1.0 Introduction
Virgin Atlantic is one of the United Kingdom largest airlines which was founded in 1984 by Sir Richard Branson (Virgin Atlantic, 2017). Once Branson had announced the release of a new airline, he had three months to finalise everything for the release. Within the first 6 years of service the company had flown over one million passengers (Virgin Atlantic, 2017). In 1999 Branson sold a 49% stake of the business to Singapore Airlines for £600 million (BBC News, 1999). However, in December 2012, Singapore Airlines sold the 49% stake to Delta Airlines for £224 million (Sky News, 2013). In July 2017, Virgin Atlantic sold 31% of their share to Air France-KLM for £220 million, leaving Virgin Atlantic with a 20% share (BBC News, 2017).
Tribe (2010) defines strategy as preparing for the future by assessing various ways to get the best result in the end. Chandler (1963) supports Tribe by stating “…the determination of the long-run goals and objectives of an enterprise and the adoption of courses of action and the allocation of resource necessary for carrying out these goals” (Chandler, 1963, p.13).
Strategic analysis gathers information to analyse, which usually comprises of two sections, macro and micro environments (Evans, 2015).
Evans (2015) continues to state that the macro environment is one where various factors may impact the company or industry which are uncontrollable, for example, the weather or a change in interest rates. These factors may influence a company’s decision making or how well the company is performing (Evans, 2015).
The micro environment is one where factors that can impact a company which are controllable such as suppliers and distribution channels. These factors can influence the performance of a company but only for a short period of time (Evans, 2015).
2.0 Micro Analysis
2.1 Porters five forces
Porters five forces model is used to examine the micro environment within an industry which will be used to indicate the performance of Virgin Atlantic. Within this model there are five sections which are, threat of potential entrants, threat of substitutes, bargaining power of suppliers and customers and competitive rivalry (Porter, 1980).
Threat of potential entrants is one of the factors that Porter (1980) focuses on. According to IATA (2011) the threat of new entrants is high as around 1,300 new airlines have been founded in the past 40 years. As of 2011 the barriers to entry are low. Virgin Atlantics current competitors include British Airways, Emirates, and Jet Airways, these are current competitors as they are high quality and provide similar services. IATA (2011) suggests that any current airline may decide to target a new geographic location which could be a threat to Virgin Atlantic. IATA (2011) continues by suggesting majority of new entrants are existing airlines trying to target new markets.
The threat of substitutes is another factor that Porter (1980) covers. IATA (2011) suggests that the substitute transport to air travel is not to travel at all. However, there is a rising number of customers who can pay for air travel. The threat of substitutes is currently a medium threat but it is rising, in turn this could affect Virgin Atlantic. IATA (2011) states that fast trains are a concern for airlines especially short haul flights as this could be used as a substitute mode of transport.
IATA (2011) suggests that the bargaining power of suppliers is high in the airline industry. Overall, the suppliers get a higher return on capital than what airlines do. The major supplier for the airline industry are the aeroplane and engine manufacturers as it is a skilled profession and there are currently limited manufacturers. The airline industry is also reliant on skilled employees such as pilots and ground staff (IATA, 2011).
IATA (2011) states that the bargaining power of customers is high and still rising. “Channels have become significantly more concentrated (internet websites) and travel agents more aggressive in pursuing the interests of the end customers” (IATA, 2011, p38). Online sites are focused on price comparison to make sure they can receive plenty of customers. There are low switching costs between companies because many people select their flight based on the destination and the cost during time of purchase.
The final section of the five forces model from Porter (1980) is the competitive rivalry. The level of competitive rivalry is high (IATA,2011). Price competition is intense in the airline industry as each airline wants customers to fly with them. The impact of low cost airlines has also impacted airlines such as Virgin Atlantic as they still need to be reasonable priced to obtain customers. With this most airlines have reduced prices and upped the level of customer service to remain competitive.
3.0 Macro Analysis
3.1 PESTLE Analysis
According to Dockalikova and Klozikova (2014) pestle analysis is used to analyse the external factors also known as the macro environmental factors that could have an effect on a company or the industry.
Political
There are some political factors that could affect the industry. The main political issue for the airline industry is the effects of Brexit. Gerrard (2017) states that the main concern for the airline industry and Brexit is if airlines are still going to have the same agreements when flying from the United Kingdom into the European Union airspace. IATA (2017a) support Gerrard (2017) by stating that the decision of the United Kingdom leaving the European Union in 2016 has implications for the United Kingdom airline industry, mainly flying to and from European Union countries and the United Kingdom. Virgin Atlantic may not see Brexit as a huge concern for the company due to the fact that their holidays destinations cover Africa, Asia, India, South and North America, Mexico, Middle East and the Caribbean (Virgin Atlantic, 2017a). With this it may only be a concern when flying over European Union airspace, therefore, Virgin Atlantic may not be directly impacted by the result of Brexit.
Economic
There are several economic factors that could impact Virgin Atlantic and the airline industry. According to IATA (2016a) one of the main economic impacts that airlines will face especially after Brexit is exchange rates. With the pound rate sharply falling after Brexit this may be an issue for the airline industry (IATA, 2016a). However, there are negatives and positives for this situation. With the pound being weaker it has made trips for citizens of the United Kingdom more expensive due to the fact that money won’t stretch as far for outbound trips. On the other hand, for visitors to the UK their home currency will now stretch further in the United Kingdom than it did before (IATA, 2016a). This will work in favour for Virgin Atlantic as they will get business from overseas individuals wanting to visit the United Kingdom. According to Virgin Atlantic (2016) “The devaluation of Pound Sterling by 20% following the referendum vote to leave the EI led to a significant increase in our US Dollar based costs” (Virgin Atlantic, 2016, p.7). Virgin Atlantic (2017b) have released a Brexit calculator on their website for oversea visitors to see how much money they can save on particular items post Brexit. For example, a pint of beer did cost $5 but after Brexit would only cost oversea visitors $4 and a cruise on the river Thames did cost $100 and post Brexit it would cost $82 (Virgin Atlantic, 2017).
Social
Social impacts are another factor that Virgin Atlantic must consider. Overall living standards are rising all over the world with people having more disposable income. Individuals are becoming more demanding therefore, the demand of air travel increases (Kumar, Johnson and Lai, 2009). According to IATA (2016b) it is forecasted that the demand to travel will double in the next 20 years. With this information Virgin Atlantic can prepare themselves for more flights and more planes to be added to their fleet to help manage the demand. According to Grierson (2017) within the UK the population has risen by 538,000 people from the previous year. With this information and the high demand for travel, companies such as Virgin Atlantic need to be able to manage this demand.
Technological
Technology has advanced in the airline industry. The use of technology has improved airlines such as Virgin Atlantic. The challenge for airlines is to stay up to date with all of the technological advances. Whether it is the online entertainment system, the new and improved seat classes on board flights or the service provided, (Clarkson, 2015). She continues to state that in the next 10 to 20 years Virgin Atlantic will continue to improve its technology. There has been an increase in smartphones, as this is an easy way for people to view and buy tickets. Virgin Atlantic (2017c) released a app where customers can book, manage and check in for a flight. On the app there are more features such as checking the weather in destination where customers are wanting to fly to (Virgin Atlantic, 2017c). The issue for the airline industry is that it is challenging to keep up with the change of technology, especially if it is for on board the planes as each will need to be updated individually.
Legal
These are the rules and laws of the country. Airlines such as Virgin Atlantic need to abide the law in the home country as well as any other countries that they travel to. If the government change laws, then the company needs to be aware of them and abide the new laws.
Environmental
Emissions from aeroplanes are a key environmental issue that affects the airline industry. IATA (2017b) states that confronting C02 emissions is at the top of their priority list. They understand that this issue needs to be address to help tackle climate change. Virgin Atlantic (2017d) state that from 2007 to 2017 they have reduced their emissions by 22% with this they have a target of reducing their emissions by 50% by 2050. Airlines such as Virgin Atlantic need to keep on top of environmental issues in order to continue being successful in the industry.
4.0 Industry Life Cycle
Figure 1 shows the life cycle of a product or industry. Source: Sabol, Šander, and Fučkan (2013).
Sabol, Šander, and Fučkan (2013) state that the industry life cycle has 4 main stages which are, introduction, growth, maturity and decline. Airlines such as Virgin Atlantic are currently in the maturity stage as they are fully developed companies which also have the opportunity to grow even further. However, from this stage there is also the chance of them going into decline but after analysing Porter’s (1980) five forces it is clear that the airline industry is still in high demand and is still growing.
5.0 Strategy of Virgin Atlantic
One of the strategies that Virgin Atlantic uses is the aircraft noise management strategy. Virgin Atlantic (2013) states that they understand that the local communities around airports are a concern in terms of noise pollution. They continue to say that manufactures such as Boeing and Airbus have regularly been trying to improve aircraft to reduce noise pollution and over the last 50 years’ noise pollution has been reduced by 50%. (Virgin Atlantic, 2013).
Virgin Atlantic (2013) state that they are going to work with manufactures so that they can get aircraft that will produce minimal noise pollution. Between 2012 and 2020 Virgin Atlantic want to reduce noise by a minimum of 6 decibels (Virgin Atlantic, 2013).
With this, Virgin Atlantic will continue to apply procedures to reduce noise pollution whilst they work with others to explore new procedures that could also assist in reducing noise (Virgin Atlantic, 2013).
Virgin Atlantic (2013) are also working with the airports that they work from to minimise noise for communities in the area as well as insuring that developments only take place if necessary as these cause more noise problems in the local area (Virgin Atlantic, 2013).
Virgin Atlantic (2013) states that during the night they are making sure that they are using the correct noise prevention procedures on their night flights. With this they are also aiming on running all night flights on time.
Linking back to the local communities, Virgin Atlantic (2013) are developing their communications with the local people as well as working with airport authorities to keep involved with the local communities’ main concerns on noise pollution (Virgin Atlantic, 2013).
Another strategy that Virgin Atlantic use is an expansion strategy. It is challenging for a large company such as Virgin Atlantic to expand but during 2017, Virgin Atlantic got an expansion at Manchester Airport (Gunner, 2017). There is now an increased flying programme from Manchester Airport with new routes to San Francisco, Boston and New York. Along with this Virgin Atlantics joint company Delta Air Lines now fly 21 routes from the UK to over 200 destinations all over the USA (Gunner, 2017).
Virgin Atlantic (2017d) has a ‘Change is in the Air’ strategy, which is their sustainability programme which focuses on improving the environment, community, supply chains and partnerships. Virgin Atlantic (2017) states that their main priority is fuel and carbon efficiently as they have procedures to minimise their CO2. Virgin Atlantic have their manufacturers pioneering new fuels by using waste gas and converting it into aircraft fuel (2017d). Virign (2015) states that within 2014 they reduced CO2 emissions by 12% even though they carried more people than any year since 2007. Gray (2016) states that Virgin Atlantic states that within the next few decades that the aviation industry will find a low carbon solution but they cannot do it alone, they need support from other companies.
As previously mentioned they are also working on reducing their noise pollution. Virign Atlantic have various ways to become more sustainable, these ways include using smart energy meters for offices, and installing taps that use less water (Virgin Atlantic, 2017).