Pestle Analysis of Virgin Australia

Running head: COMPETITIVE STRATEGY
Table of Contents
Section 3- Macro environmental analysis..................................................................................1
Pestle Analysis.......................................................................................................................1
Porter’s Five Forces...............................................................................................................3
References:.................................................................................................................................5

1COMPETITIVE STRATEGY
Section 3- Macro environmental analysis
3.1
Pestle Analysis
Pestle analysis is a essential tool to assess the external or macro environment
performance of a company or industry and it assess the ways in which an industry is
influenced by the external environments or conditions as faced by it. The pestle analysis of
Virgin Australia is as follow:
Political
In the aviation industry of Australia, the most relevant political factors are mostly
related to the fear of terrorism and terrorist attacks (Pain 2014). Because of the conflicts in
political matters from the Western part with various people belonging from the Islamic
country, the subject of terrorism is one of the most serious issues prevailing today. Due to the
threats of terrorist attacks, there is a high need for the airline operators in Australia to spend
much effort on ensuring safety of their flights and their passengers as well as to sustain
capital expenditures in order to install applicable safety systems and tools on the planes. Also,
the mutual understanding with China has resulted in an “open aviation market”. China and
Australia have signed in an open skies pact in the year 2016 that has resulted in opening of
new routes. Lastly, it is the governmental support that plays an important role in the cyclical
airline industry that is under competitive pressure from the foreign players.
Economic
In current days, the economy all around the world has remained weak even after three
consecutive years of obtuse recovery from its bottom in the year 2009. The unemployment

2COMPETITIVE STRATEGY
rate in Australia has remained high and the customers are mentioned to be both prudent and
cautious in their purchasing and spending habits (Bishop et al. 2013). Similarly, in the short
term, since the economy view has remained gloomy, there is high change of people cutting
down their spending and travelling less for their tourism purpose. This has the potential to
reduce the demands of air flights. Apparently, in the environment where economy suffers,
people tend to switch towards cheaper costing airline operators.
Socio-cultural
The living standards of the people are significantly increasing around the globe.
Customers have become more demanding than ever. With the same, consumers’ level of
expectations is also growingly increasing on the level of services that a business provides to
them. They are become more conscious about their rights and they understand that they have
the most influence in the profitability of the business. It is also to note that people now-a-days
do not buy products based on the features that they possess, in fact, the current generation is
entering into an emotional economy. Furthermore, globalisation has also increased the
tourism activities in the countries and people today are very interested in experiencing a new
culture and lifestyle that are different from their own (Crystal 2013).
Technological
Increase in the popularity of the electronic commerce and internet services is growing
around the world. This is affecting the industry in positive ways. Internet is enabling the
company to reach large number of audience and provide them services in lesser cost (Porter
and Heppelmann 2014). Also, the travellers today cold also compare the airways fares sitting
their home alone. Also, through social media the company could spread awareness of it’s
among the people throughout the world. It has also enabled the customers to access high
speed internet service and this could also strengthen the competitive position of Virgin
Australia’s airline operators.

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Porter’s Five Forces
The Porter’s five forces are mainly used in this context to analyse the attractiveness
and competiveness of the airline industry in which the Virgin Australia operates. The analysis
of porter’s five forces consists of five key competitive forces-
Threats of new entrants-
The airline industry of Australia has an average threat of entrants into the business
market environment and this is because of the presence of different barriers of entry which
prevents many companies from entering into the market or any industry (Borchert, Gootiiz
and Mattoo 2013). Few of these barriers include increased taxations on the aviation fuels,
increase in start-up costs andleasing out of most of the existing terminals to major airlines.
Bargaining power of the buyers-
The bargaining power of the buyers is also moderate in the Australian region and this
is because of the fact that a large part of the sales of the local airline tickets online or from th
airport are for incoming tourists, the corporate sector and the local tourists (Sun 2014). With
the same, introduction of less costly alternatives into the airline market like in Virgin
Australian Airlines has enabled the customers to have more number of options of the prices
and products (Virginaustralia.com, 2018)
Bargaining power of the suppliers-
The bargaining power of the suppliers in the Australian airline industry is also very
moderate. It is due to the reason that the airline supply business is controlled by few
companies that have less competition among the suppliers (Porter and Heppelmann 2014). It
is doubled by the lesser possibility of the suppliers in integrating vertically because the
material inputs of theirs into the industry do not belong to the nature of commodity. The
major factors that discern the bargaining power of the suppliers comprise of the substitute

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suppliers, switching costs supplier concentration, forward integration and threat of the
backward.
Threats of the substitutes-
The main alternatives to the substitutes of the airline services are the rise in the
popularity of the local tourism along with the development of the entertainment services that
are complement to the rail, car and airline industry means (Sharpley and Telfer 2015). Cars
and rails are still the popular mean of transport in Australia so the decision of shifting to the
costly airline services must be restorative (Ustun, Zayegh and Ozansoy 2013). Hence, the
main aim of the airline service providers is convincing the consumers for choosing the air
transportation.
Internal rivalry-
The present situation suggests that Virgin Australia is competing directly with the
Qantas and Tiger airways in the local or domestic market and the completion is so serious
that these airlines are undergoing a huge loss in their respective operations (Bamber et al.
2013). Two of its major competitors is the Deutsche Lufthansa and British airways a well and
hence, it can be said that it is undergoing international competition from all the major airline
operators. Such a severe rivalry has resulted in the increase in competition cost and has
slowed down the market growth as well. With the same, it has also resulted in lower profit
margin for the company.

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References:
Bamber, G.J., Gittell, J.H., Kochan, T.A. and Von Nordenflycht, A., 2013. Up in the air: How
airlines can improve performance by engaging their employees. Cornell University Press.
Bishop, J., Kent, C., Plumb, M. and Rayner, V., 2013. The resources boom and the Australian
economy: a sectoral analysis. RBA Bulletin, pp.39-50.
Borchert, I., Gootiiz, B. and Mattoo, A., 2013. Policy barriers to international trade in
services: evidence from a new database. The World Bank Economic Review, 28(1), pp.162-
188.
Crystal, D., 2013. A global language. In English in the World(pp. 163-208).
Pain, R., 2014. Everyday terrorism: Connecting domestic violence and global
terrorism. Progress in Human Geography, 38(4), pp.531-550.
Porter, M.E. and Heppelmann, J.E., 2014. How smart, connected products are transforming
competition. Harvard Business Review, 92(11), pp.64-88.
Sharpley, R. and Telfer, D.J., 2015. Tourism and development in the developing world.
Sun, Y.Y., 2014. A framework to account for the tourism carbon footprint at island
destinations. Tourism Management, 45, pp.16-27.
Ustun, T.S., Zayegh, A. and Ozansoy, C., 2013. Electric vehicle potential in Australia: Its
impact on smartgrids. IEEE Industrial Electronics Magazine, 7(4), pp.15-25.
Virginaustralia.com. (2018). [online] Available at:
https://www.virginaustralia.com/cs/groups/internetcontent/@wc/documents/webcontent/
~edisp/2016-annual-report.pdf [Accessed 9 May 2018].