Macroeconomic Environment Analysis: Virgin Atlantic Airlines Report

This report provides a comprehensive analysis of the business environment of Virgin Atlantic, a major airline company based in the United Kingdom. It begins with an executive summary and introduction, outlining the aims and objectives of the report, which is to identify the macroeconomic factors impacting the company and assess its strategic responses. The methodology includes a PESTLE analysis to examine political, economic, social, technological, legal, and environmental factors. The report then explores profit maximization theory and models, including demand and supply, to understand the company's pricing and revenue strategies. The results section highlights key findings related to the challenges and opportunities faced by Virgin Atlantic, including the impact of Brexit and fluctuating oil prices. The discussion section suggests strategic changes and improvements, such as discounts for regular passengers and efficient organizational structures. Finally, the conclusion summarizes the challenges of the airline industry and the importance of adapting to external pressures, particularly in light of Brexit. The report incorporates various figures and tables to support its analysis, offering valuable insights into the company's operations and strategic planning.

Running head: BUSINESS ENVIORNMENT
Business environment
Name of the student
Name of the university
Author Note:

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Table of Contents
Executive Summary.........................................................................................................................4
Introduction......................................................................................................................................5
Aims and Objectives of the Report..................................................................................................5
Methodology....................................................................................................................................6
PESTLE Analysis............................................................................................................................6
Profit Maximization Theory............................................................................................................9
Model.............................................................................................................................................10
Demand and Supply Model...........................................................................................................11
Results............................................................................................................................................12
Discussion......................................................................................................................................13
Conclusion.....................................................................................................................................13
References......................................................................................................................................15

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List of Tables and Figures
Figure No 1- PESTEL Diagram......................................................................................................6
Figure No 2- Profit Maximization Model........................................................................................9
Figure No 3- Impact of High Oil Prices........................................................................................11

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Executive Summary
The following report is based on the business environment of one of the largest and popular
Airlines Company of United Kingdom, Virgin Atlantic. The researcher has prepared his report to
identify the current macroeconomic environment in which the company operates and has also
studied the different strategies and plans that the company has adapted for sustaining the coming
future. The report prepared by the researcher has used different models and theories to prove its
competency.

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Introduction
Virgin Atlantic is one of the most renowned private sector organizations of United
Kingdom. The British Airlines Company was established in the year 1984 and has its head office
in Crawley, United Kingdom. The airlines company along with Virgin Holidays is totally
controlled by the holding company with 51% shares lying with the Virgin Group and the other
49% with the Delta Air Lines. The Company carried a record breaking 5.4 million passengers in
the year the year 2012 and became the seventh largest airline in terms of the volume of
passengers it carried. Though the company had a loss in the subsequent financial year but drastic
strategic steps helped it to gain a healthy amount of profit in the following year. The research
will deal with the mentioned company’s business environment and the different strategic aspects.
Aims and Objectives of the Report
The following research is aimed to identify the different macro environmental factors in
which the company operates and also the different changes that the company has to make to
successfully sustain in the near future.

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Methodology
PESTLE Analysis
Figure No 1- PESTEL Diagram
Source- (Pisano 2017)
1. Political- Virgin Atlantic faced a huge challenge as they operated in a tensed
environment in the backdrop of several terrorist attacks in popular flying destinations like
Paris, Nice and Brussels. These terrorist attacks led to a sharp fall in the occupancy rates
of the airlines. There were times when the Airlines had to operate the flight with just 40%
occupancy. However the most lethal challenge to the Airlines came when they had to
face the challenge of the BREXIT aftershock. The decision of United Kingdom to sever

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ties with the European Union. The company had to face the challenges that arose because
of the political uncertainty of Britain. The political aspects of the following decision
were key as because UK had to formulate its own set of aviation regulations after the
separation which is a very complex process.
However in spite of the gloomy situation there was some light in the end of the tunnel as the
government of UK decided to increase the passenger volume of Heathrow and thus the plans for
constructing a third runway was accepted. This was surely a welcome boost for the organization
as because the construction will allow them to operate more flights and decongest some routes
while on the other hand it will also help to add new routes to its business (Pisano 2017).
2. Economical- As mentioned in the earlier point BREXIT has also a huge impact on the
economic aspect of the mentioned Airlines Company in UK (Min and Joo 2016). The
sudden downfall of the value of pound invited new fears for the organization which
reflected in its annual general revenue. The Airlines Company however benefitted from
the fall in the prices of the crude oil by a considerable amount during the first half of the
year 2016.
3. Social- The social factors created problems for the organization during the first half of
2016 as ATC Strikes and other problems led to some operational glitches from the part of
the Airlines Management. The company especially had a setback in France where most of
the Unions called for a strike due to social unrest as a result of labor reforms. A joint
resolution has been handed over to the EU to develop an action plan to minimize the
impact of such strikes on the movement of the aircrafts.
4. Technological- The modern day globalization has had an impact on every sectors of
business including Airlines (Douglas and Tan 2017). The digital revolution that has been

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ushered as a result of the internet has facilitated the swift movement of the aircrafts as
well as a proper communication procedure and many in flight and off flight features. The
development of mobile based apps has enabled the smooth function of online ticketing,
tracking the flight and getting latest updates on flight timings, possible delays and many
more as such.
5. Legal- The legal environment is one of the potential factors that determine the success of
the Airlines Company. Virgin Atlantic pilots had a row with the management on the case
of their recognition in the Union. These rows can create a major damage to the
operational efficiency of Virgin Atlantic Company.
6. Environmental- Global Warming, climate change are the most lethal issues that needs to
be addressed by the organization. The world is now much more aware and sensitive to the
effects of global warming and abrupt rise in the pollution levels. The Adverse weather
conditions in Europe and Asia has had a very negative impact on the operational
efficiency of the organization. The management of the company has undertaken a green
action plan which is to be implemented in the coming years as a part of their corporate
social responsibility.

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Profit Maximization Theory
Figure No 2- Profit Maximization Model
Source- (Douglas and Tan 2017)
The profit maximization theory can be best described as the short run or a long run
process by which a firm determines the price and the output levels that helps to determine the
greatest profit. The financial management team as well as the operations department of the
mentioned Airlines has formulated an efficient profit maximization theory for the organization
(Douglas and Tan 2017). Virgin Atlantic has a large number of flights at its disposal with one of
the largest fleet of Boeing airplanes. Virgin Atlantic’s optimal discount seat allocation in their
737-800 flight from Heathrow to Belfast International is in order to maximize the revenue

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generated from the following flight. The mentioned model has a maximum seating capacity of
166 passengers with only an economy class. The researcher created a model of the relationship
between revenue, behaviors and demand of business and leisure class of travelers. The
information regarding all the following considerations and calculations was gathered from the
Website of Virgin Atlantic (Douglas and Tan 2017).
The company has fixed two types of fares for the flight one at $160 and the other at $
320. The discounted tickets are only for the regular travelers in the mentioned route. However
the management also provides some discounted tickets for the leisure travelers lest they book
within an advanced date. The date is totally according to the discretion of the organization (Roy
2015).
Some of the assumptions that are considered while calculating the revenue generation
process of the organization are;
a. The cost of the flight is totally fixed
b. Around 25% of the business class travelers would be purchasing the full fare tickets
c. The management of the mentioned Airlines company can by no means increase the
cost of the discounted fare seats once all the available discounted tickets are sold out
Model
As mentioned earlier the profit maximization model has some input variables which are
fixed by the management of Virgin Airlines Company.
The input variables are as follows;
a. The number of total business travelers

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b. Total demand
c. Capacity of the Airplane
d. Percentage of discounted seats bought by the business class travelers
The calculation of the model is totally based on the following models which help the
company to get the approx idea of the amount of revenue generated on the total travel.
Demand and Supply Model
Figure No 3- Impact of High Oil Prices
Source- (Wang Kao and Ngamsiriudom 2017)
The rise in the crude oil prices has been a major concern for all the Airline Companies all
around the globe. Virgin Atlantic has been no exception and the crisis has taken a toll in their
operational efficiency. The increase in the price of the crude oil has forced the management of
the company to increase the prices of the tickets which on the other hand has reflected a fall in

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the traffic movement and passenger occupancy rates (Wang Kao and Ngamsiriudom 2017). The
paradigm shift of the population towards opting out for a large number of latest low cost airlines
has also been one of the major factors for such a dismal run in the market for the company. The
price trends of the tickets in Virgin Atlantic is totally seasonal in nature as the company has
identified some peak seasons of the year as well as some lean seasons. The peak season sees an
occupancy rate of around 85% to 95% in the different flights of the mentioned organization
whereas the rates drastically fall to below 60% in lean seasons (Roy 2015). The highest
occupancy rates are at the end of the year due to Christmas and the New Year. Some of the
factors which determine the demand and supply curve of Virgin Atlantic are;
1. Basic Facilities and the Aircraft
2. Time of Travel
3. Passenger Traffic movement
4. Competitors Pricing Analysis
5. Special pricing of some specific Seats
6. Special routes
Results
The analysis of the total report will reveal different new facts related to the
macroeconomic environment in which Virgin Airlines operates. The latest transformation phase
through which UK has been going poses great challenge for the organization to sustain itself in
the market (Ortiz and Bansal 2016). The government needs to formulate a totally new aviation
policy and negotiate with the European Union to ensure free skies for all the UK carriers (Carter
2013). The challenge however lies on the other way round as low cost carriers have been a