Influences of Macro-economic Activity on Virgin Atlantic

This report discusses the macro-economic factors affecting Virgin Atlantic, including inflation and unemployment rates, and how the UK's growth rate impacts the airline industry. It also explains how government intervention methods such as fiscal and monetary policies and the furlough scheme affect the airline industry. Additionally, it highlights the current global challenges faced by Virgin Atlantic and provides recommendations to overcome them.

BSc (Hons) Business Management
BMP4003 Business Environment
Assessment 2
Influences of Macro-economic
Activity
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Contents
1

Introduction p3
An explanation of two macro-economic factors that the chosen
business will need to consider and the influences these could have
on its business outputs (macro-economic factors e.g., economic
output, unemployment rates, inflation etc.) p3
How will the UK current growth rate impact on the chosen business
(give reference to economic life cycle, GDP, inflation,
unemployment rate) p5
How can the government current intervention methods affect the
selected busines? (e.g., fiscal and monetary policies, furlough
scheme etc) p7
What are the current global challenges facing by the chosen
business and recommendations on how to overcome them in this
current time? p8
Conclusion p9
References p10
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Introduction
Business Environment refers to the host of variables which have a bearing on the
output of the business.(Hamilton, and Webster, 2018)The report below gives an
explanation of macro variables which affect the output of the business in conjunction
with what the growth rate of the United Kingdom Entails for a company operating
within its borders. Further what all steps the government and its authorities have
taken to sway the economy such as fiscal policy,monetary policy and the Furlough
scheme have been explained and what the current challenges are for Virgin Atlantic
and the airline industry as a whole and how they could be subdued is provided in the
report below.
An explanation of two macro-economic factors that the chosen
business will need to consider and the influences these could have
on its business outputs (macro-economic factors e.g., economic
output, unemployment rates, inflation etc.)
Macroeconomic factors are those factors which have a bearing on the entire
economy of a nation in contrast to the micro factors which only have a bearing on a
households or small businesses or communities. The factors which are included in
macro considerations are the Monetary policy and the tax structure of the
government, the rules and regulations regarding businesses, Price rise in a given
amount of time otherwise known as inflation, the amount of people who are seeking
employment but are unable to be gainfully employed or the rate of unemployment,
the Gross domestic product of a nation, the income of the nation, fiscal policy of the
government are all the macro factors which need to be kept in mind by the business
to better anticipate and mitigate the risks which arise in the normal course of
business. (Simbolon 2018.)The Virgin Atlantic is affected by variety of the macro
factors which are under constant watch of the company. Virgin Atlantic was started in
the 1980's to chart routes between London and overseas territory of Britain known as
The Falkland Islands. Given below are some of the factors which need to be taken
care by the Virgin Atlantic.
INFLATION: the term refers to rise in the price of a commodity service over a given
amount of time. In general the central bank is responsible to contain the inflationary
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tendencies with certain permissible limits.(Lutfullaevich, 2020.) The word inflation
can mean bad things for a household but usually it means good things for business
since they can increase their revenues but it could also mean bad things for the
business who are dependent upon the commodity whose price has just risen for use
as raw material.
In the case of Virgin Atlantic the inflation usually happens in relation to fuel since the
cost of fuel is the majority of the cost of flying the airlines would necessarily have to
pass such costs onto the consumer because they can't absorb such costs without
significantly innovation in the field of engines which utilize less fuel.
Very common reasons for inflation are that the central bank in its monetary policy
have adopted a accommodating stance for businesses which means they have
lowered the interest rate due to which the enterprises can borrow money at a lower
costs and expand their operations which means they are going to demand more
which as the law of supply and demand tells us would increase the price of
commodities if not met with corresponding increase in supply. Conversely if supply of
commodities were to get lowered by factors such as bottlenecks in the supply chain
this would mean the demand is not being met and would give rise to inflation.
Unemployment rates: The term signifies the number of people in any given
economy who are looking for jobs but can't find a way to be gainfully employed.
These rates are closely watched by the businesses because of their impact on the
economy. If more people are unemployed it means the the cycle of economy is
showing a downward trend, the business have had to cut back on hiring more people
since they can't afford to pay them because the product they sell is no longer
showing uptick in demand. The people that are not gainfully employed would not
have any money to demand the commodities sold by the business.(Driffill, 2018.)
For virgin Atlantic it means that the people would be flying less and less since they
can't afford to go on holidays or meet family because they have no money to spare
and are surviving in bare necessity mode from their saving. In such a time the
Company Virgin Atlantic would have to put a halt to expanding if they were planning
on such expansion and cut back on flights it may also mean that they have to ground
some air crafts which could prove to be very costly affair since aircraft which are not
flown at regular intervals have a tendency to need extensive overhaul of engines. So
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in such a case Virgin Atlantic would do well if they fly the air crafts in rotation so that
no aircraft is sitting on the ground and every one of them gets flown at regular
intervals to not need expensive maintenance.
How will the UK current growth rate impact on the chosen business
(give reference to economic life cycle, GDP, inflation,
unemployment rate)
Economic cycle: this term is used in reference to describing the many ups and
downs that the economy of any given nation faces. Variables such as gross
domestic product, price rise, savings of people and their spending can aid in
gathering what stage the economy is currently in. Gathering the state of the
economy is essential to governments, business, people and investors because it
could help them in containing the fallout of associated risks or help them in gaining
from the market.(Sensier, M. and Devine, F., 2020.)
Typically the economy goes through four stages :
Enlargement Stage: during this stage the year on year growth being registered is
very high, the businesses can borrow funds cheaply, production of commodities and
services is very high together with rise in price of those commodities.
Peaking Stage: As the name suggests the growth has hit the highest it could be
during this time which results in certain equilibrium to be disturbed.
Shrinking Stage:this stage comes right after the growth has peaked in which the
growing of the economy is incredibly slow compared to earlier, the number of people
gainfully employed starts reducing and the prices of commodities and services are
idle.
Trough Stage:this is characterized by the lowest rock bottom point which the
economy hits before recovering back, the number of jobless people are at its highest
the interest rates are generally very high. Understanding the economic cycle can
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help investors and businesses understand when to make investments and when to
pull their money out, as it has a direct impact on everything from stocks and bonds,
as well as profits and corporate earnings.
Gross Domestic Product: It is the method resorted to by the nation to gather what
the value of the total finished commodities and services was that were produced in a
given country within a specified time of reference usually a year. It functions as a
indicator of a countries economic wealth. When the gross domestic product is
adjusted for the increase due to inflation it gives the real value of the gross domestic
product from the nominal value. By this value the business can know what the state
of the economy is during the start of the pandemic the economy of the United
Kingdom showed a negative growth of about ten percent which means it lost value
compared to the previous year. During the Post pandemic Year it showed a strong
bounce back by growing nearly 7 percent. The Gross domestic Product has a lot of
bearing on every business but specifically for the Virgin Atlantic if its showing an
upward trend it may mean that the people have money to spare since they are
employed and could make travels for leisure purposes.
Inflation: if the economy of the country is doing well and showing positive growth
this may be due to inflation as it is the measure of price rise in a given period of time.
So the growth may be due to inflation which is why it is taken out of the nominal
gross domestic product to gather if the country is actually growing. The inflation
since it reduces the purchasing power of money is considered to be bad by the
government if it goes beyond a certain horizon in which case they have to spring into
action and introduce a variety of measures to control it firstly the central bank makes
it costlier for the business to borrow money secondly the government increases the
taxes on the business so they cant grow anymore and by extension increase the
price of commodities anymore by demanding more of the commodities and service
to use as raw materials in their finished goods.
Unemployment Rate: If a country is doing well usually it means that the people are
employed but there is such a scenario in which the growth rate is increasing without
people getting employed called jobless growth. It never bodes well for the
government to have a huge amount of people not earning for the businesses it
means they are not demanding the commodities or services they have to offer which
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has a cascading effect of more people being let go from their jobs because their
companies can't pay due to the decrease in demand. The government in a case
where there are a lot of jobless people in the economy could ease the tax structure
which means the companies can get more money in their pockets and retain their
employees moreover the central bank in such scenario lowers the interest rates so
that the businesses get funds at a cheaper rate. For virgin Atlantic This phase could
prove to be very event full as they could hire very talented and skilled employees and
get more funds cheaply to retain those employees. Overall which could have a
positive impact since it is a very big company and those employees will demand
more since they have money to spare possibly giving jump start to other businesses
whose employees could be customers of the airline.(Meager, N., 2019)
How can the government current intervention methods affect the
selected busines? (e.g., fiscal and monetary policies, furlough
scheme etc).
Fiscal policy: it refers to the the rules and regulations of a country and fall in the
domain of the current government which adjusts its policy regarding the structure of
tax and the spending of the government. The government typically spends more
when the demand by the private sector has stagnated and for jump starting the
economy the government needs to spend more. In the pandemic era the government
came out with certain measures to mitigate the fallout of locking down the economy,
which was to decrease the burden of taxes and to make provisions for business so
that they could pay the taxes at a later date which helped the businesses grab onto
the crucial capital.(Cox, and McCubbins, 2019.)
Monetary Policy: This falls in the domain of the central bank which usually focuses
on containing inflation within permissible limits and ensuring unemployment rate
does not increase.(Siregar 2022.) The central bank increases the interest rates when
inflation increases and unemployment rate is not huge. And makes borrowing easier
and less cheaper when there is no inflationary tendencies showing or when
unemployment rate is rising. Basically the central bank controls the liquidity available
in the market. During the pandemic the growth was in negative terms so the interest
rates were down to make it easier for the businesses to borrow.
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Furlough Scheme: This is somewhat similar to the concept of garden leave in which
the various enterprise working in the United kingdom were asked not to lay off the
employees due to businesses going under due to lock downs and their being no
demand. The business were asked to put on hold their employees since it was no
longer feasible for the companies to keep them due to the cost incurred by paying
their salaries and them not being able to work. The government could not reasonably
ask these enterprises for such a thing without paying their salaries on their own. So
the government came up with a method where they would pay eighty percent of the
salary and the rest of the twenty percent would be borne by the business, which they
would incur any ways since they would have to rehire at a future date. The Lock
downs hit the Airline industry very hard since people were not flying and when they
were able to fly various restrictions regarding seating capacity or which nation they
could fly too was dictated by the government. Due to this scheme the Virgin Atlantic
was able to retain their employees operating at various levels.(Jones, and Cook,
2021)
What are the current global challenges facing by the chosen
business and recommendations on how to overcome them in this
current time?
Currently the Virgin Atlantic is facing various challenges such as rise in the cost of
inputs such as fuel which makes up nearly half of the total cost while operating a
flight. (O’Connell, 2018.)If the costs are not passed down to the consumer then it
would mean that the airline industry which works on the mere two to three percent of
the total costs would have to absorb the costs which it can't do. As the demand for
flying is already very low due to the passengers fearing that they get the virus whilst
they are in a pressurized cabin in which air is rotated over and over again. Moreover
the various restriction put in place due to consecutive waves of the virus mean profits
are declining the restrictions may be a seat capacity, or following a standard
operating procedure or not being able to fly to a country because it does not fall in
the bubble of international travel created by the government. In this regard the Airline
would do well to follow and be in compliance with government Orders since it could
get very costly if they contravene the guidelines.(Choi, 2021)
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Further Exacerbating the problem is the fact that Airplane are notorious for
demanding extensive maintenance if they are not flown regularly and the demand
for air travel could fall and come to a stop anytime new wave come about so the
airline should keep that in mind and fly their planes regularly even when there is no
one on them.
Conclusion:
Macro-economic factors are those broad variables which have tendency to affect the
economy as a whole. The report above has been created in context of business
operation undertaken by Virgin Atlantic and gives an account of the various macro
economic factors which influence the decisions of a business and can affect its
output after which it provide how the current growth rate of united kingdom has
consequences for the Virgin Atlantic operational capability. Further the above report
gives and account of various ways through which the government and the
authorities can influence the economy through monetary and fiscal policies and the
recent Furlough scheme. And finally it shows what the current challenges in front of
the company look like and how they could be overcome.
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References
Books & Journals
Hamilton, L. and Webster, P., 2018. The international business environment. Oxford
University Press.
Simbolon, L., 2018. The influence of macroeconomic factors on stock price: The
case of real estate and property companies. In Global tensions in financial
markets. Emerald Publishing Limited.
Lutfullaevich, Y.G., 2020. Impact of inflation on R&D investment flow: Case of five
Countries. International Journal of Scientific and Technology Research, 9(1),
pp.1970-1974.
Driffill, E.J., 2018. Can Stabilization Policy Increase the Equilibrium Unemployment
Rate?. In Recent advances in labour economics (pp. 110-124). Routledge.
Sensier, M. and Devine, F., 2020. Understanding regional economic performance
and resilience in the UK: Trends since the global financial crisis. National
Institute Economic Review, 253, pp.R18-R28.
Meager, N., 2019. Self-employment: independent ‘enterprise’, or precarious low-
skilled work? The case of the UK. In Self-Employment as Precarious Work.
Edward Elgar Publishing.
Cox, G.W. and McCubbins, M.D., 2019. Divided control of fiscal policy. In The
politics of divided government (pp. 155-175). Routledge.
Siregar, I., 2022. The Effectiveness of Linguistics in Studying Fiscal and Monetary
Policy Issues. Budapest International Research and Critics Institute (BIRCI-
Journal): Humanities and Social Sciences, 5(1), pp.5285-5295.
Jones, L. and Cook, R., 2021. Does furlough work for women? Gendered
experiences of the coronavirus job retention scheme in the UK.
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O’Connell, J.F., 2018. The global airline industry. In The Routledge companion to air
transport management (pp. 11-28). Routledge.
Choi, T.M., 2021. Risk analysis in logistics systems: A research agenda during and
after the COVID-19 pandemic. Transportation Research Part E: Logistics
and Transportation Review, 145, p.102190.
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