Influences of Macro-economic Activity on Virgin Holidays

This report discusses the impact of macro-economic factors such as unemployment rate and inflation on Virgin Holidays. It also analyzes how the UK's current growth rate affects the company and how government intervention methods such as fiscal and monetary policies can impact the business. Additionally, the report highlights the current global challenges faced by the company and provides recommendations to overcome them.

Business Management
BMP4003 Business Environment
Assessment 2
Influences of Macro-economic
Activity
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Contents
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Introduction 2
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, inflationetc.) 2
How will the UK current growth rate impact on the chosen business
(give reference to economic life cycle, GDP, inflation,
unemployment rate) 3
How can the government current intervention methods affect the
selected busines? (e.g., fiscal and monetary policies, furlough
scheme etc) 5
What are the current global challenges facing by the chosen
business and recommendations on how to overcome them in this
current time? 7
Conclusion 9
References 10
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Introduction
It is essential for every organization to focus on their macro business environment
and analyze the factors which affect their growth (Shashlo, Petruk and Korostelev,
2018). Economic factor is one of the most essential macro environment factors
which can impact an organization. It includes employment rate, GDP, infrastructure
condition, cost of raw material, inflation rate and many others. Virgin Holidays is a
type of tour Operator Company which was founded in 1985 by Richard Branson and
it is headquartered in Crawley, England, UK (Virgin Groups, 2022). It provide
package holidays to their customers and it is owned by Virgin Group and it offer
holidays worldwide with destinations such as Canada, US, Africa, Indian Ocean and
few others. It also establishes a ski program and a specialist cruise division called
“Virgin Holiday Cruise”. The following report covers influence of two macro-economic
factors upon Virgin Holidays, the ways in which UK’s current growth rate impacts
upon chosen business. This report also includes impact of government current
interventions methods upon chosen company and business and current global
challenges faced by the company with recommendations to overcome these
challenges effectively so that the company will grow high in future.
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.)
Macro environment factors are those factors which impacts business operations from
outer sources like political factors, economical factors, legal factors and many others.
These factors are having high impact upon growth of a company (Mudany, Ngala
and Gituro, 2021) . In context of Virgin Holidays, one of the most popular and well
known company in hospitality industry get impacted by various factors but especially
during COVID pandemic which is ongoing global pandemic, it impacted mostly by
economic factor of macro environment. Few of the macro economic factors which
influence the business output are mentioned below-
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Unemployment rate- It consists of that percentage where individual is unable to find
job due to lack of job but they are capable to do any job due to their qualification
(Dey and et. al., 2020). Here, an individual is willing to work to develop their standard
of life but he/she is unable to find a appropriate opportunity to get good job. It is
considered that low unemployment rate is good for organizational growth because
low unemployment rate means organization have opportunity to gain experienced
and skilled workforce within their organization. In context of Virgin Holidays, they can
recruit best skilled and talented employees and select best alternatives for their
organization after testing their skills during interviews. They are required to target
those working employees to hire which are having better experience to handle
customers and their issues effectively. For this they are required to develop their
incentive rates and attract experienced employees. Low unemployment rate will
benefits the company to develop their productivity and profitability by hiring skilled
and experienced workers.
Inflation- It is the situation where the prices of goods and services raise high due to
fall in currency value of a nation (Green and et. al., 2021). It is also calculated in
percentage value. It is good for a company that their nation’s inflation rate will be low
because when inflation rate goes high the customers switch their needs and wants
and start saving money for future use and spend less in markets. In context of Virgin
Holidays, they are working in hospitality industry and in case the UK’s inflation rate
goes high than it can impact negative upon their growth. High inflation rate will force
their customers to avoid using their services for entertainment purpose and focusing
more to buy basic needs of life first. Secondly, due to high inflation rate the prices of
goods and services will increase and Virgin Holidays are also required to increase
the prices of their services and today customers are price sensitive which means
they will switch to those hospitality services which will offer lower prices to
customers. In case Virgin Holidays reduces the prices of their holiday packages
during inflation time then it is tough for them to cover their expenditure with their
revenues.
How will the UK current growth rate impact on the chosen
business (give reference to economic life cycle, GDP,
inflation, unemployment rate)
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Unemployment rate- It is the percentage of those individuals who are unemployed
but they are willing to work and searching for job in a nation. High unemployment
rate is not good for economical growth of any nation. In context of UK, their
unemployment rate is 4.1% which means they are having low unemployment rate
(Unemployment, 2022). Hence, it is beneficial for Virgin Holidays to find appropriate
employees for their organization to perform their operational activities. They are
having better opportunities to find skilled and talented employees for their
organization. One of the best skills they require for their employees is customer
service skill because they are working within hospitality industry and customer’s
satisfaction is one of the most essential aspects of this industry. Therefore, they can
advertise to hire their required workforce and conduct interview to choose best
alternative. Low unemployment rate of UK will impact positive upon the operational
outcome of Virgin Holidays because they are having more options to hire skilled and
experienced employees for their organization which can handle their customers
effectively and help the company to grow high be developing their market reputation.
Inflation rate- It is the rate at which the value of currency continuously falls down
and the prices of goods and services will rise within a country. In context of UK, their
inflation rate is recorded as 2.19% in the year 2021 and it is forecasted that the
inflation rate of UK will continue to fall down in future and reached to 2% (United
Kingdom: Inflation rate from 1986 to 2026, 2022). It is good symbol for the growth of
Virgin Holidays because whenever the price goes high during inflation rate than the
customer purchasing power declined and the customers invest more to buy those
products which can fulfill their basic needs and they avoid to use entertainment
services in case of high inflation rate. Therefore, low inflation rate of UK is
considered as favorable condition for the chosen company to lower the prices of their
services for their customers to gain competitive advantage.
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From the above diagram it is critically evaluated that inflation rate of UK is switching
year to year. In the year 2015, inflation rate of UK is at lowest rate in its history which
is 0.04%. It start rising from 2016 and due to COVID pandemic, the purchasing
activity of customers decline and due to government regulations like curfews, social
distancing, lock downs and many others, customers refuses to use hospitality
services for their entertainment purpose. UK also did not other country citizen to
enter their nation for breaking the corona virus chain. Hence, due to low demand it
declines and reaches at 0.85% in the year 2020 (United Kingdom: Inflation rate from
1986 to 2026, 2022). When condition of crises comes under control than it again start
raising because now customers are investing more to develop their life standards
and to enjoy their life. Therefore, it will provide benefit to Virgin Holiday to maintain
their prices of holiday packages appropriately to attract their customers.
How can the government current intervention methods
affect the selected business? (e.g., fiscal and monetary
policies, furlough scheme etc).
In context of UK, their government implements various intervention methods to
control their economic conditions. Due to COVID pandemic, the economic condition
of UK goes down like high unemployment rate, high cost of raw material, pause in
infrastructural growth, decline in GDP and many others. To cover these losses the
government of UK develops few schemes and modifies their fiscal and monetary
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policies to support growth of their economic condition. Few of the UK’s current
government intervention methods are mentioned below-
Fiscal policy- It is the use of collected government revenues and their expenditure
for the main purpose of economic development of a nation (Prieger and Vohra,
2018). Fiscal policy helps a nation to identify total amount of resources for financing
their various new projects. UK’s previous fiscal budget includes increasing taxes and
at the end of year government announces health and social care levy (UK Budget
Highlights Pandemic Recovery, Fiscal Strategy, 2021). Increase in taxes such as
income tax, corporate tax, sales tax and many others will impact upon customer
purchasing power but on the other hand, it will help UK’s economy to grow high
because due to high tax rates government will earn more and spend more for
economic development. This will help to develop GDP rate of UK by 2.75% for
upcoming year. On the other hand, public spending will also decline by 53.1% due to
increase in taxes. The main aim of UK’s government is to cover the losses as soon
as possible and then lower the taxes like before. According to Virgin Holidays, this
fiscal policy will not provide much benefit to the Virgin Holidays because purchasing
power of customers is declining due to this policy and this means that customers will
compromise their entertainment needs to fulfill their basic needs first.
Monetary policies- This nationwide policy is controlled by monetary authority of the
nation who have power to print currencies and decide interest rates for commercial
banks (Hardaker, 2018). It is important for an economy to focus on monetary policy
because it will further help to control flow of income within a country. The main target
of UK’s monetary policy is to maintain the inflation rate as much as low as possible
for economic development and to maintain low interest rates of loans so that their
SMEs will use banking facilities to conduct their business activities appropriately.
Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet
their basic target to attain 2% of inflation rate in UK and help the economy to grow
sustainable and develop their employment. During last meeting for MPC it was
decided that bank rate will be increased to 0.25% from 0.10% (Bank rate increased to
0.25% - December 2021). This will help the economy to earn good revenue and help
the country to grow well by investing earned revenue gained by increasing bank rate
for infrastructural growth. This policy strategy is considered as one of the best policy
to recover the losses faced by economy from COVID pandemic. In context of Virgin
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Holidays, it will impact upon their financial activities and increase their expenditure to
pay high interest rate to banks if they use their financial services for operating their
business.
Recovery Loan Scheme - This scheme helps the UK based companies to recover
their losses which they faced during COVID pandemic. This scheme is for any size
of business and according to this scheme up to £10 million is available per business.
The government guarantees 80% of the finance to the lender. As the borrower, they
are always 100% liable for the debt (Recovery Loan Scheme, 2021). It is essential
for the companies to focus on eligibility criteria to use this scheme. Few of the
eligible criteria for this scheme is that it is compulsory for the company to trade in
UK. Secondly, company must prove that their business get much impacted by
COVID pandemic. Few of the institutions are not allowed to apply for this scheme
such as building societies, banks, public sector bodies and state funded primary and
secondary schools. A company can get the benefit of £25,001 and £10 million for
term loans or overdrafts. From the year 2022, this scheme is only usable by small
and medium scale companies. The maximum amount of finance available will be £2
million per business (Recovery Loan Scheme, 2021). In context of Virgin Holidays,
they are having good benefit with this scheme and their most of the losses were
recovered by it.
What are the current global challenges facing by the
chosen business and recommendations on how to
overcome them in this current time?
There are few current global challenges facing by Virgin Holidays and these
challenges are mentioned below-
Global pandemic crises- COVID pandemic is one of the biggest challenges for the
Virgin Holidays which acts like a obstacle for the growth of the business. During this
pandemic, government restricted some rules and regulations which are necessary to
follow. Hence, due to curfews and other restrictions the chosen organization is
unable to gain high customers. This global challenge is like threat for the company
because it is uncontrollable factor for the industry. Hence, few measures could be
taken by the chosen company to overcome the losses by this pandemic like they
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should focus on their hygienic factors and keep their hotels and transport facilities
clean and hygienic so that their guests will no longer doubt on the hygienic factor of
the company and services. Secondly, it is also recommended to the Virgin Holidays
that they must follow all legal rules and regulations of their nation regarding the
pandemic for example, in case their government highlights to accept booking for little
number of customers than they must accept a particular number of booking for their
services. It is also recommended to the organization to utilize the schemes which are
made by the government of UK to recover losses of companies during the pandemic.
Competition- It is another big challenge for Virgin Holidays where their competitors
like Business World Travel, Travel Nation, Luxury Airport Shuttles and many others
are having attractive holiday packages for their customers and secondly they also
focused to provide best services to their guests so that they will again think to use
similar travel business services next time. There is high competition among
hospitality industry of UK. It is recommended to the Virgin Holidays to analyze the
package prices of their competitors as well as facilities provided by them to their
customers and then they must modify the prices of their services and gain
competitive advantage by cutting down the prices and serving best services to their
customers. It is also recommended to the chosen company that they must focus on
their promotional activities also and try to promote their services and facilities as
much as possible to aware their customers. Using social media marketing is a
appropriate way to reach customers globally. Hence, they are recommended to
promote their business well on social media marketing and gain the trust of their
customers by mitigating their queries and issues quickly.
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Conclusion
From the above information it is concluded that macro business environment can
impacts growth of a company. Economic factor of macro environment consist of
employment rate, inflation rate, GDP, infrastructure, fiscal policy and many others. It
is essential for a nation to have low unemployment rate for the growth of their nation
which further provide the advantage to companies to hire skilled and experienced
workers. It is considered that low inflation rate will help to develop the purchasing
power of customers which is again providing better opportunity for the growth of
various companies. It is essential for organizations to analyze their global challenges
and mitigate them as soon as possible before it impacts negative upon their
business operations.
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References
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sustainably‐oriented innovation on sustainability performance of small and
medium‐sized enterprises: empirical evidence from the UK. British Journal of
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Green, A.E. and et. al., 2021. Public policy for addressing the low-skills low-wage
trap: insights from business case studies in the Birmingham City-region,
UK. Regional Studies, 55(2), pp.333-344.
Hardaker, A., 2018. Is forestry really more profitable than upland farming? A historic
and present day farm level economic comparison of upland sheep farming
and forestry in the UK. Land Use Policy, 71, pp.98-120.
Marshall, A. and et. al., 2020, June. Knowledge absorption and innovation in UK
SMEs: A pilot study by place and economic sector. In Proceedings of the
2020 International University-Industry Interaction Conference. UIIN.
Mudany, J.O., Ngala, M. and Gituro, W., 2021. Moderating Effect of Macro
Environment on the Intervening Effect of Capital Structure on the
Relationship between Strategy Implementation and Performance of Energy
Sector Institutions in Kenya. African Journal of Emerging Issues, 3(1), pp.67-
95.
Prieger, A. and Vohra, A., 2018. THE BREXIT ECONOMIC EFFECTS ON UNITED
KINGDOM. SECURITY AND SOVEREIGNTY IN THE 21ST CENTURY,
p.37.
Shashlo, N.V., Petruk, G.V. and Korostelev, A.A., 2018. Determinants of integration
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Online-
Virgin Groups, 2022. [Online]. Available through:
https://www.linkedin.com/company/virgin-holidays/
Unemployment, 2022. [Online]. Available through:
<
https://www.ons.gov.uk/employmentandlabourmarket/peoplenotinwork/unemployme
nt#:~:text=Labour%20market%20overview%2C%20UK%3A%20February
%202022&text=The%20UK%20employment%20rate
%20increased,0.1%20percentage%20points%20to%2021.2%25./>
United Kingdom: Inflation rate from 1986 to 2026, 2022 [Online]. Available through:
https://www.statista.com/statistics/270384/inflation-rate-in-the-united-kingdom/
UK Budget Highlights Pandemic Recovery, Fiscal Strategy, 2021 [Online]. Available
through:
https://www.fitchratings.com/research/sovereigns/uk-budget-highlights-pandemic-
recovery-fiscal-strategy-04-11-2021/
Bank rate increased to 0.25% - December 2021 [Online]. Available through:
https://www.bankofengland.co.uk/monetary-policy-summary-and-minutes/2021/december-
2021#:~:text=The%20Bank%20of%20England's%20Monetary,percentage%20points%2C
%20to%200.25%25.
Recovery Loan Scheme, 2021 [Online]. Available through:
https://www.gov.uk/guidance/recovery-loan-scheme/
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