011).
3.2 Impacts of change in demand/supply on VAA tickets
Increase in demand of the VAA tickets can result in a decrease in supply of the tickets of
VAA. In case of high seasons, when the demand for the tickets increases, its supply decreases. For
this purpose, VAA generally raises the prices of its tickets in case of high demand in order to reduce
the supply. However, the supply for some premium tickets with high prices do not decrease with an
increase in the demand for the tickets, as in that case, the increase in demand for premium tickets is
comparatively low. Also, the people who are status conscious will prefer the premium class only
irrespective of its prices. On the other hand, if the demand for the tickets of VAA decreases, the
supply will be increased. Supply for the tickets can be increased by reducing the price of the tickets
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Illustration 1: Supply and Demand Curve
(Source: Startiene and Remeikiene, 2013)

or by providing various offers to the customers in order to attract them. In this case, there will be
unitary elastic demand as the proportion of change in demand and change in supply will be equal.
The above graph also depicts that there is an inverse relationship between the demand and supply
(Meiners, Ringleb and Edwards, 2014). Supply increases with a decrease in demand and vice versa.
3.3 Ways in which business and cultural environment shape the behaviour of VAA
VAA operates in several countries across the world. So, it deals with diversified culture in
the organisation. The employees of VAA vary each other on the basis of languages spoken, ideas,
working patterns, etc. So, issues may arise in terms of the uniform, the food provided and many
other factors. The company need to take care of the ideas and beliefs of the employees and should
integrate their individual’s ideas and objectives with the company's objectives.
PESTLE Analysis:
 Political: It includes goods merit, new interest rate, government intervention, taxation
policy, etc. The government do not consider the Air Miles scheme as a taxable perk.
 Economic: VAA considers recession congestion, increasing fuel cost and other
environmental restrictions like insurance cost and higher security and also the per capita
level of the inflation employment (Lindsay, Tan and Campbell, 2011).
 Social: VAA focuses on various cultural aspects, seasonal offers, career attitudes, etc.
 Technological: VAA is using bio-fuel by which it has benefits over other. VAA pays
emphasis on promotion through internet which increases their consumer by providing them
services like online ticket which provide convenience to the customer and also results in
speeding up the operational processes. Cost synergies, e-marketing helps in attracting more
and more customers, web-page development to be in direct touch with the customers. This
innovations provides better services to the customer (Búciová, 2010).
TASK 4
4.1 Benefits of international trade to UK business organisations, and to VAA & BA
Some benefits of international trade to the business organisations like VAA and BA are as
follows:
 It aids in enhancing national competitiveness
 Supports in enhancing the market share of the company.
 Declines dependence upon the existing markets
 Rise the possibility for expansion
It is crucial as it permits other companies to take the comparative advantage. By doing trade
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internationally, companies can able to learn the new technologies by which they can enjoy the
benefits or competitive advantage over the domestic companies. When the countries take
comparative advantage, it leads to an increase in the total productivity in the world. Thus, everyone
is benefited from the extra output and in this way, international trade helps in establishing a higher
standard of living (Ballard and et.al., 2012).
4.2 Factors in which global factors affect VAA and BA
WTO main objective is to promote free trade all over the world. For this purpose various
agreements are signed by the member countries. This help in reducing transportation cost because
cross border custom charges are reduced to large extent. Consequently demand for airline services
are also increase due to reduction in import and export duties. With reduction in these duties now
more and more business peoples are using aeroplanes for importing and exporting products and
machineries. NAFTA (North America free trade agreement) like WTO also focusing on promoting
free trade among countries. Under this agreement various duties are reduces this directly affects
profitability of airline companies. Due to reduction in export and import duties demand for airlines
services is increased. Hence, airlines are benefited from these agreements (Richards and et.al.,
2012). Due to terrorist attack, many times government closed airports and cancel thousands of
flights which give direct cost to airlines. Even after reopening of the airports, passengers finds less
safe to travel by it for sometimes due to shock (Varum and Melo, 2012). This global terrorism gives
lot of impact on the sales of VAA and BA.
4.3 Impact of EU policies on airlines
Europe union formed a very strict rules and regulations regarding safety. As a result
European airlines have a good safety record in comparison to the other airlines that are operating in
the Asia, Africa and Middle East. These rules are devised by EU council with the help of safety
authorities of member states and international aviation organizations. EU is steadily making efforts
in order to make further improvements in these standards. In earlier years EU banned various airline
companies that are not complying with safety rules and regulations. But still there are many airlines
that are not following these safety standards. Recently German aeroplane crashed after that
European aviation safety agency is looking for modifying its safety policy regarding crew members.
Earlier only one pilot remains in planes but after this incident European aviation safety agency
planes to increase this number to two pilots (Moraru and Rusei, 2012). According to reports firms
operating in aviation industry states that policies of EU are illegal and these policies will increase
cost and prices of tickets. Consequently demand for airlines travel will also fall. EU also admits that
11

its policies have adverse impacts on aviation sector but policy is within its rights and it will have
minimum impact on the profitability of aviation firms.
In near term policies of EU will positively affects airline companies these companies will be
overcompensated by the provisions that are devised to reduce airlines cost (Madura, 2006). This
policy will give more benefits to EU airline companies in comparison to the non EU airline
companies because EU airlines have more flights in comparison to the non EU companies.
Due to free movement of goods and services in European Union which results in creating
more competition in the aviation industry (Rand and Tarp, 2010). Free movement of goods and
services also results in increased specialization of the aviation industry and create large economies
of scale.
CONCLUSION
VAA is booming by 2010 and is ready to make additional changes for continuing the steady
expansion of the business. Generally, airline business belongs to slow cycle markets, but because of
smaller capital and operations of some companies like Virgin, firms in this industry are unable to
expect good long-term returns as they are comparatively vulnerable to general environment. Thus,
Virgin should focus on a particular market niche or particular routes for obtaining value and
surviving in competition.
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