Business Environment: Macro-economic Impact on Virgin Atlantic

This report delves into the macroeconomic factors influencing Virgin Atlantic's business operations. It examines the impact of unemployment rates and inflation on the company's outputs, analyzes the effects of the UK's growth rate, considering economic life cycle stages, GDP, and inflation. Furthermore, it explores the influence of government intervention methods, such as fiscal and monetary policies, including the furlough scheme. Finally, the report identifies current global challenges faced by Virgin Atlantic and offers recommendations for overcoming them, providing a comprehensive overview of the macroeconomic landscape affecting the airline industry.

Business Management
BMP4003 Business Environment
Assessment 2
Influences of Macro-economic
Activity
Submitted by:
Name:
ID:
1

Contents
Introduction...............................................................................................................................3
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.)....................................3
How will the UK current growth rate impact on the chosen business (give reference to
economic life cycle, GDP, inflation, unemployment rate).....................................................4
How can the government current intervention methods affect the selected business?
(e.g., fiscal and monetary policies, furlough scheme etc).....................................................6
What are the current global challenges facing by the chosen business and
recommendations on how to overcome them in this current time?....................................7
Conclusion:.................................................................................................................................8
References..................................................................................................................................8
2

Introduction
Macroeconomics is defined as the field of economics which deals with performance,
structure, behavior, and decision making of an economy. In addition to this, the focus
of macroeconomics is to understand large scale or general economic factors such as
interest rates and national productivity (Olilingo and Putra, 2020). The Virgin Atlantic
is the selected firm for this report. This report focuses on explaining macroeconomic
factors which impact business output of Virgin Atlantic. In addition to this, the impact
of UK current growth rate on the selected business is provided. The current
government intervention methods and their impact on the respective organization are
also included in this report, along with description about current global challenges
faced by the specific industry and recommendations on how to overcome them.
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 factors are those factors which are not confined to a group of
specific persons but relate entirety of economy as a whole these among others
include Geo-political factors inflationary tendencies and gross domestic production:
Unemployment rates:
The percentage of people not gainfully employed anywhere in the econmy is
known as the rate of unemployment prevailing in the country since it is the job of
central bank in conjunction with the incumbent government to keep rate of
joblessness low (Wagner, 2020). This is done so that people are gainfully employed
in the economy it becomes important to look at these rates as if the rate of people
without jobs is extremely high then the government would have to step in and lower
the cost of borrowing to allow the businesses to expand and take on new employees
conversely if the the cost of borrowing is lower and the noiselessness are expanding
which has a tendency to inflate the price of goods and services then the government
needs to step in to regulate the price of goods and services and increase the cost of
borrowing meaning increase in the rate of interest at which the businesses borrow
money from the bank.
If people have jobs that means they can afford to spend which circulates the
money and has a tendency for boosting the economy.
3

Inflation: it is the addition of cost for affording certain goods and services in a
given period of time moreover it indicates the real purchasing power of money (von
Carnap and et. al., 2020). Inflationary tendencies increase the price of goods and
services they occur when there is excess money in the market due to the cost of
borrowing being lower excessive demand raises the price of goods it may also occur
when the supply of a product is affected adversely due to certain exigencies such as
the pandemic of 2019 which severely affected the chain of supply and shot up the
price of crude oil and aviation fuel which resulted in increase in the price of flying
along with low demand for air tickets due to restrictions on travel this means a
double blow for the virgin Atlantic's operation since they have had to increase prices
at a time when the demand for air travel is already very low.
How will the UK current growth rate impact on the chosen business
(give reference to economic life cycle, GDP, inflation,
unemployment rate)
Growth rate of a country is good indicator of the countries health in terms of how the
economy is doing if it gets adjusted for the inflationary toll it may reveal a picture that
is clear as to how much the economy has progressed over a given period of time
during the time of pandemic (Olilingo and Putra, 2020). the growth which was
registered was negative to the tune nearly 10 percen and only termed positive with a
strong bounce back of around 7 percent in 2021 of the growth rate is positive then
the business will experience strong demand and expansionary practice due to more
money being readily available with the public and more jobs means people will have
more to spare however if the growth rate id not doing so well means that the people
without jobs in the economy is very high and demand for products will decrease .
Cycle of economy: laws of demand and and supply dominate economy based on
market the various positions of demand and supply determine the cost of goods in
conjunction with balance of trade, rates at exchanges, cost of borrowing, cost
increase of goods and services which, producing capability and prevailing conditions
of the economy (Nakamura and Steinsson, 2018). Cycle of economy can be said to
be in an upward trend when depending on factors that stimulate growth in an
economy it would mean a better standard of living if Gross domestic product
registers a higher growth and addition in wealth of the economy. When the business
cycle is showing an upward trend till the time it goes down is said to be completion of
business cycle when economic growth is rapidly being registered then its called
4

boom and if stagnation in growth occurs then that period is called recession these
get measured by taking out real gross domestic product from Nominal gross
domestic product by way of taking out the growth registered through inflation of
commodities.
1. Expansive stage
When the rate of joblessness decrees and income of person gainfully employed is
increasing moreover there aren't any defunct assets as as noon performing assets
meaning debts are being paid on time and liquidity of money remains high together
with investing of that money by bushiness then the economy is said to be in
expansive stage (Mitchell, Wray and Watts, 2019).
-Peak
The highest point at which the economy can reach is the next business cycle stage it
connotes the the growth registered is maxed out and is indicative of prices being
high then it is said that a reversal of cycle.
- Recessive stage
It comes after the stage at which the economy has peaked goods and services are
no longer in demand which in turn means excess supply and by extension means
prices being low factors which are indicative of positivity such as output and wages
start falling.
-Depressive stage:
Joblessness gets high in this period which connotes people don't have money to buy
goods and services which in turn means businesses starts going under resulting in
more job losses with declining growth (Mankiw, 2020).
-stage of Trough
Growth rate gets negative which induces further decrease in supply and demand in
this stage income of nation suffers massively since there is marginal profit to tax
- Recovery stage
Recovering of economy takes place in this phase firstly the negative rate of growth
recovers and levels out consequently resulting in more demand due process being
very low and by extension jobs being created the businesses start to supply more by
investing in additional equipment and the process of production.
Gross domestic product: the goods and services produced in the the economy at a
given period of time frame and the value thus created is measured through gross
domestic product (Hommes, 2021). It can also reflect the spending of the
5

government and investments made by the business. When the Gross domestic
product is adjusted for inflation it gives real value of Gross domestic product. If the
countries domestic product is doing well then it will have a tendency to impact the
businesses positively since people are employed and they have spare money which
means more demand for goods and services offered by the businesses the virgin
Atlantic will benefit with positive demand since people will more money to spend on
holidays or visits to their family however a negative growth rate like the one in 2019
will result in people left without money to spend on holidays and visit dustless people
being employed and less investments made by the businesses.
Inflation:
inflationary tendencies occur when either the demand for a product increases in
relation to its supply the growth rate after the pandemic registered in the negative
which meant less people were employed further they didn't have any money to
spend which was of disposable nature together with rise in prices of commodities
meant business weren't growing however the GDP is growing back again (Goodwin
and et. al., 2018).
For virgin Atlantic the inflation in its inputs such as aviation fuel means it will have to
increase the price of its tickets which will entail less demand if the economy is not
growing since people will not have any money meaning any price rise will diminish
demand for airline seats even further so it would not have been advisable to for virgin
Atlantic to raise it's price during the period of pandemic in which negative growth was
registered however if the economy is doing well then the then there is demand even
if there is price rise the commodity so the the virgin Atlantic can safely transfer the
rise in price of aviation fuel knowing that it will not affect their demand by consumers.
Unemployment rate:
whether or not people are employed in an economy has very important bearing in
the businesses as if the people are gainfully employed they will have income which
can be spared and can create demand which is always good for businesses from
the governments perspective however the joblessness is never good so it will try to
reduce the cost of borrowing money for the businesses so that they can borrow more
and create more jobs and undertake expansionary steps (Dosi and Roventini, 2019).
However if the people without being gainfully employed don't amount very much in
number and rest of the factors remaining same the government will not increase
interest rate at which the businesses can borrow.
6

-In the current business environment the cost of borrowing remains low so virgin
group of companies can undertake expansion if there is corresponding demand to
gain a greater market share thereby creating more jobs in the process.
How can the government current intervention methods affect the
selected business? (e.g., fiscal and monetary policies, furlough
scheme etc)
the objective of fiscal and monetary policy can one and the same how the differ is the
decision taken by what authority they both can be applied to:
increase economic prosperity-for checking inflation to be within permissible limits-to
induce employment or reduce the amount of people who are not gainfully employed.
Governments have often targeted inflationary tendencies through monetary policy.
Fiscal policy relates to governmental budgetary decision which includes spendings
by the government and change in the taxing structure the government tends to
spend more in recession conditions along with reducing the taxes levied on the
businesses to accommodate growth by inducing the businesses to spend the portion
they saved with on tax (Brancaccio and Califano, 2022).
Monetary policy: the central bank influences liquidity available in the market by a
sleuth of measures which include raising interest rate to squeeze out the liquidity
when the liquidity in the market is excessive and reducing the interest rate when the
market is facing liquidity issues i.e. when not enough money is available in the market
it can also include open market operations.
In the current business environment the government has an accommodative stance
towards businesses to induce growth and mitigate the effects of pandemic this
includes reduction of tax burden and and making borrowing money cheaper virgin
group of companies will greatly benefit by expanding it's operations as the market in
the current business environment.
Furlough scheme: wages of people unable to work by reason of employers not
being able to afford the people working for them is paid by the United kingdom
government to the tune of 2500 pounds thereby reducing the burden on the
government (Alvarez, Lippi and Oskolkov, 2022). the 80 percent of their wage will
be paid by the government and rest 20 percent by their respective employers it can
be regarded as being the same as gardening leave as the employee will not be
working for the amount received.These schemes were introduced by the government
to reduce the burden on the employees who were suffering due to poor demand and
7

supply chain bottlenecks and rise in the cost of inputs such as fuel.
What are the current global challenges facing by the chosen
business and recommendations on how to overcome them in
this current time?
Low international air travel:
restrictions placed on international travel or making of travel bubbles between the
countries is a crisis for the virgin Atlantic as it results in planes not flying to
destinations which were previously profitable together with governmental restrictions
there is overall drop in traveling due to risk of infection while traveling which is
inducing people to not make journeys till absolutely necessary.
Fuel price surge:
AS FUEL PRICES are major input cost in airline industry costing anywhere between
50 to 60 percent of the overall cost results in obstacles of operational nature and at a
time where the demand already remains low passing the cost on to the customer
may result in further reduction of demand.
Challenges of technical nature: If the planes are not flown regularly it will result in
plane needing extensive maintenance as a result planes have to be flown regularly
so that it stays operational further the planes need maintenance and overhaul at
regular intervals which increases the cost of flying.
8

Conclusion:
From the above report, it is determined that the factors which impact businesses in
the current environment include last domestic product inflation as well as
unemployment rate. The cycle of economy is an important microeconomic tool which
can be used in understand the impact of current growth rate in businesses and their
future potential. The Fiscal and monetary policy implemented by the UK government,
along with its swallow scheme, provides benefit to businesses in their future growth.
The businesses in the air travel industry are facing various challenges in the current
times, which can impact their future goods such as low international travel, along with
fuel price surge and technical challenges.
9

References
Alvarez, F., Lippi, F. and Oskolkov, A., 2022. The macroeconomics of sticky prices
with generalized hazard functions. The Quarterly Journal of
Economics, 137(2). pp.989-1038.
Brancaccio, E. and Califano, A., 2022. Anti-Blanchard Macroeconomics: A
Comparative Approach. Edward Elgar Publishing.
Dosi, G. and Roventini, A., 2019. More is different... and complex! the case for agent-
based macroeconomics. Journal of Evolutionary Economics, 29(1). pp.1-37.
Goodwin and et. al., 2018. Macroeconomics in context. Routledge.
Hommes, C., 2021. Behavioral and experimental macroeconomics and policy
analysis: A complex systems approach. Journal of Economic Literature, 59(1).
pp.149-219.
Mankiw, N. G., 2020. Principles of macroeconomics. Cengage learning.
Mitchell, W., Wray, L. R. and Watts, M., 2019. Macroeconomics. Macmillan
International Higher Education.
Nakamura, E. and Steinsson, J., 2018. Identification in macroeconomics. Journal of
Economic Perspectives, 32(3). pp.59-86.
Olilingo, F. Z. and Putra, A. H. P. K., 2020. How Indonesia economics works:
Correlation analysis of macroeconomics in 2010-2019. The Journal of Asian
Finance, Economics, and Business, 7(8). pp.117-130.
von Carnap and et. al., 2020. The macroeconomics of pandemics in developing
countries: An application to uganda. Center for Global Development.
Wagner, R. E., 2020. Macroeconomics as systems theory. Springer International
Publishing.
10