Business Strategy Report - Virgin Airlines

Business Strategy Report- Virgin Airlines

Table of Contents
Executive Summary.............................................................................................................................3
1. Introduction.....................................................................................................................................4
2. Analysis of internal environment...................................................................................................4
2.1 SWOT Analysis............................................................................................................................4
2.2 Resources Analysis......................................................................................................................4
2.2.1 Financial Resources..............................................................................................................5
2.2.2 Human Resources.................................................................................................................5
2.3 Competencies...............................................................................................................................5
2.4 Distinctive Competencies.............................................................................................................6
3. Analysis of the External Environments..........................................................................................7
3.1 Analysis of the macro environment..............................................................................................7
3.2 Analysis of the industry environment.........................................................................................10
3.2.1 Threat of Substitute Products..............................................................................................10
3.2.2 Threat of New Entrants.......................................................................................................10
3.2.3 Intensity of Competitive Rivalry.........................................................................................11
3.2.4 Bargaining power of Customers..........................................................................................11
3.2.5 Bargaining Power of Suppliers...........................................................................................12
4. Recommendation...........................................................................................................................12
4.1 Business-Level Strategy.............................................................................................................12
4.2 Corporate-Level Strategy..........................................................................................................13
5. Conclusion......................................................................................................................................13
6. References......................................................................................................................................14

Executive Summary
The rationale behind preparing this paper is to offer the scrutiny of both the internal
and external environment of Virgin Airlines. In early 2000, Virgin Airlines was established,
with includes two aircraft, that fly on the single route with around 200 staff members. Since
this time, the organization has highly expanded their operations that embrace domestic
network and later on developed towards international flights by the year 2009. This paper
also analyzes Porter's five forces model and even discuss business and corporate strategy of
the company.

1. Introduction
Virgin Airlines is the strategic business unit as well as a subsidiary of UK highest
private organization (Virgin Group). This group is currently presented in different verticals of
business. This report emphasizes over the Airline industry. This specific group includes
around 32% of the local market share in Australia. The headquarters of the company are
located in Queensland, Australia, and it undertakes its operations in around 20 cities of
Australia and even has more than 60 Boeing Aircrafts, which are in operation.
2. Analysis of internal environment
2.1 SWOT Analysis
Strength- Virgin brand is prevalent among 98% of the British public. Customers expect best
customer services in different class business or economy. The company has adopted
innovative technology, like movies, flight music, games, etc.
Weakness- the weak point is its flight delays that need to improve for bringing efficiency in
flight. Its travel areas are also limited (Kotler, Scheer and Kumar, 2000).
Opportunities- Strategic marketing of the company make use of innovation, maintain values
and develop quality. It offers internet connection in flights.
Threats- Recession has impacted the whole airline industry, as the same lead to cancellation
of bookings, and created risk for flying customers (Kotler, Scheer and Kumar, 2000). The
company face threat from dilution of the brand through rapidly expanding the brand image,
and even emphasize over essential items.
2.2 Resources Analysis

2.2.1 Financial Resources
The primary financial resource of Virgin Airlines is its fleet of Airbus and Boeing
jets. In the year 2007, every Virgin Airlines had gained the profit of $5 billion. Mainly for
Virgin America, the Virgin Group had invested around $312 million in raising the company
and keeping it running. In case of Virgin Blue, Branson had earned around $500 million
when the company was made public (Kotler, Scheer and Kumar, 2000).
2.2.2 Human Resources
Virgin had employed around 50the, 000 employees around the globe that had resulted
in the attractive and excellent culture. The culture of Virgin initiates the empowerment of
staff so that the work could be undertaken innovatively following the right quality service.
The culture also started the customer care and value for money, that’s the reason resources
were expected to meet the requirements of the customer. Virgin Airlines human resource
department is highly a responsible for choosing the correct employees that hold proper
behavior, to complete the task productively and brand value is also attained. Brand value
includes the teamwork as well as rewarding the sales representative in order to generate sales
(Miller, 1992). It is essential that human resource department should choose the employees
with correct behavior, to improve the brand value that finally supports in creating a brand
culture of the company.
2.3 Competencies
The first and foremost competency is its innovative and stylish experience of flying
that they offer at low cost. It is analyzed that, this competency is highly valuable, as it’s
considered as the base for gaining customers. They are also able to initiate low fares as they
can fly only at the particular time as well as high traffic routes that are expected to go
profitable. As Virgin Travel is considered as the young business of airlines, its fleet of both

Airbus and Boeing jets is entirely new (Prahalad and Hamel, 1990). Therefore, its fleet holds
the current technology for the enjoyment of flyers and advantage for the environment. The
jets newness form a rare quality as compared to airline companies. For the similar reason, this
constitutes extraordinary competency, and it even makes it highly inimitable. For the famous
airlines firm like American Airlines and Delta, purchasing new planes to replace the old one
is highly costly. In reality, it’s difficult to replace all the old airplanes and still earn profits.
The experience of flying for Virgin Travel is still quite non-substitutable. They
provide various facilities like free internet on the flight, costly MP3 library, live TV, leather
seats for each passenger, video games, cabin lighting, on-demand food and drinks and many
more (Prahalad and Hamel, 1990). In comparison to Virgin Airlines, only Jet Blue is close to
them, because the fleet is very new and they even provide certain amenities. The other core
competency is related to their customer service and friendly environment. The mission
statement of Virgin Travel is to become a profitable organization, where people are interested
in shopping and where people are interested in working. In the present time, friendly
environment and excellent customer service is a rare quality in the airline sector. Airlines are
regularly getting canceled, delay and many cases of baggage loss are heard (Prahalad and
Hamel, 1990). The mission statement of Virgin Airline is rare, and their ability to offer a
friendly environment and excellent customer service is appreciable.
2.4 Distinctive Competencies
Distinctive competencies are the implementation of new technologies and skills that
permit the company in passing on advantages to end customers. Virgin Airlines enjoy the
reputation of their strong brand, and there are various customers around the UK, where it is
noted that people highly appreciate the Virgin brand. The company always ensure to initiate
and advertise the current developments and activities of the company in the best likely

manner. The staff also enjoy a high level of empowerment, and the same permits them to
become proactive and help them in serving the customers as per the particular requirements
(Prahalad and Hamel, 1990). The firm also enjoys the advantages of corporate structure,
management success, style and respective resource value. Virgin Airlines also offer enough
customer value through providing dynamic characteristics, such as in-flight meals and web
check-in facility. The implementation of low-cost strategy provided through the company is
quite phenomenal. They also offer low airfares and therefore, they can easily attract the
massive group of cost-sensitive clients (Prahalad and Hamel, 1990). They also offer point to
point facilities that assist them in minimizing the price of providing extra services, such as
transfer of luggage.
The operational price is less than permit the cost offered to the end customers. The
companies apply the special kind of aircraft, and the same enable them in minimizing the cost
of training, its maintenance as well as replacement parts that can be purchased in whole and
therefore, it also reduces the cost of buying the similar spare part in vast quantity. They also
focus towards retaining the previous staff through regularly rewarding them and enhancing
their efficiency through motivating them (Prahalad and Hamel, 1990). The management of
Virgin is highly committed to hiring and training the flight attendants, pilots, and
maintenance staff. They all work towards maintaining the aircraft as per the industry
standards of top international of airlines.
How resources and competencies become became strategic capability of Virgin Airlines?
Both the financial and human resource are the strength of the company, as it offers
them with base to initiate the actions. Human resource is the asset of the company, because
business performance depends on their performance. Human resource supports the company
in coming up with innovation and creativity. The company always ensure to initiate and

advertise the current developments and activities of the company in the best likely manner.
The foremost competency of the company is its innovation and stylish experience of flying at
low cost, which support the company in gaining competitive advantage.
3. Analysis of the External Environments
3.1 Analysis of the macro environment.
PESTEL Analysis
Political and Legal Factors
The airline sector is primarily highly regulated through the government, and there are
even many laws, which help in examining, where airlines can fly, services provided by them,
planning, policies, strategies and pricing (Ragins and Greco, 2003). To make airline exit in
business, it is essential for them to follow to the regulations and rules. Therefore, compliance
is a single factor, which impacts the Virgin Airlines
There are many operational restrictions related to political factors. A unique way to
overawed all these limits to have a connection with the national carriers (Ragins and Greco,
2003). Therefore, political considerations should have the high influence over the operating
environment of airline sector.
Virgin Airline work around the international borders; therefore, it’s important that
they adapt to the practices that suite as per national and international laws along with
domestic rules and regulations of the aviation industry. The way in which competitors often
react towards the share of new markets might also include the political influence (Ragins and
Greco, 2003). When Heathrow Airport was opened in the United Kingdom for Virgin
Airlines, they diminish the rules of London Air Traffic distribution and move towards the
BAA donations towards conservative Party, which got halted. Virgin even had to incur the

Lord King wrath, when they make use of unused slots that was held through the BAA at the
International Airport of Tokyo and the same was awarded to Airlines (Ragins and Greco,
2003).
Economic Factors
Cost of fuel and recession, as well as various other economic factors like price
incurred on empty seats, often play a key role that impacts the Virgin Airline activities
(Porter, 1980). Strong/weak home currency, as well as international economic markets, create
influence over the travel price (Virgin Atlantic, 2014). In the worst situation, company’s
economic situation might reduce cost on the travel, and it might even discourage the staff
from taking on the flight. The rise in the fuel cost might also force the Virgin Airlines to
quickly transfer the price to the end customers by creating challenges for the people to easily
afford it (European Monetary Policy, 2014). Any oil cost fluctuation will directly affect the
currency that later on the effect the flying cost for Virgin Airlines.
Social Factors
The international airline, like Virgin Atlantic Airlines, provides different nations
requirements to understand both cultural and social values of the location that are served for
successfully driving the business (Virgin Atlantic, 2014). Both the cultural and social values
encompass every aspect related with analyzing the particular requirement of the location,
central holidays and right arrangements, which are taken into account while meeting out the
particular destination requirements (Fojt, 2006). For instance, choice of the meal needs to be
restricted for the non-pork, relying on the foods that service Muslim countries to ensure that
sentiments don’t get catered and business is driven to its location (Virgin Atlantic, 2014).
Technology Factors

Technology offers the modest benefits to businesses, and there is also a rise in
demand for applying latest technology so that it can initiate the customers to gain better
experience (Virgin Atlantic, 2014). Holding the right application of e-commerce to offer
customers with a portal to buy tickets, along with rapid check-in services online that can meet
the demand of young and tech-savvy customers. Nevertheless, Virgin airlines are expected to
make sure that they don’t get highly reliant over high-end technologies because the same
might result into the isolation of particular groups, which are not comfortable in applying
high-end technologies (Virgin Atlantic, 2014).
Environmental factors
Environment concern has also become a problem because the airline industry is
getting notorious and key polluter. Various campaigns have strained to tranquil the
environmental lobbies, but still more efforts should be placed for projecting the
organizational image (Virgin Atlantic, 2014). Virgin had put its focus towards informing the
customers about the pollution caused through CO2 by every flight. The bags offered at duty-
free are also composed of an important part of the recycled material.
3.2 Analysis of the industry environment
3.2.1 Threat of Substitute Products
People residing in the west usually travel through air and therefore, the same create
threat on substitutes, which is not high in case of Virgin Airlines (Nijssen and Frambach,
2001). It is important to remember that in effect of the recession, there are various business
fliers that hitherto apply the fly and they had started considering the multiple options, such as
virtual meetings, teleconferencing, and these type of things might impact the requirement to
fly down the partners and customer locations for business meetings (Chamberlin, 2009).
Apart from these, there exist various noticeable trend in current years, which had started

reducing the leisure travel and its substitutes with the cheap alternatives, such as budget
cruise as well as slow tourism that usually entail the less dependency over the aircraft travel.
3.2.2 Threat of New Entrants
The exit and entry barriers in case of the aviation industry are high, and the same can
be seen through the fact that it might take colossal capital to move in this sector. Besides that,
airlines cannot quickly exit this sector, when they select the controllers, who usually claim in
meeting the contractual obligations towards stakeholders when they are interested in exiting
the venture (Gillespie, 2009). Besides this, the aviation industry is highly featured through the
strict regulations and various rules that implies the regulators to be satisfied with the multiple
aspects of safety along with financial stability as well as airworthiness of the carriers (Solis,
2011). This implies that entry barriers are usually formidable and therefore, Virgin Airlines
had to come across external environment threats, which is quite challenging for the new
entrants (Gillespie, 2009).
3.2.3 Intensity of Competitive Rivalry
It is identified that aviation industry is highly drenched with more carriers getting
enter in this industry for the purpose of exploring profits. Though it’s quite the different
matter, airlines fail to manage the earnings in consist tent manner, which is not deterred for
carriers to enter in this sector (Gillespie, 2009). That’s the reason, it is mention that industry
rivalry is high and the same impact the Airlines. Nevertheless, as far as international aviation
industry is concerned, there is an ongoing race among carriers for the reducing passengers
that had resulted into war and competition (Pettinger, 2010). Besides this, the rivalry among
the airlines usually leads towards consolidation as the considerable mantra and lack of
profitability also drive the aviation industry towards the mergers (Gillespie, 2009).

3.2.4 Bargaining power of Customers
If there exists any force, then it will have high amount of effect on Virgin Airline; it’s
the buyer’s power due to the airline industry necessary for the market of buyers due to
plethora selection, intense kind of fare war and looming of low-cost threat carriers moving
the market share for rivals (International Flight Rules and Regulations, 2010). Of course,
Virgin Airlines is of low cost by the fact in current years, there are various airlines that had
imitated successfully their business model by undertaking the fliers. Besides that, regulators
selection to lean over buyer’s side, instead of airliners, Virgin Airlines had to understand the
flyers and defer them, else they might lose the market share (Hill and Rifkin, 2000). Apart
from this, the rise in the channel of distribution by the flyers can also purchase the tickets as
well as minimization of the intermediary layer with the online booking proliferation through
airlines that implies buyers can quickly spoil the selection (Coco, Jyoti, and Mark, 2010).
3.2.5 Bargaining Power of Suppliers
The carrier suppliers such as Virgin Airlines is the aircraft makers like Airbus along
with the companies of aviation fuel as well as handling vendors and base support.
Nevertheless, the suppliers also cover the spare airline parts, referring the fact that aviation
industry is featured through the existence of some carriers and various suppliers vying the
business (Coco, Jyoti, and Mark, 2010). It’s of no surprise that supplier’s power is less and
airlines usually have high hand over a communication with suppliers. Besides that in the case
like jet fuel supply, Virgin Airlines has different benefit, due to the cost of fuel and premium
items, which implies that various buyers create favored customers for the companies of
aviation fuel (Coco, Jyoti, and Mark, 2010).
4. Recommendation
4.1 Business-Level Strategy

As Virgin airlines are famous for its low fare and services, it is highly suitable
towards the category of best price leader, as they provide stress over the low-cost ticket along
with strategies that focus towards differentiation (Furrer, 2016). Though the starting
investment of the company was high, they have been promoting the company as the low price
aircraft, holding reliable, quick options to roadways, sea, and rail. If they provide flights
having low cost, but try to maintain the quality, then there are more chances that it might
raise the customers.
Due to the rapid expansion of the internet using customers, it has assisted Virgin
Airlines to reach out more customers without leading to any extra cost (Wit and Meyer,
2010). The operational price of Virgin Airlines is high, and that’s the reason, its crucial
strategy is to sell the unsold tickets having less fare as well as offering the customer services
and in-flight entertainment (Rifkin and Matthews, 1999).
The business model of the company applies low-cost competitive base, with the less
fare rate. It is essential that aircraft should focus towards the online technology and marketing
to minimize the operational price (Hill, Schilling and Jones, 2016). Timing is critical in the
context of travel.
4.2 Corporate-Level Strategy
The services offered by the Virgin Airlines are highly efficient and reliable. There are
various competitors of Virgin Airlines, but nevertheless, the airline is able to make its
position in market and had even develop its brand name (Hill, Schilling and Jones, 2016).
The Virgin group is viewed as restructurer; this implies that it holds less median price due to
its small corporate center, which contains less involvement in the level of business.

The virgin group holds the massive range of strategic business units that relate to
many airways to offer drinks (Branson, 2016). The corporate rationale of Virgin Airlines is
that they are trying to be more static in the market, where there is less competition and
customers fail in getting value for money.
5. Conclusion
It’s analyzed from the above sections that Virgin Airlines had applied two primary
generic strategies such as differentiation and low cost. Experts in this field had mentioned
that organizations should go with the generic strategies to attain the best level of efficiency in
their business. Nevertheless, Virgin Airlines had also proved that this theory has changed in
present time and it has gone more contingent as per market needs and available options.

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