Virgin Australia Holdings Limited (VAH) - Desklib

Read about Virgin Australia Holdings Limited (VAH) history, external and internal environment analysis, strategy development and implementation, and recommendations for profitability.

Running head: VIRGIN AUSTRALIA HOLDINGS LIMITED (VAH) 1
Virgin Australia Holdings Limited (VAH)
Name
Institution

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Introduction
Virgin Australia Holdings Limited (VAH) is a holding company in Australia which is
part of the larger Virgin Group conceived in 1970 by Sir Richard Branson. VAH manages and
operates Virgin Australia, TigerAir Australia and Virgin Australia Regional airlines. The
company majors its business in the aviation and tourism industries.
VAH was incorporated in 2000 as Virgin Blue Holdings a subsidiary wholly owned by
Virgin Group. The company operated two aircrafts on one route with a team of 200 people. By
2001, the company was operating 14 routes locally in Australia. Nine more routes were added in
the year 2002. In the same year 2002, Patrick Corporation acquired 50% shares in Virgin Blue
Holdings (Corporation governance Statement, 2018). The acquisition was necessitated by the
need of the airline to grow into a national airline.
In 2003, Virginia Blue Holdings launched Blue Holidays diversifying the company’s
portfolio into tourism. In the same year, Virgin Group reduced its holding when Virgin Blue
Holdings was floated in the Australian Securities Exchange ("Virgin Australia flying towards
insolvency?", 2018). On the other hand, Patrick Corporation increased their stake in the company
during the Initial Public Offering (Robson, 2015).
The company launched Pacific Blue offering flights between Australia, New Zealand,
Tonga and Fiji in 2004. In 2005, Patrick Corporation acquired a further 17% of Virgin Blue
Holdings making it the major shareholder with 62% holding. In the same year, the company
launched its velocity rewards loyalty program.
Toll Holdings acquired Patrick Corporation in 2006 hence becoming the major
shareholder of Virgin Blue Holdings with 62% stake. In 2008, Toll Holdings diversified its stake
in Virgin Blue Holdings making Virgin Group the major shareholder with 25% stake. The next

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year 2009, Virgin Australia took its inaugural flight making establishment of the long haul
international airline for Virgin Blue Holdings a reality.
In 2010, the company announced that it was implementing a new business strategy which
led to implementation of a comprehensive partnership with Air New Zealand and Etihad
Airways in 2011. Both companies purchased shares in Virgin Blue Holdings. The company also
signed an agreement with Singapore Airlines which also acquired stake in the company (Hill,
2017). Virgin Blue Holdings changed its name to Virgin Australia Holdings Limited in the same
year 2011.
VAH acquired Skywest Airlines Limited and rebranded it to Virgin Australia Regional
Airlines in 2013. The company also completed acquisition of TigerAir Australia in 2015 which
remained a subsidiary of VAH operating under the name TigerAir Australia (Doz, 2017).
The company is run by an executive team of nine members led by the Managing Director
and Chief Executive Officer John Borghetti AO. The Board of Directors has 12 members chaired
by Ms Elizabeth Bryan AM. The company has been recording losses and an article in 2016 by
Blake Moore highlighted the financial difficulties that the company was undergoing. The article
was pulled down following pressure from Virgin Australia and statements from the CEO John
Borghetti claiming that the article was inaccurate (Annual Report, 2018).
Nevertheless, there was some key issues highlighted in the article. Clashlow crisis, large
debt, low profit margins and unsuccessful hedging strategy were some of the issues stated in the
article which was based on research conducted by Australinea an independent research company
on Australia and New Zealand aviation industry. VAH was looking for capital injection from
HNA Group and Nanshan Group to remain afloat.

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Despite the risks highlighted in the article, the company remains afloat but still not
profitable. In this write up, we would endeavor to evaluate the internal and external factors
affecting the company operations and recommend solutions to revamp the company’s
profitability and future prospects.
External Environment Analysis
The aviation industry is continuously evolving to meet the ever changing needs of its
customers. Competition has also increased significantly. By 2006, the global airline industry
consisted of 2,000 airlines operating more than 23,000 aircrafts (MIT, 2006). Increase in
technology capability has increased price transparency and customer’s preference reducing
profitability of the whole industry.
The following external environment risks are the most significant for VAH current and
future operations:
Competition
VAH major income earner is the Virgin Australia which plies international routes.
Competition has increased in the industry due to availability of several options for the client and
also price reduction to retain customers who have access to several pricing options from different
companies.
Terrorism
Since September 2011 twin bombing terrorist incident, the aviation industry has remained
vulnerable to terrorism risk. This has caused step up of security in both airplanes and airports
which has increased cost of operations. VAH may be exposed to terrorism risk which may curtail
its operations.
Fluctuating oil prices

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According to the article published by Moore, Virgin Australia hedging strategy was a
massive liability. The company remains exposed to fluctuating oil prices on which the company
is yet to find a suitable hedging strategy.
Internal Environment Analysis
Although the company is struggling to get profitable, the management of the company
continues to perform exceptionally. The company’s corporate governance structure is superb and
may foster continuous improvement of company performance. The company also leverages on
its internal competences stated below to foster growth.
Human resource
The company leverages on the best human resource to facilitate smooth operation of the
organization (Wheelen, Hunger, Hoffman & Bamford, 2017). From the recruitment process to
the department selection, the company vets the prospect employee to fit the required job criteria.
In addition to the stringent selection, the company provides sufficient internal training to its
employees hence standardizing level of services provided to the client.
Corporate governance structure
The company’s corporate governance structure fosters stability and accountability
making the business process efficient. The independence of the internal risk and audit
department allows the company to analyze its internal risk and avoid damages (Meyer, Neck &
Meeks, 2017). The CEO has also been delegated with extensive powers hence making decisions
is faster and efficient.
Policies

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VAH has clearly established policies on how the company is run. The policies are
approved by the board of directors hence the company has a sense of continuity even if top
management changes.
Organizational structure
The company has a clear organizational structure which avoids overlapping of duties and
has a clear authority structure. The company uses a top down approach where strategies are
developed by top management and run down the company for implementation.
Strategy Development
From the company’s history, it can be clearly observed that the company develops blue
ocean strategies (Rothaermel, 2015). VAH strategies involve cost reduction while increasing
customer value. The company simultaneously pursues differentiation and low cost creating a
new market niche for themselves.
VAH offers low pricing in meals, lounges, seating class choices and connectivity while
giving the customer value in service, speed and choice of travel options. The company also
leverages on information to ensure fast delivery of service to the clients. The strategies has led
the company to receive several rewards like Skytrax world best low cost airline (Australia/
pacific) in 2010 and in 2012 the company was awarded best airline and best staff service awards.
The strategies deployed by the company enables it to avoid the blooded red ocean
markets which reduces profitability and has stiff competition.
Strategy Implementation
The company has an efficient strategy implementation system in place. The company
links its growth strategies to its budget constraints and allow for smooth implementation of the

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strategies. Good planning, accountability and timeliness of their strategies allows the company to
complete implementation in record times (Ginter, Duncan & Swayne, 2018).
For example, the company launched the velocity frequent flyer program in 2011, by
2012, the velocity frequent flyer had unveiled a partnership with visa for a global wallet. The
program had over four million clients by 2014 and had acquired data analytics business Torque
Solutions (Australia) Pty Ltd by 2015.
The growth of the velocity frequent flier program was supported by the company’s
strategy implementation process which developed in iterations to betterment of product and
service provision to the clients.
Recommendation
Although the company is using strategies that foster growth, the company profitability
remains low and is sometime negative (Hitt & Duane Ireland, 2017). The company may adopt
the following strategic recommendations to make the company profitable.
Cut expansion plans and focus on profitability
VAH has been expanding since its inception in 2000 despite the company being not
profitable. The company should halt its expansion plan and strategize on profitability. This
means streamlining the company’s business process making it more efficient to increase
profitability.
Develop new hedging strategies
The company should stop relying on forward contracts to hedge against adverse
movements in oil prices but should adopt option contracts to hedge against the oil fluctuation
risk (Hill, Jones & Schilling, 2014). Options are superior to forward contracts in that the
company can fail to execute an option if the price fluctuation is in their favor.

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Reduce overhead costs
As of 2017, the company owned 61 out of 149 airplanes in their fleet. This indicates that
the company is having high overhead cost from leasing the stated planes. The company should
reevaluate their lease strategy since although leasing is profitable in the short run, it hurts the
company in the long run.

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References
Annual Report (2018). Retrieved from
https://www.virginaustralia.com/cs/groups/internetcontent/@wc/documents/
webcontent/~edisp/fy18-annual-report.pdf
Corporation governance Statement (2018). Retrieved from
https://www.virginaustralia.com/cs/groups/internetcontent/@wc/documents/
webcontent/~edisp/2018-corp-gov-statement.pdf
Doz, Y. L. (2017). Strategic management in multinational companies. In International Business
(pp. 229-248). Routledge.
Ginter, P. M., Duncan, W. J., & Swayne, L. E. (2018). The strategic management of health care
organizations. John Wiley & Sons.
Hill, C. W., Jones, G. R., & Schilling, M. A. (2014). Strategic management: theory: an
integrated approach. Cengage Learning.
Hill, T. (2017). Manufacturing strategy: the strategic management of the manufacturing
function. Macmillan International Higher Education.
Hitt, M., & Duane Ireland, R. (2017). The intersection of entrepreneurship and strategic
management research. The Blackwell handbook of entrepreneurship, 45-63.
Meyer, G. D., Neck, H. M., & Meeks, M. D. (2017). The entrepreneurship strategic management‐
interface. Strategic entrepreneurship: Creating a new mindset, 17-44.
Robson, W. (2015). Strategic management and information systems. Pearson Higher Ed.
Rothaermel, F. T. (2015). Strategic management. McGraw-Hill Education.
Virgin Australia flying towards insolvency?. (2018). Retrieved from
http://www.headlinehamster.com/2016/11/virgin-australia-flying-towards.html

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Wheelen, T. L., Hunger, J. D., Hoffman, A. N., & Bamford, C. E. (2017). Strategic management
and business policy. pearson.