Virgin Blue: Challenges, Strategies, and Business Model Analysis

This report provides a detailed analysis of Virgin Blue Airlines, focusing on the management issues and challenges it faced, particularly the failure of its low-cost business model. The report explores issues such as declining market share, intense competition, and financial losses. It examines the action...Read More

Research
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CONTENTS
Contents...........................................................................................................................................2
EXECUTIVE SUMMARY.............................................................................................................3
INTRODUCTION...........................................................................................................................4
TASK...............................................................................................................................................4
a) Management issues..................................................................................................................4
b) One issues that must be focused by Virgin Blue.....................................................................5
c) Justify and critically appraise the journal article for getting relevant information..................6
d) Critically analyse possible courses of action that Virgin Blue may take in relation to the
issue.............................................................................................................................................7
CONCLUSION................................................................................................................................8
RECOMMENDATION...................................................................................................................9
REFERENCES..............................................................................................................................10
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EXECUTIVE SUMMARY
The current report is based on the Virgin Blue airlines which is an Australian airline and
ranked as second top most brand that offered carrier services. It started it operations with a
single route but then gradually capture the larger market share of the country. Despite of this
success it found several issues that affected its market performance and also results into sever
loss to the company. This report put emphases over determining several issues faced by the
company while operating business and causes behind it, so that appropriate recommendation can
be provided.
From this study it has been identified that there are number of issues that Virgin Blue
faces which mainly includes, reduction in its profitability share in the market place, its demand
among customers get reduced, the share price also get reduced in the marketplace, competition
rises within the market and it low cost carrier model get failed. These are the major issues that
virgin group face, which mainly get increased and challenges become more intense that was so
because less focus was provided by the management in this regard. Additionally some wrong
actions was also taken by the company such as to deal with eth competition it started offering
services as like Qantas such as it started providing the luxury services and approaching the
business class people in order to maintain its position within market place and avoiding the
competition by making its position as the alternative of the Qantas. But it results into increased
in the cost of the company and heaver loss at its end. But to deal with such issue the Virgin Blue
has already taken up action to restructure its business and improve the area which required
changes to work over.
For these issues it is recommended that in order to restructure the business, Virgin Blue
must focus toward forming up a committee of people specialised in several different department
for deeply analysis the internal business area that are unproductive and require improvement.
This will support in forming up appropriate strategy so that better actions can be taken and work
over improving the efficiency of business operations that help in recovering from the current
issues and improving its position in marketplace.
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INTRODUCTION
An organisation have to deal with sevr4al challenges as well as threats in order to operate its
business at global level. This is so because international businesses environment provide a more
exposure to customer base or opportunities which in turn bring more competitors in front of
company and at the same time also provide high exposure to risk related with micro
environmental factor (Taneja, 2017). The current study is based on Virgin Blue which is one of
the largest airline that operates within Australia and it is consider as largest airline by fleet size
that uses Virgin brand. It started operating business in year 2000 with only two aircrafts over a
single route. Its main competitors within Australia was Qantas and to deal with competition
while maintaining the customer base it offers low price services which was working very well in
country. But instead of all these benefits it faced number of issues that lead the business down
and as a result of which for recovering itself it performs rebranding of business.
The main purpose of conducting this study is to determine the several challenges that was
faced by Virgin Blue in term of operating business (Homsombat, Lei and Fu, 2014). The scope
of this study is very broad as it put emphases toward presenting number of issues and then focus
on a single major issue. Other than this it also put emphases toward presenting the course of
actions that can be taken in order to deal with such issues. The structure of reports starts with the
introduction, then it present task where issues are being discussed and single issue will be
selected to deeply analyse with the help of secondary study. On the basis of it some
recommendations will be provided along with the rationale behind it. At last conclusion will be
discussed that involve findings of study attached with the main course of action to be taken by
Virgin Blue (de Wit and Zuidberg, 2017). The Current study do involve limitation as it focuses
on only secondary study and not involve primary investigation.
TASK
a) Management issues
In year 2000, Virgin brand entered within the Australian aviation market with a name Virgin
Blue for the first time as a low-cost airline which flies over a single route Brisbane and Sydney.
It performed so well with its low pricing model that supported it in capturing a larger market
share much quickly and it became the largest brand operating in country But despite of all this it
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faces several issues at marketplace that affected its business operations. The most common issues
are explained underneath,
 Share collapse: - The Australian carrier Virgin Blue has twice the downgraded its
earning as its shares get collapsed by 28% in buoyant session within the Australian Stock
market after a strong lead from the US and European markets overnight (Borenstein and
Rose, 2014). The airlines have reported around AUD6.75 million profit before tax which
was expected in first half but it faces huge loss i.e. -35$ million AUD and second half
was suggested to be more loss making as the capacity of the rivals get increased (Virgin
Blue shares collapse as carrier issues another profit warning, 2010). The main cause
behind it loss is due to rapid deterioration and increasing volatility in the operating
environment.
 Failure of low cost model: - With the increasing alternative in the country, the attention
of customers get diverted toward other players. As a result of which the demand of Virgin
Blue services gets reduced and due to which its expenditure gets increased with the
increase in airport charges, high fuel price etc. as this business model was not financial
sustainable at that time. But despite of working over it, company started responding to the
competition from Qantas by focusing over maintaining expensive lounge and provide
certain services level that further increase its loss at take it to down in market.
 Intense competition internationally: - The Virgin Australia has deliver a strong market
performance with its low cost carrier services which help it in becoming second largest
airline in country with broader customer base (Virgin Australia flies higher in domestic
market but faces challenges overseas, 2015). But by getting enter into the international
route it faces huge competition from other brands as they are already offering over such
model specially in European market.
b) One issues that must be focused by Virgin Blue
The above mentioned issues are the most sever one that affected the performance of Virgin
Blue to a greater extend at both domestic and international market. But the most significant one
that Virgin Blue must focus to resolve is the recover itself from the failure of business model.
This is so because due to this issue it is facing huge loss in the business which is required to be
managed effectively in order to recover the expenses that it is facing (Gross, Lück and Schröder,
2016). As the company require more fund to overcome its several issues and for getting that fund
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it is to maintain its expenditure so that capital can be generated to cover up the requirements.
Other then this the competition is also rising from the Qantas which is to be deled but the
approach used for dealing with eth issues was wrong as copying the other competitors in term of
offering services doesn’t get successful. But this approach has affected the business badly and let
it down by affecting its market share, profitability and operational quality (Clark, 2016). Hence,
in order to recover from these issues and gain its position back, the Virgin Blue must focus
toward adopting its own strategies in order to make its business model work or bring some
improvement over it in order to match up with the market conditions.
c) Justify and critically appraise the journal article for getting relevant information
According to the article presented by Vanessa Brown, the business model over which the
Virgin Blue has now consider to be ‘financial unsustainable. As with the maintenance of this
model the company get lower profit out of its effort but it is managing with it by providing
services to several different routes (Sinha, 2019). But as the time passes and more competitors
entered into the market it started facing challenges which is due to failure of its business model
concept. It has been found that financial year combined with the foreign exchange headwinds as
well as fuel and increasing operational costs are some of the factors that proves to be the biggest
blows amid a weakening domestic market. The main issue Virgin Blue faces in the market is
from the competition from luxury services offered by some airlines one among them is Qantas. It
takes up several actions to deal with such challenges, as while competing with the Qantas. One
among them was it started approaching the business passengers but with less frequent services
and very low global connection, while at the same time hoping to retain some of its outsider aura
in order to pull passengers who do not want the low cost carrier experience but at the same time
can’t afford top tier fares (Whyte and Lohmann, 2015). Other than this for dealing with the
competition in the market and fulfilling eth demand of the consumers regarding eth luxury
airlines services, Virgin Blue also started to offering services in this regard to become an
alternative of its biggest co9mpetitor Qantas. For this it started focusing over the expensive
lounge and providing certain services level despite of considering the losses it is getting from its
execution. Hence, it has been found that the biggest mistake made by the company was losing its
touch from the original business model.
These all are the issues that Virgin Blue faces while operating its business and the main
cause behind it. But in order to overcome from this, new CEO was positioned within the
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company named as Mr Scurrah who suggested a massive transformation within the business.
After the loss of six year and a total of $1.2 billion down within the drain, the former boss of
Queensland Rail has decided the five major weapons to be taken into consideration for helping
the airline by brining it back to the position (Lohmann and Vianna, 2016). This mainly includes
cut cost, rebrand, restructure, review the routes and end the flights that are incurring loses and
improve the control over the loyalty division. With reference to this it started working over
improving the business performance by restructuring where every single flight route reviewed
over its network. Other than this around 750 jobs were cut down as a part of its planned drastic
restructuring to claw back all its full year loss of approx. $ 349.1 million (Virgin Australia Issues
Profit Warning. 2019). It was estimated that the massive restructuring of employees is expected
to save the airlines $ 75 million by the end of financial year 2020.
d) Critically analyse possible courses of action that Virgin Blue may take in relation to the issue
By effectively evaluating eth article discussed above it has been identified that the Virgin
Blue is experiencing a huge loss from last few years due to decrease in its demand in the
domestic market and increasing in the competition from several airlines company (Pereira and
Caetano, 2015). This in turn has left the Virgin group in to a huge loss which not only affected
its market position but also shaken up its economic condition. Some another or secondary causes
that take company into loss is increasing fuel cost and foreign exchange headwinds (Virgin
Australia pursues lower cost base amid interim loss, 2020). These all are some of the major
factor behind affected the performance of Virgin airlines. Hence, in order to overcome from this
situation following are certain recommendations that can be adopted by the Virgin Blue airlines
which support it in overcoming from this situation. These recommendations are mentioned
below:
 The Virgin Blue must focus toward working over its internal business operations in order
to improve the outcome of services. This means that it must focuses toward improving
the efficiency of operations performed within the organisation so that additional expenses
can be cut off that are increasing the cost of company (Bilal, Malik, Khan and Zomaya,
2014). This help in saving they cost which can be further used by the company in some
other areas to improve the working.
 Instead of putting its focus toward providing luxury services by getting out of its business
model it must put its emphases toward the current model i.e. low cost carrier service in
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order to maintain its operations within marketplace without increasing the operational
cost. This is so because adding such services may increase its expenditure due to their
high maintenance cost (Taneja, 2016). Hence, by remaining focuses toward its current
model it become easier to maintain better relationship with its existing customers and
keeping them retained fro the longer so that the flow of earning can be maintained.
 The Virgin group must focuses toward providing more guidance to its current staff in
term of cratering the customers effectively and providing them more satisfactory services.
This in turn help in keeping the customers satisfied and at the same time improving the
quality of services by dealing with the customers psychologically in the form of attending
them with more attention and personalisation (Duygun, Prior, Shaban and Tortosa-
Ausina, 2016). This in turn help in enhancing eth goodwill of company by improving its
reputation and brand image with eth help of word of mouth publicity from the customers.
 The Virgin Blue must focus toward improving its brand reputation as well as relationship
with its targeted customers base. For this it must focuses toward improving its
promotional practices by making use of digital platform where it can share several
information in form of content post of videos for assuring eth customers to get best
experience at low price by taking services for the Virgin Blue airlines (Pearson and
Merkert, 2014). Other than this it can also take feedback from customers and post them
as a reference at social media sites so that people can get the idea of its services from
experienced customers. This in turn help in attracting customers toward trying out the
services offered by Virgin Blue.
CONCLUSION
From the above performed study it has been identified that their ae number of factors
present within the business environment that may affect the functioning of an organisation and
make it difficult to survive in the marketplace if not managed properly. This can be seen in the
case of Virgin Blue which started operating business with a single route and with few years
become the second largest airline company within Australia. All things went well, it captured
larger market share and higher profitability along with it. But the lack of maintenance and
inadequate attention to its operations led other brand capture the attention of market. In order to
deal with such competition, it adopted wrong strategy which lead its business performance all
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down, take off the profitability of the company and market share. But to deal with this, the
Virgin Blue airlines of Australia has taken up an action toward restructuring its business in order
to improve that areas within its business structure that are in default and affecting the
performance of company at marketplace. Additionally, this action was also taken in order to
improve the wrong decision that was taken by the Virgin Blue in order to deal with eth
challenges that are presented in front of them but bring up negative results and end up with
increasing the expenses of the company. But with the restructuring of business is implemented
with the aim to become able to work over improving its position in marketplace. Hence, it has
been identified that cutting off its extra and unproductive practices it become able to overcome
from its current issues.
RECOMMENDATION
As per the evaluation of the issues faced by the Virgin Blue airlines and reason behind
those issues there are number of recommendations are presented that can be adopted by the
Virgin group in order to get its position back within the marketplace. But from all these
recommendations it has been identified that the best possible recommendation that can be
suggested to the Virgin Blue is that it must focuses toward improving its internal business
practices. In this regard the Virgin Blue must set up a committee of expertise from all its
department and then focuses toward determining the major areas that require improvement so
that by collecting information throughout the system they can formulate an action plan for
improving its operation by taking suggestion from the expertise of all the department. This will
support in brining efficiency in working operations which in turn help in improving eth quality
of service offered and a t the same time bring maximum customer satisfaction.
The main reason behind suggesting this recommendation is that Virgin Blue is facing
several issues at marketplace and due to which it faces heavier loss in its business performance
which in turn affecting its operations badly. So, by improving the internal practices the company
would be able to cut off its additional expenses which are increasing due to lack of attention and
by minimising it the company would not only be able to reduce the additional cost but also be
able to improve its quality of operations.
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REFERENCES
Books & Journals
Bilal, K., Malik, S.U.R., Khan, S.U. and Zomaya, A.Y., 2014. Trends and challenges in cloud
datacenters. IEEE cloud computing, 1(1), pp.10-20.
Borenstein, S. and Rose, N.L., 2014. How airline markets work… or do they? Regulatory reform
in the airline industry. In Economic Regulation and Its Reform: What Have We
Learned? (pp. 63-135). University of Chicago Press.
Clark, P., 2016. Stormy skies: airlines in crisis. Routledge.
de Wit, J.G. and Zuidberg, J., 2017. The growth limits of the low cost carrier model. In Low Cost
Carriers (pp. 383-390). Routledge.
Duygun, M., Prior, D., Shaban, M. and Tortosa-Ausina, E., 2016. Disentangling the European
airlines efficiency puzzle: A network data envelopment analysis approach. Omega, 60,
pp.2-14.
Gross, S., Lück, M. and Schröder, A., 2016. The Low Cost Carrier–A Worldwide
Phenomenon?!. In The Low Cost Carrier Worldwide (pp. 25-38). Routledge.
Homsombat, W., Lei, Z. and Fu, X., 2014. Competitive effects of the airlines-within-airlines
strategy–Pricing and route entry patterns. Transportation Research Part E: Logistics
and Transportation Review, 63, pp.1-16.
Lohmann, G. and Vianna, C., 2016. Air route suspension: The role of stakeholder engagement
and aviation and non-aviation factors. Journal of Air Transport Management, 53,
pp.199-210.
Pearson, J. and Merkert, R., 2014. Airlines-within-airlines: A business model moving
East. Journal of Air Transport Management, 38, pp.21-26.
Pereira, B.A. and Caetano, M., 2015. A conceptual business model framework applied to air
transport. Journal of Air Transport Management, 44, pp.70-76.
Sinha, D., 2019. Deregulation and liberalisation of the airline industry: Asia, Europe, North
America and Oceania. Routledge.
Taneja, N.K., 2016. Designing future-oriented airline businesses. Routledge.
Taneja, N.K., 2017. Simpli-Flying: optimizing the airline business model. Routledge.
Whyte, R. and Lohmann, G., 2015. The carrier-within-a-carrier strategy: An analysis of
Jetstar. Journal of Air Transport Management, 42, pp.141-148.
Online
Brown. V., 2019. After years of success, how did it all go wrong for Virgin Australia? After
years of success, how did it all go wrong for Virgin Australia. [Online] Available
through: <https://www.news.com.au/travel/travel-advice/flights/after-years-of-success-
how-did-it-all-go-wrong-for-virgin-australia/news-story/
891fe3986df63d3a3b96ac711a10a6e0>.
Virgin Australia flies higher in domestic market but faces challenges overseas. 2015. [Online]
Available through:< https://www.smh.com.au/business/virgin-australia-flies-higher-in-
domestic-market-but-faces-challenges-overseas-20150218-13i9n5.html>.
Virgin Australia Issues Profit Warning. 2019. [Online] Available through:
<https://simpleflying.com/virgin-australia-profit-warning/>.
Virgin Australia pursues lower cost base amid interim loss. 2020. [Online] Available through:<
https://www.flightglobal.com/airlines/virgin-australia-pursues-lower-cost-base-amid-
interim-loss/136932.article>.
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Virgin Blue shares collapse as carrier issues another profit warning. 2010. [Online] Available
through: <https://centreforaviation.com/analysis/reports/virgin-blue-shares-collapse-as-
carrier-issues-another-profit-warning-27934>.
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