1

AIRLINE INDUSTRY AND VIRGIN ATLANTIC AIRWAYS A CRITICAL

ANALYSIS

2

Abstract

The following assignment has discussed in detail the airline industry along with a detailed

description of the various factors affecting its operational activities The airline bilateral

agreements and regulatory authorities have also been taken into consideration Moreover the

external and internal business environment of British Airline company Virgin Atlantic has

also been discussed in detail

3

Table of Contents Question 1 4

11 Background 4

12 Factors Affecting Competition in Airline Industry 6

13 Examination of the Demand and Changes in Market Concentration 7

14 The Need for Bilateral Agreements 9

15 Role of Regulatory Authorities 11

16 Development of Alliances Strategies and Political Factors 12

Question 2 14

20 Introduction 14

21 Organisational Background 14

22 Internal Structure and Operations 15

Supply Chain of Virgin Atlantic 18

23 Mission and Vision Statement 20

24 Key Drivers of Virgin Airways 21

25 External Environment 22

26 Financial Performance 26

27 Outcome of Critical Analysis of Virgin Airways 27

28 Conclusion 28

Reference List 29

4

Question 1

11 Background

There have been some life changing inventions and invention of airplane was one of them At

times of World War vast improvement in techniques for the construction and design of

airplanes took place due to government subsidies and growing demand for new airplanes

After the World War II the first commercial airplane routes were established in Europe

(Cento 2008) Overtime air travel has become an integral part of a commuterrsquos life and it is

hard to imagine life without air travel facility This hints at the progress report of the airline

industry It has facilitated the way of living of people by reducing the travel time thereby

altering peoplersquos concept of distance and making it possible for people to conduct business

and visit places which were once considered remote

The industry incurs high fixed cost and earns low profit margin This is due to various factors

such as aircraft fuel aircraft lease rentals debt service and personnel (Doganis 2002) The

expenses of an aircraft flight are not much related to the number of passengers in the sense

that they do not significantly vary with the number of passengers The operations and

financial outcomes of the industry are disproportionately affected by the pricing strategies

As a result a negligible shortfall in expected revenue levels could cause harm to the business

The industry is vulnerable to price discounting since only nominal costs are incurred by

airlines This nominal cost is attributed to the service offered to the passengers occupying

otherwise unsold seats (Doganis 2006)

An astute investor can make profit in this sector inspite of rising fuel prices and many

external risks that are associated with the industry Sometimes fuel surcharge is imposed on

the passenger which is a way of passing higher fuel costs on to their customers However the

5

most efficient method to mitigate cost of fuel is to buy future contracts that set the fuel supply

for a company at a specific price in the coming year The companies also adopt the policy of

hedging There are some companies who hedge more than others implying the fact that they

are better prepared in case of a sudden hike in the oil prices The fate of an airline company is

determined by its ability to make its interest payments and clear all its debts on a timely basis

By calculating the interest coverage ratio it is easy to determine whether interest rate is

excessive (Agusdinata and de Klein 2002) The interest rate is reflective of the debt liabilities

that companies indulge in The hubs of airlines play a vital role in the industry It is described

as a centrally located pit stop where aircrafts fly in order to re-fuel pick up customers and

head out to different destination It has been observed that one of the reasons behind

successful airline service is the presence of busiest hubs Other characteristics involve the

employment of unionized labour These labours are routinely forced to re-negotiate salary

contracts holds the possibility of a strike is omnipresent

If a company has excess cash reserve or has the ability of taking on more debt it may adopt

the policy of acquisition in order to progress on the path of growth Currently some

companies have been significantly reducing ticket costs This has prompted other airlines to

trim their prices and issue a variety of different margin-pinching incentives to consumers in

order to successfully compete in the market Although this price competition is not beneficial

for the companies since it put high debt pressure and diminishing working capital positions

out of business but it is favourable for the consumers (Doganis 2006) Some part of the

industries reveals the existence of monopoly and others tend to be competitive The

monopoly nature is visible in the price discrimination strategy employed in terms of different

prices of the air tickets The industry is also seasonal in nature During vacations and

occasions the demand rises and so does its revenue

6

12 Factors Affecting Competition in Airline Industry

The airline industry is characterised by the presence of intense competition In the recent

period there have been economic downturns that have adversely affected the airline industry

which economist believe will possess a strong effect on the trend of the industry towards

expansion of international and domestic services Earlier the airline industry around the

globe was partly owned by government Although this is still true for many nations but all

major airlines in US is privately owned There are some factors that tend to affect the

competition in the industry Rivalry among sellers is one such factor It varies from country

to country and ranges from moderate to strong Airlines also compete on frequency and

reliability of flights frequent flier programmes etc (Doganis 2002) Nowadays this

pressure has reduced since well-known companies have started focussing on the enhancing

their profits rather than involving in expansion strategy Potential new entrants and substitute

transport system also pose as threats on the industry Deficient desirable gate access and low

traffic levels act as entry barriers along with labour capital and energy intensive nature of the

industry In relation to air transport passenger rail lines personal transportation and bus

service also act as substitutes They are generally low cost and are convenient for shorter

distance (Agusdinata and de Klein 2002)

Middle East carriers are gaining popularity and are considered as threats on international

routes They have advantageous geographic position incur low fuel costs and arte properly

funded Since airlines are entering more into Joint Ventures (JV) and anti-trust immunity

agreements in order to target international growth (Hanlon 2007) With a view to capture

more traffic the Lost Cost Carrier (LCC) model is implemented in JVs by Asian airlines

More airlines are now entering into JVs and more direct flights on international routes are

offered by Anti-Trust Immunity agreements (ATI) However cost pressures still remain an

7

important issue across all markets The competition is mainly between recognised companies

and low cost emerging companies (Barrett 2000)

13 Examination of the Demand and Changes in Market Concentration

The recent times have witnessed impressive dynamics exhibited by European airline industry

The airline industry has gone through an extreme change on both demand and supply side

Unlike other industries the recent changes are not dependent solely on technological

developments but legal cultural institutional factors (Williams 2003) The structure of the

market is highly influenced by institutional and legal aspects and spatial mobility and its

features are affected by cultural forces On the supply side the European Airline industry has

transformed from a long-established system of state-owned carriers which operated in a

regulated market into a free market and dynamic market The procedure of de-regulation and

subsequent procedures of privatization have injected vital changes in the structure of airline

sector The choices and preferences of customers are also undergoing change This directly

affects the pricing strategies of the companies (Hanlon 2007) The industry often faces the

consumer choice problem Many researchers have been done which highlighted that business

commuters preferred valued flight frequency and the proximity of airport compared to leisure

travellers who tend to be more price sensitive

This indicates that the companies need to analyse the approaches towards satisfying their

consumers Since this industry is seasonal in nature the demand structure tends to fluctuate

accordingly It has been observed that time or business sensitive passengers are inelastic in

terms of airfares These passengers are inclined more towards high quality service including

frequent and reliable flights flexibility comfortable seats good frequent flier rewards etc

(Barrett 2000) They are ready to pay increasing high prices to avail these features in a flight

The business market of airline industry reveals price elasticity by a fall in the amount of

tickets sold which was evident from the arrival of low cost airlines This recent development

8

also illustrates that a large percentage of passengers have given more emphasise to prices

over service However this is more accurate for short haul routes The passengers now have

given up additional comfort of economy class on intra European and domestic flights but are

also eager to trade flexibility of ticket in return for low air fares This situation seems to be a

permanent situation which has forced companies to raise the use of low fare airlines

(Belobaba Odoni and Barnhart 2009) Similarly they have increased the use of non-

refundable tickets The reason behind the fall in business class travel is partly demand led and

partly supply led The supply led reasons are high business fares which expanded the segment

of inelastic business class passenger and development of low cost airlines The demand led

reasons are economic downturn that has created an active management that aims at reducing

costs by minimising travel budget and external demand shocks that ranges from SARS

epidemics Iraq War and terrorist attacks (Williams 2003) Although all these do not

necessarily mean that passengers are not willing to pay high fares for additional frills and

services delivered by business class on long haul flights but they want justification behind

premium pricing strategy

The airline industry has under significant changes in its market structure due to variety of

reasons Some of them can be cited out as the bankruptcy of some of the largest airlines

Mergers among the rival companies are another example Other companies have significantly

changed their networks Market structure changes overtime due to mergers entry and exits of

different companies which tend to have an influence on price structure The entry and exit of

firms have a strong impact on the functioning of the industry New entrants usually offer low

prices but its impact differs across markets They induce competitiveness in the market by

offering low cost fares thereby reducing the overall fare prices in the market (Bergantino and

Capozza 2015) Conversely the exiting firms have no clear effect on the pricing behaviour

of their former rivals

9

The market powers of the companies entering into merger are enhanced It was noted that

market where a merging company was present construct a control group This group is

devoid of presence of any merger The fare was increased significantly during the post-

merger situation There are still significant price rise along the routes where one of the

merging companies was a potential entrant Mergers tend to reduce market competition and

increasing the fares market-wise (Belobaba Odoni and Barnhart 2009) However it was also

observed that in some mergers the firm-level price affect is negative mainly due to efficiency

gains The consequence of merger in some cases is the formation of consolidated market

where the merged firms offer lower fares since the rise in their efficiency level due to merger

(Williams 2003)

14 The Need for Bilateral Agreements

International Aviation Organisation (ICAO) is an inter-governmental agency which governs

and coordinates the world operational and worldwide technical standards Bilateral air

transport agreement also known as bilateral air service agreement or ASA or ATA is an

agreement signed by two countries in order to permit international commercial air transport

services between geographical territories (Bergantino and Capozza 2015) The traffic rights

for each operating carriers number of carriers the number of airports in which airplanes will

operate and frequencies of flights between the fixed airports are specified by the bilateral

agreements With the development of airline sector flying became very popular necessitating

the expansion of their service This popularity prompted countries and their related airlines

around the world to develop service agreements in order to make easy the provisions of

international air service to build opportunities for the same airlines serving outside the home

countryrsquos borders and to protect the airlines against unfair foreign competition These

agreements are basically needed to build an efficient airline sector of any country by

promoting fair competition practices and by inviting global opportunities The agreement is a

10

contract formulated so that aviation services of commercial civil aviation can be liberalised

between contracting parties This is important since it allows the airplanes of both the

participating states to launch their commercial flights which cover the transport of cargoes

and passengers of both the nations (Bilotkach Gaggero and Piga 2015) The agreement may

also involve the transport of military personnel of the contracting nations According to the

agreement the airplanes of the participating nations also bring cargoes and passengers to a

third nation or pick up cargoes and passengers from the host nation to the home nation of the

airplane or to a third nation in which the participating countries have existing open skies

agreement

The liberalised form of ASA can be called an open sky agreements Open skies is a global

policy notion of the international aviation sector that requires liberalisation of the regulations

and rules of especially commercial aviation (Kawaura 2015) This is done with the aim of

creating a free-market scenario for the airline industry This agreement is also essential

keeping in mind the objectives that it aims to achieve The main objectives of the agreement

include

To liberalise the rules that govern global aviation markets and reduce government

intervention that is applicable for passengers scheduled and charter service combined air

transportation and all-cargo

To adjust in such a way so that other state based and military flights can be permitted

It has been noticed that the open skies can become effective if bilateral agreements are

concluded between two or more countries Liberalisation of international airline industry is

necessary in order to generate major extra opportunities for customers carriers direct and

indirect entities and shippers (Bilotkach Gaggero and Piga 2015)

11

15 Role of Regulatory Authorities

Any industry that is functioning to serve the society and maximise its profit needs a

governing body that will monitor the operations of the industry and formulates policies so

that the companies do not indulge into unfair trade practices and to enhance the efficiency of

the concerned sector (Wensveen 2010) The role of regulatory authorities in airline industry

includes the creation of transparent and less complex structure that offers highest safety level

for air transport services The responsibilities include providing fair access to adequate

infrastructure and to commercial prospects The framework of the regulatory authorities

should reveal legitimate environmental and military concerns The regulatory body aims at

ensuring consistency cost-effectiveness effective application both for the airlines and for the

governing body (Lelieur 2003) It is also accountable for all the decisions taken The body

also encompasses the global dimensions of aviation and targets to provide the industry with

safe cost-efficient and fair access to other places of the world

There are various functions of the regulatory body such as

Rule Preparation structuring regulatory material by a company that avails the technical

competence to do so In order to prepare the material the company needs to follow

appropriate procedures to ensure that inputs are coming from those who are also affected by

the regulations

Rule-setting the spread of binding requirements in a specific context that permits for

effective enforcement of these rules and policies for political and legal accountability for the

choices that have been made

Operational approval or licensing or certification the body is solely responsible for providing

licenses to airlines procedures etc so that authorisation can be provided to the conduct of

specific activities

12

Inspection monitoring this process is ex post evaluation of continuing compliance with the

requirements of the body and the beginning of corrective measures and actions where needed

Enforcement in order to guarantee compliance with the requirements of the regulatory the

formal powers are exercised which include imposition of proportionate sanctions

Implementation support it comprises of a wide range of activities that aims at assisting the

companies which are given the responsibility related to the application of regulatory needs

like certification monitoring etc

The main area of concern of the regulatory body is to maintain security and safety of the

passengers and crew members protect nature by reducing the emission of harmful pollutants

organisation markets sustain international cooperation and coordination optimal allocation

of scarce resources such as slots airspace maintain control over price structure so that

welfare of the customers are not jeopardise (Lelieur 2003)

16 Development of Alliances Strategies and Political Factors

The cooperative arrangements between airlines which vary extremely in breadth scope and

depth are referred to as airline alliances Airlines may engage into a wide range of

cooperation agreements that ranges from those with restricted cooperation like marketing

arrangements or interline agreements to highly integrated structures of cooperation like

metal-neutral revenue sharing joint ventures (Mahoney 2014) The vital benefit associated

with the alliance is accesses to traffic that are restricted due to bilateral agreements With the

help of the alliances the airline can overcome the entry barriers and engage in the process of

expanding their networks into large geographic regions by code-sharing with other airline

The alliance partner identifies the reciprocal code sharing advantages in the home boundary

of its new partner Both airlines together combine their networks and deliver many more

itinerary combinations than either airline could provide on its own (Wensveen 2010)

13

The alliances can be broadly categorised into two main groups namely strategic and tactical

alliances Tactical alliances comprise of two or more carriers which are designed to address

particular gaps in the networks of individual carrier by offering connectivity between the

networks of the carriers This is in contrast to the strategic alliances which are more

comprehensive and broader structures of cooperation between numerous carriers This

strategy aims at building large international joint networks Rather than closing gaps this

strategy tries to optimise networks thereby influencing the carriers and their routes and

capacities There are three main alliances such as Skyteam Oneworld and Star Alliance

(Bilotkach Gaggero and Piga 2015) Integrated alliance that includes coordinated pricing

yield and inventory management are usually governed by designated alliance committee The

representatives of the partner carriers are the members of the committee It has given the

responsibility to monitor and administer cooperative activities After the re-optimisation of

the joint networks schedules and pricing by the committee dissolving the alliance causes

substantial costs to the partner carriers As a result of the substantial costs carriers usually

look for anti-trust immunity

The political environment is highly regulated favouring the passengers more than airlines It

is because the safety of the passengers is of utmost importance The political environment has

become crucial due to earlier tendencies towards monopolistic behaviour of the sector This

has necessitated the implementation of tighter regulation of the functions of airlines (Taylor

et al 2006) There have also been instances where deregulation has been recognised in the

supply side implying stiff competition among airlines and regulation of demand side

implying that passengers are in charge of lowering prices and demand for more amenities

14

Question 2

20 Introduction

With the increase in competition business management is also getting complex (Bergantino

and Capozza 2015) The corporate sector is one of the most dominant economic forces in the

international sphere today and has successfully raised the bar for quality and productivity

According to Hanlon (2007) corporate houses face many challenges in context of their

internal and external management processes and have to continuously improve and design

new strategies for overcoming them In this report the focus is on analysis of British Airlines

Company Virgin Atlantic Airways The aviation segment is one of the most popular and

dominating segments in the luxury as well as travel and tourism industry With rapid new

entrants in this industry firms are trying to create long-term competitive advantage for

overcoming the economic and managerial challenges The succeeding sections of the study

will focus on analysing the internal and external environment of Virgin Atlantic in

comparison to its performance

21 Organisational Background

Virgin Atlantic Airways began its journey in the year 1984 when entrepreneur Sir Richard

Branson decided to launch a value-added airlines services In the first year of its launch

Virgin Airways had flown over 1 million passengers with the help of their exceptional and

high-profile service structure (Virgin-Atlantic 2015a) By the end of the eighties Sir Richard

Branson sold Virgin Music and invested the gains in Virgin Atlantic and also launched the

much appreciated economy service structure of Virgin Airways (Virgin-Atlantic 2015a) In

the year 1999 49 stake of the company was sold to Singapore Airlines valuing at pound1225

billion Since the beginning of the 21st century Virgin Airways started expanding their

services into the global market and added numerous new features to their services such as the

Upper Class Suite and Virgin Clubhouses (Virgin-Atlantic 2015a) Virgin Airways has

15

continuously remained in the customer focus because of their many awards such as the

Online Retail Awards including ORA Prix drsquoOR Best Leisure amp Travel Website World

Travel Awards BIMA Awards Digital Impact Awards APEX Passenger Choice Awards etc

(Virgin-Atlantic 2015a) The company is currently operating with a fleet size of 39 aircrafts

travelling between 31 destinations The employee base of the firm is formed of 9231 people

According to the annual report of 2014 the revenue of Virgin Atlantic was pound293 billion and

the operating income was pound144 million (Virgin-Atlantic 2015a)

22 Internal Structure and Operations

The organisational structure of Virgin Airways has been formed in two parts the top and

middle management have a flat structure whereas the operational structure is in matrix form

16

Figure 1 Organisational Structure Virgin Atlantic Airways

(Source TheOfficialBoard 2014)

17

The above given figure shows the flat hierarchy of the top management of Virgin Airways

The hierarchy represents the detailed segmentation of every functional departments of the

organisation and can be the reason behind the clarity in the operational processes of the

company However as noted there is no separate group for Human Resource Management in

the given structure The HRM activities of Virgin Airways are carried by the operations head

and the HR managers have been designated in the middle level management of the

organisation This has allowed the company to create individual space for monitoring the

actvities of each department and develop a closely knitted relationship with the customers

(Barwise and Meehan 2010) On the other hand Aguirregabiria and Ho (2012) criticised that

absence of human resource management in the top level management can reduce the ability

of the organisation to attend to the problems faced by the workforce Apart from this the gap

in communication between the operational level employees and the top managers can hamper

the present organisational structure of Virgin Airways

The operational structure of the company however has been designed in a matrix structure for

ensuring better communication among the middle level managers and the line managers

According to Stacey (2011) matrix structure helps an organisation in ensuring optimal

resource utilisation by creating a multi-tasking work culture

18

Figure 2 Operational Level Structure Virgin Atlantic Airways

(Source Papatheodorou and Forsyth 2010 p364)

The given framework of matrix structure reflects that each team operates under different

functional heads simultaneously which increases the productivity and reduces the time of

working for the company Gilbert Child and Bennett (2001) stated that matrix structure often

creates job clashes among the work processes of a firm because of multi-tasking processes

However Tsai and Hsu (2008) and Nolan (2010) maintained that matrix structures creates

flexibility and team work within the employee base of a firm allowing them to shift through

the transition period of a firm and also managing the changes in the internal structure without

hampering the productivity

Supply Chain of Virgin Atlantic

The supply chain actvities of Virgin Atlantic highlights their operational processes and the

aspects that add value to their services The following value chain model explains the strategy

and actvities used for designing the internal actvities of Virgin Atlantic Airways

Production HR Marketing Finance

Team 1

Team 3

Team 2

Staff Staff Staff Staff

Staff

Staff

Staff Staff Staff

Staff Staff Staff

19

Figure 3 Value Chain Analysis of Airline Company

(Source Clausen et al 2010 p816)

The value chain analysis of the airline segment is different from that of manufacturing

organisations The different actvities being performed within the operational scope of the

firm has been added in the analysis based on their contribution towards the overall value

added It can be observed that Information and Communications Technology is the core

process that supports all other actvities of the firms The regulatory policies and bodies form

the infrastructure of the organisations Virgin Airways in this regard has ensured that all the

Financial Policies Accounting Regulations and Policies Community Affairs

Flight route

and yield

analyst

Pilot and

Safety

training

Baggage

Handling

training

Agent

training

In-flight

Training

Computer

Reservatio

n System

In-flight

Scheduling

System

Yield

Manageme

nt System

Product

Developmen

t Market

Research

Baggage

Tracking

System

Information and Communications Technology

Route

Selection

Passenger

Service

System

Pricing

Fuel Flight

Scheduling

Crew

Manageme

nt System

Facilities

Planning

Aircraft

Acquisition

Ticket

Counter

Operations

Gate

Operations

Aircraft

Operations

On-Board

Service

Baggage

Handling

Ticket

Offices

Baggage

System

Flight

Connection

s

Rental Car

and Hotel

Reservatio

n System

Promotion

Advertising

Advantages

Program

Travel

Agent

Program

Group

Sales

Lost Baggage

Service

Complaint

Follow-up

Marg

in

Mar

gin

Firm

Infrastructu

re

HRM

Technology

Developmen

t

Procureme

nt

Inbound

Logistics Operations Outbound

Logistics

Marketing

amp Sales Service

20

air route rules and policies associated with their operations are being fulfilled (Clausen et al

2010) The supporting actvities and primary actvities are connected with the ICT system of

the firm Additional services such as Rental Car and Hotel Reservations form the outbound

services which also contribute towards revenue generation The primary operations and

monitoring processes such as ticket counters gate operations etc are essential for ensuring

appropriate service delivery Relating the given value chain analysis to the service structure

of Virgin Airways additional services of in-flight and in waiting areas help the company in

increasing the value proposition of their services for the customers

23 Mission and Vision Statement

The mission statement of Virgin Atlantic Airways has been designed based on the core values

of the organisation Scheelhaase and Grimme (2007) observed that Virgin Airways has

focused on developing an emotional connection with their stakeholders The mission

statement of the company is

ldquoTo embrace the human spirit and let it flyrdquo (Virgin-Atlantic 2015a)

Virgin Atlantic has always been known for its ability to introduce innovative service aspects

which attract and engage the customers The mission statement highlights the basic contents

of human nature ie freedom Terms such as ldquohuman spiritrdquo have been used in order to

connect with a diverse customer base irrespective of the differences in their needs and

expectations Relating the mission with their service structure Virgin Airways has developed

premium economy flights for lower income customers whereas their executive level

customers have been provided with premium level Upper Class Suites and Virgin

Clubhouses This shows that Virgin Airways has an in-built customer centric approach that

meets the needs of individual customers

21

24 Key Drivers of Virgin Airways

According to Doganis (2006) in the existing scenario innovation is the key driver for growth

and development of business houses Virgin Atlanticrsquos innovation is focused on improving

their operational efficacy for ensuring a better service structure for their customers They

have continuously designed and developed their services for Upper class as well as economy

customers Virgin Airwaysrsquo service structure does not categorise their customers in terms of

lower and business class they have economy premium economy class and upper class levels

Apart from this customers can spend their miles (received when they purchase a ticket of

Virgin Atlantic Airways) for paying instead of money (Goumlssling and Peeters 2007) These

minute additions in customer service help Virgin Airways in generating a steadily increase

revenue curve Another driver for Virgin Atlantic is their pricing processes although the

charges of the company are higher in comparison to other big competitors such as British

Airways or Jet Airways the differences between the different levels of services are minimal

This allows the customers to easily shift from economy level to premium level creating

psychological satisfaction (Van Dender 2007)

Considering their marketing actvities the individual relationship of Virgin Airways with their

customers is one of the main drivers for their growth As per the study of Sutcliffe (2002)

knowing the needs of the customers their complaints their conditions and the existing

marketing condition in relation to competitor strategies ensures better service structure for

firms It can be mentioned that Virgin Airways has won several awards for their website

support and marketing processes such as Online Retail Awards Digital Impact Awards

Travel Agent Choice Award etc (Virgin-Atlantic 2015a) This shows the ability of the firm

to continuously improve on their services and accommodate the growing needs and

expectations of the customers

22

25 External Environment

The external environment of Virgin Atlantic Airways will be analysed with the help of

PESTLE analysis and also in a comparative manner with their competitors with the help of

perceptual mapping process

PESTLE Analysis

Figure 4 PESTLE Analysis of Virgin Atlantic Airways

(Source Scheelhaase and Grimme 2007 p253)

Political One of the major political influences on Virgin Atlantic Airways took place when

the UK Government abolished the London Air Traffic Distribution rules in the year 1991 and

allowed Virgin Airways to operate from the Heathrow Airport (Ciliberto and Tamer 2009)

This move helped Virgin Airways expand their services globally and reach new destinations

mainly in the Asian and African segments However regulations and restrictions of

international bodies such as Civil Aviation Authority create some barriers for Virgin Airways

23

in context of the environmental regulations Other than this the changes in the taxation

policies of the government also hamper the revenue level of the organisation Another

political factor is the relationship of the UK government with Russia and their dispute over

the fuel prices that in turn fluctuates the cost of operations of the airline companies (Gerardi

and Shapiro 2009)

Economical The economical conditions are among the primary factors that influence the

operations of a firm (Wensveen 2010) The global financial crisis of 2007-08 had created a

major manipulation in the operations of the luxury services such as that of Virgin Airways

Mainly in nations such as UK USA Japan Italy Germany etc where customers started

ploughing back their money from the market and created a shortfall in the national

economies airline sector faced difficulties in operations Furthermore the reduction in

Government subsidies also hampered the operations of the business processes On the other

hand instability in the exchange rate increased the fuel prices and reduced the deregulation in

the airline industry (Ciliberto and Tamer 2009) However Virgin Airlines had reduced the

price of their tickets for retaining their customer base and also provided discount plans

Social The social influence on Virgin Airlines is largely associated with the customer and

employee management systems Being one of the largest multination airlines of the world

diversity is a natural occurrence in their customer and employee base The ability to manage

the cultural diversity ensures effective service delivery and customer response for the

company Goumlssling and Peeters (2007) noted that owner Richard Branson wanted to certify

an exceptional service and experience for their customers that required the staff to know and

acknowledge the various cultural factors The in-flight crew of the company provides elegant

services related to the individual needs of the customers such as Virgin Airlines has a

minimum of 4-6 cuisines in their flights at any given point of time to meet the needs of the

customers (Van Dender 2007)

24

Technological It was observed in the value chain analysis that all the operational actvities of

Virgin Airways have been linked with their information and communications technology

This highlights the importance of technological support for the Airlines service Virgin

Airways has always concentrated on guarantying technological superiority for better service

design The fleet of 39 aircrafts have been remodelled regularly to keep them updated with

the industry trends Virgin Airways added 9 Boeing 787 jumbos in their fleet in the year 2014

which are expected to replace the Airbus A330 soon (Virgin-Atlantic 2015b) Services such

as individual television sets for each passenger are an example of technological usage in

Virgin Airways In context of the operational necessities the fleet of Virgin Atlantic has

installed the latest radar systems (AirNav RadarBox) with ADS-B radar systems (Van

Dender 2007)

Legal One of the most prominent legal issues faced by Virgin Atlantic is related to their

domestic service provider Little Red The domestic air traffic of the UK has been consistently

falling the launch of Little Red generated huge controversy among the stakeholders of the

organisation (Bilotkach Gaggero and Piga 2015) Furthermore failure to acquire British

Midland had further reduced the scope of recovering from the losses encountered by Little

Red division of Virgin Atlantic Airways In case of long-haul flights also Virgin Airways is

trying to merge with Delta Airlines but the foreign ownership rules is proving to be a

challenge for both the concerned firms (Economist 2014)

Environmental The environmental issues have always been in the lime-light for airline

organisations based on the pollution generated from flights and the management of the in-

flight wastages (Rea and Kerzner 2012) In this respect Virgin Airlines is trying to reduce

their environmental impact by developing an efficient business service process The bio fuel

demonstration provided by the company has shown potential for reducing the emissions by

25

4 annually (Kawaura 2015) On the other hand the increasing number of flights and

destinations of the company is equally contributing to the increase in green house gases

Perceptual Mapping

Figure 5 Perceptual Mapping Virgin Atlantic Airways

(Source Created by Author)

The above performed perceptual mapping has been derived on the basis of two criteria

namely quality and cost It can be noted that the most suitably positioned airlines group is the

Delta Airlines whereas big brands such as Lufthansa Virgin Airways British Airways etc

are positioned near high cost and high quality factors Evaluating from the given perceptual

map the primary competitor of Virgin Airlines can be noted as Lufthansa British Airways

High Quality

Low Quality

Low

Cost

Hig

h C

ost

Lufthansa

Virgin Atlantic Air France

Continental

Airlines

British Airways

Delta

Frontier

airTrar

Japan Airlines

Ryan Air

Thai

Sky Airline

Air Asia US Airways

Air Canada

26

Continental Airways Air France and Delta Airlines Virgin Airways has always been known

for their premium service category (Goumlssling and Peeters 2007) They have tried to provide

the best of services to their customers such as Clubhouses and in-flight bars and television

that have positioned Virgin Airways near the high quality quadrant of the map Although

price is an important factor for customers in their purchase decisions Virgin Airways is

trying to nullify the cost difference by adding more services and add-ons to create a halo

effect and engage the customers with their service delivery process

26 Financial Performance

The financial performance of the company has been analysed from the annual report and the

stock performance of Virgin Atlantic Airways Virgin Airways served over 6 million

customers across 33 destinations in the year 2014 which resulted in operating cash flow of

pound121 million (Virgin-Atlantic 2014) The firm experienced an increase in the unit revenue

per airline passenger by 48 whereas the operating cost increased by 03 from that of

2013 (Virgin-Atlantic 2014) The profit before tax and exceptional items of Virgin Airlines

increased by pound65 million from 2013 to pound14 million in 2014 on year on year basis However

the stock performance of Virgin Airways has fallen since the year 2014 from a point of 4381

to 3823 in 2015 The stock curve of the company has been consistently decreasing in 2015

since the sale of 49 stock to Delta Group of Airlines (FinanceYahoo 2015)

27

Figure 6 Stock Performance of Virgin Atlantic Airways 2014-2015

(Source FinanceYahoo 2015)

27 Outcome of Critical Analysis of Virgin Airways

Based on the above given internal and external analysis of Virgin Atlantic Airways it can be

considered that Virgin Airways has been growing significantly with their service structure

However there has been a decrease in their revenue generation process as Little Red segment

failed to perform in the shot-haul domestic flights and the long-haul flights are also facing

steep competition from other big brands such as British Airways Emirates and Lufthansa In

context of their organisational structure the top management body does not have a spot for

the human resource management department and has implanted the HR systems within the

middle level management The top management has been structured with a flat hierarchical

structure whereas the operational level of the company reflects a matrix structure for smooth

functioning

28

The marketing processes of Virgin Airways are the key to their customer relationship

process The company has an interactive website and efficient customer communication

methods for connecting the customers with the organisation Apart from this the service

structure of the company is continuously upgraded with innovative technology in order to

engage the customers with the firm Although the pricing of the company is higher in

comparison to their competitors individual focus towards customer needs and expectations

helps them in managing their business growth and development

28 Conclusion

Being a luxury service provider and one of the top brands of the international aviation

industry Virgin Atlantic Airlines has generated huge brand value in their respective industry

Virgin Airways has always followed an unconventional route for designing their business

strategies and tried to capture their target markets with exceptional and innovative service

structures While the company progresses in terms of their operational and managerial

efficacies the financial performance of the firm has suffered in the domestic short-haul flight

segment The long-haul flights have also shown a gradual decrease that lead to the selling of

49 of stock to Delta Airlines Based on the analysis performed it can be suggested that

Virgin Atlantic Airways needs to innovate new strategies for reducing their operational

expenses and also expanding their services to more destinations across the world

29

Reference List

Aguirregabiria V and Ho C Y 2012 A dynamic oligopoly game of the US airline

industry Estimation and policy experiments Journal of Econometrics 168(1) pp 156-173

Agusdinata B and de Klein W 2002 The Dynamics of Airline Alliances Journal of Air

Transport Management 8(4) pp 201-211

Barrett S D 2000 Airport Competition in the Deregulated European Aviation Market

Journal of Air Transport Management 6(1) pp 13-27

Barwise P and Meehan S 2010 The one thing you must get right when building a

brand Harvard Business Review 88(12) pp 80-84

Belobaba P Odoni A and Barnhart C 2009 The Global Airline Industry New Jersey

John Wiley amp Sons

Bergantino A S and Capozza C 2015 Airline Pricing Behavior under Limited

Inter‐Modal Competition Economic Inquiry 53(1) pp 700-713

Bilotkach V Gaggero A A and Piga C A 2015 Airline pricing under different market

conditions Evidence from European Low-Cost Carriers Tourism Management 47 pp 152-

163

Cento A 2008 The Airline Industry Challenges in the 21st Century Berlin Springer

Science amp Business Media

Ciliberto F and Tamer E 2009 Market structure and multiple equilibria in airline

markets Econometrica 77(6) pp 1791-1828

30

Clausen J Larsen A Larsen J and Rezanova N J 2010 Disruption management in the

airline industrymdashConcepts models and methodsComputers and Operations Research 37(5)

pp 809-821

Doganis R 2002 Flying Off Course The Economics of International Airlines London

Psychology Press

Doganis R 2006 The Airline Business London Psychology Press

Economist 2014 Little Redrsquos Big Problem [Online] Available at lt

httpwwweconomistcomblogsgulliver201410virgin-atlantics-woes gt [Accessed 22nd

August 2015]

FinanceYahoo 2015 Virgin America Inc [Online] Available at lt

httpfinanceyahoocomechartss=VA+InteractiverangemaxallowChartStackingtr

ue gt [Accessed 22nd August 2015]

Gerardi K S and Shapiro A H 2009 Does competition reduce price dispersion New

evidence from the airline industry Journal of Political Economy 117(1) pp 1-37

Gilbert D Child D and Bennett M 2001 The qualitative study of the current practices of

lsquono-frillsrsquo airlines operating in the UK Journal of Vacation Marketing 7(4) pp 302-315

Goumlssling S and Peeters P 2007 lsquoIt does not harm the environmentrsquoAn analysis of

industry discourses on tourism air travel and the environmentJournal of Sustainable

Tourism 15(4) pp 402-417

Hanlon J P 2007 Global Airlines Competition in a Transnational Industry London

Routledge

2

Abstract

The following assignment has discussed in detail the airline industry along with a detailed

description of the various factors affecting its operational activities The airline bilateral

agreements and regulatory authorities have also been taken into consideration Moreover the

external and internal business environment of British Airline company Virgin Atlantic has

also been discussed in detail

3

Table of Contents Question 1 4

11 Background 4

12 Factors Affecting Competition in Airline Industry 6

13 Examination of the Demand and Changes in Market Concentration 7

14 The Need for Bilateral Agreements 9

15 Role of Regulatory Authorities 11

16 Development of Alliances Strategies and Political Factors 12

Question 2 14

20 Introduction 14

21 Organisational Background 14

22 Internal Structure and Operations 15

Supply Chain of Virgin Atlantic 18

23 Mission and Vision Statement 20

24 Key Drivers of Virgin Airways 21

25 External Environment 22

26 Financial Performance 26

27 Outcome of Critical Analysis of Virgin Airways 27

28 Conclusion 28

Reference List 29

4

Question 1

11 Background

There have been some life changing inventions and invention of airplane was one of them At

times of World War vast improvement in techniques for the construction and design of

airplanes took place due to government subsidies and growing demand for new airplanes

After the World War II the first commercial airplane routes were established in Europe

(Cento 2008) Overtime air travel has become an integral part of a commuterrsquos life and it is

hard to imagine life without air travel facility This hints at the progress report of the airline

industry It has facilitated the way of living of people by reducing the travel time thereby

altering peoplersquos concept of distance and making it possible for people to conduct business

and visit places which were once considered remote

The industry incurs high fixed cost and earns low profit margin This is due to various factors

such as aircraft fuel aircraft lease rentals debt service and personnel (Doganis 2002) The

expenses of an aircraft flight are not much related to the number of passengers in the sense

that they do not significantly vary with the number of passengers The operations and

financial outcomes of the industry are disproportionately affected by the pricing strategies

As a result a negligible shortfall in expected revenue levels could cause harm to the business

The industry is vulnerable to price discounting since only nominal costs are incurred by

airlines This nominal cost is attributed to the service offered to the passengers occupying

otherwise unsold seats (Doganis 2006)

An astute investor can make profit in this sector inspite of rising fuel prices and many

external risks that are associated with the industry Sometimes fuel surcharge is imposed on

the passenger which is a way of passing higher fuel costs on to their customers However the

5

most efficient method to mitigate cost of fuel is to buy future contracts that set the fuel supply

for a company at a specific price in the coming year The companies also adopt the policy of

hedging There are some companies who hedge more than others implying the fact that they

are better prepared in case of a sudden hike in the oil prices The fate of an airline company is

determined by its ability to make its interest payments and clear all its debts on a timely basis

By calculating the interest coverage ratio it is easy to determine whether interest rate is

excessive (Agusdinata and de Klein 2002) The interest rate is reflective of the debt liabilities

that companies indulge in The hubs of airlines play a vital role in the industry It is described

as a centrally located pit stop where aircrafts fly in order to re-fuel pick up customers and

head out to different destination It has been observed that one of the reasons behind

successful airline service is the presence of busiest hubs Other characteristics involve the

employment of unionized labour These labours are routinely forced to re-negotiate salary

contracts holds the possibility of a strike is omnipresent

If a company has excess cash reserve or has the ability of taking on more debt it may adopt

the policy of acquisition in order to progress on the path of growth Currently some

companies have been significantly reducing ticket costs This has prompted other airlines to

trim their prices and issue a variety of different margin-pinching incentives to consumers in

order to successfully compete in the market Although this price competition is not beneficial

for the companies since it put high debt pressure and diminishing working capital positions

out of business but it is favourable for the consumers (Doganis 2006) Some part of the

industries reveals the existence of monopoly and others tend to be competitive The

monopoly nature is visible in the price discrimination strategy employed in terms of different

prices of the air tickets The industry is also seasonal in nature During vacations and

occasions the demand rises and so does its revenue

6

12 Factors Affecting Competition in Airline Industry

The airline industry is characterised by the presence of intense competition In the recent

period there have been economic downturns that have adversely affected the airline industry

which economist believe will possess a strong effect on the trend of the industry towards

expansion of international and domestic services Earlier the airline industry around the

globe was partly owned by government Although this is still true for many nations but all

major airlines in US is privately owned There are some factors that tend to affect the

competition in the industry Rivalry among sellers is one such factor It varies from country

to country and ranges from moderate to strong Airlines also compete on frequency and

reliability of flights frequent flier programmes etc (Doganis 2002) Nowadays this

pressure has reduced since well-known companies have started focussing on the enhancing

their profits rather than involving in expansion strategy Potential new entrants and substitute

transport system also pose as threats on the industry Deficient desirable gate access and low

traffic levels act as entry barriers along with labour capital and energy intensive nature of the

industry In relation to air transport passenger rail lines personal transportation and bus

service also act as substitutes They are generally low cost and are convenient for shorter

distance (Agusdinata and de Klein 2002)

Middle East carriers are gaining popularity and are considered as threats on international

routes They have advantageous geographic position incur low fuel costs and arte properly

funded Since airlines are entering more into Joint Ventures (JV) and anti-trust immunity

agreements in order to target international growth (Hanlon 2007) With a view to capture

more traffic the Lost Cost Carrier (LCC) model is implemented in JVs by Asian airlines

More airlines are now entering into JVs and more direct flights on international routes are

offered by Anti-Trust Immunity agreements (ATI) However cost pressures still remain an

7

important issue across all markets The competition is mainly between recognised companies

and low cost emerging companies (Barrett 2000)

13 Examination of the Demand and Changes in Market Concentration

The recent times have witnessed impressive dynamics exhibited by European airline industry

The airline industry has gone through an extreme change on both demand and supply side

Unlike other industries the recent changes are not dependent solely on technological

developments but legal cultural institutional factors (Williams 2003) The structure of the

market is highly influenced by institutional and legal aspects and spatial mobility and its

features are affected by cultural forces On the supply side the European Airline industry has

transformed from a long-established system of state-owned carriers which operated in a

regulated market into a free market and dynamic market The procedure of de-regulation and

subsequent procedures of privatization have injected vital changes in the structure of airline

sector The choices and preferences of customers are also undergoing change This directly

affects the pricing strategies of the companies (Hanlon 2007) The industry often faces the

consumer choice problem Many researchers have been done which highlighted that business

commuters preferred valued flight frequency and the proximity of airport compared to leisure

travellers who tend to be more price sensitive

This indicates that the companies need to analyse the approaches towards satisfying their

consumers Since this industry is seasonal in nature the demand structure tends to fluctuate

accordingly It has been observed that time or business sensitive passengers are inelastic in

terms of airfares These passengers are inclined more towards high quality service including

frequent and reliable flights flexibility comfortable seats good frequent flier rewards etc

(Barrett 2000) They are ready to pay increasing high prices to avail these features in a flight

The business market of airline industry reveals price elasticity by a fall in the amount of

tickets sold which was evident from the arrival of low cost airlines This recent development

8

also illustrates that a large percentage of passengers have given more emphasise to prices

over service However this is more accurate for short haul routes The passengers now have

given up additional comfort of economy class on intra European and domestic flights but are

also eager to trade flexibility of ticket in return for low air fares This situation seems to be a

permanent situation which has forced companies to raise the use of low fare airlines

(Belobaba Odoni and Barnhart 2009) Similarly they have increased the use of non-

refundable tickets The reason behind the fall in business class travel is partly demand led and

partly supply led The supply led reasons are high business fares which expanded the segment

of inelastic business class passenger and development of low cost airlines The demand led

reasons are economic downturn that has created an active management that aims at reducing

costs by minimising travel budget and external demand shocks that ranges from SARS

epidemics Iraq War and terrorist attacks (Williams 2003) Although all these do not

necessarily mean that passengers are not willing to pay high fares for additional frills and

services delivered by business class on long haul flights but they want justification behind

premium pricing strategy

The airline industry has under significant changes in its market structure due to variety of

reasons Some of them can be cited out as the bankruptcy of some of the largest airlines

Mergers among the rival companies are another example Other companies have significantly

changed their networks Market structure changes overtime due to mergers entry and exits of

different companies which tend to have an influence on price structure The entry and exit of

firms have a strong impact on the functioning of the industry New entrants usually offer low

prices but its impact differs across markets They induce competitiveness in the market by

offering low cost fares thereby reducing the overall fare prices in the market (Bergantino and

Capozza 2015) Conversely the exiting firms have no clear effect on the pricing behaviour

of their former rivals

9

The market powers of the companies entering into merger are enhanced It was noted that

market where a merging company was present construct a control group This group is

devoid of presence of any merger The fare was increased significantly during the post-

merger situation There are still significant price rise along the routes where one of the

merging companies was a potential entrant Mergers tend to reduce market competition and

increasing the fares market-wise (Belobaba Odoni and Barnhart 2009) However it was also

observed that in some mergers the firm-level price affect is negative mainly due to efficiency

gains The consequence of merger in some cases is the formation of consolidated market

where the merged firms offer lower fares since the rise in their efficiency level due to merger

(Williams 2003)

14 The Need for Bilateral Agreements

International Aviation Organisation (ICAO) is an inter-governmental agency which governs

and coordinates the world operational and worldwide technical standards Bilateral air

transport agreement also known as bilateral air service agreement or ASA or ATA is an

agreement signed by two countries in order to permit international commercial air transport

services between geographical territories (Bergantino and Capozza 2015) The traffic rights

for each operating carriers number of carriers the number of airports in which airplanes will

operate and frequencies of flights between the fixed airports are specified by the bilateral

agreements With the development of airline sector flying became very popular necessitating

the expansion of their service This popularity prompted countries and their related airlines

around the world to develop service agreements in order to make easy the provisions of

international air service to build opportunities for the same airlines serving outside the home

countryrsquos borders and to protect the airlines against unfair foreign competition These

agreements are basically needed to build an efficient airline sector of any country by

promoting fair competition practices and by inviting global opportunities The agreement is a

10

contract formulated so that aviation services of commercial civil aviation can be liberalised

between contracting parties This is important since it allows the airplanes of both the

participating states to launch their commercial flights which cover the transport of cargoes

and passengers of both the nations (Bilotkach Gaggero and Piga 2015) The agreement may

also involve the transport of military personnel of the contracting nations According to the

agreement the airplanes of the participating nations also bring cargoes and passengers to a

third nation or pick up cargoes and passengers from the host nation to the home nation of the

airplane or to a third nation in which the participating countries have existing open skies

agreement

The liberalised form of ASA can be called an open sky agreements Open skies is a global

policy notion of the international aviation sector that requires liberalisation of the regulations

and rules of especially commercial aviation (Kawaura 2015) This is done with the aim of

creating a free-market scenario for the airline industry This agreement is also essential

keeping in mind the objectives that it aims to achieve The main objectives of the agreement

include

To liberalise the rules that govern global aviation markets and reduce government

intervention that is applicable for passengers scheduled and charter service combined air

transportation and all-cargo

To adjust in such a way so that other state based and military flights can be permitted

It has been noticed that the open skies can become effective if bilateral agreements are

concluded between two or more countries Liberalisation of international airline industry is

necessary in order to generate major extra opportunities for customers carriers direct and

indirect entities and shippers (Bilotkach Gaggero and Piga 2015)

11

15 Role of Regulatory Authorities

Any industry that is functioning to serve the society and maximise its profit needs a

governing body that will monitor the operations of the industry and formulates policies so

that the companies do not indulge into unfair trade practices and to enhance the efficiency of

the concerned sector (Wensveen 2010) The role of regulatory authorities in airline industry

includes the creation of transparent and less complex structure that offers highest safety level

for air transport services The responsibilities include providing fair access to adequate

infrastructure and to commercial prospects The framework of the regulatory authorities

should reveal legitimate environmental and military concerns The regulatory body aims at

ensuring consistency cost-effectiveness effective application both for the airlines and for the

governing body (Lelieur 2003) It is also accountable for all the decisions taken The body

also encompasses the global dimensions of aviation and targets to provide the industry with

safe cost-efficient and fair access to other places of the world

There are various functions of the regulatory body such as

Rule Preparation structuring regulatory material by a company that avails the technical

competence to do so In order to prepare the material the company needs to follow

appropriate procedures to ensure that inputs are coming from those who are also affected by

the regulations

Rule-setting the spread of binding requirements in a specific context that permits for

effective enforcement of these rules and policies for political and legal accountability for the

choices that have been made

Operational approval or licensing or certification the body is solely responsible for providing

licenses to airlines procedures etc so that authorisation can be provided to the conduct of

specific activities

12

Inspection monitoring this process is ex post evaluation of continuing compliance with the

requirements of the body and the beginning of corrective measures and actions where needed

Enforcement in order to guarantee compliance with the requirements of the regulatory the

formal powers are exercised which include imposition of proportionate sanctions

Implementation support it comprises of a wide range of activities that aims at assisting the

companies which are given the responsibility related to the application of regulatory needs

like certification monitoring etc

The main area of concern of the regulatory body is to maintain security and safety of the

passengers and crew members protect nature by reducing the emission of harmful pollutants

organisation markets sustain international cooperation and coordination optimal allocation

of scarce resources such as slots airspace maintain control over price structure so that

welfare of the customers are not jeopardise (Lelieur 2003)

16 Development of Alliances Strategies and Political Factors

The cooperative arrangements between airlines which vary extremely in breadth scope and

depth are referred to as airline alliances Airlines may engage into a wide range of

cooperation agreements that ranges from those with restricted cooperation like marketing

arrangements or interline agreements to highly integrated structures of cooperation like

metal-neutral revenue sharing joint ventures (Mahoney 2014) The vital benefit associated

with the alliance is accesses to traffic that are restricted due to bilateral agreements With the

help of the alliances the airline can overcome the entry barriers and engage in the process of

expanding their networks into large geographic regions by code-sharing with other airline

The alliance partner identifies the reciprocal code sharing advantages in the home boundary

of its new partner Both airlines together combine their networks and deliver many more

itinerary combinations than either airline could provide on its own (Wensveen 2010)

13

The alliances can be broadly categorised into two main groups namely strategic and tactical

alliances Tactical alliances comprise of two or more carriers which are designed to address

particular gaps in the networks of individual carrier by offering connectivity between the

networks of the carriers This is in contrast to the strategic alliances which are more

comprehensive and broader structures of cooperation between numerous carriers This

strategy aims at building large international joint networks Rather than closing gaps this

strategy tries to optimise networks thereby influencing the carriers and their routes and

capacities There are three main alliances such as Skyteam Oneworld and Star Alliance

(Bilotkach Gaggero and Piga 2015) Integrated alliance that includes coordinated pricing

yield and inventory management are usually governed by designated alliance committee The

representatives of the partner carriers are the members of the committee It has given the

responsibility to monitor and administer cooperative activities After the re-optimisation of

the joint networks schedules and pricing by the committee dissolving the alliance causes

substantial costs to the partner carriers As a result of the substantial costs carriers usually

look for anti-trust immunity

The political environment is highly regulated favouring the passengers more than airlines It

is because the safety of the passengers is of utmost importance The political environment has

become crucial due to earlier tendencies towards monopolistic behaviour of the sector This

has necessitated the implementation of tighter regulation of the functions of airlines (Taylor

et al 2006) There have also been instances where deregulation has been recognised in the

supply side implying stiff competition among airlines and regulation of demand side

implying that passengers are in charge of lowering prices and demand for more amenities

14

Question 2

20 Introduction

With the increase in competition business management is also getting complex (Bergantino

and Capozza 2015) The corporate sector is one of the most dominant economic forces in the

international sphere today and has successfully raised the bar for quality and productivity

According to Hanlon (2007) corporate houses face many challenges in context of their

internal and external management processes and have to continuously improve and design

new strategies for overcoming them In this report the focus is on analysis of British Airlines

Company Virgin Atlantic Airways The aviation segment is one of the most popular and

dominating segments in the luxury as well as travel and tourism industry With rapid new

entrants in this industry firms are trying to create long-term competitive advantage for

overcoming the economic and managerial challenges The succeeding sections of the study

will focus on analysing the internal and external environment of Virgin Atlantic in

comparison to its performance

21 Organisational Background

Virgin Atlantic Airways began its journey in the year 1984 when entrepreneur Sir Richard

Branson decided to launch a value-added airlines services In the first year of its launch

Virgin Airways had flown over 1 million passengers with the help of their exceptional and

high-profile service structure (Virgin-Atlantic 2015a) By the end of the eighties Sir Richard

Branson sold Virgin Music and invested the gains in Virgin Atlantic and also launched the

much appreciated economy service structure of Virgin Airways (Virgin-Atlantic 2015a) In

the year 1999 49 stake of the company was sold to Singapore Airlines valuing at pound1225

billion Since the beginning of the 21st century Virgin Airways started expanding their

services into the global market and added numerous new features to their services such as the

Upper Class Suite and Virgin Clubhouses (Virgin-Atlantic 2015a) Virgin Airways has

15

continuously remained in the customer focus because of their many awards such as the

Online Retail Awards including ORA Prix drsquoOR Best Leisure amp Travel Website World

Travel Awards BIMA Awards Digital Impact Awards APEX Passenger Choice Awards etc

(Virgin-Atlantic 2015a) The company is currently operating with a fleet size of 39 aircrafts

travelling between 31 destinations The employee base of the firm is formed of 9231 people

According to the annual report of 2014 the revenue of Virgin Atlantic was pound293 billion and

the operating income was pound144 million (Virgin-Atlantic 2015a)

22 Internal Structure and Operations

The organisational structure of Virgin Airways has been formed in two parts the top and

middle management have a flat structure whereas the operational structure is in matrix form

16

Figure 1 Organisational Structure Virgin Atlantic Airways

(Source TheOfficialBoard 2014)

17

The above given figure shows the flat hierarchy of the top management of Virgin Airways

The hierarchy represents the detailed segmentation of every functional departments of the

organisation and can be the reason behind the clarity in the operational processes of the

company However as noted there is no separate group for Human Resource Management in

the given structure The HRM activities of Virgin Airways are carried by the operations head

and the HR managers have been designated in the middle level management of the

organisation This has allowed the company to create individual space for monitoring the

actvities of each department and develop a closely knitted relationship with the customers

(Barwise and Meehan 2010) On the other hand Aguirregabiria and Ho (2012) criticised that

absence of human resource management in the top level management can reduce the ability

of the organisation to attend to the problems faced by the workforce Apart from this the gap

in communication between the operational level employees and the top managers can hamper

the present organisational structure of Virgin Airways

The operational structure of the company however has been designed in a matrix structure for

ensuring better communication among the middle level managers and the line managers

According to Stacey (2011) matrix structure helps an organisation in ensuring optimal

resource utilisation by creating a multi-tasking work culture

18

Figure 2 Operational Level Structure Virgin Atlantic Airways

(Source Papatheodorou and Forsyth 2010 p364)

The given framework of matrix structure reflects that each team operates under different

functional heads simultaneously which increases the productivity and reduces the time of

working for the company Gilbert Child and Bennett (2001) stated that matrix structure often

creates job clashes among the work processes of a firm because of multi-tasking processes

However Tsai and Hsu (2008) and Nolan (2010) maintained that matrix structures creates

flexibility and team work within the employee base of a firm allowing them to shift through

the transition period of a firm and also managing the changes in the internal structure without

hampering the productivity

Supply Chain of Virgin Atlantic

The supply chain actvities of Virgin Atlantic highlights their operational processes and the

aspects that add value to their services The following value chain model explains the strategy

and actvities used for designing the internal actvities of Virgin Atlantic Airways

Production HR Marketing Finance

Team 1

Team 3

Team 2

Staff Staff Staff Staff

Staff

Staff

Staff Staff Staff

Staff Staff Staff

19

Figure 3 Value Chain Analysis of Airline Company

(Source Clausen et al 2010 p816)

The value chain analysis of the airline segment is different from that of manufacturing

organisations The different actvities being performed within the operational scope of the

firm has been added in the analysis based on their contribution towards the overall value

added It can be observed that Information and Communications Technology is the core

process that supports all other actvities of the firms The regulatory policies and bodies form

the infrastructure of the organisations Virgin Airways in this regard has ensured that all the

Financial Policies Accounting Regulations and Policies Community Affairs

Flight route

and yield

analyst

Pilot and

Safety

training

Baggage

Handling

training

Agent

training

In-flight

Training

Computer

Reservatio

n System

In-flight

Scheduling

System

Yield

Manageme

nt System

Product

Developmen

t Market

Research

Baggage

Tracking

System

Information and Communications Technology

Route

Selection

Passenger

Service

System

Pricing

Fuel Flight

Scheduling

Crew

Manageme

nt System

Facilities

Planning

Aircraft

Acquisition

Ticket

Counter

Operations

Gate

Operations

Aircraft

Operations

On-Board

Service

Baggage

Handling

Ticket

Offices

Baggage

System

Flight

Connection

s

Rental Car

and Hotel

Reservatio

n System

Promotion

Advertising

Advantages

Program

Travel

Agent

Program

Group

Sales

Lost Baggage

Service

Complaint

Follow-up

Marg

in

Mar

gin

Firm

Infrastructu

re

HRM

Technology

Developmen

t

Procureme

nt

Inbound

Logistics Operations Outbound

Logistics

Marketing

amp Sales Service

20

air route rules and policies associated with their operations are being fulfilled (Clausen et al

2010) The supporting actvities and primary actvities are connected with the ICT system of

the firm Additional services such as Rental Car and Hotel Reservations form the outbound

services which also contribute towards revenue generation The primary operations and

monitoring processes such as ticket counters gate operations etc are essential for ensuring

appropriate service delivery Relating the given value chain analysis to the service structure

of Virgin Airways additional services of in-flight and in waiting areas help the company in

increasing the value proposition of their services for the customers

23 Mission and Vision Statement

The mission statement of Virgin Atlantic Airways has been designed based on the core values

of the organisation Scheelhaase and Grimme (2007) observed that Virgin Airways has

focused on developing an emotional connection with their stakeholders The mission

statement of the company is

ldquoTo embrace the human spirit and let it flyrdquo (Virgin-Atlantic 2015a)

Virgin Atlantic has always been known for its ability to introduce innovative service aspects

which attract and engage the customers The mission statement highlights the basic contents

of human nature ie freedom Terms such as ldquohuman spiritrdquo have been used in order to

connect with a diverse customer base irrespective of the differences in their needs and

expectations Relating the mission with their service structure Virgin Airways has developed

premium economy flights for lower income customers whereas their executive level

customers have been provided with premium level Upper Class Suites and Virgin

Clubhouses This shows that Virgin Airways has an in-built customer centric approach that

meets the needs of individual customers

21

24 Key Drivers of Virgin Airways

According to Doganis (2006) in the existing scenario innovation is the key driver for growth

and development of business houses Virgin Atlanticrsquos innovation is focused on improving

their operational efficacy for ensuring a better service structure for their customers They

have continuously designed and developed their services for Upper class as well as economy

customers Virgin Airwaysrsquo service structure does not categorise their customers in terms of

lower and business class they have economy premium economy class and upper class levels

Apart from this customers can spend their miles (received when they purchase a ticket of

Virgin Atlantic Airways) for paying instead of money (Goumlssling and Peeters 2007) These

minute additions in customer service help Virgin Airways in generating a steadily increase

revenue curve Another driver for Virgin Atlantic is their pricing processes although the

charges of the company are higher in comparison to other big competitors such as British

Airways or Jet Airways the differences between the different levels of services are minimal

This allows the customers to easily shift from economy level to premium level creating

psychological satisfaction (Van Dender 2007)

Considering their marketing actvities the individual relationship of Virgin Airways with their

customers is one of the main drivers for their growth As per the study of Sutcliffe (2002)

knowing the needs of the customers their complaints their conditions and the existing

marketing condition in relation to competitor strategies ensures better service structure for

firms It can be mentioned that Virgin Airways has won several awards for their website

support and marketing processes such as Online Retail Awards Digital Impact Awards

Travel Agent Choice Award etc (Virgin-Atlantic 2015a) This shows the ability of the firm

to continuously improve on their services and accommodate the growing needs and

expectations of the customers

22

25 External Environment

The external environment of Virgin Atlantic Airways will be analysed with the help of

PESTLE analysis and also in a comparative manner with their competitors with the help of

perceptual mapping process

PESTLE Analysis

Figure 4 PESTLE Analysis of Virgin Atlantic Airways

(Source Scheelhaase and Grimme 2007 p253)

Political One of the major political influences on Virgin Atlantic Airways took place when

the UK Government abolished the London Air Traffic Distribution rules in the year 1991 and

allowed Virgin Airways to operate from the Heathrow Airport (Ciliberto and Tamer 2009)

This move helped Virgin Airways expand their services globally and reach new destinations

mainly in the Asian and African segments However regulations and restrictions of

international bodies such as Civil Aviation Authority create some barriers for Virgin Airways

23

in context of the environmental regulations Other than this the changes in the taxation

policies of the government also hamper the revenue level of the organisation Another

political factor is the relationship of the UK government with Russia and their dispute over

the fuel prices that in turn fluctuates the cost of operations of the airline companies (Gerardi

and Shapiro 2009)

Economical The economical conditions are among the primary factors that influence the

operations of a firm (Wensveen 2010) The global financial crisis of 2007-08 had created a

major manipulation in the operations of the luxury services such as that of Virgin Airways

Mainly in nations such as UK USA Japan Italy Germany etc where customers started

ploughing back their money from the market and created a shortfall in the national

economies airline sector faced difficulties in operations Furthermore the reduction in

Government subsidies also hampered the operations of the business processes On the other

hand instability in the exchange rate increased the fuel prices and reduced the deregulation in

the airline industry (Ciliberto and Tamer 2009) However Virgin Airlines had reduced the

price of their tickets for retaining their customer base and also provided discount plans

Social The social influence on Virgin Airlines is largely associated with the customer and

employee management systems Being one of the largest multination airlines of the world

diversity is a natural occurrence in their customer and employee base The ability to manage

the cultural diversity ensures effective service delivery and customer response for the

company Goumlssling and Peeters (2007) noted that owner Richard Branson wanted to certify

an exceptional service and experience for their customers that required the staff to know and

acknowledge the various cultural factors The in-flight crew of the company provides elegant

services related to the individual needs of the customers such as Virgin Airlines has a

minimum of 4-6 cuisines in their flights at any given point of time to meet the needs of the

customers (Van Dender 2007)

24

Technological It was observed in the value chain analysis that all the operational actvities of

Virgin Airways have been linked with their information and communications technology

This highlights the importance of technological support for the Airlines service Virgin

Airways has always concentrated on guarantying technological superiority for better service

design The fleet of 39 aircrafts have been remodelled regularly to keep them updated with

the industry trends Virgin Airways added 9 Boeing 787 jumbos in their fleet in the year 2014

which are expected to replace the Airbus A330 soon (Virgin-Atlantic 2015b) Services such

as individual television sets for each passenger are an example of technological usage in

Virgin Airways In context of the operational necessities the fleet of Virgin Atlantic has

installed the latest radar systems (AirNav RadarBox) with ADS-B radar systems (Van

Dender 2007)

Legal One of the most prominent legal issues faced by Virgin Atlantic is related to their

domestic service provider Little Red The domestic air traffic of the UK has been consistently

falling the launch of Little Red generated huge controversy among the stakeholders of the

organisation (Bilotkach Gaggero and Piga 2015) Furthermore failure to acquire British

Midland had further reduced the scope of recovering from the losses encountered by Little

Red division of Virgin Atlantic Airways In case of long-haul flights also Virgin Airways is

trying to merge with Delta Airlines but the foreign ownership rules is proving to be a

challenge for both the concerned firms (Economist 2014)

Environmental The environmental issues have always been in the lime-light for airline

organisations based on the pollution generated from flights and the management of the in-

flight wastages (Rea and Kerzner 2012) In this respect Virgin Airlines is trying to reduce

their environmental impact by developing an efficient business service process The bio fuel

demonstration provided by the company has shown potential for reducing the emissions by

25

4 annually (Kawaura 2015) On the other hand the increasing number of flights and

destinations of the company is equally contributing to the increase in green house gases

Perceptual Mapping

Figure 5 Perceptual Mapping Virgin Atlantic Airways

(Source Created by Author)

The above performed perceptual mapping has been derived on the basis of two criteria

namely quality and cost It can be noted that the most suitably positioned airlines group is the

Delta Airlines whereas big brands such as Lufthansa Virgin Airways British Airways etc

are positioned near high cost and high quality factors Evaluating from the given perceptual

map the primary competitor of Virgin Airlines can be noted as Lufthansa British Airways

High Quality

Low Quality

Low

Cost

Hig

h C

ost

Lufthansa

Virgin Atlantic Air France

Continental

Airlines

British Airways

Delta

Frontier

airTrar

Japan Airlines

Ryan Air

Thai

Sky Airline

Air Asia US Airways

Air Canada

26

Continental Airways Air France and Delta Airlines Virgin Airways has always been known

for their premium service category (Goumlssling and Peeters 2007) They have tried to provide

the best of services to their customers such as Clubhouses and in-flight bars and television

that have positioned Virgin Airways near the high quality quadrant of the map Although

price is an important factor for customers in their purchase decisions Virgin Airways is

trying to nullify the cost difference by adding more services and add-ons to create a halo

effect and engage the customers with their service delivery process

26 Financial Performance

The financial performance of the company has been analysed from the annual report and the

stock performance of Virgin Atlantic Airways Virgin Airways served over 6 million

customers across 33 destinations in the year 2014 which resulted in operating cash flow of

pound121 million (Virgin-Atlantic 2014) The firm experienced an increase in the unit revenue

per airline passenger by 48 whereas the operating cost increased by 03 from that of

2013 (Virgin-Atlantic 2014) The profit before tax and exceptional items of Virgin Airlines

increased by pound65 million from 2013 to pound14 million in 2014 on year on year basis However

the stock performance of Virgin Airways has fallen since the year 2014 from a point of 4381

to 3823 in 2015 The stock curve of the company has been consistently decreasing in 2015

since the sale of 49 stock to Delta Group of Airlines (FinanceYahoo 2015)

27

Figure 6 Stock Performance of Virgin Atlantic Airways 2014-2015

(Source FinanceYahoo 2015)

27 Outcome of Critical Analysis of Virgin Airways

Based on the above given internal and external analysis of Virgin Atlantic Airways it can be

considered that Virgin Airways has been growing significantly with their service structure

However there has been a decrease in their revenue generation process as Little Red segment

failed to perform in the shot-haul domestic flights and the long-haul flights are also facing

steep competition from other big brands such as British Airways Emirates and Lufthansa In

context of their organisational structure the top management body does not have a spot for

the human resource management department and has implanted the HR systems within the

middle level management The top management has been structured with a flat hierarchical

structure whereas the operational level of the company reflects a matrix structure for smooth

functioning

28

The marketing processes of Virgin Airways are the key to their customer relationship

process The company has an interactive website and efficient customer communication

methods for connecting the customers with the organisation Apart from this the service

structure of the company is continuously upgraded with innovative technology in order to

engage the customers with the firm Although the pricing of the company is higher in

comparison to their competitors individual focus towards customer needs and expectations

helps them in managing their business growth and development

28 Conclusion

Being a luxury service provider and one of the top brands of the international aviation

industry Virgin Atlantic Airlines has generated huge brand value in their respective industry

Virgin Airways has always followed an unconventional route for designing their business

strategies and tried to capture their target markets with exceptional and innovative service

structures While the company progresses in terms of their operational and managerial

efficacies the financial performance of the firm has suffered in the domestic short-haul flight

segment The long-haul flights have also shown a gradual decrease that lead to the selling of

49 of stock to Delta Airlines Based on the analysis performed it can be suggested that

Virgin Atlantic Airways needs to innovate new strategies for reducing their operational

expenses and also expanding their services to more destinations across the world

29

Reference List

Aguirregabiria V and Ho C Y 2012 A dynamic oligopoly game of the US airline

industry Estimation and policy experiments Journal of Econometrics 168(1) pp 156-173

Agusdinata B and de Klein W 2002 The Dynamics of Airline Alliances Journal of Air

Transport Management 8(4) pp 201-211

Barrett S D 2000 Airport Competition in the Deregulated European Aviation Market

Journal of Air Transport Management 6(1) pp 13-27

Barwise P and Meehan S 2010 The one thing you must get right when building a

brand Harvard Business Review 88(12) pp 80-84

Belobaba P Odoni A and Barnhart C 2009 The Global Airline Industry New Jersey

John Wiley amp Sons

Bergantino A S and Capozza C 2015 Airline Pricing Behavior under Limited

Inter‐Modal Competition Economic Inquiry 53(1) pp 700-713

Bilotkach V Gaggero A A and Piga C A 2015 Airline pricing under different market

conditions Evidence from European Low-Cost Carriers Tourism Management 47 pp 152-

163

Cento A 2008 The Airline Industry Challenges in the 21st Century Berlin Springer

Science amp Business Media

Ciliberto F and Tamer E 2009 Market structure and multiple equilibria in airline

markets Econometrica 77(6) pp 1791-1828

30

Clausen J Larsen A Larsen J and Rezanova N J 2010 Disruption management in the

airline industrymdashConcepts models and methodsComputers and Operations Research 37(5)

pp 809-821

Doganis R 2002 Flying Off Course The Economics of International Airlines London

Psychology Press

Doganis R 2006 The Airline Business London Psychology Press

Economist 2014 Little Redrsquos Big Problem [Online] Available at lt

httpwwweconomistcomblogsgulliver201410virgin-atlantics-woes gt [Accessed 22nd

August 2015]

FinanceYahoo 2015 Virgin America Inc [Online] Available at lt

httpfinanceyahoocomechartss=VA+InteractiverangemaxallowChartStackingtr

ue gt [Accessed 22nd August 2015]

Gerardi K S and Shapiro A H 2009 Does competition reduce price dispersion New

evidence from the airline industry Journal of Political Economy 117(1) pp 1-37

Gilbert D Child D and Bennett M 2001 The qualitative study of the current practices of

lsquono-frillsrsquo airlines operating in the UK Journal of Vacation Marketing 7(4) pp 302-315

Goumlssling S and Peeters P 2007 lsquoIt does not harm the environmentrsquoAn analysis of

industry discourses on tourism air travel and the environmentJournal of Sustainable

Tourism 15(4) pp 402-417

Hanlon J P 2007 Global Airlines Competition in a Transnational Industry London

Routledge

3

Table of Contents Question 1 4

11 Background 4

12 Factors Affecting Competition in Airline Industry 6

13 Examination of the Demand and Changes in Market Concentration 7

14 The Need for Bilateral Agreements 9

15 Role of Regulatory Authorities 11

16 Development of Alliances Strategies and Political Factors 12

Question 2 14

20 Introduction 14

21 Organisational Background 14

22 Internal Structure and Operations 15

Supply Chain of Virgin Atlantic 18

23 Mission and Vision Statement 20

24 Key Drivers of Virgin Airways 21

25 External Environment 22

26 Financial Performance 26

27 Outcome of Critical Analysis of Virgin Airways 27

28 Conclusion 28

Reference List 29

4

Question 1

11 Background

There have been some life changing inventions and invention of airplane was one of them At

times of World War vast improvement in techniques for the construction and design of

airplanes took place due to government subsidies and growing demand for new airplanes

After the World War II the first commercial airplane routes were established in Europe

(Cento 2008) Overtime air travel has become an integral part of a commuterrsquos life and it is

hard to imagine life without air travel facility This hints at the progress report of the airline

industry It has facilitated the way of living of people by reducing the travel time thereby

altering peoplersquos concept of distance and making it possible for people to conduct business

and visit places which were once considered remote

The industry incurs high fixed cost and earns low profit margin This is due to various factors

such as aircraft fuel aircraft lease rentals debt service and personnel (Doganis 2002) The

expenses of an aircraft flight are not much related to the number of passengers in the sense

that they do not significantly vary with the number of passengers The operations and

financial outcomes of the industry are disproportionately affected by the pricing strategies

As a result a negligible shortfall in expected revenue levels could cause harm to the business

The industry is vulnerable to price discounting since only nominal costs are incurred by

airlines This nominal cost is attributed to the service offered to the passengers occupying

otherwise unsold seats (Doganis 2006)

An astute investor can make profit in this sector inspite of rising fuel prices and many

external risks that are associated with the industry Sometimes fuel surcharge is imposed on

the passenger which is a way of passing higher fuel costs on to their customers However the

5

most efficient method to mitigate cost of fuel is to buy future contracts that set the fuel supply

for a company at a specific price in the coming year The companies also adopt the policy of

hedging There are some companies who hedge more than others implying the fact that they

are better prepared in case of a sudden hike in the oil prices The fate of an airline company is

determined by its ability to make its interest payments and clear all its debts on a timely basis

By calculating the interest coverage ratio it is easy to determine whether interest rate is

excessive (Agusdinata and de Klein 2002) The interest rate is reflective of the debt liabilities

that companies indulge in The hubs of airlines play a vital role in the industry It is described

as a centrally located pit stop where aircrafts fly in order to re-fuel pick up customers and

head out to different destination It has been observed that one of the reasons behind

successful airline service is the presence of busiest hubs Other characteristics involve the

employment of unionized labour These labours are routinely forced to re-negotiate salary

contracts holds the possibility of a strike is omnipresent

If a company has excess cash reserve or has the ability of taking on more debt it may adopt

the policy of acquisition in order to progress on the path of growth Currently some

companies have been significantly reducing ticket costs This has prompted other airlines to

trim their prices and issue a variety of different margin-pinching incentives to consumers in

order to successfully compete in the market Although this price competition is not beneficial

for the companies since it put high debt pressure and diminishing working capital positions

out of business but it is favourable for the consumers (Doganis 2006) Some part of the

industries reveals the existence of monopoly and others tend to be competitive The

monopoly nature is visible in the price discrimination strategy employed in terms of different

prices of the air tickets The industry is also seasonal in nature During vacations and

occasions the demand rises and so does its revenue

6

12 Factors Affecting Competition in Airline Industry

The airline industry is characterised by the presence of intense competition In the recent

period there have been economic downturns that have adversely affected the airline industry

which economist believe will possess a strong effect on the trend of the industry towards

expansion of international and domestic services Earlier the airline industry around the

globe was partly owned by government Although this is still true for many nations but all

major airlines in US is privately owned There are some factors that tend to affect the

competition in the industry Rivalry among sellers is one such factor It varies from country

to country and ranges from moderate to strong Airlines also compete on frequency and

reliability of flights frequent flier programmes etc (Doganis 2002) Nowadays this

pressure has reduced since well-known companies have started focussing on the enhancing

their profits rather than involving in expansion strategy Potential new entrants and substitute

transport system also pose as threats on the industry Deficient desirable gate access and low

traffic levels act as entry barriers along with labour capital and energy intensive nature of the

industry In relation to air transport passenger rail lines personal transportation and bus

service also act as substitutes They are generally low cost and are convenient for shorter

distance (Agusdinata and de Klein 2002)

Middle East carriers are gaining popularity and are considered as threats on international

routes They have advantageous geographic position incur low fuel costs and arte properly

funded Since airlines are entering more into Joint Ventures (JV) and anti-trust immunity

agreements in order to target international growth (Hanlon 2007) With a view to capture

more traffic the Lost Cost Carrier (LCC) model is implemented in JVs by Asian airlines

More airlines are now entering into JVs and more direct flights on international routes are

offered by Anti-Trust Immunity agreements (ATI) However cost pressures still remain an

7

important issue across all markets The competition is mainly between recognised companies

and low cost emerging companies (Barrett 2000)

13 Examination of the Demand and Changes in Market Concentration

The recent times have witnessed impressive dynamics exhibited by European airline industry

The airline industry has gone through an extreme change on both demand and supply side

Unlike other industries the recent changes are not dependent solely on technological

developments but legal cultural institutional factors (Williams 2003) The structure of the

market is highly influenced by institutional and legal aspects and spatial mobility and its

features are affected by cultural forces On the supply side the European Airline industry has

transformed from a long-established system of state-owned carriers which operated in a

regulated market into a free market and dynamic market The procedure of de-regulation and

subsequent procedures of privatization have injected vital changes in the structure of airline

sector The choices and preferences of customers are also undergoing change This directly

affects the pricing strategies of the companies (Hanlon 2007) The industry often faces the

consumer choice problem Many researchers have been done which highlighted that business

commuters preferred valued flight frequency and the proximity of airport compared to leisure

travellers who tend to be more price sensitive

This indicates that the companies need to analyse the approaches towards satisfying their

consumers Since this industry is seasonal in nature the demand structure tends to fluctuate

accordingly It has been observed that time or business sensitive passengers are inelastic in

terms of airfares These passengers are inclined more towards high quality service including

frequent and reliable flights flexibility comfortable seats good frequent flier rewards etc

(Barrett 2000) They are ready to pay increasing high prices to avail these features in a flight

The business market of airline industry reveals price elasticity by a fall in the amount of

tickets sold which was evident from the arrival of low cost airlines This recent development

8

also illustrates that a large percentage of passengers have given more emphasise to prices

over service However this is more accurate for short haul routes The passengers now have

given up additional comfort of economy class on intra European and domestic flights but are

also eager to trade flexibility of ticket in return for low air fares This situation seems to be a

permanent situation which has forced companies to raise the use of low fare airlines

(Belobaba Odoni and Barnhart 2009) Similarly they have increased the use of non-

refundable tickets The reason behind the fall in business class travel is partly demand led and

partly supply led The supply led reasons are high business fares which expanded the segment

of inelastic business class passenger and development of low cost airlines The demand led

reasons are economic downturn that has created an active management that aims at reducing

costs by minimising travel budget and external demand shocks that ranges from SARS

epidemics Iraq War and terrorist attacks (Williams 2003) Although all these do not

necessarily mean that passengers are not willing to pay high fares for additional frills and

services delivered by business class on long haul flights but they want justification behind

premium pricing strategy

The airline industry has under significant changes in its market structure due to variety of

reasons Some of them can be cited out as the bankruptcy of some of the largest airlines

Mergers among the rival companies are another example Other companies have significantly

changed their networks Market structure changes overtime due to mergers entry and exits of

different companies which tend to have an influence on price structure The entry and exit of

firms have a strong impact on the functioning of the industry New entrants usually offer low

prices but its impact differs across markets They induce competitiveness in the market by

offering low cost fares thereby reducing the overall fare prices in the market (Bergantino and

Capozza 2015) Conversely the exiting firms have no clear effect on the pricing behaviour

of their former rivals

9

The market powers of the companies entering into merger are enhanced It was noted that

market where a merging company was present construct a control group This group is

devoid of presence of any merger The fare was increased significantly during the post-

merger situation There are still significant price rise along the routes where one of the

merging companies was a potential entrant Mergers tend to reduce market competition and

increasing the fares market-wise (Belobaba Odoni and Barnhart 2009) However it was also

observed that in some mergers the firm-level price affect is negative mainly due to efficiency

gains The consequence of merger in some cases is the formation of consolidated market

where the merged firms offer lower fares since the rise in their efficiency level due to merger

(Williams 2003)

14 The Need for Bilateral Agreements

International Aviation Organisation (ICAO) is an inter-governmental agency which governs

and coordinates the world operational and worldwide technical standards Bilateral air

transport agreement also known as bilateral air service agreement or ASA or ATA is an

agreement signed by two countries in order to permit international commercial air transport

services between geographical territories (Bergantino and Capozza 2015) The traffic rights

for each operating carriers number of carriers the number of airports in which airplanes will

operate and frequencies of flights between the fixed airports are specified by the bilateral

agreements With the development of airline sector flying became very popular necessitating

the expansion of their service This popularity prompted countries and their related airlines

around the world to develop service agreements in order to make easy the provisions of

international air service to build opportunities for the same airlines serving outside the home

countryrsquos borders and to protect the airlines against unfair foreign competition These

agreements are basically needed to build an efficient airline sector of any country by

promoting fair competition practices and by inviting global opportunities The agreement is a

10

contract formulated so that aviation services of commercial civil aviation can be liberalised

between contracting parties This is important since it allows the airplanes of both the

participating states to launch their commercial flights which cover the transport of cargoes

and passengers of both the nations (Bilotkach Gaggero and Piga 2015) The agreement may

also involve the transport of military personnel of the contracting nations According to the

agreement the airplanes of the participating nations also bring cargoes and passengers to a

third nation or pick up cargoes and passengers from the host nation to the home nation of the

airplane or to a third nation in which the participating countries have existing open skies

agreement

The liberalised form of ASA can be called an open sky agreements Open skies is a global

policy notion of the international aviation sector that requires liberalisation of the regulations

and rules of especially commercial aviation (Kawaura 2015) This is done with the aim of

creating a free-market scenario for the airline industry This agreement is also essential

keeping in mind the objectives that it aims to achieve The main objectives of the agreement

include

To liberalise the rules that govern global aviation markets and reduce government

intervention that is applicable for passengers scheduled and charter service combined air

transportation and all-cargo

To adjust in such a way so that other state based and military flights can be permitted

It has been noticed that the open skies can become effective if bilateral agreements are

concluded between two or more countries Liberalisation of international airline industry is

necessary in order to generate major extra opportunities for customers carriers direct and

indirect entities and shippers (Bilotkach Gaggero and Piga 2015)

11

15 Role of Regulatory Authorities

Any industry that is functioning to serve the society and maximise its profit needs a

governing body that will monitor the operations of the industry and formulates policies so

that the companies do not indulge into unfair trade practices and to enhance the efficiency of

the concerned sector (Wensveen 2010) The role of regulatory authorities in airline industry

includes the creation of transparent and less complex structure that offers highest safety level

for air transport services The responsibilities include providing fair access to adequate

infrastructure and to commercial prospects The framework of the regulatory authorities

should reveal legitimate environmental and military concerns The regulatory body aims at

ensuring consistency cost-effectiveness effective application both for the airlines and for the

governing body (Lelieur 2003) It is also accountable for all the decisions taken The body

also encompasses the global dimensions of aviation and targets to provide the industry with

safe cost-efficient and fair access to other places of the world

There are various functions of the regulatory body such as

Rule Preparation structuring regulatory material by a company that avails the technical

competence to do so In order to prepare the material the company needs to follow

appropriate procedures to ensure that inputs are coming from those who are also affected by

the regulations

Rule-setting the spread of binding requirements in a specific context that permits for

effective enforcement of these rules and policies for political and legal accountability for the

choices that have been made

Operational approval or licensing or certification the body is solely responsible for providing

licenses to airlines procedures etc so that authorisation can be provided to the conduct of

specific activities

12

Inspection monitoring this process is ex post evaluation of continuing compliance with the

requirements of the body and the beginning of corrective measures and actions where needed

Enforcement in order to guarantee compliance with the requirements of the regulatory the

formal powers are exercised which include imposition of proportionate sanctions

Implementation support it comprises of a wide range of activities that aims at assisting the

companies which are given the responsibility related to the application of regulatory needs

like certification monitoring etc

The main area of concern of the regulatory body is to maintain security and safety of the

passengers and crew members protect nature by reducing the emission of harmful pollutants

organisation markets sustain international cooperation and coordination optimal allocation

of scarce resources such as slots airspace maintain control over price structure so that

welfare of the customers are not jeopardise (Lelieur 2003)

16 Development of Alliances Strategies and Political Factors

The cooperative arrangements between airlines which vary extremely in breadth scope and

depth are referred to as airline alliances Airlines may engage into a wide range of

cooperation agreements that ranges from those with restricted cooperation like marketing

arrangements or interline agreements to highly integrated structures of cooperation like

metal-neutral revenue sharing joint ventures (Mahoney 2014) The vital benefit associated

with the alliance is accesses to traffic that are restricted due to bilateral agreements With the

help of the alliances the airline can overcome the entry barriers and engage in the process of

expanding their networks into large geographic regions by code-sharing with other airline

The alliance partner identifies the reciprocal code sharing advantages in the home boundary

of its new partner Both airlines together combine their networks and deliver many more

itinerary combinations than either airline could provide on its own (Wensveen 2010)

13

The alliances can be broadly categorised into two main groups namely strategic and tactical

alliances Tactical alliances comprise of two or more carriers which are designed to address

particular gaps in the networks of individual carrier by offering connectivity between the

networks of the carriers This is in contrast to the strategic alliances which are more

comprehensive and broader structures of cooperation between numerous carriers This

strategy aims at building large international joint networks Rather than closing gaps this

strategy tries to optimise networks thereby influencing the carriers and their routes and

capacities There are three main alliances such as Skyteam Oneworld and Star Alliance

(Bilotkach Gaggero and Piga 2015) Integrated alliance that includes coordinated pricing

yield and inventory management are usually governed by designated alliance committee The

representatives of the partner carriers are the members of the committee It has given the

responsibility to monitor and administer cooperative activities After the re-optimisation of

the joint networks schedules and pricing by the committee dissolving the alliance causes

substantial costs to the partner carriers As a result of the substantial costs carriers usually

look for anti-trust immunity

The political environment is highly regulated favouring the passengers more than airlines It

is because the safety of the passengers is of utmost importance The political environment has

become crucial due to earlier tendencies towards monopolistic behaviour of the sector This

has necessitated the implementation of tighter regulation of the functions of airlines (Taylor

et al 2006) There have also been instances where deregulation has been recognised in the

supply side implying stiff competition among airlines and regulation of demand side

implying that passengers are in charge of lowering prices and demand for more amenities

14

Question 2

20 Introduction

With the increase in competition business management is also getting complex (Bergantino

and Capozza 2015) The corporate sector is one of the most dominant economic forces in the

international sphere today and has successfully raised the bar for quality and productivity

According to Hanlon (2007) corporate houses face many challenges in context of their

internal and external management processes and have to continuously improve and design

new strategies for overcoming them In this report the focus is on analysis of British Airlines

Company Virgin Atlantic Airways The aviation segment is one of the most popular and

dominating segments in the luxury as well as travel and tourism industry With rapid new

entrants in this industry firms are trying to create long-term competitive advantage for

overcoming the economic and managerial challenges The succeeding sections of the study

will focus on analysing the internal and external environment of Virgin Atlantic in

comparison to its performance

21 Organisational Background

Virgin Atlantic Airways began its journey in the year 1984 when entrepreneur Sir Richard

Branson decided to launch a value-added airlines services In the first year of its launch

Virgin Airways had flown over 1 million passengers with the help of their exceptional and

high-profile service structure (Virgin-Atlantic 2015a) By the end of the eighties Sir Richard

Branson sold Virgin Music and invested the gains in Virgin Atlantic and also launched the

much appreciated economy service structure of Virgin Airways (Virgin-Atlantic 2015a) In

the year 1999 49 stake of the company was sold to Singapore Airlines valuing at pound1225

billion Since the beginning of the 21st century Virgin Airways started expanding their

services into the global market and added numerous new features to their services such as the

Upper Class Suite and Virgin Clubhouses (Virgin-Atlantic 2015a) Virgin Airways has

15

continuously remained in the customer focus because of their many awards such as the

Online Retail Awards including ORA Prix drsquoOR Best Leisure amp Travel Website World

Travel Awards BIMA Awards Digital Impact Awards APEX Passenger Choice Awards etc

(Virgin-Atlantic 2015a) The company is currently operating with a fleet size of 39 aircrafts

travelling between 31 destinations The employee base of the firm is formed of 9231 people

According to the annual report of 2014 the revenue of Virgin Atlantic was pound293 billion and

the operating income was pound144 million (Virgin-Atlantic 2015a)

22 Internal Structure and Operations

The organisational structure of Virgin Airways has been formed in two parts the top and

middle management have a flat structure whereas the operational structure is in matrix form

16

Figure 1 Organisational Structure Virgin Atlantic Airways

(Source TheOfficialBoard 2014)

17

The above given figure shows the flat hierarchy of the top management of Virgin Airways

The hierarchy represents the detailed segmentation of every functional departments of the

organisation and can be the reason behind the clarity in the operational processes of the

company However as noted there is no separate group for Human Resource Management in

the given structure The HRM activities of Virgin Airways are carried by the operations head

and the HR managers have been designated in the middle level management of the

organisation This has allowed the company to create individual space for monitoring the

actvities of each department and develop a closely knitted relationship with the customers

(Barwise and Meehan 2010) On the other hand Aguirregabiria and Ho (2012) criticised that

absence of human resource management in the top level management can reduce the ability

of the organisation to attend to the problems faced by the workforce Apart from this the gap

in communication between the operational level employees and the top managers can hamper

the present organisational structure of Virgin Airways

The operational structure of the company however has been designed in a matrix structure for

ensuring better communication among the middle level managers and the line managers

According to Stacey (2011) matrix structure helps an organisation in ensuring optimal

resource utilisation by creating a multi-tasking work culture

18

Figure 2 Operational Level Structure Virgin Atlantic Airways

(Source Papatheodorou and Forsyth 2010 p364)

The given framework of matrix structure reflects that each team operates under different

functional heads simultaneously which increases the productivity and reduces the time of

working for the company Gilbert Child and Bennett (2001) stated that matrix structure often

creates job clashes among the work processes of a firm because of multi-tasking processes

However Tsai and Hsu (2008) and Nolan (2010) maintained that matrix structures creates

flexibility and team work within the employee base of a firm allowing them to shift through

the transition period of a firm and also managing the changes in the internal structure without

hampering the productivity

Supply Chain of Virgin Atlantic

The supply chain actvities of Virgin Atlantic highlights their operational processes and the

aspects that add value to their services The following value chain model explains the strategy

and actvities used for designing the internal actvities of Virgin Atlantic Airways

Production HR Marketing Finance

Team 1

Team 3

Team 2

Staff Staff Staff Staff

Staff

Staff

Staff Staff Staff

Staff Staff Staff

19

Figure 3 Value Chain Analysis of Airline Company

(Source Clausen et al 2010 p816)

The value chain analysis of the airline segment is different from that of manufacturing

organisations The different actvities being performed within the operational scope of the

firm has been added in the analysis based on their contribution towards the overall value

added It can be observed that Information and Communications Technology is the core

process that supports all other actvities of the firms The regulatory policies and bodies form

the infrastructure of the organisations Virgin Airways in this regard has ensured that all the

Financial Policies Accounting Regulations and Policies Community Affairs

Flight route

and yield

analyst

Pilot and

Safety

training

Baggage

Handling

training

Agent

training

In-flight

Training

Computer

Reservatio

n System

In-flight

Scheduling

System

Yield

Manageme

nt System

Product

Developmen

t Market

Research

Baggage

Tracking

System

Information and Communications Technology

Route

Selection

Passenger

Service

System

Pricing

Fuel Flight

Scheduling

Crew

Manageme

nt System

Facilities

Planning

Aircraft

Acquisition

Ticket

Counter

Operations

Gate

Operations

Aircraft

Operations

On-Board

Service

Baggage

Handling

Ticket

Offices

Baggage

System

Flight

Connection

s

Rental Car

and Hotel

Reservatio

n System

Promotion

Advertising

Advantages

Program

Travel

Agent

Program

Group

Sales

Lost Baggage

Service

Complaint

Follow-up

Marg

in

Mar

gin

Firm

Infrastructu

re

HRM

Technology

Developmen

t

Procureme

nt

Inbound

Logistics Operations Outbound

Logistics

Marketing

amp Sales Service

20

air route rules and policies associated with their operations are being fulfilled (Clausen et al

2010) The supporting actvities and primary actvities are connected with the ICT system of

the firm Additional services such as Rental Car and Hotel Reservations form the outbound

services which also contribute towards revenue generation The primary operations and

monitoring processes such as ticket counters gate operations etc are essential for ensuring

appropriate service delivery Relating the given value chain analysis to the service structure

of Virgin Airways additional services of in-flight and in waiting areas help the company in

increasing the value proposition of their services for the customers

23 Mission and Vision Statement

The mission statement of Virgin Atlantic Airways has been designed based on the core values

of the organisation Scheelhaase and Grimme (2007) observed that Virgin Airways has

focused on developing an emotional connection with their stakeholders The mission

statement of the company is

ldquoTo embrace the human spirit and let it flyrdquo (Virgin-Atlantic 2015a)

Virgin Atlantic has always been known for its ability to introduce innovative service aspects

which attract and engage the customers The mission statement highlights the basic contents

of human nature ie freedom Terms such as ldquohuman spiritrdquo have been used in order to

connect with a diverse customer base irrespective of the differences in their needs and

expectations Relating the mission with their service structure Virgin Airways has developed

premium economy flights for lower income customers whereas their executive level

customers have been provided with premium level Upper Class Suites and Virgin

Clubhouses This shows that Virgin Airways has an in-built customer centric approach that

meets the needs of individual customers

21

24 Key Drivers of Virgin Airways

According to Doganis (2006) in the existing scenario innovation is the key driver for growth

and development of business houses Virgin Atlanticrsquos innovation is focused on improving

their operational efficacy for ensuring a better service structure for their customers They

have continuously designed and developed their services for Upper class as well as economy

customers Virgin Airwaysrsquo service structure does not categorise their customers in terms of

lower and business class they have economy premium economy class and upper class levels

Apart from this customers can spend their miles (received when they purchase a ticket of

Virgin Atlantic Airways) for paying instead of money (Goumlssling and Peeters 2007) These

minute additions in customer service help Virgin Airways in generating a steadily increase

revenue curve Another driver for Virgin Atlantic is their pricing processes although the

charges of the company are higher in comparison to other big competitors such as British

Airways or Jet Airways the differences between the different levels of services are minimal

This allows the customers to easily shift from economy level to premium level creating

psychological satisfaction (Van Dender 2007)

Considering their marketing actvities the individual relationship of Virgin Airways with their

customers is one of the main drivers for their growth As per the study of Sutcliffe (2002)

knowing the needs of the customers their complaints their conditions and the existing

marketing condition in relation to competitor strategies ensures better service structure for

firms It can be mentioned that Virgin Airways has won several awards for their website

support and marketing processes such as Online Retail Awards Digital Impact Awards

Travel Agent Choice Award etc (Virgin-Atlantic 2015a) This shows the ability of the firm

to continuously improve on their services and accommodate the growing needs and

expectations of the customers

22

25 External Environment

The external environment of Virgin Atlantic Airways will be analysed with the help of

PESTLE analysis and also in a comparative manner with their competitors with the help of

perceptual mapping process

PESTLE Analysis

Figure 4 PESTLE Analysis of Virgin Atlantic Airways

(Source Scheelhaase and Grimme 2007 p253)

Political One of the major political influences on Virgin Atlantic Airways took place when

the UK Government abolished the London Air Traffic Distribution rules in the year 1991 and

allowed Virgin Airways to operate from the Heathrow Airport (Ciliberto and Tamer 2009)

This move helped Virgin Airways expand their services globally and reach new destinations

mainly in the Asian and African segments However regulations and restrictions of

international bodies such as Civil Aviation Authority create some barriers for Virgin Airways

23

in context of the environmental regulations Other than this the changes in the taxation

policies of the government also hamper the revenue level of the organisation Another

political factor is the relationship of the UK government with Russia and their dispute over

the fuel prices that in turn fluctuates the cost of operations of the airline companies (Gerardi

and Shapiro 2009)

Economical The economical conditions are among the primary factors that influence the

operations of a firm (Wensveen 2010) The global financial crisis of 2007-08 had created a

major manipulation in the operations of the luxury services such as that of Virgin Airways

Mainly in nations such as UK USA Japan Italy Germany etc where customers started

ploughing back their money from the market and created a shortfall in the national

economies airline sector faced difficulties in operations Furthermore the reduction in

Government subsidies also hampered the operations of the business processes On the other

hand instability in the exchange rate increased the fuel prices and reduced the deregulation in

the airline industry (Ciliberto and Tamer 2009) However Virgin Airlines had reduced the

price of their tickets for retaining their customer base and also provided discount plans

Social The social influence on Virgin Airlines is largely associated with the customer and

employee management systems Being one of the largest multination airlines of the world

diversity is a natural occurrence in their customer and employee base The ability to manage

the cultural diversity ensures effective service delivery and customer response for the

company Goumlssling and Peeters (2007) noted that owner Richard Branson wanted to certify

an exceptional service and experience for their customers that required the staff to know and

acknowledge the various cultural factors The in-flight crew of the company provides elegant

services related to the individual needs of the customers such as Virgin Airlines has a

minimum of 4-6 cuisines in their flights at any given point of time to meet the needs of the

customers (Van Dender 2007)

24

Technological It was observed in the value chain analysis that all the operational actvities of

Virgin Airways have been linked with their information and communications technology

This highlights the importance of technological support for the Airlines service Virgin

Airways has always concentrated on guarantying technological superiority for better service

design The fleet of 39 aircrafts have been remodelled regularly to keep them updated with

the industry trends Virgin Airways added 9 Boeing 787 jumbos in their fleet in the year 2014

which are expected to replace the Airbus A330 soon (Virgin-Atlantic 2015b) Services such

as individual television sets for each passenger are an example of technological usage in

Virgin Airways In context of the operational necessities the fleet of Virgin Atlantic has

installed the latest radar systems (AirNav RadarBox) with ADS-B radar systems (Van

Dender 2007)

Legal One of the most prominent legal issues faced by Virgin Atlantic is related to their

domestic service provider Little Red The domestic air traffic of the UK has been consistently

falling the launch of Little Red generated huge controversy among the stakeholders of the

organisation (Bilotkach Gaggero and Piga 2015) Furthermore failure to acquire British

Midland had further reduced the scope of recovering from the losses encountered by Little

Red division of Virgin Atlantic Airways In case of long-haul flights also Virgin Airways is

trying to merge with Delta Airlines but the foreign ownership rules is proving to be a

challenge for both the concerned firms (Economist 2014)

Environmental The environmental issues have always been in the lime-light for airline

organisations based on the pollution generated from flights and the management of the in-

flight wastages (Rea and Kerzner 2012) In this respect Virgin Airlines is trying to reduce

their environmental impact by developing an efficient business service process The bio fuel

demonstration provided by the company has shown potential for reducing the emissions by

25

4 annually (Kawaura 2015) On the other hand the increasing number of flights and

destinations of the company is equally contributing to the increase in green house gases

Perceptual Mapping

Figure 5 Perceptual Mapping Virgin Atlantic Airways

(Source Created by Author)

The above performed perceptual mapping has been derived on the basis of two criteria

namely quality and cost It can be noted that the most suitably positioned airlines group is the

Delta Airlines whereas big brands such as Lufthansa Virgin Airways British Airways etc

are positioned near high cost and high quality factors Evaluating from the given perceptual

map the primary competitor of Virgin Airlines can be noted as Lufthansa British Airways

High Quality

Low Quality

Low

Cost

Hig

h C

ost

Lufthansa

Virgin Atlantic Air France

Continental

Airlines

British Airways

Delta

Frontier

airTrar

Japan Airlines

Ryan Air

Thai

Sky Airline

Air Asia US Airways

Air Canada

26

Continental Airways Air France and Delta Airlines Virgin Airways has always been known

for their premium service category (Goumlssling and Peeters 2007) They have tried to provide

the best of services to their customers such as Clubhouses and in-flight bars and television

that have positioned Virgin Airways near the high quality quadrant of the map Although

price is an important factor for customers in their purchase decisions Virgin Airways is

trying to nullify the cost difference by adding more services and add-ons to create a halo

effect and engage the customers with their service delivery process

26 Financial Performance

The financial performance of the company has been analysed from the annual report and the

stock performance of Virgin Atlantic Airways Virgin Airways served over 6 million

customers across 33 destinations in the year 2014 which resulted in operating cash flow of

pound121 million (Virgin-Atlantic 2014) The firm experienced an increase in the unit revenue

per airline passenger by 48 whereas the operating cost increased by 03 from that of

2013 (Virgin-Atlantic 2014) The profit before tax and exceptional items of Virgin Airlines

increased by pound65 million from 2013 to pound14 million in 2014 on year on year basis However

the stock performance of Virgin Airways has fallen since the year 2014 from a point of 4381

to 3823 in 2015 The stock curve of the company has been consistently decreasing in 2015

since the sale of 49 stock to Delta Group of Airlines (FinanceYahoo 2015)

27

Figure 6 Stock Performance of Virgin Atlantic Airways 2014-2015

(Source FinanceYahoo 2015)

27 Outcome of Critical Analysis of Virgin Airways

Based on the above given internal and external analysis of Virgin Atlantic Airways it can be

considered that Virgin Airways has been growing significantly with their service structure

However there has been a decrease in their revenue generation process as Little Red segment

failed to perform in the shot-haul domestic flights and the long-haul flights are also facing

steep competition from other big brands such as British Airways Emirates and Lufthansa In

context of their organisational structure the top management body does not have a spot for

the human resource management department and has implanted the HR systems within the

middle level management The top management has been structured with a flat hierarchical

structure whereas the operational level of the company reflects a matrix structure for smooth

functioning

28

The marketing processes of Virgin Airways are the key to their customer relationship

process The company has an interactive website and efficient customer communication

methods for connecting the customers with the organisation Apart from this the service

structure of the company is continuously upgraded with innovative technology in order to

engage the customers with the firm Although the pricing of the company is higher in

comparison to their competitors individual focus towards customer needs and expectations

helps them in managing their business growth and development

28 Conclusion

Being a luxury service provider and one of the top brands of the international aviation

industry Virgin Atlantic Airlines has generated huge brand value in their respective industry

Virgin Airways has always followed an unconventional route for designing their business

strategies and tried to capture their target markets with exceptional and innovative service

structures While the company progresses in terms of their operational and managerial

efficacies the financial performance of the firm has suffered in the domestic short-haul flight

segment The long-haul flights have also shown a gradual decrease that lead to the selling of

49 of stock to Delta Airlines Based on the analysis performed it can be suggested that

Virgin Atlantic Airways needs to innovate new strategies for reducing their operational

expenses and also expanding their services to more destinations across the world

29

Reference List

Aguirregabiria V and Ho C Y 2012 A dynamic oligopoly game of the US airline

industry Estimation and policy experiments Journal of Econometrics 168(1) pp 156-173

Agusdinata B and de Klein W 2002 The Dynamics of Airline Alliances Journal of Air

Transport Management 8(4) pp 201-211

Barrett S D 2000 Airport Competition in the Deregulated European Aviation Market

Journal of Air Transport Management 6(1) pp 13-27

Barwise P and Meehan S 2010 The one thing you must get right when building a

brand Harvard Business Review 88(12) pp 80-84

Belobaba P Odoni A and Barnhart C 2009 The Global Airline Industry New Jersey

John Wiley amp Sons

Bergantino A S and Capozza C 2015 Airline Pricing Behavior under Limited

Inter‐Modal Competition Economic Inquiry 53(1) pp 700-713

Bilotkach V Gaggero A A and Piga C A 2015 Airline pricing under different market

conditions Evidence from European Low-Cost Carriers Tourism Management 47 pp 152-

163

Cento A 2008 The Airline Industry Challenges in the 21st Century Berlin Springer

Science amp Business Media

Ciliberto F and Tamer E 2009 Market structure and multiple equilibria in airline

markets Econometrica 77(6) pp 1791-1828

30

Clausen J Larsen A Larsen J and Rezanova N J 2010 Disruption management in the

airline industrymdashConcepts models and methodsComputers and Operations Research 37(5)

pp 809-821

Doganis R 2002 Flying Off Course The Economics of International Airlines London

Psychology Press

Doganis R 2006 The Airline Business London Psychology Press

Economist 2014 Little Redrsquos Big Problem [Online] Available at lt

httpwwweconomistcomblogsgulliver201410virgin-atlantics-woes gt [Accessed 22nd

August 2015]

FinanceYahoo 2015 Virgin America Inc [Online] Available at lt

httpfinanceyahoocomechartss=VA+InteractiverangemaxallowChartStackingtr

ue gt [Accessed 22nd August 2015]

Gerardi K S and Shapiro A H 2009 Does competition reduce price dispersion New

evidence from the airline industry Journal of Political Economy 117(1) pp 1-37

Gilbert D Child D and Bennett M 2001 The qualitative study of the current practices of

lsquono-frillsrsquo airlines operating in the UK Journal of Vacation Marketing 7(4) pp 302-315

Goumlssling S and Peeters P 2007 lsquoIt does not harm the environmentrsquoAn analysis of

industry discourses on tourism air travel and the environmentJournal of Sustainable

Tourism 15(4) pp 402-417

Hanlon J P 2007 Global Airlines Competition in a Transnational Industry London

Routledge

4

Question 1

11 Background

There have been some life changing inventions and invention of airplane was one of them At

times of World War vast improvement in techniques for the construction and design of

airplanes took place due to government subsidies and growing demand for new airplanes

After the World War II the first commercial airplane routes were established in Europe

(Cento 2008) Overtime air travel has become an integral part of a commuterrsquos life and it is

hard to imagine life without air travel facility This hints at the progress report of the airline

industry It has facilitated the way of living of people by reducing the travel time thereby

altering peoplersquos concept of distance and making it possible for people to conduct business

and visit places which were once considered remote

The industry incurs high fixed cost and earns low profit margin This is due to various factors

such as aircraft fuel aircraft lease rentals debt service and personnel (Doganis 2002) The

expenses of an aircraft flight are not much related to the number of passengers in the sense

that they do not significantly vary with the number of passengers The operations and

financial outcomes of the industry are disproportionately affected by the pricing strategies

As a result a negligible shortfall in expected revenue levels could cause harm to the business

The industry is vulnerable to price discounting since only nominal costs are incurred by

airlines This nominal cost is attributed to the service offered to the passengers occupying

otherwise unsold seats (Doganis 2006)

An astute investor can make profit in this sector inspite of rising fuel prices and many

external risks that are associated with the industry Sometimes fuel surcharge is imposed on

the passenger which is a way of passing higher fuel costs on to their customers However the

5

most efficient method to mitigate cost of fuel is to buy future contracts that set the fuel supply

for a company at a specific price in the coming year The companies also adopt the policy of

hedging There are some companies who hedge more than others implying the fact that they

are better prepared in case of a sudden hike in the oil prices The fate of an airline company is

determined by its ability to make its interest payments and clear all its debts on a timely basis

By calculating the interest coverage ratio it is easy to determine whether interest rate is

excessive (Agusdinata and de Klein 2002) The interest rate is reflective of the debt liabilities

that companies indulge in The hubs of airlines play a vital role in the industry It is described

as a centrally located pit stop where aircrafts fly in order to re-fuel pick up customers and

head out to different destination It has been observed that one of the reasons behind

successful airline service is the presence of busiest hubs Other characteristics involve the

employment of unionized labour These labours are routinely forced to re-negotiate salary

contracts holds the possibility of a strike is omnipresent

If a company has excess cash reserve or has the ability of taking on more debt it may adopt

the policy of acquisition in order to progress on the path of growth Currently some

companies have been significantly reducing ticket costs This has prompted other airlines to

trim their prices and issue a variety of different margin-pinching incentives to consumers in

order to successfully compete in the market Although this price competition is not beneficial

for the companies since it put high debt pressure and diminishing working capital positions

out of business but it is favourable for the consumers (Doganis 2006) Some part of the

industries reveals the existence of monopoly and others tend to be competitive The

monopoly nature is visible in the price discrimination strategy employed in terms of different

prices of the air tickets The industry is also seasonal in nature During vacations and

occasions the demand rises and so does its revenue

6

12 Factors Affecting Competition in Airline Industry

The airline industry is characterised by the presence of intense competition In the recent

period there have been economic downturns that have adversely affected the airline industry

which economist believe will possess a strong effect on the trend of the industry towards

expansion of international and domestic services Earlier the airline industry around the

globe was partly owned by government Although this is still true for many nations but all

major airlines in US is privately owned There are some factors that tend to affect the

competition in the industry Rivalry among sellers is one such factor It varies from country

to country and ranges from moderate to strong Airlines also compete on frequency and

reliability of flights frequent flier programmes etc (Doganis 2002) Nowadays this

pressure has reduced since well-known companies have started focussing on the enhancing

their profits rather than involving in expansion strategy Potential new entrants and substitute

transport system also pose as threats on the industry Deficient desirable gate access and low

traffic levels act as entry barriers along with labour capital and energy intensive nature of the

industry In relation to air transport passenger rail lines personal transportation and bus

service also act as substitutes They are generally low cost and are convenient for shorter

distance (Agusdinata and de Klein 2002)

Middle East carriers are gaining popularity and are considered as threats on international

routes They have advantageous geographic position incur low fuel costs and arte properly

funded Since airlines are entering more into Joint Ventures (JV) and anti-trust immunity

agreements in order to target international growth (Hanlon 2007) With a view to capture

more traffic the Lost Cost Carrier (LCC) model is implemented in JVs by Asian airlines

More airlines are now entering into JVs and more direct flights on international routes are

offered by Anti-Trust Immunity agreements (ATI) However cost pressures still remain an

7

important issue across all markets The competition is mainly between recognised companies

and low cost emerging companies (Barrett 2000)

13 Examination of the Demand and Changes in Market Concentration

The recent times have witnessed impressive dynamics exhibited by European airline industry

The airline industry has gone through an extreme change on both demand and supply side

Unlike other industries the recent changes are not dependent solely on technological

developments but legal cultural institutional factors (Williams 2003) The structure of the

market is highly influenced by institutional and legal aspects and spatial mobility and its

features are affected by cultural forces On the supply side the European Airline industry has

transformed from a long-established system of state-owned carriers which operated in a

regulated market into a free market and dynamic market The procedure of de-regulation and

subsequent procedures of privatization have injected vital changes in the structure of airline

sector The choices and preferences of customers are also undergoing change This directly

affects the pricing strategies of the companies (Hanlon 2007) The industry often faces the

consumer choice problem Many researchers have been done which highlighted that business

commuters preferred valued flight frequency and the proximity of airport compared to leisure

travellers who tend to be more price sensitive

This indicates that the companies need to analyse the approaches towards satisfying their

consumers Since this industry is seasonal in nature the demand structure tends to fluctuate

accordingly It has been observed that time or business sensitive passengers are inelastic in

terms of airfares These passengers are inclined more towards high quality service including

frequent and reliable flights flexibility comfortable seats good frequent flier rewards etc

(Barrett 2000) They are ready to pay increasing high prices to avail these features in a flight

The business market of airline industry reveals price elasticity by a fall in the amount of

tickets sold which was evident from the arrival of low cost airlines This recent development

8

also illustrates that a large percentage of passengers have given more emphasise to prices

over service However this is more accurate for short haul routes The passengers now have

given up additional comfort of economy class on intra European and domestic flights but are

also eager to trade flexibility of ticket in return for low air fares This situation seems to be a

permanent situation which has forced companies to raise the use of low fare airlines

(Belobaba Odoni and Barnhart 2009) Similarly they have increased the use of non-

refundable tickets The reason behind the fall in business class travel is partly demand led and

partly supply led The supply led reasons are high business fares which expanded the segment

of inelastic business class passenger and development of low cost airlines The demand led

reasons are economic downturn that has created an active management that aims at reducing

costs by minimising travel budget and external demand shocks that ranges from SARS

epidemics Iraq War and terrorist attacks (Williams 2003) Although all these do not

necessarily mean that passengers are not willing to pay high fares for additional frills and

services delivered by business class on long haul flights but they want justification behind

premium pricing strategy

The airline industry has under significant changes in its market structure due to variety of

reasons Some of them can be cited out as the bankruptcy of some of the largest airlines

Mergers among the rival companies are another example Other companies have significantly

changed their networks Market structure changes overtime due to mergers entry and exits of

different companies which tend to have an influence on price structure The entry and exit of

firms have a strong impact on the functioning of the industry New entrants usually offer low

prices but its impact differs across markets They induce competitiveness in the market by

offering low cost fares thereby reducing the overall fare prices in the market (Bergantino and

Capozza 2015) Conversely the exiting firms have no clear effect on the pricing behaviour

of their former rivals

9

The market powers of the companies entering into merger are enhanced It was noted that

market where a merging company was present construct a control group This group is

devoid of presence of any merger The fare was increased significantly during the post-

merger situation There are still significant price rise along the routes where one of the

merging companies was a potential entrant Mergers tend to reduce market competition and

increasing the fares market-wise (Belobaba Odoni and Barnhart 2009) However it was also

observed that in some mergers the firm-level price affect is negative mainly due to efficiency

gains The consequence of merger in some cases is the formation of consolidated market

where the merged firms offer lower fares since the rise in their efficiency level due to merger

(Williams 2003)

14 The Need for Bilateral Agreements

International Aviation Organisation (ICAO) is an inter-governmental agency which governs

and coordinates the world operational and worldwide technical standards Bilateral air

transport agreement also known as bilateral air service agreement or ASA or ATA is an

agreement signed by two countries in order to permit international commercial air transport

services between geographical territories (Bergantino and Capozza 2015) The traffic rights

for each operating carriers number of carriers the number of airports in which airplanes will

operate and frequencies of flights between the fixed airports are specified by the bilateral

agreements With the development of airline sector flying became very popular necessitating

the expansion of their service This popularity prompted countries and their related airlines

around the world to develop service agreements in order to make easy the provisions of

international air service to build opportunities for the same airlines serving outside the home

countryrsquos borders and to protect the airlines against unfair foreign competition These

agreements are basically needed to build an efficient airline sector of any country by

promoting fair competition practices and by inviting global opportunities The agreement is a

10

contract formulated so that aviation services of commercial civil aviation can be liberalised

between contracting parties This is important since it allows the airplanes of both the

participating states to launch their commercial flights which cover the transport of cargoes

and passengers of both the nations (Bilotkach Gaggero and Piga 2015) The agreement may

also involve the transport of military personnel of the contracting nations According to the

agreement the airplanes of the participating nations also bring cargoes and passengers to a

third nation or pick up cargoes and passengers from the host nation to the home nation of the

airplane or to a third nation in which the participating countries have existing open skies

agreement

The liberalised form of ASA can be called an open sky agreements Open skies is a global

policy notion of the international aviation sector that requires liberalisation of the regulations

and rules of especially commercial aviation (Kawaura 2015) This is done with the aim of

creating a free-market scenario for the airline industry This agreement is also essential

keeping in mind the objectives that it aims to achieve The main objectives of the agreement

include

To liberalise the rules that govern global aviation markets and reduce government

intervention that is applicable for passengers scheduled and charter service combined air

transportation and all-cargo

To adjust in such a way so that other state based and military flights can be permitted

It has been noticed that the open skies can become effective if bilateral agreements are

concluded between two or more countries Liberalisation of international airline industry is

necessary in order to generate major extra opportunities for customers carriers direct and

indirect entities and shippers (Bilotkach Gaggero and Piga 2015)

11

15 Role of Regulatory Authorities

Any industry that is functioning to serve the society and maximise its profit needs a

governing body that will monitor the operations of the industry and formulates policies so

that the companies do not indulge into unfair trade practices and to enhance the efficiency of

the concerned sector (Wensveen 2010) The role of regulatory authorities in airline industry

includes the creation of transparent and less complex structure that offers highest safety level

for air transport services The responsibilities include providing fair access to adequate

infrastructure and to commercial prospects The framework of the regulatory authorities

should reveal legitimate environmental and military concerns The regulatory body aims at

ensuring consistency cost-effectiveness effective application both for the airlines and for the

governing body (Lelieur 2003) It is also accountable for all the decisions taken The body

also encompasses the global dimensions of aviation and targets to provide the industry with

safe cost-efficient and fair access to other places of the world

There are various functions of the regulatory body such as

Rule Preparation structuring regulatory material by a company that avails the technical

competence to do so In order to prepare the material the company needs to follow

appropriate procedures to ensure that inputs are coming from those who are also affected by

the regulations

Rule-setting the spread of binding requirements in a specific context that permits for

effective enforcement of these rules and policies for political and legal accountability for the

choices that have been made

Operational approval or licensing or certification the body is solely responsible for providing

licenses to airlines procedures etc so that authorisation can be provided to the conduct of

specific activities

12

Inspection monitoring this process is ex post evaluation of continuing compliance with the

requirements of the body and the beginning of corrective measures and actions where needed

Enforcement in order to guarantee compliance with the requirements of the regulatory the

formal powers are exercised which include imposition of proportionate sanctions

Implementation support it comprises of a wide range of activities that aims at assisting the

companies which are given the responsibility related to the application of regulatory needs

like certification monitoring etc

The main area of concern of the regulatory body is to maintain security and safety of the

passengers and crew members protect nature by reducing the emission of harmful pollutants

organisation markets sustain international cooperation and coordination optimal allocation

of scarce resources such as slots airspace maintain control over price structure so that

welfare of the customers are not jeopardise (Lelieur 2003)

16 Development of Alliances Strategies and Political Factors

The cooperative arrangements between airlines which vary extremely in breadth scope and

depth are referred to as airline alliances Airlines may engage into a wide range of

cooperation agreements that ranges from those with restricted cooperation like marketing

arrangements or interline agreements to highly integrated structures of cooperation like

metal-neutral revenue sharing joint ventures (Mahoney 2014) The vital benefit associated

with the alliance is accesses to traffic that are restricted due to bilateral agreements With the

help of the alliances the airline can overcome the entry barriers and engage in the process of

expanding their networks into large geographic regions by code-sharing with other airline

The alliance partner identifies the reciprocal code sharing advantages in the home boundary

of its new partner Both airlines together combine their networks and deliver many more

itinerary combinations than either airline could provide on its own (Wensveen 2010)

13

The alliances can be broadly categorised into two main groups namely strategic and tactical

alliances Tactical alliances comprise of two or more carriers which are designed to address

particular gaps in the networks of individual carrier by offering connectivity between the

networks of the carriers This is in contrast to the strategic alliances which are more

comprehensive and broader structures of cooperation between numerous carriers This

strategy aims at building large international joint networks Rather than closing gaps this

strategy tries to optimise networks thereby influencing the carriers and their routes and

capacities There are three main alliances such as Skyteam Oneworld and Star Alliance

(Bilotkach Gaggero and Piga 2015) Integrated alliance that includes coordinated pricing

yield and inventory management are usually governed by designated alliance committee The

representatives of the partner carriers are the members of the committee It has given the

responsibility to monitor and administer cooperative activities After the re-optimisation of

the joint networks schedules and pricing by the committee dissolving the alliance causes

substantial costs to the partner carriers As a result of the substantial costs carriers usually

look for anti-trust immunity

The political environment is highly regulated favouring the passengers more than airlines It

is because the safety of the passengers is of utmost importance The political environment has

become crucial due to earlier tendencies towards monopolistic behaviour of the sector This

has necessitated the implementation of tighter regulation of the functions of airlines (Taylor

et al 2006) There have also been instances where deregulation has been recognised in the

supply side implying stiff competition among airlines and regulation of demand side

implying that passengers are in charge of lowering prices and demand for more amenities

14

Question 2

20 Introduction

With the increase in competition business management is also getting complex (Bergantino

and Capozza 2015) The corporate sector is one of the most dominant economic forces in the

international sphere today and has successfully raised the bar for quality and productivity

According to Hanlon (2007) corporate houses face many challenges in context of their

internal and external management processes and have to continuously improve and design

new strategies for overcoming them In this report the focus is on analysis of British Airlines

Company Virgin Atlantic Airways The aviation segment is one of the most popular and

dominating segments in the luxury as well as travel and tourism industry With rapid new

entrants in this industry firms are trying to create long-term competitive advantage for

overcoming the economic and managerial challenges The succeeding sections of the study

will focus on analysing the internal and external environment of Virgin Atlantic in

comparison to its performance

21 Organisational Background

Virgin Atlantic Airways began its journey in the year 1984 when entrepreneur Sir Richard

Branson decided to launch a value-added airlines services In the first year of its launch

Virgin Airways had flown over 1 million passengers with the help of their exceptional and

high-profile service structure (Virgin-Atlantic 2015a) By the end of the eighties Sir Richard

Branson sold Virgin Music and invested the gains in Virgin Atlantic and also launched the

much appreciated economy service structure of Virgin Airways (Virgin-Atlantic 2015a) In

the year 1999 49 stake of the company was sold to Singapore Airlines valuing at pound1225

billion Since the beginning of the 21st century Virgin Airways started expanding their

services into the global market and added numerous new features to their services such as the

Upper Class Suite and Virgin Clubhouses (Virgin-Atlantic 2015a) Virgin Airways has

15

continuously remained in the customer focus because of their many awards such as the

Online Retail Awards including ORA Prix drsquoOR Best Leisure amp Travel Website World

Travel Awards BIMA Awards Digital Impact Awards APEX Passenger Choice Awards etc

(Virgin-Atlantic 2015a) The company is currently operating with a fleet size of 39 aircrafts

travelling between 31 destinations The employee base of the firm is formed of 9231 people

According to the annual report of 2014 the revenue of Virgin Atlantic was pound293 billion and

the operating income was pound144 million (Virgin-Atlantic 2015a)

22 Internal Structure and Operations

The organisational structure of Virgin Airways has been formed in two parts the top and

middle management have a flat structure whereas the operational structure is in matrix form

16

Figure 1 Organisational Structure Virgin Atlantic Airways

(Source TheOfficialBoard 2014)

17

The above given figure shows the flat hierarchy of the top management of Virgin Airways

The hierarchy represents the detailed segmentation of every functional departments of the

organisation and can be the reason behind the clarity in the operational processes of the

company However as noted there is no separate group for Human Resource Management in

the given structure The HRM activities of Virgin Airways are carried by the operations head

and the HR managers have been designated in the middle level management of the

organisation This has allowed the company to create individual space for monitoring the

actvities of each department and develop a closely knitted relationship with the customers

(Barwise and Meehan 2010) On the other hand Aguirregabiria and Ho (2012) criticised that

absence of human resource management in the top level management can reduce the ability

of the organisation to attend to the problems faced by the workforce Apart from this the gap

in communication between the operational level employees and the top managers can hamper

the present organisational structure of Virgin Airways

The operational structure of the company however has been designed in a matrix structure for

ensuring better communication among the middle level managers and the line managers

According to Stacey (2011) matrix structure helps an organisation in ensuring optimal

resource utilisation by creating a multi-tasking work culture

18

Figure 2 Operational Level Structure Virgin Atlantic Airways

(Source Papatheodorou and Forsyth 2010 p364)

The given framework of matrix structure reflects that each team operates under different

functional heads simultaneously which increases the productivity and reduces the time of

working for the company Gilbert Child and Bennett (2001) stated that matrix structure often

creates job clashes among the work processes of a firm because of multi-tasking processes

However Tsai and Hsu (2008) and Nolan (2010) maintained that matrix structures creates

flexibility and team work within the employee base of a firm allowing them to shift through

the transition period of a firm and also managing the changes in the internal structure without

hampering the productivity

Supply Chain of Virgin Atlantic

The supply chain actvities of Virgin Atlantic highlights their operational processes and the

aspects that add value to their services The following value chain model explains the strategy

and actvities used for designing the internal actvities of Virgin Atlantic Airways

Production HR Marketing Finance

Team 1

Team 3

Team 2

Staff Staff Staff Staff

Staff

Staff

Staff Staff Staff

Staff Staff Staff

19

Figure 3 Value Chain Analysis of Airline Company

(Source Clausen et al 2010 p816)

The value chain analysis of the airline segment is different from that of manufacturing

organisations The different actvities being performed within the operational scope of the

firm has been added in the analysis based on their contribution towards the overall value

added It can be observed that Information and Communications Technology is the core

process that supports all other actvities of the firms The regulatory policies and bodies form

the infrastructure of the organisations Virgin Airways in this regard has ensured that all the

Financial Policies Accounting Regulations and Policies Community Affairs

Flight route

and yield

analyst

Pilot and

Safety

training

Baggage

Handling

training

Agent

training

In-flight

Training

Computer

Reservatio

n System

In-flight

Scheduling

System

Yield

Manageme

nt System

Product

Developmen

t Market

Research

Baggage

Tracking

System

Information and Communications Technology

Route

Selection

Passenger

Service

System

Pricing

Fuel Flight

Scheduling

Crew

Manageme

nt System

Facilities

Planning

Aircraft

Acquisition

Ticket

Counter

Operations

Gate

Operations

Aircraft

Operations

On-Board

Service

Baggage

Handling

Ticket

Offices

Baggage

System

Flight

Connection

s

Rental Car

and Hotel

Reservatio

n System

Promotion

Advertising

Advantages

Program

Travel

Agent

Program

Group

Sales

Lost Baggage

Service

Complaint

Follow-up

Marg

in

Mar

gin

Firm

Infrastructu

re

HRM

Technology

Developmen

t

Procureme

nt

Inbound

Logistics Operations Outbound

Logistics

Marketing

amp Sales Service

20

air route rules and policies associated with their operations are being fulfilled (Clausen et al

2010) The supporting actvities and primary actvities are connected with the ICT system of

the firm Additional services such as Rental Car and Hotel Reservations form the outbound

services which also contribute towards revenue generation The primary operations and

monitoring processes such as ticket counters gate operations etc are essential for ensuring

appropriate service delivery Relating the given value chain analysis to the service structure

of Virgin Airways additional services of in-flight and in waiting areas help the company in

increasing the value proposition of their services for the customers

23 Mission and Vision Statement

The mission statement of Virgin Atlantic Airways has been designed based on the core values

of the organisation Scheelhaase and Grimme (2007) observed that Virgin Airways has

focused on developing an emotional connection with their stakeholders The mission

statement of the company is

ldquoTo embrace the human spirit and let it flyrdquo (Virgin-Atlantic 2015a)

Virgin Atlantic has always been known for its ability to introduce innovative service aspects

which attract and engage the customers The mission statement highlights the basic contents

of human nature ie freedom Terms such as ldquohuman spiritrdquo have been used in order to

connect with a diverse customer base irrespective of the differences in their needs and

expectations Relating the mission with their service structure Virgin Airways has developed

premium economy flights for lower income customers whereas their executive level

customers have been provided with premium level Upper Class Suites and Virgin

Clubhouses This shows that Virgin Airways has an in-built customer centric approach that

meets the needs of individual customers

21

24 Key Drivers of Virgin Airways

According to Doganis (2006) in the existing scenario innovation is the key driver for growth

and development of business houses Virgin Atlanticrsquos innovation is focused on improving

their operational efficacy for ensuring a better service structure for their customers They

have continuously designed and developed their services for Upper class as well as economy

customers Virgin Airwaysrsquo service structure does not categorise their customers in terms of

lower and business class they have economy premium economy class and upper class levels

Apart from this customers can spend their miles (received when they purchase a ticket of

Virgin Atlantic Airways) for paying instead of money (Goumlssling and Peeters 2007) These

minute additions in customer service help Virgin Airways in generating a steadily increase

revenue curve Another driver for Virgin Atlantic is their pricing processes although the

charges of the company are higher in comparison to other big competitors such as British

Airways or Jet Airways the differences between the different levels of services are minimal

This allows the customers to easily shift from economy level to premium level creating

psychological satisfaction (Van Dender 2007)

Considering their marketing actvities the individual relationship of Virgin Airways with their

customers is one of the main drivers for their growth As per the study of Sutcliffe (2002)

knowing the needs of the customers their complaints their conditions and the existing

marketing condition in relation to competitor strategies ensures better service structure for

firms It can be mentioned that Virgin Airways has won several awards for their website

support and marketing processes such as Online Retail Awards Digital Impact Awards

Travel Agent Choice Award etc (Virgin-Atlantic 2015a) This shows the ability of the firm

to continuously improve on their services and accommodate the growing needs and

expectations of the customers

22

25 External Environment

The external environment of Virgin Atlantic Airways will be analysed with the help of

PESTLE analysis and also in a comparative manner with their competitors with the help of

perceptual mapping process

PESTLE Analysis

Figure 4 PESTLE Analysis of Virgin Atlantic Airways

(Source Scheelhaase and Grimme 2007 p253)

Political One of the major political influences on Virgin Atlantic Airways took place when

the UK Government abolished the London Air Traffic Distribution rules in the year 1991 and

allowed Virgin Airways to operate from the Heathrow Airport (Ciliberto and Tamer 2009)

This move helped Virgin Airways expand their services globally and reach new destinations

mainly in the Asian and African segments However regulations and restrictions of

international bodies such as Civil Aviation Authority create some barriers for Virgin Airways

23

in context of the environmental regulations Other than this the changes in the taxation

policies of the government also hamper the revenue level of the organisation Another

political factor is the relationship of the UK government with Russia and their dispute over

the fuel prices that in turn fluctuates the cost of operations of the airline companies (Gerardi

and Shapiro 2009)

Economical The economical conditions are among the primary factors that influence the

operations of a firm (Wensveen 2010) The global financial crisis of 2007-08 had created a

major manipulation in the operations of the luxury services such as that of Virgin Airways

Mainly in nations such as UK USA Japan Italy Germany etc where customers started

ploughing back their money from the market and created a shortfall in the national

economies airline sector faced difficulties in operations Furthermore the reduction in

Government subsidies also hampered the operations of the business processes On the other

hand instability in the exchange rate increased the fuel prices and reduced the deregulation in

the airline industry (Ciliberto and Tamer 2009) However Virgin Airlines had reduced the

price of their tickets for retaining their customer base and also provided discount plans

Social The social influence on Virgin Airlines is largely associated with the customer and

employee management systems Being one of the largest multination airlines of the world

diversity is a natural occurrence in their customer and employee base The ability to manage

the cultural diversity ensures effective service delivery and customer response for the

company Goumlssling and Peeters (2007) noted that owner Richard Branson wanted to certify

an exceptional service and experience for their customers that required the staff to know and

acknowledge the various cultural factors The in-flight crew of the company provides elegant

services related to the individual needs of the customers such as Virgin Airlines has a

minimum of 4-6 cuisines in their flights at any given point of time to meet the needs of the

customers (Van Dender 2007)

24

Technological It was observed in the value chain analysis that all the operational actvities of

Virgin Airways have been linked with their information and communications technology

This highlights the importance of technological support for the Airlines service Virgin

Airways has always concentrated on guarantying technological superiority for better service

design The fleet of 39 aircrafts have been remodelled regularly to keep them updated with

the industry trends Virgin Airways added 9 Boeing 787 jumbos in their fleet in the year 2014

which are expected to replace the Airbus A330 soon (Virgin-Atlantic 2015b) Services such

as individual television sets for each passenger are an example of technological usage in

Virgin Airways In context of the operational necessities the fleet of Virgin Atlantic has

installed the latest radar systems (AirNav RadarBox) with ADS-B radar systems (Van

Dender 2007)

Legal One of the most prominent legal issues faced by Virgin Atlantic is related to their

domestic service provider Little Red The domestic air traffic of the UK has been consistently

falling the launch of Little Red generated huge controversy among the stakeholders of the

organisation (Bilotkach Gaggero and Piga 2015) Furthermore failure to acquire British

Midland had further reduced the scope of recovering from the losses encountered by Little

Red division of Virgin Atlantic Airways In case of long-haul flights also Virgin Airways is

trying to merge with Delta Airlines but the foreign ownership rules is proving to be a

challenge for both the concerned firms (Economist 2014)

Environmental The environmental issues have always been in the lime-light for airline

organisations based on the pollution generated from flights and the management of the in-

flight wastages (Rea and Kerzner 2012) In this respect Virgin Airlines is trying to reduce

their environmental impact by developing an efficient business service process The bio fuel

demonstration provided by the company has shown potential for reducing the emissions by

25

4 annually (Kawaura 2015) On the other hand the increasing number of flights and

destinations of the company is equally contributing to the increase in green house gases

Perceptual Mapping

Figure 5 Perceptual Mapping Virgin Atlantic Airways

(Source Created by Author)

The above performed perceptual mapping has been derived on the basis of two criteria

namely quality and cost It can be noted that the most suitably positioned airlines group is the

Delta Airlines whereas big brands such as Lufthansa Virgin Airways British Airways etc

are positioned near high cost and high quality factors Evaluating from the given perceptual

map the primary competitor of Virgin Airlines can be noted as Lufthansa British Airways

High Quality

Low Quality

Low

Cost

Hig

h C

ost

Lufthansa

Virgin Atlantic Air France

Continental

Airlines

British Airways

Delta

Frontier

airTrar

Japan Airlines

Ryan Air

Thai

Sky Airline

Air Asia US Airways

Air Canada

26

Continental Airways Air France and Delta Airlines Virgin Airways has always been known

for their premium service category (Goumlssling and Peeters 2007) They have tried to provide

the best of services to their customers such as Clubhouses and in-flight bars and television

that have positioned Virgin Airways near the high quality quadrant of the map Although

price is an important factor for customers in their purchase decisions Virgin Airways is

trying to nullify the cost difference by adding more services and add-ons to create a halo

effect and engage the customers with their service delivery process

26 Financial Performance

The financial performance of the company has been analysed from the annual report and the

stock performance of Virgin Atlantic Airways Virgin Airways served over 6 million

customers across 33 destinations in the year 2014 which resulted in operating cash flow of

pound121 million (Virgin-Atlantic 2014) The firm experienced an increase in the unit revenue

per airline passenger by 48 whereas the operating cost increased by 03 from that of

2013 (Virgin-Atlantic 2014) The profit before tax and exceptional items of Virgin Airlines

increased by pound65 million from 2013 to pound14 million in 2014 on year on year basis However

the stock performance of Virgin Airways has fallen since the year 2014 from a point of 4381

to 3823 in 2015 The stock curve of the company has been consistently decreasing in 2015

since the sale of 49 stock to Delta Group of Airlines (FinanceYahoo 2015)

27

Figure 6 Stock Performance of Virgin Atlantic Airways 2014-2015

(Source FinanceYahoo 2015)

27 Outcome of Critical Analysis of Virgin Airways

Based on the above given internal and external analysis of Virgin Atlantic Airways it can be

considered that Virgin Airways has been growing significantly with their service structure

However there has been a decrease in their revenue generation process as Little Red segment

failed to perform in the shot-haul domestic flights and the long-haul flights are also facing

steep competition from other big brands such as British Airways Emirates and Lufthansa In

context of their organisational structure the top management body does not have a spot for

the human resource management department and has implanted the HR systems within the

middle level management The top management has been structured with a flat hierarchical

structure whereas the operational level of the company reflects a matrix structure for smooth

functioning

28

The marketing processes of Virgin Airways are the key to their customer relationship

process The company has an interactive website and efficient customer communication

methods for connecting the customers with the organisation Apart from this the service

structure of the company is continuously upgraded with innovative technology in order to

engage the customers with the firm Although the pricing of the company is higher in

comparison to their competitors individual focus towards customer needs and expectations

helps them in managing their business growth and development

28 Conclusion

Being a luxury service provider and one of the top brands of the international aviation

industry Virgin Atlantic Airlines has generated huge brand value in their respective industry

Virgin Airways has always followed an unconventional route for designing their business

strategies and tried to capture their target markets with exceptional and innovative service

structures While the company progresses in terms of their operational and managerial

efficacies the financial performance of the firm has suffered in the domestic short-haul flight

segment The long-haul flights have also shown a gradual decrease that lead to the selling of

49 of stock to Delta Airlines Based on the analysis performed it can be suggested that

Virgin Atlantic Airways needs to innovate new strategies for reducing their operational

expenses and also expanding their services to more destinations across the world

29

Reference List

Aguirregabiria V and Ho C Y 2012 A dynamic oligopoly game of the US airline

industry Estimation and policy experiments Journal of Econometrics 168(1) pp 156-173

Agusdinata B and de Klein W 2002 The Dynamics of Airline Alliances Journal of Air

Transport Management 8(4) pp 201-211

Barrett S D 2000 Airport Competition in the Deregulated European Aviation Market

Journal of Air Transport Management 6(1) pp 13-27

Barwise P and Meehan S 2010 The one thing you must get right when building a

brand Harvard Business Review 88(12) pp 80-84

Belobaba P Odoni A and Barnhart C 2009 The Global Airline Industry New Jersey

John Wiley amp Sons

Bergantino A S and Capozza C 2015 Airline Pricing Behavior under Limited

Inter‐Modal Competition Economic Inquiry 53(1) pp 700-713

Bilotkach V Gaggero A A and Piga C A 2015 Airline pricing under different market

conditions Evidence from European Low-Cost Carriers Tourism Management 47 pp 152-

163

Cento A 2008 The Airline Industry Challenges in the 21st Century Berlin Springer

Science amp Business Media

Ciliberto F and Tamer E 2009 Market structure and multiple equilibria in airline

markets Econometrica 77(6) pp 1791-1828

30

Clausen J Larsen A Larsen J and Rezanova N J 2010 Disruption management in the

airline industrymdashConcepts models and methodsComputers and Operations Research 37(5)

pp 809-821

Doganis R 2002 Flying Off Course The Economics of International Airlines London

Psychology Press

Doganis R 2006 The Airline Business London Psychology Press

Economist 2014 Little Redrsquos Big Problem [Online] Available at lt

httpwwweconomistcomblogsgulliver201410virgin-atlantics-woes gt [Accessed 22nd

August 2015]

FinanceYahoo 2015 Virgin America Inc [Online] Available at lt

httpfinanceyahoocomechartss=VA+InteractiverangemaxallowChartStackingtr

ue gt [Accessed 22nd August 2015]

Gerardi K S and Shapiro A H 2009 Does competition reduce price dispersion New

evidence from the airline industry Journal of Political Economy 117(1) pp 1-37

Gilbert D Child D and Bennett M 2001 The qualitative study of the current practices of

lsquono-frillsrsquo airlines operating in the UK Journal of Vacation Marketing 7(4) pp 302-315

Goumlssling S and Peeters P 2007 lsquoIt does not harm the environmentrsquoAn analysis of

industry discourses on tourism air travel and the environmentJournal of Sustainable

Tourism 15(4) pp 402-417

Hanlon J P 2007 Global Airlines Competition in a Transnational Industry London

Routledge

5

most efficient method to mitigate cost of fuel is to buy future contracts that set the fuel supply

for a company at a specific price in the coming year The companies also adopt the policy of

hedging There are some companies who hedge more than others implying the fact that they

are better prepared in case of a sudden hike in the oil prices The fate of an airline company is

determined by its ability to make its interest payments and clear all its debts on a timely basis

By calculating the interest coverage ratio it is easy to determine whether interest rate is

excessive (Agusdinata and de Klein 2002) The interest rate is reflective of the debt liabilities

that companies indulge in The hubs of airlines play a vital role in the industry It is described

as a centrally located pit stop where aircrafts fly in order to re-fuel pick up customers and

head out to different destination It has been observed that one of the reasons behind

successful airline service is the presence of busiest hubs Other characteristics involve the

employment of unionized labour These labours are routinely forced to re-negotiate salary

contracts holds the possibility of a strike is omnipresent

If a company has excess cash reserve or has the ability of taking on more debt it may adopt

the policy of acquisition in order to progress on the path of growth Currently some

companies have been significantly reducing ticket costs This has prompted other airlines to

trim their prices and issue a variety of different margin-pinching incentives to consumers in

order to successfully compete in the market Although this price competition is not beneficial

for the companies since it put high debt pressure and diminishing working capital positions

out of business but it is favourable for the consumers (Doganis 2006) Some part of the

industries reveals the existence of monopoly and others tend to be competitive The

monopoly nature is visible in the price discrimination strategy employed in terms of different

prices of the air tickets The industry is also seasonal in nature During vacations and

occasions the demand rises and so does its revenue

6

12 Factors Affecting Competition in Airline Industry

The airline industry is characterised by the presence of intense competition In the recent

period there have been economic downturns that have adversely affected the airline industry

which economist believe will possess a strong effect on the trend of the industry towards

expansion of international and domestic services Earlier the airline industry around the

globe was partly owned by government Although this is still true for many nations but all

major airlines in US is privately owned There are some factors that tend to affect the

competition in the industry Rivalry among sellers is one such factor It varies from country

to country and ranges from moderate to strong Airlines also compete on frequency and

reliability of flights frequent flier programmes etc (Doganis 2002) Nowadays this

pressure has reduced since well-known companies have started focussing on the enhancing

their profits rather than involving in expansion strategy Potential new entrants and substitute

transport system also pose as threats on the industry Deficient desirable gate access and low

traffic levels act as entry barriers along with labour capital and energy intensive nature of the

industry In relation to air transport passenger rail lines personal transportation and bus

service also act as substitutes They are generally low cost and are convenient for shorter

distance (Agusdinata and de Klein 2002)

Middle East carriers are gaining popularity and are considered as threats on international

routes They have advantageous geographic position incur low fuel costs and arte properly

funded Since airlines are entering more into Joint Ventures (JV) and anti-trust immunity

agreements in order to target international growth (Hanlon 2007) With a view to capture

more traffic the Lost Cost Carrier (LCC) model is implemented in JVs by Asian airlines

More airlines are now entering into JVs and more direct flights on international routes are

offered by Anti-Trust Immunity agreements (ATI) However cost pressures still remain an

7

important issue across all markets The competition is mainly between recognised companies

and low cost emerging companies (Barrett 2000)

13 Examination of the Demand and Changes in Market Concentration

The recent times have witnessed impressive dynamics exhibited by European airline industry

The airline industry has gone through an extreme change on both demand and supply side

Unlike other industries the recent changes are not dependent solely on technological

developments but legal cultural institutional factors (Williams 2003) The structure of the

market is highly influenced by institutional and legal aspects and spatial mobility and its

features are affected by cultural forces On the supply side the European Airline industry has

transformed from a long-established system of state-owned carriers which operated in a

regulated market into a free market and dynamic market The procedure of de-regulation and

subsequent procedures of privatization have injected vital changes in the structure of airline

sector The choices and preferences of customers are also undergoing change This directly

affects the pricing strategies of the companies (Hanlon 2007) The industry often faces the

consumer choice problem Many researchers have been done which highlighted that business

commuters preferred valued flight frequency and the proximity of airport compared to leisure

travellers who tend to be more price sensitive

This indicates that the companies need to analyse the approaches towards satisfying their

consumers Since this industry is seasonal in nature the demand structure tends to fluctuate

accordingly It has been observed that time or business sensitive passengers are inelastic in

terms of airfares These passengers are inclined more towards high quality service including

frequent and reliable flights flexibility comfortable seats good frequent flier rewards etc

(Barrett 2000) They are ready to pay increasing high prices to avail these features in a flight

The business market of airline industry reveals price elasticity by a fall in the amount of

tickets sold which was evident from the arrival of low cost airlines This recent development

8

also illustrates that a large percentage of passengers have given more emphasise to prices

over service However this is more accurate for short haul routes The passengers now have

given up additional comfort of economy class on intra European and domestic flights but are

also eager to trade flexibility of ticket in return for low air fares This situation seems to be a

permanent situation which has forced companies to raise the use of low fare airlines

(Belobaba Odoni and Barnhart 2009) Similarly they have increased the use of non-

refundable tickets The reason behind the fall in business class travel is partly demand led and

partly supply led The supply led reasons are high business fares which expanded the segment

of inelastic business class passenger and development of low cost airlines The demand led

reasons are economic downturn that has created an active management that aims at reducing

costs by minimising travel budget and external demand shocks that ranges from SARS

epidemics Iraq War and terrorist attacks (Williams 2003) Although all these do not

necessarily mean that passengers are not willing to pay high fares for additional frills and

services delivered by business class on long haul flights but they want justification behind

premium pricing strategy

The airline industry has under significant changes in its market structure due to variety of

reasons Some of them can be cited out as the bankruptcy of some of the largest airlines

Mergers among the rival companies are another example Other companies have significantly

changed their networks Market structure changes overtime due to mergers entry and exits of

different companies which tend to have an influence on price structure The entry and exit of

firms have a strong impact on the functioning of the industry New entrants usually offer low

prices but its impact differs across markets They induce competitiveness in the market by

offering low cost fares thereby reducing the overall fare prices in the market (Bergantino and

Capozza 2015) Conversely the exiting firms have no clear effect on the pricing behaviour

of their former rivals

9

The market powers of the companies entering into merger are enhanced It was noted that

market where a merging company was present construct a control group This group is

devoid of presence of any merger The fare was increased significantly during the post-

merger situation There are still significant price rise along the routes where one of the

merging companies was a potential entrant Mergers tend to reduce market competition and

increasing the fares market-wise (Belobaba Odoni and Barnhart 2009) However it was also

observed that in some mergers the firm-level price affect is negative mainly due to efficiency

gains The consequence of merger in some cases is the formation of consolidated market

where the merged firms offer lower fares since the rise in their efficiency level due to merger

(Williams 2003)

14 The Need for Bilateral Agreements

International Aviation Organisation (ICAO) is an inter-governmental agency which governs

and coordinates the world operational and worldwide technical standards Bilateral air

transport agreement also known as bilateral air service agreement or ASA or ATA is an

agreement signed by two countries in order to permit international commercial air transport

services between geographical territories (Bergantino and Capozza 2015) The traffic rights

for each operating carriers number of carriers the number of airports in which airplanes will

operate and frequencies of flights between the fixed airports are specified by the bilateral

agreements With the development of airline sector flying became very popular necessitating

the expansion of their service This popularity prompted countries and their related airlines

around the world to develop service agreements in order to make easy the provisions of

international air service to build opportunities for the same airlines serving outside the home

countryrsquos borders and to protect the airlines against unfair foreign competition These

agreements are basically needed to build an efficient airline sector of any country by

promoting fair competition practices and by inviting global opportunities The agreement is a

10

contract formulated so that aviation services of commercial civil aviation can be liberalised

between contracting parties This is important since it allows the airplanes of both the

participating states to launch their commercial flights which cover the transport of cargoes

and passengers of both the nations (Bilotkach Gaggero and Piga 2015) The agreement may

also involve the transport of military personnel of the contracting nations According to the

agreement the airplanes of the participating nations also bring cargoes and passengers to a

third nation or pick up cargoes and passengers from the host nation to the home nation of the

airplane or to a third nation in which the participating countries have existing open skies

agreement

The liberalised form of ASA can be called an open sky agreements Open skies is a global

policy notion of the international aviation sector that requires liberalisation of the regulations

and rules of especially commercial aviation (Kawaura 2015) This is done with the aim of

creating a free-market scenario for the airline industry This agreement is also essential

keeping in mind the objectives that it aims to achieve The main objectives of the agreement

include

To liberalise the rules that govern global aviation markets and reduce government

intervention that is applicable for passengers scheduled and charter service combined air

transportation and all-cargo

To adjust in such a way so that other state based and military flights can be permitted

It has been noticed that the open skies can become effective if bilateral agreements are

concluded between two or more countries Liberalisation of international airline industry is

necessary in order to generate major extra opportunities for customers carriers direct and

indirect entities and shippers (Bilotkach Gaggero and Piga 2015)

11

15 Role of Regulatory Authorities

Any industry that is functioning to serve the society and maximise its profit needs a

governing body that will monitor the operations of the industry and formulates policies so

that the companies do not indulge into unfair trade practices and to enhance the efficiency of

the concerned sector (Wensveen 2010) The role of regulatory authorities in airline industry

includes the creation of transparent and less complex structure that offers highest safety level

for air transport services The responsibilities include providing fair access to adequate

infrastructure and to commercial prospects The framework of the regulatory authorities

should reveal legitimate environmental and military concerns The regulatory body aims at

ensuring consistency cost-effectiveness effective application both for the airlines and for the

governing body (Lelieur 2003) It is also accountable for all the decisions taken The body

also encompasses the global dimensions of aviation and targets to provide the industry with

safe cost-efficient and fair access to other places of the world

There are various functions of the regulatory body such as

Rule Preparation structuring regulatory material by a company that avails the technical

competence to do so In order to prepare the material the company needs to follow

appropriate procedures to ensure that inputs are coming from those who are also affected by

the regulations

Rule-setting the spread of binding requirements in a specific context that permits for

effective enforcement of these rules and policies for political and legal accountability for the

choices that have been made

Operational approval or licensing or certification the body is solely responsible for providing

licenses to airlines procedures etc so that authorisation can be provided to the conduct of

specific activities

12

Inspection monitoring this process is ex post evaluation of continuing compliance with the

requirements of the body and the beginning of corrective measures and actions where needed

Enforcement in order to guarantee compliance with the requirements of the regulatory the

formal powers are exercised which include imposition of proportionate sanctions

Implementation support it comprises of a wide range of activities that aims at assisting the

companies which are given the responsibility related to the application of regulatory needs

like certification monitoring etc

The main area of concern of the regulatory body is to maintain security and safety of the

passengers and crew members protect nature by reducing the emission of harmful pollutants

organisation markets sustain international cooperation and coordination optimal allocation

of scarce resources such as slots airspace maintain control over price structure so that

welfare of the customers are not jeopardise (Lelieur 2003)

16 Development of Alliances Strategies and Political Factors

The cooperative arrangements between airlines which vary extremely in breadth scope and

depth are referred to as airline alliances Airlines may engage into a wide range of

cooperation agreements that ranges from those with restricted cooperation like marketing

arrangements or interline agreements to highly integrated structures of cooperation like

metal-neutral revenue sharing joint ventures (Mahoney 2014) The vital benefit associated

with the alliance is accesses to traffic that are restricted due to bilateral agreements With the

help of the alliances the airline can overcome the entry barriers and engage in the process of

expanding their networks into large geographic regions by code-sharing with other airline

The alliance partner identifies the reciprocal code sharing advantages in the home boundary

of its new partner Both airlines together combine their networks and deliver many more

itinerary combinations than either airline could provide on its own (Wensveen 2010)

13

The alliances can be broadly categorised into two main groups namely strategic and tactical

alliances Tactical alliances comprise of two or more carriers which are designed to address

particular gaps in the networks of individual carrier by offering connectivity between the

networks of the carriers This is in contrast to the strategic alliances which are more

comprehensive and broader structures of cooperation between numerous carriers This

strategy aims at building large international joint networks Rather than closing gaps this

strategy tries to optimise networks thereby influencing the carriers and their routes and

capacities There are three main alliances such as Skyteam Oneworld and Star Alliance

(Bilotkach Gaggero and Piga 2015) Integrated alliance that includes coordinated pricing

yield and inventory management are usually governed by designated alliance committee The

representatives of the partner carriers are the members of the committee It has given the

responsibility to monitor and administer cooperative activities After the re-optimisation of

the joint networks schedules and pricing by the committee dissolving the alliance causes

substantial costs to the partner carriers As a result of the substantial costs carriers usually

look for anti-trust immunity

The political environment is highly regulated favouring the passengers more than airlines It

is because the safety of the passengers is of utmost importance The political environment has

become crucial due to earlier tendencies towards monopolistic behaviour of the sector This

has necessitated the implementation of tighter regulation of the functions of airlines (Taylor

et al 2006) There have also been instances where deregulation has been recognised in the

supply side implying stiff competition among airlines and regulation of demand side

implying that passengers are in charge of lowering prices and demand for more amenities

14

Question 2

20 Introduction

With the increase in competition business management is also getting complex (Bergantino

and Capozza 2015) The corporate sector is one of the most dominant economic forces in the

international sphere today and has successfully raised the bar for quality and productivity

According to Hanlon (2007) corporate houses face many challenges in context of their

internal and external management processes and have to continuously improve and design

new strategies for overcoming them In this report the focus is on analysis of British Airlines

Company Virgin Atlantic Airways The aviation segment is one of the most popular and

dominating segments in the luxury as well as travel and tourism industry With rapid new

entrants in this industry firms are trying to create long-term competitive advantage for

overcoming the economic and managerial challenges The succeeding sections of the study

will focus on analysing the internal and external environment of Virgin Atlantic in

comparison to its performance

21 Organisational Background

Virgin Atlantic Airways began its journey in the year 1984 when entrepreneur Sir Richard

Branson decided to launch a value-added airlines services In the first year of its launch

Virgin Airways had flown over 1 million passengers with the help of their exceptional and

high-profile service structure (Virgin-Atlantic 2015a) By the end of the eighties Sir Richard

Branson sold Virgin Music and invested the gains in Virgin Atlantic and also launched the

much appreciated economy service structure of Virgin Airways (Virgin-Atlantic 2015a) In

the year 1999 49 stake of the company was sold to Singapore Airlines valuing at pound1225

billion Since the beginning of the 21st century Virgin Airways started expanding their

services into the global market and added numerous new features to their services such as the

Upper Class Suite and Virgin Clubhouses (Virgin-Atlantic 2015a) Virgin Airways has

15

continuously remained in the customer focus because of their many awards such as the

Online Retail Awards including ORA Prix drsquoOR Best Leisure amp Travel Website World

Travel Awards BIMA Awards Digital Impact Awards APEX Passenger Choice Awards etc

(Virgin-Atlantic 2015a) The company is currently operating with a fleet size of 39 aircrafts

travelling between 31 destinations The employee base of the firm is formed of 9231 people

According to the annual report of 2014 the revenue of Virgin Atlantic was pound293 billion and

the operating income was pound144 million (Virgin-Atlantic 2015a)

22 Internal Structure and Operations

The organisational structure of Virgin Airways has been formed in two parts the top and

middle management have a flat structure whereas the operational structure is in matrix form

16

Figure 1 Organisational Structure Virgin Atlantic Airways

(Source TheOfficialBoard 2014)

17

The above given figure shows the flat hierarchy of the top management of Virgin Airways

The hierarchy represents the detailed segmentation of every functional departments of the

organisation and can be the reason behind the clarity in the operational processes of the

company However as noted there is no separate group for Human Resource Management in

the given structure The HRM activities of Virgin Airways are carried by the operations head

and the HR managers have been designated in the middle level management of the

organisation This has allowed the company to create individual space for monitoring the

actvities of each department and develop a closely knitted relationship with the customers

(Barwise and Meehan 2010) On the other hand Aguirregabiria and Ho (2012) criticised that

absence of human resource management in the top level management can reduce the ability

of the organisation to attend to the problems faced by the workforce Apart from this the gap

in communication between the operational level employees and the top managers can hamper

the present organisational structure of Virgin Airways

The operational structure of the company however has been designed in a matrix structure for

ensuring better communication among the middle level managers and the line managers

According to Stacey (2011) matrix structure helps an organisation in ensuring optimal

resource utilisation by creating a multi-tasking work culture

18

Figure 2 Operational Level Structure Virgin Atlantic Airways

(Source Papatheodorou and Forsyth 2010 p364)

The given framework of matrix structure reflects that each team operates under different

functional heads simultaneously which increases the productivity and reduces the time of

working for the company Gilbert Child and Bennett (2001) stated that matrix structure often

creates job clashes among the work processes of a firm because of multi-tasking processes

However Tsai and Hsu (2008) and Nolan (2010) maintained that matrix structures creates

flexibility and team work within the employee base of a firm allowing them to shift through

the transition period of a firm and also managing the changes in the internal structure without

hampering the productivity

Supply Chain of Virgin Atlantic

The supply chain actvities of Virgin Atlantic highlights their operational processes and the

aspects that add value to their services The following value chain model explains the strategy

and actvities used for designing the internal actvities of Virgin Atlantic Airways

Production HR Marketing Finance

Team 1

Team 3

Team 2

Staff Staff Staff Staff

Staff

Staff

Staff Staff Staff

Staff Staff Staff

19

Figure 3 Value Chain Analysis of Airline Company

(Source Clausen et al 2010 p816)

The value chain analysis of the airline segment is different from that of manufacturing

organisations The different actvities being performed within the operational scope of the

firm has been added in the analysis based on their contribution towards the overall value

added It can be observed that Information and Communications Technology is the core

process that supports all other actvities of the firms The regulatory policies and bodies form

the infrastructure of the organisations Virgin Airways in this regard has ensured that all the

Financial Policies Accounting Regulations and Policies Community Affairs

Flight route

and yield

analyst

Pilot and

Safety

training

Baggage

Handling

training

Agent

training

In-flight

Training

Computer

Reservatio

n System

In-flight

Scheduling

System

Yield

Manageme

nt System

Product

Developmen

t Market

Research

Baggage

Tracking

System

Information and Communications Technology

Route

Selection

Passenger

Service

System

Pricing

Fuel Flight

Scheduling

Crew

Manageme

nt System

Facilities

Planning

Aircraft

Acquisition

Ticket

Counter

Operations

Gate

Operations

Aircraft

Operations

On-Board

Service

Baggage

Handling

Ticket

Offices

Baggage

System

Flight

Connection

s

Rental Car

and Hotel

Reservatio

n System

Promotion

Advertising

Advantages

Program

Travel

Agent

Program

Group

Sales

Lost Baggage

Service

Complaint

Follow-up

Marg

in

Mar

gin

Firm

Infrastructu

re

HRM

Technology

Developmen

t

Procureme

nt

Inbound

Logistics Operations Outbound

Logistics

Marketing

amp Sales Service

20

air route rules and policies associated with their operations are being fulfilled (Clausen et al

2010) The supporting actvities and primary actvities are connected with the ICT system of

the firm Additional services such as Rental Car and Hotel Reservations form the outbound

services which also contribute towards revenue generation The primary operations and

monitoring processes such as ticket counters gate operations etc are essential for ensuring

appropriate service delivery Relating the given value chain analysis to the service structure

of Virgin Airways additional services of in-flight and in waiting areas help the company in

increasing the value proposition of their services for the customers

23 Mission and Vision Statement

The mission statement of Virgin Atlantic Airways has been designed based on the core values

of the organisation Scheelhaase and Grimme (2007) observed that Virgin Airways has

focused on developing an emotional connection with their stakeholders The mission

statement of the company is

ldquoTo embrace the human spirit and let it flyrdquo (Virgin-Atlantic 2015a)

Virgin Atlantic has always been known for its ability to introduce innovative service aspects

which attract and engage the customers The mission statement highlights the basic contents

of human nature ie freedom Terms such as ldquohuman spiritrdquo have been used in order to

connect with a diverse customer base irrespective of the differences in their needs and

expectations Relating the mission with their service structure Virgin Airways has developed

premium economy flights for lower income customers whereas their executive level

customers have been provided with premium level Upper Class Suites and Virgin

Clubhouses This shows that Virgin Airways has an in-built customer centric approach that

meets the needs of individual customers

21

24 Key Drivers of Virgin Airways

According to Doganis (2006) in the existing scenario innovation is the key driver for growth

and development of business houses Virgin Atlanticrsquos innovation is focused on improving

their operational efficacy for ensuring a better service structure for their customers They

have continuously designed and developed their services for Upper class as well as economy

customers Virgin Airwaysrsquo service structure does not categorise their customers in terms of

lower and business class they have economy premium economy class and upper class levels

Apart from this customers can spend their miles (received when they purchase a ticket of

Virgin Atlantic Airways) for paying instead of money (Goumlssling and Peeters 2007) These

minute additions in customer service help Virgin Airways in generating a steadily increase

revenue curve Another driver for Virgin Atlantic is their pricing processes although the

charges of the company are higher in comparison to other big competitors such as British

Airways or Jet Airways the differences between the different levels of services are minimal

This allows the customers to easily shift from economy level to premium level creating

psychological satisfaction (Van Dender 2007)

Considering their marketing actvities the individual relationship of Virgin Airways with their

customers is one of the main drivers for their growth As per the study of Sutcliffe (2002)

knowing the needs of the customers their complaints their conditions and the existing

marketing condition in relation to competitor strategies ensures better service structure for

firms It can be mentioned that Virgin Airways has won several awards for their website

support and marketing processes such as Online Retail Awards Digital Impact Awards

Travel Agent Choice Award etc (Virgin-Atlantic 2015a) This shows the ability of the firm

to continuously improve on their services and accommodate the growing needs and

expectations of the customers

22

25 External Environment

The external environment of Virgin Atlantic Airways will be analysed with the help of

PESTLE analysis and also in a comparative manner with their competitors with the help of

perceptual mapping process

PESTLE Analysis

Figure 4 PESTLE Analysis of Virgin Atlantic Airways

(Source Scheelhaase and Grimme 2007 p253)

Political One of the major political influences on Virgin Atlantic Airways took place when

the UK Government abolished the London Air Traffic Distribution rules in the year 1991 and

allowed Virgin Airways to operate from the Heathrow Airport (Ciliberto and Tamer 2009)

This move helped Virgin Airways expand their services globally and reach new destinations

mainly in the Asian and African segments However regulations and restrictions of

international bodies such as Civil Aviation Authority create some barriers for Virgin Airways

23

in context of the environmental regulations Other than this the changes in the taxation

policies of the government also hamper the revenue level of the organisation Another

political factor is the relationship of the UK government with Russia and their dispute over

the fuel prices that in turn fluctuates the cost of operations of the airline companies (Gerardi

and Shapiro 2009)

Economical The economical conditions are among the primary factors that influence the

operations of a firm (Wensveen 2010) The global financial crisis of 2007-08 had created a

major manipulation in the operations of the luxury services such as that of Virgin Airways

Mainly in nations such as UK USA Japan Italy Germany etc where customers started

ploughing back their money from the market and created a shortfall in the national

economies airline sector faced difficulties in operations Furthermore the reduction in

Government subsidies also hampered the operations of the business processes On the other

hand instability in the exchange rate increased the fuel prices and reduced the deregulation in

the airline industry (Ciliberto and Tamer 2009) However Virgin Airlines had reduced the

price of their tickets for retaining their customer base and also provided discount plans

Social The social influence on Virgin Airlines is largely associated with the customer and

employee management systems Being one of the largest multination airlines of the world

diversity is a natural occurrence in their customer and employee base The ability to manage

the cultural diversity ensures effective service delivery and customer response for the

company Goumlssling and Peeters (2007) noted that owner Richard Branson wanted to certify

an exceptional service and experience for their customers that required the staff to know and

acknowledge the various cultural factors The in-flight crew of the company provides elegant

services related to the individual needs of the customers such as Virgin Airlines has a

minimum of 4-6 cuisines in their flights at any given point of time to meet the needs of the

customers (Van Dender 2007)

24

Technological It was observed in the value chain analysis that all the operational actvities of

Virgin Airways have been linked with their information and communications technology

This highlights the importance of technological support for the Airlines service Virgin

Airways has always concentrated on guarantying technological superiority for better service

design The fleet of 39 aircrafts have been remodelled regularly to keep them updated with

the industry trends Virgin Airways added 9 Boeing 787 jumbos in their fleet in the year 2014

which are expected to replace the Airbus A330 soon (Virgin-Atlantic 2015b) Services such

as individual television sets for each passenger are an example of technological usage in

Virgin Airways In context of the operational necessities the fleet of Virgin Atlantic has

installed the latest radar systems (AirNav RadarBox) with ADS-B radar systems (Van

Dender 2007)

Legal One of the most prominent legal issues faced by Virgin Atlantic is related to their

domestic service provider Little Red The domestic air traffic of the UK has been consistently

falling the launch of Little Red generated huge controversy among the stakeholders of the

organisation (Bilotkach Gaggero and Piga 2015) Furthermore failure to acquire British

Midland had further reduced the scope of recovering from the losses encountered by Little

Red division of Virgin Atlantic Airways In case of long-haul flights also Virgin Airways is

trying to merge with Delta Airlines but the foreign ownership rules is proving to be a

challenge for both the concerned firms (Economist 2014)

Environmental The environmental issues have always been in the lime-light for airline

organisations based on the pollution generated from flights and the management of the in-

flight wastages (Rea and Kerzner 2012) In this respect Virgin Airlines is trying to reduce

their environmental impact by developing an efficient business service process The bio fuel

demonstration provided by the company has shown potential for reducing the emissions by

25

4 annually (Kawaura 2015) On the other hand the increasing number of flights and

destinations of the company is equally contributing to the increase in green house gases

Perceptual Mapping

Figure 5 Perceptual Mapping Virgin Atlantic Airways

(Source Created by Author)

The above performed perceptual mapping has been derived on the basis of two criteria

namely quality and cost It can be noted that the most suitably positioned airlines group is the

Delta Airlines whereas big brands such as Lufthansa Virgin Airways British Airways etc

are positioned near high cost and high quality factors Evaluating from the given perceptual

map the primary competitor of Virgin Airlines can be noted as Lufthansa British Airways

High Quality

Low Quality

Low

Cost

Hig

h C

ost

Lufthansa

Virgin Atlantic Air France

Continental

Airlines

British Airways

Delta

Frontier

airTrar

Japan Airlines

Ryan Air

Thai

Sky Airline

Air Asia US Airways

Air Canada

26

Continental Airways Air France and Delta Airlines Virgin Airways has always been known

for their premium service category (Goumlssling and Peeters 2007) They have tried to provide

the best of services to their customers such as Clubhouses and in-flight bars and television

that have positioned Virgin Airways near the high quality quadrant of the map Although

price is an important factor for customers in their purchase decisions Virgin Airways is

trying to nullify the cost difference by adding more services and add-ons to create a halo

effect and engage the customers with their service delivery process

26 Financial Performance

The financial performance of the company has been analysed from the annual report and the

stock performance of Virgin Atlantic Airways Virgin Airways served over 6 million

customers across 33 destinations in the year 2014 which resulted in operating cash flow of

pound121 million (Virgin-Atlantic 2014) The firm experienced an increase in the unit revenue

per airline passenger by 48 whereas the operating cost increased by 03 from that of

2013 (Virgin-Atlantic 2014) The profit before tax and exceptional items of Virgin Airlines

increased by pound65 million from 2013 to pound14 million in 2014 on year on year basis However

the stock performance of Virgin Airways has fallen since the year 2014 from a point of 4381

to 3823 in 2015 The stock curve of the company has been consistently decreasing in 2015

since the sale of 49 stock to Delta Group of Airlines (FinanceYahoo 2015)

27

Figure 6 Stock Performance of Virgin Atlantic Airways 2014-2015

(Source FinanceYahoo 2015)

27 Outcome of Critical Analysis of Virgin Airways

Based on the above given internal and external analysis of Virgin Atlantic Airways it can be

considered that Virgin Airways has been growing significantly with their service structure

However there has been a decrease in their revenue generation process as Little Red segment

failed to perform in the shot-haul domestic flights and the long-haul flights are also facing

steep competition from other big brands such as British Airways Emirates and Lufthansa In

context of their organisational structure the top management body does not have a spot for

the human resource management department and has implanted the HR systems within the

middle level management The top management has been structured with a flat hierarchical

structure whereas the operational level of the company reflects a matrix structure for smooth

functioning

28

The marketing processes of Virgin Airways are the key to their customer relationship

process The company has an interactive website and efficient customer communication

methods for connecting the customers with the organisation Apart from this the service

structure of the company is continuously upgraded with innovative technology in order to

engage the customers with the firm Although the pricing of the company is higher in

comparison to their competitors individual focus towards customer needs and expectations

helps them in managing their business growth and development

28 Conclusion

Being a luxury service provider and one of the top brands of the international aviation

industry Virgin Atlantic Airlines has generated huge brand value in their respective industry

Virgin Airways has always followed an unconventional route for designing their business

strategies and tried to capture their target markets with exceptional and innovative service

structures While the company progresses in terms of their operational and managerial

efficacies the financial performance of the firm has suffered in the domestic short-haul flight

segment The long-haul flights have also shown a gradual decrease that lead to the selling of

49 of stock to Delta Airlines Based on the analysis performed it can be suggested that

Virgin Atlantic Airways needs to innovate new strategies for reducing their operational

expenses and also expanding their services to more destinations across the world

29

Reference List

Aguirregabiria V and Ho C Y 2012 A dynamic oligopoly game of the US airline

industry Estimation and policy experiments Journal of Econometrics 168(1) pp 156-173

Agusdinata B and de Klein W 2002 The Dynamics of Airline Alliances Journal of Air

Transport Management 8(4) pp 201-211

Barrett S D 2000 Airport Competition in the Deregulated European Aviation Market

Journal of Air Transport Management 6(1) pp 13-27

Barwise P and Meehan S 2010 The one thing you must get right when building a

brand Harvard Business Review 88(12) pp 80-84

Belobaba P Odoni A and Barnhart C 2009 The Global Airline Industry New Jersey

John Wiley amp Sons

Bergantino A S and Capozza C 2015 Airline Pricing Behavior under Limited

Inter‐Modal Competition Economic Inquiry 53(1) pp 700-713

Bilotkach V Gaggero A A and Piga C A 2015 Airline pricing under different market

conditions Evidence from European Low-Cost Carriers Tourism Management 47 pp 152-

163

Cento A 2008 The Airline Industry Challenges in the 21st Century Berlin Springer

Science amp Business Media

Ciliberto F and Tamer E 2009 Market structure and multiple equilibria in airline

markets Econometrica 77(6) pp 1791-1828

30

Clausen J Larsen A Larsen J and Rezanova N J 2010 Disruption management in the

airline industrymdashConcepts models and methodsComputers and Operations Research 37(5)

pp 809-821

Doganis R 2002 Flying Off Course The Economics of International Airlines London

Psychology Press

Doganis R 2006 The Airline Business London Psychology Press

Economist 2014 Little Redrsquos Big Problem [Online] Available at lt

httpwwweconomistcomblogsgulliver201410virgin-atlantics-woes gt [Accessed 22nd

August 2015]

FinanceYahoo 2015 Virgin America Inc [Online] Available at lt

httpfinanceyahoocomechartss=VA+InteractiverangemaxallowChartStackingtr

ue gt [Accessed 22nd August 2015]

Gerardi K S and Shapiro A H 2009 Does competition reduce price dispersion New

evidence from the airline industry Journal of Political Economy 117(1) pp 1-37

Gilbert D Child D and Bennett M 2001 The qualitative study of the current practices of

lsquono-frillsrsquo airlines operating in the UK Journal of Vacation Marketing 7(4) pp 302-315

Goumlssling S and Peeters P 2007 lsquoIt does not harm the environmentrsquoAn analysis of

industry discourses on tourism air travel and the environmentJournal of Sustainable

Tourism 15(4) pp 402-417

Hanlon J P 2007 Global Airlines Competition in a Transnational Industry London

Routledge

6

12 Factors Affecting Competition in Airline Industry

The airline industry is characterised by the presence of intense competition In the recent

period there have been economic downturns that have adversely affected the airline industry

which economist believe will possess a strong effect on the trend of the industry towards

expansion of international and domestic services Earlier the airline industry around the

globe was partly owned by government Although this is still true for many nations but all

major airlines in US is privately owned There are some factors that tend to affect the

competition in the industry Rivalry among sellers is one such factor It varies from country

to country and ranges from moderate to strong Airlines also compete on frequency and

reliability of flights frequent flier programmes etc (Doganis 2002) Nowadays this

pressure has reduced since well-known companies have started focussing on the enhancing

their profits rather than involving in expansion strategy Potential new entrants and substitute

transport system also pose as threats on the industry Deficient desirable gate access and low

traffic levels act as entry barriers along with labour capital and energy intensive nature of the

industry In relation to air transport passenger rail lines personal transportation and bus

service also act as substitutes They are generally low cost and are convenient for shorter

distance (Agusdinata and de Klein 2002)

Middle East carriers are gaining popularity and are considered as threats on international

routes They have advantageous geographic position incur low fuel costs and arte properly

funded Since airlines are entering more into Joint Ventures (JV) and anti-trust immunity

agreements in order to target international growth (Hanlon 2007) With a view to capture

more traffic the Lost Cost Carrier (LCC) model is implemented in JVs by Asian airlines

More airlines are now entering into JVs and more direct flights on international routes are

offered by Anti-Trust Immunity agreements (ATI) However cost pressures still remain an

7

important issue across all markets The competition is mainly between recognised companies

and low cost emerging companies (Barrett 2000)

13 Examination of the Demand and Changes in Market Concentration

The recent times have witnessed impressive dynamics exhibited by European airline industry

The airline industry has gone through an extreme change on both demand and supply side

Unlike other industries the recent changes are not dependent solely on technological

developments but legal cultural institutional factors (Williams 2003) The structure of the

market is highly influenced by institutional and legal aspects and spatial mobility and its

features are affected by cultural forces On the supply side the European Airline industry has

transformed from a long-established system of state-owned carriers which operated in a

regulated market into a free market and dynamic market The procedure of de-regulation and

subsequent procedures of privatization have injected vital changes in the structure of airline

sector The choices and preferences of customers are also undergoing change This directly

affects the pricing strategies of the companies (Hanlon 2007) The industry often faces the

consumer choice problem Many researchers have been done which highlighted that business

commuters preferred valued flight frequency and the proximity of airport compared to leisure

travellers who tend to be more price sensitive

This indicates that the companies need to analyse the approaches towards satisfying their

consumers Since this industry is seasonal in nature the demand structure tends to fluctuate

accordingly It has been observed that time or business sensitive passengers are inelastic in

terms of airfares These passengers are inclined more towards high quality service including

frequent and reliable flights flexibility comfortable seats good frequent flier rewards etc

(Barrett 2000) They are ready to pay increasing high prices to avail these features in a flight

The business market of airline industry reveals price elasticity by a fall in the amount of

tickets sold which was evident from the arrival of low cost airlines This recent development

8

also illustrates that a large percentage of passengers have given more emphasise to prices

over service However this is more accurate for short haul routes The passengers now have

given up additional comfort of economy class on intra European and domestic flights but are

also eager to trade flexibility of ticket in return for low air fares This situation seems to be a

permanent situation which has forced companies to raise the use of low fare airlines

(Belobaba Odoni and Barnhart 2009) Similarly they have increased the use of non-

refundable tickets The reason behind the fall in business class travel is partly demand led and

partly supply led The supply led reasons are high business fares which expanded the segment

of inelastic business class passenger and development of low cost airlines The demand led

reasons are economic downturn that has created an active management that aims at reducing

costs by minimising travel budget and external demand shocks that ranges from SARS

epidemics Iraq War and terrorist attacks (Williams 2003) Although all these do not

necessarily mean that passengers are not willing to pay high fares for additional frills and

services delivered by business class on long haul flights but they want justification behind

premium pricing strategy

The airline industry has under significant changes in its market structure due to variety of

reasons Some of them can be cited out as the bankruptcy of some of the largest airlines

Mergers among the rival companies are another example Other companies have significantly

changed their networks Market structure changes overtime due to mergers entry and exits of

different companies which tend to have an influence on price structure The entry and exit of

firms have a strong impact on the functioning of the industry New entrants usually offer low

prices but its impact differs across markets They induce competitiveness in the market by

offering low cost fares thereby reducing the overall fare prices in the market (Bergantino and

Capozza 2015) Conversely the exiting firms have no clear effect on the pricing behaviour

of their former rivals

9

The market powers of the companies entering into merger are enhanced It was noted that

market where a merging company was present construct a control group This group is

devoid of presence of any merger The fare was increased significantly during the post-

merger situation There are still significant price rise along the routes where one of the

merging companies was a potential entrant Mergers tend to reduce market competition and

increasing the fares market-wise (Belobaba Odoni and Barnhart 2009) However it was also

observed that in some mergers the firm-level price affect is negative mainly due to efficiency

gains The consequence of merger in some cases is the formation of consolidated market

where the merged firms offer lower fares since the rise in their efficiency level due to merger

(Williams 2003)

14 The Need for Bilateral Agreements

International Aviation Organisation (ICAO) is an inter-governmental agency which governs

and coordinates the world operational and worldwide technical standards Bilateral air

transport agreement also known as bilateral air service agreement or ASA or ATA is an

agreement signed by two countries in order to permit international commercial air transport

services between geographical territories (Bergantino and Capozza 2015) The traffic rights

for each operating carriers number of carriers the number of airports in which airplanes will

operate and frequencies of flights between the fixed airports are specified by the bilateral

agreements With the development of airline sector flying became very popular necessitating

the expansion of their service This popularity prompted countries and their related airlines

around the world to develop service agreements in order to make easy the provisions of

international air service to build opportunities for the same airlines serving outside the home

countryrsquos borders and to protect the airlines against unfair foreign competition These

agreements are basically needed to build an efficient airline sector of any country by

promoting fair competition practices and by inviting global opportunities The agreement is a

10

contract formulated so that aviation services of commercial civil aviation can be liberalised

between contracting parties This is important since it allows the airplanes of both the

participating states to launch their commercial flights which cover the transport of cargoes

and passengers of both the nations (Bilotkach Gaggero and Piga 2015) The agreement may

also involve the transport of military personnel of the contracting nations According to the

agreement the airplanes of the participating nations also bring cargoes and passengers to a

third nation or pick up cargoes and passengers from the host nation to the home nation of the

airplane or to a third nation in which the participating countries have existing open skies

agreement

The liberalised form of ASA can be called an open sky agreements Open skies is a global

policy notion of the international aviation sector that requires liberalisation of the regulations

and rules of especially commercial aviation (Kawaura 2015) This is done with the aim of

creating a free-market scenario for the airline industry This agreement is also essential

keeping in mind the objectives that it aims to achieve The main objectives of the agreement

include

To liberalise the rules that govern global aviation markets and reduce government

intervention that is applicable for passengers scheduled and charter service combined air

transportation and all-cargo

To adjust in such a way so that other state based and military flights can be permitted

It has been noticed that the open skies can become effective if bilateral agreements are

concluded between two or more countries Liberalisation of international airline industry is

necessary in order to generate major extra opportunities for customers carriers direct and

indirect entities and shippers (Bilotkach Gaggero and Piga 2015)

11

15 Role of Regulatory Authorities

Any industry that is functioning to serve the society and maximise its profit needs a

governing body that will monitor the operations of the industry and formulates policies so

that the companies do not indulge into unfair trade practices and to enhance the efficiency of

the concerned sector (Wensveen 2010) The role of regulatory authorities in airline industry

includes the creation of transparent and less complex structure that offers highest safety level

for air transport services The responsibilities include providing fair access to adequate

infrastructure and to commercial prospects The framework of the regulatory authorities

should reveal legitimate environmental and military concerns The regulatory body aims at

ensuring consistency cost-effectiveness effective application both for the airlines and for the

governing body (Lelieur 2003) It is also accountable for all the decisions taken The body

also encompasses the global dimensions of aviation and targets to provide the industry with

safe cost-efficient and fair access to other places of the world

There are various functions of the regulatory body such as

Rule Preparation structuring regulatory material by a company that avails the technical

competence to do so In order to prepare the material the company needs to follow

appropriate procedures to ensure that inputs are coming from those who are also affected by

the regulations

Rule-setting the spread of binding requirements in a specific context that permits for

effective enforcement of these rules and policies for political and legal accountability for the

choices that have been made

Operational approval or licensing or certification the body is solely responsible for providing

licenses to airlines procedures etc so that authorisation can be provided to the conduct of

specific activities

12

Inspection monitoring this process is ex post evaluation of continuing compliance with the

requirements of the body and the beginning of corrective measures and actions where needed

Enforcement in order to guarantee compliance with the requirements of the regulatory the

formal powers are exercised which include imposition of proportionate sanctions

Implementation support it comprises of a wide range of activities that aims at assisting the

companies which are given the responsibility related to the application of regulatory needs

like certification monitoring etc

The main area of concern of the regulatory body is to maintain security and safety of the

passengers and crew members protect nature by reducing the emission of harmful pollutants

organisation markets sustain international cooperation and coordination optimal allocation

of scarce resources such as slots airspace maintain control over price structure so that

welfare of the customers are not jeopardise (Lelieur 2003)

16 Development of Alliances Strategies and Political Factors

The cooperative arrangements between airlines which vary extremely in breadth scope and

depth are referred to as airline alliances Airlines may engage into a wide range of

cooperation agreements that ranges from those with restricted cooperation like marketing

arrangements or interline agreements to highly integrated structures of cooperation like

metal-neutral revenue sharing joint ventures (Mahoney 2014) The vital benefit associated

with the alliance is accesses to traffic that are restricted due to bilateral agreements With the

help of the alliances the airline can overcome the entry barriers and engage in the process of

expanding their networks into large geographic regions by code-sharing with other airline

The alliance partner identifies the reciprocal code sharing advantages in the home boundary

of its new partner Both airlines together combine their networks and deliver many more

itinerary combinations than either airline could provide on its own (Wensveen 2010)

13

The alliances can be broadly categorised into two main groups namely strategic and tactical

alliances Tactical alliances comprise of two or more carriers which are designed to address

particular gaps in the networks of individual carrier by offering connectivity between the

networks of the carriers This is in contrast to the strategic alliances which are more

comprehensive and broader structures of cooperation between numerous carriers This

strategy aims at building large international joint networks Rather than closing gaps this

strategy tries to optimise networks thereby influencing the carriers and their routes and

capacities There are three main alliances such as Skyteam Oneworld and Star Alliance

(Bilotkach Gaggero and Piga 2015) Integrated alliance that includes coordinated pricing

yield and inventory management are usually governed by designated alliance committee The

representatives of the partner carriers are the members of the committee It has given the

responsibility to monitor and administer cooperative activities After the re-optimisation of

the joint networks schedules and pricing by the committee dissolving the alliance causes

substantial costs to the partner carriers As a result of the substantial costs carriers usually

look for anti-trust immunity

The political environment is highly regulated favouring the passengers more than airlines It

is because the safety of the passengers is of utmost importance The political environment has

become crucial due to earlier tendencies towards monopolistic behaviour of the sector This

has necessitated the implementation of tighter regulation of the functions of airlines (Taylor

et al 2006) There have also been instances where deregulation has been recognised in the

supply side implying stiff competition among airlines and regulation of demand side

implying that passengers are in charge of lowering prices and demand for more amenities

14

Question 2

20 Introduction

With the increase in competition business management is also getting complex (Bergantino

and Capozza 2015) The corporate sector is one of the most dominant economic forces in the

international sphere today and has successfully raised the bar for quality and productivity

According to Hanlon (2007) corporate houses face many challenges in context of their

internal and external management processes and have to continuously improve and design

new strategies for overcoming them In this report the focus is on analysis of British Airlines

Company Virgin Atlantic Airways The aviation segment is one of the most popular and

dominating segments in the luxury as well as travel and tourism industry With rapid new

entrants in this industry firms are trying to create long-term competitive advantage for

overcoming the economic and managerial challenges The succeeding sections of the study

will focus on analysing the internal and external environment of Virgin Atlantic in

comparison to its performance

21 Organisational Background

Virgin Atlantic Airways began its journey in the year 1984 when entrepreneur Sir Richard

Branson decided to launch a value-added airlines services In the first year of its launch

Virgin Airways had flown over 1 million passengers with the help of their exceptional and

high-profile service structure (Virgin-Atlantic 2015a) By the end of the eighties Sir Richard

Branson sold Virgin Music and invested the gains in Virgin Atlantic and also launched the

much appreciated economy service structure of Virgin Airways (Virgin-Atlantic 2015a) In

the year 1999 49 stake of the company was sold to Singapore Airlines valuing at pound1225

billion Since the beginning of the 21st century Virgin Airways started expanding their

services into the global market and added numerous new features to their services such as the

Upper Class Suite and Virgin Clubhouses (Virgin-Atlantic 2015a) Virgin Airways has

15

continuously remained in the customer focus because of their many awards such as the

Online Retail Awards including ORA Prix drsquoOR Best Leisure amp Travel Website World

Travel Awards BIMA Awards Digital Impact Awards APEX Passenger Choice Awards etc

(Virgin-Atlantic 2015a) The company is currently operating with a fleet size of 39 aircrafts

travelling between 31 destinations The employee base of the firm is formed of 9231 people

According to the annual report of 2014 the revenue of Virgin Atlantic was pound293 billion and

the operating income was pound144 million (Virgin-Atlantic 2015a)

22 Internal Structure and Operations

The organisational structure of Virgin Airways has been formed in two parts the top and

middle management have a flat structure whereas the operational structure is in matrix form

16

Figure 1 Organisational Structure Virgin Atlantic Airways

(Source TheOfficialBoard 2014)

17

The above given figure shows the flat hierarchy of the top management of Virgin Airways

The hierarchy represents the detailed segmentation of every functional departments of the

organisation and can be the reason behind the clarity in the operational processes of the

company However as noted there is no separate group for Human Resource Management in

the given structure The HRM activities of Virgin Airways are carried by the operations head

and the HR managers have been designated in the middle level management of the

organisation This has allowed the company to create individual space for monitoring the

actvities of each department and develop a closely knitted relationship with the customers

(Barwise and Meehan 2010) On the other hand Aguirregabiria and Ho (2012) criticised that

absence of human resource management in the top level management can reduce the ability

of the organisation to attend to the problems faced by the workforce Apart from this the gap

in communication between the operational level employees and the top managers can hamper

the present organisational structure of Virgin Airways

The operational structure of the company however has been designed in a matrix structure for

ensuring better communication among the middle level managers and the line managers

According to Stacey (2011) matrix structure helps an organisation in ensuring optimal

resource utilisation by creating a multi-tasking work culture

18

Figure 2 Operational Level Structure Virgin Atlantic Airways

(Source Papatheodorou and Forsyth 2010 p364)

The given framework of matrix structure reflects that each team operates under different

functional heads simultaneously which increases the productivity and reduces the time of

working for the company Gilbert Child and Bennett (2001) stated that matrix structure often

creates job clashes among the work processes of a firm because of multi-tasking processes

However Tsai and Hsu (2008) and Nolan (2010) maintained that matrix structures creates

flexibility and team work within the employee base of a firm allowing them to shift through

the transition period of a firm and also managing the changes in the internal structure without

hampering the productivity

Supply Chain of Virgin Atlantic

The supply chain actvities of Virgin Atlantic highlights their operational processes and the

aspects that add value to their services The following value chain model explains the strategy

and actvities used for designing the internal actvities of Virgin Atlantic Airways

Production HR Marketing Finance

Team 1

Team 3

Team 2

Staff Staff Staff Staff

Staff

Staff

Staff Staff Staff

Staff Staff Staff

19

Figure 3 Value Chain Analysis of Airline Company

(Source Clausen et al 2010 p816)

The value chain analysis of the airline segment is different from that of manufacturing

organisations The different actvities being performed within the operational scope of the

firm has been added in the analysis based on their contribution towards the overall value

added It can be observed that Information and Communications Technology is the core

process that supports all other actvities of the firms The regulatory policies and bodies form

the infrastructure of the organisations Virgin Airways in this regard has ensured that all the

Financial Policies Accounting Regulations and Policies Community Affairs

Flight route

and yield

analyst

Pilot and

Safety

training

Baggage

Handling

training

Agent

training

In-flight

Training

Computer

Reservatio

n System

In-flight

Scheduling

System

Yield

Manageme

nt System

Product

Developmen

t Market

Research

Baggage

Tracking

System

Information and Communications Technology

Route

Selection

Passenger

Service

System

Pricing

Fuel Flight

Scheduling

Crew

Manageme

nt System

Facilities

Planning

Aircraft

Acquisition

Ticket

Counter

Operations

Gate

Operations

Aircraft

Operations

On-Board

Service

Baggage

Handling

Ticket

Offices

Baggage

System

Flight

Connection

s

Rental Car

and Hotel

Reservatio

n System

Promotion

Advertising

Advantages

Program

Travel

Agent

Program

Group

Sales

Lost Baggage

Service

Complaint

Follow-up

Marg

in

Mar

gin

Firm

Infrastructu

re

HRM

Technology

Developmen

t

Procureme

nt

Inbound

Logistics Operations Outbound

Logistics

Marketing

amp Sales Service

20

air route rules and policies associated with their operations are being fulfilled (Clausen et al

2010) The supporting actvities and primary actvities are connected with the ICT system of

the firm Additional services such as Rental Car and Hotel Reservations form the outbound

services which also contribute towards revenue generation The primary operations and

monitoring processes such as ticket counters gate operations etc are essential for ensuring

appropriate service delivery Relating the given value chain analysis to the service structure

of Virgin Airways additional services of in-flight and in waiting areas help the company in

increasing the value proposition of their services for the customers

23 Mission and Vision Statement

The mission statement of Virgin Atlantic Airways has been designed based on the core values

of the organisation Scheelhaase and Grimme (2007) observed that Virgin Airways has

focused on developing an emotional connection with their stakeholders The mission

statement of the company is

ldquoTo embrace the human spirit and let it flyrdquo (Virgin-Atlantic 2015a)

Virgin Atlantic has always been known for its ability to introduce innovative service aspects

which attract and engage the customers The mission statement highlights the basic contents

of human nature ie freedom Terms such as ldquohuman spiritrdquo have been used in order to

connect with a diverse customer base irrespective of the differences in their needs and

expectations Relating the mission with their service structure Virgin Airways has developed

premium economy flights for lower income customers whereas their executive level

customers have been provided with premium level Upper Class Suites and Virgin

Clubhouses This shows that Virgin Airways has an in-built customer centric approach that

meets the needs of individual customers

21

24 Key Drivers of Virgin Airways

According to Doganis (2006) in the existing scenario innovation is the key driver for growth

and development of business houses Virgin Atlanticrsquos innovation is focused on improving

their operational efficacy for ensuring a better service structure for their customers They

have continuously designed and developed their services for Upper class as well as economy

customers Virgin Airwaysrsquo service structure does not categorise their customers in terms of

lower and business class they have economy premium economy class and upper class levels

Apart from this customers can spend their miles (received when they purchase a ticket of

Virgin Atlantic Airways) for paying instead of money (Goumlssling and Peeters 2007) These

minute additions in customer service help Virgin Airways in generating a steadily increase

revenue curve Another driver for Virgin Atlantic is their pricing processes although the

charges of the company are higher in comparison to other big competitors such as British

Airways or Jet Airways the differences between the different levels of services are minimal

This allows the customers to easily shift from economy level to premium level creating

psychological satisfaction (Van Dender 2007)

Considering their marketing actvities the individual relationship of Virgin Airways with their

customers is one of the main drivers for their growth As per the study of Sutcliffe (2002)

knowing the needs of the customers their complaints their conditions and the existing

marketing condition in relation to competitor strategies ensures better service structure for

firms It can be mentioned that Virgin Airways has won several awards for their website

support and marketing processes such as Online Retail Awards Digital Impact Awards

Travel Agent Choice Award etc (Virgin-Atlantic 2015a) This shows the ability of the firm

to continuously improve on their services and accommodate the growing needs and

expectations of the customers

22

25 External Environment

The external environment of Virgin Atlantic Airways will be analysed with the help of

PESTLE analysis and also in a comparative manner with their competitors with the help of

perceptual mapping process

PESTLE Analysis

Figure 4 PESTLE Analysis of Virgin Atlantic Airways

(Source Scheelhaase and Grimme 2007 p253)

Political One of the major political influences on Virgin Atlantic Airways took place when

the UK Government abolished the London Air Traffic Distribution rules in the year 1991 and

allowed Virgin Airways to operate from the Heathrow Airport (Ciliberto and Tamer 2009)

This move helped Virgin Airways expand their services globally and reach new destinations

mainly in the Asian and African segments However regulations and restrictions of

international bodies such as Civil Aviation Authority create some barriers for Virgin Airways

23

in context of the environmental regulations Other than this the changes in the taxation

policies of the government also hamper the revenue level of the organisation Another

political factor is the relationship of the UK government with Russia and their dispute over

the fuel prices that in turn fluctuates the cost of operations of the airline companies (Gerardi

and Shapiro 2009)

Economical The economical conditions are among the primary factors that influence the

operations of a firm (Wensveen 2010) The global financial crisis of 2007-08 had created a

major manipulation in the operations of the luxury services such as that of Virgin Airways

Mainly in nations such as UK USA Japan Italy Germany etc where customers started

ploughing back their money from the market and created a shortfall in the national

economies airline sector faced difficulties in operations Furthermore the reduction in

Government subsidies also hampered the operations of the business processes On the other

hand instability in the exchange rate increased the fuel prices and reduced the deregulation in

the airline industry (Ciliberto and Tamer 2009) However Virgin Airlines had reduced the

price of their tickets for retaining their customer base and also provided discount plans

Social The social influence on Virgin Airlines is largely associated with the customer and

employee management systems Being one of the largest multination airlines of the world

diversity is a natural occurrence in their customer and employee base The ability to manage

the cultural diversity ensures effective service delivery and customer response for the

company Goumlssling and Peeters (2007) noted that owner Richard Branson wanted to certify

an exceptional service and experience for their customers that required the staff to know and

acknowledge the various cultural factors The in-flight crew of the company provides elegant

services related to the individual needs of the customers such as Virgin Airlines has a

minimum of 4-6 cuisines in their flights at any given point of time to meet the needs of the

customers (Van Dender 2007)

24

Technological It was observed in the value chain analysis that all the operational actvities of

Virgin Airways have been linked with their information and communications technology

This highlights the importance of technological support for the Airlines service Virgin

Airways has always concentrated on guarantying technological superiority for better service

design The fleet of 39 aircrafts have been remodelled regularly to keep them updated with

the industry trends Virgin Airways added 9 Boeing 787 jumbos in their fleet in the year 2014

which are expected to replace the Airbus A330 soon (Virgin-Atlantic 2015b) Services such

as individual television sets for each passenger are an example of technological usage in

Virgin Airways In context of the operational necessities the fleet of Virgin Atlantic has

installed the latest radar systems (AirNav RadarBox) with ADS-B radar systems (Van

Dender 2007)

Legal One of the most prominent legal issues faced by Virgin Atlantic is related to their

domestic service provider Little Red The domestic air traffic of the UK has been consistently

falling the launch of Little Red generated huge controversy among the stakeholders of the

organisation (Bilotkach Gaggero and Piga 2015) Furthermore failure to acquire British

Midland had further reduced the scope of recovering from the losses encountered by Little

Red division of Virgin Atlantic Airways In case of long-haul flights also Virgin Airways is

trying to merge with Delta Airlines but the foreign ownership rules is proving to be a

challenge for both the concerned firms (Economist 2014)

Environmental The environmental issues have always been in the lime-light for airline

organisations based on the pollution generated from flights and the management of the in-

flight wastages (Rea and Kerzner 2012) In this respect Virgin Airlines is trying to reduce

their environmental impact by developing an efficient business service process The bio fuel

demonstration provided by the company has shown potential for reducing the emissions by

25

4 annually (Kawaura 2015) On the other hand the increasing number of flights and

destinations of the company is equally contributing to the increase in green house gases

Perceptual Mapping

Figure 5 Perceptual Mapping Virgin Atlantic Airways

(Source Created by Author)

The above performed perceptual mapping has been derived on the basis of two criteria

namely quality and cost It can be noted that the most suitably positioned airlines group is the

Delta Airlines whereas big brands such as Lufthansa Virgin Airways British Airways etc

are positioned near high cost and high quality factors Evaluating from the given perceptual

map the primary competitor of Virgin Airlines can be noted as Lufthansa British Airways

High Quality

Low Quality

Low

Cost

Hig

h C

ost

Lufthansa

Virgin Atlantic Air France

Continental

Airlines

British Airways

Delta

Frontier

airTrar

Japan Airlines

Ryan Air

Thai

Sky Airline

Air Asia US Airways

Air Canada

26

Continental Airways Air France and Delta Airlines Virgin Airways has always been known

for their premium service category (Goumlssling and Peeters 2007) They have tried to provide

the best of services to their customers such as Clubhouses and in-flight bars and television

that have positioned Virgin Airways near the high quality quadrant of the map Although

price is an important factor for customers in their purchase decisions Virgin Airways is

trying to nullify the cost difference by adding more services and add-ons to create a halo

effect and engage the customers with their service delivery process

26 Financial Performance

The financial performance of the company has been analysed from the annual report and the

stock performance of Virgin Atlantic Airways Virgin Airways served over 6 million

customers across 33 destinations in the year 2014 which resulted in operating cash flow of

pound121 million (Virgin-Atlantic 2014) The firm experienced an increase in the unit revenue

per airline passenger by 48 whereas the operating cost increased by 03 from that of

2013 (Virgin-Atlantic 2014) The profit before tax and exceptional items of Virgin Airlines

increased by pound65 million from 2013 to pound14 million in 2014 on year on year basis However

the stock performance of Virgin Airways has fallen since the year 2014 from a point of 4381

to 3823 in 2015 The stock curve of the company has been consistently decreasing in 2015

since the sale of 49 stock to Delta Group of Airlines (FinanceYahoo 2015)

27

Figure 6 Stock Performance of Virgin Atlantic Airways 2014-2015

(Source FinanceYahoo 2015)

27 Outcome of Critical Analysis of Virgin Airways

Based on the above given internal and external analysis of Virgin Atlantic Airways it can be

considered that Virgin Airways has been growing significantly with their service structure

However there has been a decrease in their revenue generation process as Little Red segment

failed to perform in the shot-haul domestic flights and the long-haul flights are also facing

steep competition from other big brands such as British Airways Emirates and Lufthansa In

context of their organisational structure the top management body does not have a spot for

the human resource management department and has implanted the HR systems within the

middle level management The top management has been structured with a flat hierarchical

structure whereas the operational level of the company reflects a matrix structure for smooth

functioning

28

The marketing processes of Virgin Airways are the key to their customer relationship

process The company has an interactive website and efficient customer communication

methods for connecting the customers with the organisation Apart from this the service

structure of the company is continuously upgraded with innovative technology in order to

engage the customers with the firm Although the pricing of the company is higher in

comparison to their competitors individual focus towards customer needs and expectations

helps them in managing their business growth and development

28 Conclusion

Being a luxury service provider and one of the top brands of the international aviation

industry Virgin Atlantic Airlines has generated huge brand value in their respective industry

Virgin Airways has always followed an unconventional route for designing their business

strategies and tried to capture their target markets with exceptional and innovative service

structures While the company progresses in terms of their operational and managerial

efficacies the financial performance of the firm has suffered in the domestic short-haul flight

segment The long-haul flights have also shown a gradual decrease that lead to the selling of

49 of stock to Delta Airlines Based on the analysis performed it can be suggested that

Virgin Atlantic Airways needs to innovate new strategies for reducing their operational

expenses and also expanding their services to more destinations across the world

29

Reference List

Aguirregabiria V and Ho C Y 2012 A dynamic oligopoly game of the US airline

industry Estimation and policy experiments Journal of Econometrics 168(1) pp 156-173

Agusdinata B and de Klein W 2002 The Dynamics of Airline Alliances Journal of Air

Transport Management 8(4) pp 201-211

Barrett S D 2000 Airport Competition in the Deregulated European Aviation Market

Journal of Air Transport Management 6(1) pp 13-27

Barwise P and Meehan S 2010 The one thing you must get right when building a

brand Harvard Business Review 88(12) pp 80-84

Belobaba P Odoni A and Barnhart C 2009 The Global Airline Industry New Jersey

John Wiley amp Sons

Bergantino A S and Capozza C 2015 Airline Pricing Behavior under Limited

Inter‐Modal Competition Economic Inquiry 53(1) pp 700-713

Bilotkach V Gaggero A A and Piga C A 2015 Airline pricing under different market

conditions Evidence from European Low-Cost Carriers Tourism Management 47 pp 152-

163

Cento A 2008 The Airline Industry Challenges in the 21st Century Berlin Springer

Science amp Business Media

Ciliberto F and Tamer E 2009 Market structure and multiple equilibria in airline

markets Econometrica 77(6) pp 1791-1828

30

Clausen J Larsen A Larsen J and Rezanova N J 2010 Disruption management in the

airline industrymdashConcepts models and methodsComputers and Operations Research 37(5)

pp 809-821

Doganis R 2002 Flying Off Course The Economics of International Airlines London

Psychology Press

Doganis R 2006 The Airline Business London Psychology Press

Economist 2014 Little Redrsquos Big Problem [Online] Available at lt

httpwwweconomistcomblogsgulliver201410virgin-atlantics-woes gt [Accessed 22nd

August 2015]

FinanceYahoo 2015 Virgin America Inc [Online] Available at lt

httpfinanceyahoocomechartss=VA+InteractiverangemaxallowChartStackingtr

ue gt [Accessed 22nd August 2015]

Gerardi K S and Shapiro A H 2009 Does competition reduce price dispersion New

evidence from the airline industry Journal of Political Economy 117(1) pp 1-37

Gilbert D Child D and Bennett M 2001 The qualitative study of the current practices of

lsquono-frillsrsquo airlines operating in the UK Journal of Vacation Marketing 7(4) pp 302-315

Goumlssling S and Peeters P 2007 lsquoIt does not harm the environmentrsquoAn analysis of

industry discourses on tourism air travel and the environmentJournal of Sustainable

Tourism 15(4) pp 402-417

Hanlon J P 2007 Global Airlines Competition in a Transnational Industry London

Routledge

7

important issue across all markets The competition is mainly between recognised companies

and low cost emerging companies (Barrett 2000)

13 Examination of the Demand and Changes in Market Concentration

The recent times have witnessed impressive dynamics exhibited by European airline industry

The airline industry has gone through an extreme change on both demand and supply side

Unlike other industries the recent changes are not dependent solely on technological

developments but legal cultural institutional factors (Williams 2003) The structure of the

market is highly influenced by institutional and legal aspects and spatial mobility and its

features are affected by cultural forces On the supply side the European Airline industry has

transformed from a long-established system of state-owned carriers which operated in a

regulated market into a free market and dynamic market The procedure of de-regulation and

subsequent procedures of privatization have injected vital changes in the structure of airline

sector The choices and preferences of customers are also undergoing change This directly

affects the pricing strategies of the companies (Hanlon 2007) The industry often faces the

consumer choice problem Many researchers have been done which highlighted that business

commuters preferred valued flight frequency and the proximity of airport compared to leisure

travellers who tend to be more price sensitive

This indicates that the companies need to analyse the approaches towards satisfying their

consumers Since this industry is seasonal in nature the demand structure tends to fluctuate

accordingly It has been observed that time or business sensitive passengers are inelastic in

terms of airfares These passengers are inclined more towards high quality service including

frequent and reliable flights flexibility comfortable seats good frequent flier rewards etc

(Barrett 2000) They are ready to pay increasing high prices to avail these features in a flight

The business market of airline industry reveals price elasticity by a fall in the amount of

tickets sold which was evident from the arrival of low cost airlines This recent development

8

also illustrates that a large percentage of passengers have given more emphasise to prices

over service However this is more accurate for short haul routes The passengers now have

given up additional comfort of economy class on intra European and domestic flights but are

also eager to trade flexibility of ticket in return for low air fares This situation seems to be a

permanent situation which has forced companies to raise the use of low fare airlines

(Belobaba Odoni and Barnhart 2009) Similarly they have increased the use of non-

refundable tickets The reason behind the fall in business class travel is partly demand led and

partly supply led The supply led reasons are high business fares which expanded the segment

of inelastic business class passenger and development of low cost airlines The demand led

reasons are economic downturn that has created an active management that aims at reducing

costs by minimising travel budget and external demand shocks that ranges from SARS

epidemics Iraq War and terrorist attacks (Williams 2003) Although all these do not

necessarily mean that passengers are not willing to pay high fares for additional frills and

services delivered by business class on long haul flights but they want justification behind

premium pricing strategy

The airline industry has under significant changes in its market structure due to variety of

reasons Some of them can be cited out as the bankruptcy of some of the largest airlines

Mergers among the rival companies are another example Other companies have significantly

changed their networks Market structure changes overtime due to mergers entry and exits of

different companies which tend to have an influence on price structure The entry and exit of

firms have a strong impact on the functioning of the industry New entrants usually offer low

prices but its impact differs across markets They induce competitiveness in the market by

offering low cost fares thereby reducing the overall fare prices in the market (Bergantino and

Capozza 2015) Conversely the exiting firms have no clear effect on the pricing behaviour

of their former rivals

9

The market powers of the companies entering into merger are enhanced It was noted that

market where a merging company was present construct a control group This group is

devoid of presence of any merger The fare was increased significantly during the post-

merger situation There are still significant price rise along the routes where one of the

merging companies was a potential entrant Mergers tend to reduce market competition and

increasing the fares market-wise (Belobaba Odoni and Barnhart 2009) However it was also

observed that in some mergers the firm-level price affect is negative mainly due to efficiency

gains The consequence of merger in some cases is the formation of consolidated market

where the merged firms offer lower fares since the rise in their efficiency level due to merger

(Williams 2003)

14 The Need for Bilateral Agreements

International Aviation Organisation (ICAO) is an inter-governmental agency which governs

and coordinates the world operational and worldwide technical standards Bilateral air

transport agreement also known as bilateral air service agreement or ASA or ATA is an

agreement signed by two countries in order to permit international commercial air transport

services between geographical territories (Bergantino and Capozza 2015) The traffic rights

for each operating carriers number of carriers the number of airports in which airplanes will

operate and frequencies of flights between the fixed airports are specified by the bilateral

agreements With the development of airline sector flying became very popular necessitating

the expansion of their service This popularity prompted countries and their related airlines

around the world to develop service agreements in order to make easy the provisions of

international air service to build opportunities for the same airlines serving outside the home

countryrsquos borders and to protect the airlines against unfair foreign competition These

agreements are basically needed to build an efficient airline sector of any country by

promoting fair competition practices and by inviting global opportunities The agreement is a

10

contract formulated so that aviation services of commercial civil aviation can be liberalised

between contracting parties This is important since it allows the airplanes of both the

participating states to launch their commercial flights which cover the transport of cargoes

and passengers of both the nations (Bilotkach Gaggero and Piga 2015) The agreement may

also involve the transport of military personnel of the contracting nations According to the

agreement the airplanes of the participating nations also bring cargoes and passengers to a

third nation or pick up cargoes and passengers from the host nation to the home nation of the

airplane or to a third nation in which the participating countries have existing open skies

agreement

The liberalised form of ASA can be called an open sky agreements Open skies is a global

policy notion of the international aviation sector that requires liberalisation of the regulations

and rules of especially commercial aviation (Kawaura 2015) This is done with the aim of

creating a free-market scenario for the airline industry This agreement is also essential

keeping in mind the objectives that it aims to achieve The main objectives of the agreement

include

To liberalise the rules that govern global aviation markets and reduce government

intervention that is applicable for passengers scheduled and charter service combined air

transportation and all-cargo

To adjust in such a way so that other state based and military flights can be permitted

It has been noticed that the open skies can become effective if bilateral agreements are

concluded between two or more countries Liberalisation of international airline industry is

necessary in order to generate major extra opportunities for customers carriers direct and

indirect entities and shippers (Bilotkach Gaggero and Piga 2015)

11

15 Role of Regulatory Authorities

Any industry that is functioning to serve the society and maximise its profit needs a

governing body that will monitor the operations of the industry and formulates policies so

that the companies do not indulge into unfair trade practices and to enhance the efficiency of

the concerned sector (Wensveen 2010) The role of regulatory authorities in airline industry

includes the creation of transparent and less complex structure that offers highest safety level

for air transport services The responsibilities include providing fair access to adequate

infrastructure and to commercial prospects The framework of the regulatory authorities

should reveal legitimate environmental and military concerns The regulatory body aims at

ensuring consistency cost-effectiveness effective application both for the airlines and for the

governing body (Lelieur 2003) It is also accountable for all the decisions taken The body

also encompasses the global dimensions of aviation and targets to provide the industry with

safe cost-efficient and fair access to other places of the world

There are various functions of the regulatory body such as

Rule Preparation structuring regulatory material by a company that avails the technical

competence to do so In order to prepare the material the company needs to follow

appropriate procedures to ensure that inputs are coming from those who are also affected by

the regulations

Rule-setting the spread of binding requirements in a specific context that permits for

effective enforcement of these rules and policies for political and legal accountability for the

choices that have been made

Operational approval or licensing or certification the body is solely responsible for providing

licenses to airlines procedures etc so that authorisation can be provided to the conduct of

specific activities

12

Inspection monitoring this process is ex post evaluation of continuing compliance with the

requirements of the body and the beginning of corrective measures and actions where needed

Enforcement in order to guarantee compliance with the requirements of the regulatory the

formal powers are exercised which include imposition of proportionate sanctions

Implementation support it comprises of a wide range of activities that aims at assisting the

companies which are given the responsibility related to the application of regulatory needs

like certification monitoring etc

The main area of concern of the regulatory body is to maintain security and safety of the

passengers and crew members protect nature by reducing the emission of harmful pollutants

organisation markets sustain international cooperation and coordination optimal allocation

of scarce resources such as slots airspace maintain control over price structure so that

welfare of the customers are not jeopardise (Lelieur 2003)

16 Development of Alliances Strategies and Political Factors

The cooperative arrangements between airlines which vary extremely in breadth scope and

depth are referred to as airline alliances Airlines may engage into a wide range of

cooperation agreements that ranges from those with restricted cooperation like marketing

arrangements or interline agreements to highly integrated structures of cooperation like

metal-neutral revenue sharing joint ventures (Mahoney 2014) The vital benefit associated

with the alliance is accesses to traffic that are restricted due to bilateral agreements With the

help of the alliances the airline can overcome the entry barriers and engage in the process of

expanding their networks into large geographic regions by code-sharing with other airline

The alliance partner identifies the reciprocal code sharing advantages in the home boundary

of its new partner Both airlines together combine their networks and deliver many more

itinerary combinations than either airline could provide on its own (Wensveen 2010)

13

The alliances can be broadly categorised into two main groups namely strategic and tactical

alliances Tactical alliances comprise of two or more carriers which are designed to address

particular gaps in the networks of individual carrier by offering connectivity between the

networks of the carriers This is in contrast to the strategic alliances which are more

comprehensive and broader structures of cooperation between numerous carriers This

strategy aims at building large international joint networks Rather than closing gaps this

strategy tries to optimise networks thereby influencing the carriers and their routes and

capacities There are three main alliances such as Skyteam Oneworld and Star Alliance

(Bilotkach Gaggero and Piga 2015) Integrated alliance that includes coordinated pricing

yield and inventory management are usually governed by designated alliance committee The

representatives of the partner carriers are the members of the committee It has given the

responsibility to monitor and administer cooperative activities After the re-optimisation of

the joint networks schedules and pricing by the committee dissolving the alliance causes

substantial costs to the partner carriers As a result of the substantial costs carriers usually

look for anti-trust immunity

The political environment is highly regulated favouring the passengers more than airlines It

is because the safety of the passengers is of utmost importance The political environment has

become crucial due to earlier tendencies towards monopolistic behaviour of the sector This

has necessitated the implementation of tighter regulation of the functions of airlines (Taylor

et al 2006) There have also been instances where deregulation has been recognised in the

supply side implying stiff competition among airlines and regulation of demand side

implying that passengers are in charge of lowering prices and demand for more amenities

14

Question 2

20 Introduction

With the increase in competition business management is also getting complex (Bergantino

and Capozza 2015) The corporate sector is one of the most dominant economic forces in the

international sphere today and has successfully raised the bar for quality and productivity

According to Hanlon (2007) corporate houses face many challenges in context of their

internal and external management processes and have to continuously improve and design

new strategies for overcoming them In this report the focus is on analysis of British Airlines

Company Virgin Atlantic Airways The aviation segment is one of the most popular and

dominating segments in the luxury as well as travel and tourism industry With rapid new

entrants in this industry firms are trying to create long-term competitive advantage for

overcoming the economic and managerial challenges The succeeding sections of the study

will focus on analysing the internal and external environment of Virgin Atlantic in

comparison to its performance

21 Organisational Background

Virgin Atlantic Airways began its journey in the year 1984 when entrepreneur Sir Richard

Branson decided to launch a value-added airlines services In the first year of its launch

Virgin Airways had flown over 1 million passengers with the help of their exceptional and

high-profile service structure (Virgin-Atlantic 2015a) By the end of the eighties Sir Richard

Branson sold Virgin Music and invested the gains in Virgin Atlantic and also launched the

much appreciated economy service structure of Virgin Airways (Virgin-Atlantic 2015a) In

the year 1999 49 stake of the company was sold to Singapore Airlines valuing at pound1225

billion Since the beginning of the 21st century Virgin Airways started expanding their

services into the global market and added numerous new features to their services such as the

Upper Class Suite and Virgin Clubhouses (Virgin-Atlantic 2015a) Virgin Airways has

15

continuously remained in the customer focus because of their many awards such as the

Online Retail Awards including ORA Prix drsquoOR Best Leisure amp Travel Website World

Travel Awards BIMA Awards Digital Impact Awards APEX Passenger Choice Awards etc

(Virgin-Atlantic 2015a) The company is currently operating with a fleet size of 39 aircrafts

travelling between 31 destinations The employee base of the firm is formed of 9231 people

According to the annual report of 2014 the revenue of Virgin Atlantic was pound293 billion and

the operating income was pound144 million (Virgin-Atlantic 2015a)

22 Internal Structure and Operations

The organisational structure of Virgin Airways has been formed in two parts the top and

middle management have a flat structure whereas the operational structure is in matrix form

16

Figure 1 Organisational Structure Virgin Atlantic Airways

(Source TheOfficialBoard 2014)

17

The above given figure shows the flat hierarchy of the top management of Virgin Airways

The hierarchy represents the detailed segmentation of every functional departments of the

organisation and can be the reason behind the clarity in the operational processes of the

company However as noted there is no separate group for Human Resource Management in

the given structure The HRM activities of Virgin Airways are carried by the operations head

and the HR managers have been designated in the middle level management of the

organisation This has allowed the company to create individual space for monitoring the

actvities of each department and develop a closely knitted relationship with the customers

(Barwise and Meehan 2010) On the other hand Aguirregabiria and Ho (2012) criticised that

absence of human resource management in the top level management can reduce the ability

of the organisation to attend to the problems faced by the workforce Apart from this the gap

in communication between the operational level employees and the top managers can hamper

the present organisational structure of Virgin Airways

The operational structure of the company however has been designed in a matrix structure for

ensuring better communication among the middle level managers and the line managers

According to Stacey (2011) matrix structure helps an organisation in ensuring optimal

resource utilisation by creating a multi-tasking work culture

18

Figure 2 Operational Level Structure Virgin Atlantic Airways

(Source Papatheodorou and Forsyth 2010 p364)

The given framework of matrix structure reflects that each team operates under different

functional heads simultaneously which increases the productivity and reduces the time of

working for the company Gilbert Child and Bennett (2001) stated that matrix structure often

creates job clashes among the work processes of a firm because of multi-tasking processes

However Tsai and Hsu (2008) and Nolan (2010) maintained that matrix structures creates

flexibility and team work within the employee base of a firm allowing them to shift through

the transition period of a firm and also managing the changes in the internal structure without

hampering the productivity

Supply Chain of Virgin Atlantic

The supply chain actvities of Virgin Atlantic highlights their operational processes and the

aspects that add value to their services The following value chain model explains the strategy

and actvities used for designing the internal actvities of Virgin Atlantic Airways

Production HR Marketing Finance

Team 1

Team 3

Team 2

Staff Staff Staff Staff

Staff

Staff

Staff Staff Staff

Staff Staff Staff

19

Figure 3 Value Chain Analysis of Airline Company

(Source Clausen et al 2010 p816)

The value chain analysis of the airline segment is different from that of manufacturing

organisations The different actvities being performed within the operational scope of the

firm has been added in the analysis based on their contribution towards the overall value

added It can be observed that Information and Communications Technology is the core

process that supports all other actvities of the firms The regulatory policies and bodies form

the infrastructure of the organisations Virgin Airways in this regard has ensured that all the

Financial Policies Accounting Regulations and Policies Community Affairs

Flight route

and yield

analyst

Pilot and

Safety

training

Baggage

Handling

training

Agent

training

In-flight

Training

Computer

Reservatio

n System

In-flight

Scheduling

System

Yield

Manageme

nt System

Product

Developmen

t Market

Research

Baggage

Tracking

System

Information and Communications Technology

Route

Selection

Passenger

Service

System

Pricing

Fuel Flight

Scheduling

Crew

Manageme

nt System

Facilities

Planning

Aircraft

Acquisition

Ticket

Counter

Operations

Gate

Operations

Aircraft

Operations

On-Board

Service

Baggage

Handling

Ticket

Offices

Baggage

System

Flight

Connection

s

Rental Car

and Hotel

Reservatio

n System

Promotion

Advertising

Advantages

Program

Travel

Agent

Program

Group

Sales

Lost Baggage

Service

Complaint

Follow-up

Marg

in

Mar

gin

Firm

Infrastructu

re

HRM

Technology

Developmen

t

Procureme

nt

Inbound

Logistics Operations Outbound

Logistics

Marketing

amp Sales Service

20

air route rules and policies associated with their operations are being fulfilled (Clausen et al

2010) The supporting actvities and primary actvities are connected with the ICT system of

the firm Additional services such as Rental Car and Hotel Reservations form the outbound

services which also contribute towards revenue generation The primary operations and

monitoring processes such as ticket counters gate operations etc are essential for ensuring

appropriate service delivery Relating the given value chain analysis to the service structure

of Virgin Airways additional services of in-flight and in waiting areas help the company in

increasing the value proposition of their services for the customers

23 Mission and Vision Statement

The mission statement of Virgin Atlantic Airways has been designed based on the core values

of the organisation Scheelhaase and Grimme (2007) observed that Virgin Airways has

focused on developing an emotional connection with their stakeholders The mission

statement of the company is

ldquoTo embrace the human spirit and let it flyrdquo (Virgin-Atlantic 2015a)

Virgin Atlantic has always been known for its ability to introduce innovative service aspects

which attract and engage the customers The mission statement highlights the basic contents

of human nature ie freedom Terms such as ldquohuman spiritrdquo have been used in order to

connect with a diverse customer base irrespective of the differences in their needs and

expectations Relating the mission with their service structure Virgin Airways has developed

premium economy flights for lower income customers whereas their executive level

customers have been provided with premium level Upper Class Suites and Virgin

Clubhouses This shows that Virgin Airways has an in-built customer centric approach that

meets the needs of individual customers

21

24 Key Drivers of Virgin Airways

According to Doganis (2006) in the existing scenario innovation is the key driver for growth

and development of business houses Virgin Atlanticrsquos innovation is focused on improving

their operational efficacy for ensuring a better service structure for their customers They

have continuously designed and developed their services for Upper class as well as economy

customers Virgin Airwaysrsquo service structure does not categorise their customers in terms of

lower and business class they have economy premium economy class and upper class levels

Apart from this customers can spend their miles (received when they purchase a ticket of

Virgin Atlantic Airways) for paying instead of money (Goumlssling and Peeters 2007) These

minute additions in customer service help Virgin Airways in generating a steadily increase

revenue curve Another driver for Virgin Atlantic is their pricing processes although the

charges of the company are higher in comparison to other big competitors such as British

Airways or Jet Airways the differences between the different levels of services are minimal

This allows the customers to easily shift from economy level to premium level creating

psychological satisfaction (Van Dender 2007)

Considering their marketing actvities the individual relationship of Virgin Airways with their

customers is one of the main drivers for their growth As per the study of Sutcliffe (2002)

knowing the needs of the customers their complaints their conditions and the existing

marketing condition in relation to competitor strategies ensures better service structure for

firms It can be mentioned that Virgin Airways has won several awards for their website

support and marketing processes such as Online Retail Awards Digital Impact Awards

Travel Agent Choice Award etc (Virgin-Atlantic 2015a) This shows the ability of the firm

to continuously improve on their services and accommodate the growing needs and

expectations of the customers

22

25 External Environment

The external environment of Virgin Atlantic Airways will be analysed with the help of

PESTLE analysis and also in a comparative manner with their competitors with the help of

perceptual mapping process

PESTLE Analysis

Figure 4 PESTLE Analysis of Virgin Atlantic Airways

(Source Scheelhaase and Grimme 2007 p253)

Political One of the major political influences on Virgin Atlantic Airways took place when

the UK Government abolished the London Air Traffic Distribution rules in the year 1991 and

allowed Virgin Airways to operate from the Heathrow Airport (Ciliberto and Tamer 2009)

This move helped Virgin Airways expand their services globally and reach new destinations

mainly in the Asian and African segments However regulations and restrictions of

international bodies such as Civil Aviation Authority create some barriers for Virgin Airways

23

in context of the environmental regulations Other than this the changes in the taxation

policies of the government also hamper the revenue level of the organisation Another

political factor is the relationship of the UK government with Russia and their dispute over

the fuel prices that in turn fluctuates the cost of operations of the airline companies (Gerardi

and Shapiro 2009)

Economical The economical conditions are among the primary factors that influence the

operations of a firm (Wensveen 2010) The global financial crisis of 2007-08 had created a

major manipulation in the operations of the luxury services such as that of Virgin Airways

Mainly in nations such as UK USA Japan Italy Germany etc where customers started

ploughing back their money from the market and created a shortfall in the national

economies airline sector faced difficulties in operations Furthermore the reduction in

Government subsidies also hampered the operations of the business processes On the other

hand instability in the exchange rate increased the fuel prices and reduced the deregulation in

the airline industry (Ciliberto and Tamer 2009) However Virgin Airlines had reduced the

price of their tickets for retaining their customer base and also provided discount plans

Social The social influence on Virgin Airlines is largely associated with the customer and

employee management systems Being one of the largest multination airlines of the world

diversity is a natural occurrence in their customer and employee base The ability to manage

the cultural diversity ensures effective service delivery and customer response for the

company Goumlssling and Peeters (2007) noted that owner Richard Branson wanted to certify

an exceptional service and experience for their customers that required the staff to know and

acknowledge the various cultural factors The in-flight crew of the company provides elegant

services related to the individual needs of the customers such as Virgin Airlines has a

minimum of 4-6 cuisines in their flights at any given point of time to meet the needs of the

customers (Van Dender 2007)

24

Technological It was observed in the value chain analysis that all the operational actvities of

Virgin Airways have been linked with their information and communications technology

This highlights the importance of technological support for the Airlines service Virgin

Airways has always concentrated on guarantying technological superiority for better service

design The fleet of 39 aircrafts have been remodelled regularly to keep them updated with

the industry trends Virgin Airways added 9 Boeing 787 jumbos in their fleet in the year 2014

which are expected to replace the Airbus A330 soon (Virgin-Atlantic 2015b) Services such

as individual television sets for each passenger are an example of technological usage in

Virgin Airways In context of the operational necessities the fleet of Virgin Atlantic has

installed the latest radar systems (AirNav RadarBox) with ADS-B radar systems (Van

Dender 2007)

Legal One of the most prominent legal issues faced by Virgin Atlantic is related to their

domestic service provider Little Red The domestic air traffic of the UK has been consistently

falling the launch of Little Red generated huge controversy among the stakeholders of the

organisation (Bilotkach Gaggero and Piga 2015) Furthermore failure to acquire British

Midland had further reduced the scope of recovering from the losses encountered by Little

Red division of Virgin Atlantic Airways In case of long-haul flights also Virgin Airways is

trying to merge with Delta Airlines but the foreign ownership rules is proving to be a

challenge for both the concerned firms (Economist 2014)

Environmental The environmental issues have always been in the lime-light for airline

organisations based on the pollution generated from flights and the management of the in-

flight wastages (Rea and Kerzner 2012) In this respect Virgin Airlines is trying to reduce

their environmental impact by developing an efficient business service process The bio fuel

demonstration provided by the company has shown potential for reducing the emissions by

25

4 annually (Kawaura 2015) On the other hand the increasing number of flights and

destinations of the company is equally contributing to the increase in green house gases

Perceptual Mapping

Figure 5 Perceptual Mapping Virgin Atlantic Airways

(Source Created by Author)

The above performed perceptual mapping has been derived on the basis of two criteria

namely quality and cost It can be noted that the most suitably positioned airlines group is the

Delta Airlines whereas big brands such as Lufthansa Virgin Airways British Airways etc

are positioned near high cost and high quality factors Evaluating from the given perceptual

map the primary competitor of Virgin Airlines can be noted as Lufthansa British Airways

High Quality

Low Quality

Low

Cost

Hig

h C

ost

Lufthansa

Virgin Atlantic Air France

Continental

Airlines

British Airways

Delta

Frontier

airTrar

Japan Airlines

Ryan Air

Thai

Sky Airline

Air Asia US Airways

Air Canada

26

Continental Airways Air France and Delta Airlines Virgin Airways has always been known

for their premium service category (Goumlssling and Peeters 2007) They have tried to provide

the best of services to their customers such as Clubhouses and in-flight bars and television

that have positioned Virgin Airways near the high quality quadrant of the map Although

price is an important factor for customers in their purchase decisions Virgin Airways is

trying to nullify the cost difference by adding more services and add-ons to create a halo

effect and engage the customers with their service delivery process

26 Financial Performance

The financial performance of the company has been analysed from the annual report and the

stock performance of Virgin Atlantic Airways Virgin Airways served over 6 million

customers across 33 destinations in the year 2014 which resulted in operating cash flow of

pound121 million (Virgin-Atlantic 2014) The firm experienced an increase in the unit revenue

per airline passenger by 48 whereas the operating cost increased by 03 from that of

2013 (Virgin-Atlantic 2014) The profit before tax and exceptional items of Virgin Airlines

increased by pound65 million from 2013 to pound14 million in 2014 on year on year basis However

the stock performance of Virgin Airways has fallen since the year 2014 from a point of 4381

to 3823 in 2015 The stock curve of the company has been consistently decreasing in 2015

since the sale of 49 stock to Delta Group of Airlines (FinanceYahoo 2015)

27

Figure 6 Stock Performance of Virgin Atlantic Airways 2014-2015

(Source FinanceYahoo 2015)

27 Outcome of Critical Analysis of Virgin Airways

Based on the above given internal and external analysis of Virgin Atlantic Airways it can be

considered that Virgin Airways has been growing significantly with their service structure

However there has been a decrease in their revenue generation process as Little Red segment

failed to perform in the shot-haul domestic flights and the long-haul flights are also facing

steep competition from other big brands such as British Airways Emirates and Lufthansa In

context of their organisational structure the top management body does not have a spot for

the human resource management department and has implanted the HR systems within the

middle level management The top management has been structured with a flat hierarchical

structure whereas the operational level of the company reflects a matrix structure for smooth

functioning

28

The marketing processes of Virgin Airways are the key to their customer relationship

process The company has an interactive website and efficient customer communication

methods for connecting the customers with the organisation Apart from this the service

structure of the company is continuously upgraded with innovative technology in order to

engage the customers with the firm Although the pricing of the company is higher in

comparison to their competitors individual focus towards customer needs and expectations

helps them in managing their business growth and development

28 Conclusion

Being a luxury service provider and one of the top brands of the international aviation

industry Virgin Atlantic Airlines has generated huge brand value in their respective industry

Virgin Airways has always followed an unconventional route for designing their business

strategies and tried to capture their target markets with exceptional and innovative service

structures While the company progresses in terms of their operational and managerial

efficacies the financial performance of the firm has suffered in the domestic short-haul flight

segment The long-haul flights have also shown a gradual decrease that lead to the selling of

49 of stock to Delta Airlines Based on the analysis performed it can be suggested that

Virgin Atlantic Airways needs to innovate new strategies for reducing their operational

expenses and also expanding their services to more destinations across the world

29

Reference List

Aguirregabiria V and Ho C Y 2012 A dynamic oligopoly game of the US airline

industry Estimation and policy experiments Journal of Econometrics 168(1) pp 156-173

Agusdinata B and de Klein W 2002 The Dynamics of Airline Alliances Journal of Air

Transport Management 8(4) pp 201-211

Barrett S D 2000 Airport Competition in the Deregulated European Aviation Market

Journal of Air Transport Management 6(1) pp 13-27

Barwise P and Meehan S 2010 The one thing you must get right when building a

brand Harvard Business Review 88(12) pp 80-84

Belobaba P Odoni A and Barnhart C 2009 The Global Airline Industry New Jersey

John Wiley amp Sons

Bergantino A S and Capozza C 2015 Airline Pricing Behavior under Limited

Inter‐Modal Competition Economic Inquiry 53(1) pp 700-713

Bilotkach V Gaggero A A and Piga C A 2015 Airline pricing under different market

conditions Evidence from European Low-Cost Carriers Tourism Management 47 pp 152-

163

Cento A 2008 The Airline Industry Challenges in the 21st Century Berlin Springer

Science amp Business Media

Ciliberto F and Tamer E 2009 Market structure and multiple equilibria in airline

markets Econometrica 77(6) pp 1791-1828

30

Clausen J Larsen A Larsen J and Rezanova N J 2010 Disruption management in the

airline industrymdashConcepts models and methodsComputers and Operations Research 37(5)

pp 809-821

Doganis R 2002 Flying Off Course The Economics of International Airlines London

Psychology Press

Doganis R 2006 The Airline Business London Psychology Press

Economist 2014 Little Redrsquos Big Problem [Online] Available at lt

httpwwweconomistcomblogsgulliver201410virgin-atlantics-woes gt [Accessed 22nd

August 2015]

FinanceYahoo 2015 Virgin America Inc [Online] Available at lt

httpfinanceyahoocomechartss=VA+InteractiverangemaxallowChartStackingtr

ue gt [Accessed 22nd August 2015]

Gerardi K S and Shapiro A H 2009 Does competition reduce price dispersion New

evidence from the airline industry Journal of Political Economy 117(1) pp 1-37

Gilbert D Child D and Bennett M 2001 The qualitative study of the current practices of

lsquono-frillsrsquo airlines operating in the UK Journal of Vacation Marketing 7(4) pp 302-315

Goumlssling S and Peeters P 2007 lsquoIt does not harm the environmentrsquoAn analysis of

industry discourses on tourism air travel and the environmentJournal of Sustainable

Tourism 15(4) pp 402-417

Hanlon J P 2007 Global Airlines Competition in a Transnational Industry London

Routledge

8

also illustrates that a large percentage of passengers have given more emphasise to prices

over service However this is more accurate for short haul routes The passengers now have

given up additional comfort of economy class on intra European and domestic flights but are

also eager to trade flexibility of ticket in return for low air fares This situation seems to be a

permanent situation which has forced companies to raise the use of low fare airlines

(Belobaba Odoni and Barnhart 2009) Similarly they have increased the use of non-

refundable tickets The reason behind the fall in business class travel is partly demand led and

partly supply led The supply led reasons are high business fares which expanded the segment

of inelastic business class passenger and development of low cost airlines The demand led

reasons are economic downturn that has created an active management that aims at reducing

costs by minimising travel budget and external demand shocks that ranges from SARS

epidemics Iraq War and terrorist attacks (Williams 2003) Although all these do not

necessarily mean that passengers are not willing to pay high fares for additional frills and

services delivered by business class on long haul flights but they want justification behind

premium pricing strategy

The airline industry has under significant changes in its market structure due to variety of

reasons Some of them can be cited out as the bankruptcy of some of the largest airlines

Mergers among the rival companies are another example Other companies have significantly

changed their networks Market structure changes overtime due to mergers entry and exits of

different companies which tend to have an influence on price structure The entry and exit of

firms have a strong impact on the functioning of the industry New entrants usually offer low

prices but its impact differs across markets They induce competitiveness in the market by

offering low cost fares thereby reducing the overall fare prices in the market (Bergantino and

Capozza 2015) Conversely the exiting firms have no clear effect on the pricing behaviour

of their former rivals

9

The market powers of the companies entering into merger are enhanced It was noted that

market where a merging company was present construct a control group This group is

devoid of presence of any merger The fare was increased significantly during the post-

merger situation There are still significant price rise along the routes where one of the

merging companies was a potential entrant Mergers tend to reduce market competition and

increasing the fares market-wise (Belobaba Odoni and Barnhart 2009) However it was also

observed that in some mergers the firm-level price affect is negative mainly due to efficiency

gains The consequence of merger in some cases is the formation of consolidated market

where the merged firms offer lower fares since the rise in their efficiency level due to merger

(Williams 2003)

14 The Need for Bilateral Agreements

International Aviation Organisation (ICAO) is an inter-governmental agency which governs

and coordinates the world operational and worldwide technical standards Bilateral air

transport agreement also known as bilateral air service agreement or ASA or ATA is an

agreement signed by two countries in order to permit international commercial air transport

services between geographical territories (Bergantino and Capozza 2015) The traffic rights

for each operating carriers number of carriers the number of airports in which airplanes will

operate and frequencies of flights between the fixed airports are specified by the bilateral

agreements With the development of airline sector flying became very popular necessitating

the expansion of their service This popularity prompted countries and their related airlines

around the world to develop service agreements in order to make easy the provisions of

international air service to build opportunities for the same airlines serving outside the home

countryrsquos borders and to protect the airlines against unfair foreign competition These

agreements are basically needed to build an efficient airline sector of any country by

promoting fair competition practices and by inviting global opportunities The agreement is a

10

contract formulated so that aviation services of commercial civil aviation can be liberalised

between contracting parties This is important since it allows the airplanes of both the

participating states to launch their commercial flights which cover the transport of cargoes

and passengers of both the nations (Bilotkach Gaggero and Piga 2015) The agreement may

also involve the transport of military personnel of the contracting nations According to the

agreement the airplanes of the participating nations also bring cargoes and passengers to a

third nation or pick up cargoes and passengers from the host nation to the home nation of the

airplane or to a third nation in which the participating countries have existing open skies

agreement

The liberalised form of ASA can be called an open sky agreements Open skies is a global

policy notion of the international aviation sector that requires liberalisation of the regulations

and rules of especially commercial aviation (Kawaura 2015) This is done with the aim of

creating a free-market scenario for the airline industry This agreement is also essential

keeping in mind the objectives that it aims to achieve The main objectives of the agreement

include

To liberalise the rules that govern global aviation markets and reduce government

intervention that is applicable for passengers scheduled and charter service combined air

transportation and all-cargo

To adjust in such a way so that other state based and military flights can be permitted

It has been noticed that the open skies can become effective if bilateral agreements are

concluded between two or more countries Liberalisation of international airline industry is

necessary in order to generate major extra opportunities for customers carriers direct and

indirect entities and shippers (Bilotkach Gaggero and Piga 2015)

11

15 Role of Regulatory Authorities

Any industry that is functioning to serve the society and maximise its profit needs a

governing body that will monitor the operations of the industry and formulates policies so

that the companies do not indulge into unfair trade practices and to enhance the efficiency of

the concerned sector (Wensveen 2010) The role of regulatory authorities in airline industry

includes the creation of transparent and less complex structure that offers highest safety level

for air transport services The responsibilities include providing fair access to adequate

infrastructure and to commercial prospects The framework of the regulatory authorities

should reveal legitimate environmental and military concerns The regulatory body aims at

ensuring consistency cost-effectiveness effective application both for the airlines and for the

governing body (Lelieur 2003) It is also accountable for all the decisions taken The body

also encompasses the global dimensions of aviation and targets to provide the industry with

safe cost-efficient and fair access to other places of the world

There are various functions of the regulatory body such as

Rule Preparation structuring regulatory material by a company that avails the technical

competence to do so In order to prepare the material the company needs to follow

appropriate procedures to ensure that inputs are coming from those who are also affected by

the regulations

Rule-setting the spread of binding requirements in a specific context that permits for

effective enforcement of these rules and policies for political and legal accountability for the

choices that have been made

Operational approval or licensing or certification the body is solely responsible for providing

licenses to airlines procedures etc so that authorisation can be provided to the conduct of

specific activities

12

Inspection monitoring this process is ex post evaluation of continuing compliance with the

requirements of the body and the beginning of corrective measures and actions where needed

Enforcement in order to guarantee compliance with the requirements of the regulatory the

formal powers are exercised which include imposition of proportionate sanctions

Implementation support it comprises of a wide range of activities that aims at assisting the

companies which are given the responsibility related to the application of regulatory needs

like certification monitoring etc

The main area of concern of the regulatory body is to maintain security and safety of the

passengers and crew members protect nature by reducing the emission of harmful pollutants

organisation markets sustain international cooperation and coordination optimal allocation

of scarce resources such as slots airspace maintain control over price structure so that

welfare of the customers are not jeopardise (Lelieur 2003)

16 Development of Alliances Strategies and Political Factors

The cooperative arrangements between airlines which vary extremely in breadth scope and

depth are referred to as airline alliances Airlines may engage into a wide range of

cooperation agreements that ranges from those with restricted cooperation like marketing

arrangements or interline agreements to highly integrated structures of cooperation like

metal-neutral revenue sharing joint ventures (Mahoney 2014) The vital benefit associated

with the alliance is accesses to traffic that are restricted due to bilateral agreements With the

help of the alliances the airline can overcome the entry barriers and engage in the process of

expanding their networks into large geographic regions by code-sharing with other airline

The alliance partner identifies the reciprocal code sharing advantages in the home boundary

of its new partner Both airlines together combine their networks and deliver many more

itinerary combinations than either airline could provide on its own (Wensveen 2010)

13

The alliances can be broadly categorised into two main groups namely strategic and tactical

alliances Tactical alliances comprise of two or more carriers which are designed to address

particular gaps in the networks of individual carrier by offering connectivity between the

networks of the carriers This is in contrast to the strategic alliances which are more

comprehensive and broader structures of cooperation between numerous carriers This

strategy aims at building large international joint networks Rather than closing gaps this

strategy tries to optimise networks thereby influencing the carriers and their routes and

capacities There are three main alliances such as Skyteam Oneworld and Star Alliance

(Bilotkach Gaggero and Piga 2015) Integrated alliance that includes coordinated pricing

yield and inventory management are usually governed by designated alliance committee The

representatives of the partner carriers are the members of the committee It has given the

responsibility to monitor and administer cooperative activities After the re-optimisation of

the joint networks schedules and pricing by the committee dissolving the alliance causes

substantial costs to the partner carriers As a result of the substantial costs carriers usually

look for anti-trust immunity

The political environment is highly regulated favouring the passengers more than airlines It

is because the safety of the passengers is of utmost importance The political environment has

become crucial due to earlier tendencies towards monopolistic behaviour of the sector This

has necessitated the implementation of tighter regulation of the functions of airlines (Taylor

et al 2006) There have also been instances where deregulation has been recognised in the

supply side implying stiff competition among airlines and regulation of demand side

implying that passengers are in charge of lowering prices and demand for more amenities

14

Question 2

20 Introduction

With the increase in competition business management is also getting complex (Bergantino

and Capozza 2015) The corporate sector is one of the most dominant economic forces in the

international sphere today and has successfully raised the bar for quality and productivity

According to Hanlon (2007) corporate houses face many challenges in context of their

internal and external management processes and have to continuously improve and design

new strategies for overcoming them In this report the focus is on analysis of British Airlines

Company Virgin Atlantic Airways The aviation segment is one of the most popular and

dominating segments in the luxury as well as travel and tourism industry With rapid new

entrants in this industry firms are trying to create long-term competitive advantage for

overcoming the economic and managerial challenges The succeeding sections of the study

will focus on analysing the internal and external environment of Virgin Atlantic in

comparison to its performance

21 Organisational Background

Virgin Atlantic Airways began its journey in the year 1984 when entrepreneur Sir Richard

Branson decided to launch a value-added airlines services In the first year of its launch

Virgin Airways had flown over 1 million passengers with the help of their exceptional and

high-profile service structure (Virgin-Atlantic 2015a) By the end of the eighties Sir Richard

Branson sold Virgin Music and invested the gains in Virgin Atlantic and also launched the

much appreciated economy service structure of Virgin Airways (Virgin-Atlantic 2015a) In

the year 1999 49 stake of the company was sold to Singapore Airlines valuing at pound1225

billion Since the beginning of the 21st century Virgin Airways started expanding their

services into the global market and added numerous new features to their services such as the

Upper Class Suite and Virgin Clubhouses (Virgin-Atlantic 2015a) Virgin Airways has

15

continuously remained in the customer focus because of their many awards such as the

Online Retail Awards including ORA Prix drsquoOR Best Leisure amp Travel Website World

Travel Awards BIMA Awards Digital Impact Awards APEX Passenger Choice Awards etc

(Virgin-Atlantic 2015a) The company is currently operating with a fleet size of 39 aircrafts

travelling between 31 destinations The employee base of the firm is formed of 9231 people

According to the annual report of 2014 the revenue of Virgin Atlantic was pound293 billion and

the operating income was pound144 million (Virgin-Atlantic 2015a)

22 Internal Structure and Operations

The organisational structure of Virgin Airways has been formed in two parts the top and

middle management have a flat structure whereas the operational structure is in matrix form

16

Figure 1 Organisational Structure Virgin Atlantic Airways

(Source TheOfficialBoard 2014)

17

The above given figure shows the flat hierarchy of the top management of Virgin Airways

The hierarchy represents the detailed segmentation of every functional departments of the

organisation and can be the reason behind the clarity in the operational processes of the

company However as noted there is no separate group for Human Resource Management in

the given structure The HRM activities of Virgin Airways are carried by the operations head

and the HR managers have been designated in the middle level management of the

organisation This has allowed the company to create individual space for monitoring the

actvities of each department and develop a closely knitted relationship with the customers

(Barwise and Meehan 2010) On the other hand Aguirregabiria and Ho (2012) criticised that

absence of human resource management in the top level management can reduce the ability

of the organisation to attend to the problems faced by the workforce Apart from this the gap

in communication between the operational level employees and the top managers can hamper

the present organisational structure of Virgin Airways

The operational structure of the company however has been designed in a matrix structure for

ensuring better communication among the middle level managers and the line managers

According to Stacey (2011) matrix structure helps an organisation in ensuring optimal

resource utilisation by creating a multi-tasking work culture

18

Figure 2 Operational Level Structure Virgin Atlantic Airways

(Source Papatheodorou and Forsyth 2010 p364)

The given framework of matrix structure reflects that each team operates under different

functional heads simultaneously which increases the productivity and reduces the time of

working for the company Gilbert Child and Bennett (2001) stated that matrix structure often

creates job clashes among the work processes of a firm because of multi-tasking processes

However Tsai and Hsu (2008) and Nolan (2010) maintained that matrix structures creates

flexibility and team work within the employee base of a firm allowing them to shift through

the transition period of a firm and also managing the changes in the internal structure without

hampering the productivity

Supply Chain of Virgin Atlantic

The supply chain actvities of Virgin Atlantic highlights their operational processes and the

aspects that add value to their services The following value chain model explains the strategy

and actvities used for designing the internal actvities of Virgin Atlantic Airways

Production HR Marketing Finance

Team 1

Team 3

Team 2

Staff Staff Staff Staff

Staff

Staff

Staff Staff Staff

Staff Staff Staff

19

Figure 3 Value Chain Analysis of Airline Company

(Source Clausen et al 2010 p816)

The value chain analysis of the airline segment is different from that of manufacturing

organisations The different actvities being performed within the operational scope of the

firm has been added in the analysis based on their contribution towards the overall value

added It can be observed that Information and Communications Technology is the core

process that supports all other actvities of the firms The regulatory policies and bodies form

the infrastructure of the organisations Virgin Airways in this regard has ensured that all the

Financial Policies Accounting Regulations and Policies Community Affairs

Flight route

and yield

analyst

Pilot and

Safety

training

Baggage

Handling

training

Agent

training

In-flight

Training

Computer

Reservatio

n System

In-flight

Scheduling

System

Yield

Manageme

nt System

Product

Developmen

t Market

Research

Baggage

Tracking

System

Information and Communications Technology

Route

Selection

Passenger

Service

System

Pricing

Fuel Flight

Scheduling

Crew

Manageme

nt System

Facilities

Planning

Aircraft

Acquisition

Ticket

Counter

Operations

Gate

Operations

Aircraft

Operations

On-Board

Service

Baggage

Handling

Ticket

Offices

Baggage

System

Flight

Connection

s

Rental Car

and Hotel

Reservatio

n System

Promotion

Advertising

Advantages

Program

Travel

Agent

Program

Group

Sales

Lost Baggage

Service

Complaint

Follow-up

Marg

in

Mar

gin

Firm

Infrastructu

re

HRM

Technology

Developmen

t

Procureme

nt

Inbound

Logistics Operations Outbound

Logistics

Marketing

amp Sales Service

20

air route rules and policies associated with their operations are being fulfilled (Clausen et al

2010) The supporting actvities and primary actvities are connected with the ICT system of

the firm Additional services such as Rental Car and Hotel Reservations form the outbound

services which also contribute towards revenue generation The primary operations and

monitoring processes such as ticket counters gate operations etc are essential for ensuring

appropriate service delivery Relating the given value chain analysis to the service structure

of Virgin Airways additional services of in-flight and in waiting areas help the company in

increasing the value proposition of their services for the customers

23 Mission and Vision Statement

The mission statement of Virgin Atlantic Airways has been designed based on the core values

of the organisation Scheelhaase and Grimme (2007) observed that Virgin Airways has

focused on developing an emotional connection with their stakeholders The mission

statement of the company is

ldquoTo embrace the human spirit and let it flyrdquo (Virgin-Atlantic 2015a)

Virgin Atlantic has always been known for its ability to introduce innovative service aspects

which attract and engage the customers The mission statement highlights the basic contents

of human nature ie freedom Terms such as ldquohuman spiritrdquo have been used in order to

connect with a diverse customer base irrespective of the differences in their needs and

expectations Relating the mission with their service structure Virgin Airways has developed

premium economy flights for lower income customers whereas their executive level

customers have been provided with premium level Upper Class Suites and Virgin

Clubhouses This shows that Virgin Airways has an in-built customer centric approach that

meets the needs of individual customers

21

24 Key Drivers of Virgin Airways

According to Doganis (2006) in the existing scenario innovation is the key driver for growth

and development of business houses Virgin Atlanticrsquos innovation is focused on improving

their operational efficacy for ensuring a better service structure for their customers They

have continuously designed and developed their services for Upper class as well as economy

customers Virgin Airwaysrsquo service structure does not categorise their customers in terms of

lower and business class they have economy premium economy class and upper class levels

Apart from this customers can spend their miles (received when they purchase a ticket of

Virgin Atlantic Airways) for paying instead of money (Goumlssling and Peeters 2007) These

minute additions in customer service help Virgin Airways in generating a steadily increase

revenue curve Another driver for Virgin Atlantic is their pricing processes although the

charges of the company are higher in comparison to other big competitors such as British

Airways or Jet Airways the differences between the different levels of services are minimal

This allows the customers to easily shift from economy level to premium level creating

psychological satisfaction (Van Dender 2007)

Considering their marketing actvities the individual relationship of Virgin Airways with their

customers is one of the main drivers for their growth As per the study of Sutcliffe (2002)

knowing the needs of the customers their complaints their conditions and the existing

marketing condition in relation to competitor strategies ensures better service structure for

firms It can be mentioned that Virgin Airways has won several awards for their website

support and marketing processes such as Online Retail Awards Digital Impact Awards

Travel Agent Choice Award etc (Virgin-Atlantic 2015a) This shows the ability of the firm

to continuously improve on their services and accommodate the growing needs and

expectations of the customers

22

25 External Environment

The external environment of Virgin Atlantic Airways will be analysed with the help of

PESTLE analysis and also in a comparative manner with their competitors with the help of

perceptual mapping process

PESTLE Analysis

Figure 4 PESTLE Analysis of Virgin Atlantic Airways

(Source Scheelhaase and Grimme 2007 p253)

Political One of the major political influences on Virgin Atlantic Airways took place when

the UK Government abolished the London Air Traffic Distribution rules in the year 1991 and

allowed Virgin Airways to operate from the Heathrow Airport (Ciliberto and Tamer 2009)

This move helped Virgin Airways expand their services globally and reach new destinations

mainly in the Asian and African segments However regulations and restrictions of

international bodies such as Civil Aviation Authority create some barriers for Virgin Airways

23

in context of the environmental regulations Other than this the changes in the taxation

policies of the government also hamper the revenue level of the organisation Another

political factor is the relationship of the UK government with Russia and their dispute over

the fuel prices that in turn fluctuates the cost of operations of the airline companies (Gerardi

and Shapiro 2009)

Economical The economical conditions are among the primary factors that influence the

operations of a firm (Wensveen 2010) The global financial crisis of 2007-08 had created a

major manipulation in the operations of the luxury services such as that of Virgin Airways

Mainly in nations such as UK USA Japan Italy Germany etc where customers started

ploughing back their money from the market and created a shortfall in the national

economies airline sector faced difficulties in operations Furthermore the reduction in

Government subsidies also hampered the operations of the business processes On the other

hand instability in the exchange rate increased the fuel prices and reduced the deregulation in

the airline industry (Ciliberto and Tamer 2009) However Virgin Airlines had reduced the

price of their tickets for retaining their customer base and also provided discount plans

Social The social influence on Virgin Airlines is largely associated with the customer and

employee management systems Being one of the largest multination airlines of the world

diversity is a natural occurrence in their customer and employee base The ability to manage

the cultural diversity ensures effective service delivery and customer response for the

company Goumlssling and Peeters (2007) noted that owner Richard Branson wanted to certify

an exceptional service and experience for their customers that required the staff to know and

acknowledge the various cultural factors The in-flight crew of the company provides elegant

services related to the individual needs of the customers such as Virgin Airlines has a

minimum of 4-6 cuisines in their flights at any given point of time to meet the needs of the

customers (Van Dender 2007)

24

Technological It was observed in the value chain analysis that all the operational actvities of

Virgin Airways have been linked with their information and communications technology

This highlights the importance of technological support for the Airlines service Virgin

Airways has always concentrated on guarantying technological superiority for better service

design The fleet of 39 aircrafts have been remodelled regularly to keep them updated with

the industry trends Virgin Airways added 9 Boeing 787 jumbos in their fleet in the year 2014

which are expected to replace the Airbus A330 soon (Virgin-Atlantic 2015b) Services such

as individual television sets for each passenger are an example of technological usage in

Virgin Airways In context of the operational necessities the fleet of Virgin Atlantic has

installed the latest radar systems (AirNav RadarBox) with ADS-B radar systems (Van

Dender 2007)

Legal One of the most prominent legal issues faced by Virgin Atlantic is related to their

domestic service provider Little Red The domestic air traffic of the UK has been consistently

falling the launch of Little Red generated huge controversy among the stakeholders of the

organisation (Bilotkach Gaggero and Piga 2015) Furthermore failure to acquire British

Midland had further reduced the scope of recovering from the losses encountered by Little

Red division of Virgin Atlantic Airways In case of long-haul flights also Virgin Airways is

trying to merge with Delta Airlines but the foreign ownership rules is proving to be a

challenge for both the concerned firms (Economist 2014)

Environmental The environmental issues have always been in the lime-light for airline

organisations based on the pollution generated from flights and the management of the in-

flight wastages (Rea and Kerzner 2012) In this respect Virgin Airlines is trying to reduce

their environmental impact by developing an efficient business service process The bio fuel

demonstration provided by the company has shown potential for reducing the emissions by

25

4 annually (Kawaura 2015) On the other hand the increasing number of flights and

destinations of the company is equally contributing to the increase in green house gases

Perceptual Mapping

Figure 5 Perceptual Mapping Virgin Atlantic Airways

(Source Created by Author)

The above performed perceptual mapping has been derived on the basis of two criteria

namely quality and cost It can be noted that the most suitably positioned airlines group is the

Delta Airlines whereas big brands such as Lufthansa Virgin Airways British Airways etc

are positioned near high cost and high quality factors Evaluating from the given perceptual

map the primary competitor of Virgin Airlines can be noted as Lufthansa British Airways

High Quality

Low Quality

Low

Cost

Hig

h C

ost

Lufthansa

Virgin Atlantic Air France

Continental

Airlines

British Airways

Delta

Frontier

airTrar

Japan Airlines

Ryan Air

Thai

Sky Airline

Air Asia US Airways

Air Canada

26

Continental Airways Air France and Delta Airlines Virgin Airways has always been known

for their premium service category (Goumlssling and Peeters 2007) They have tried to provide

the best of services to their customers such as Clubhouses and in-flight bars and television

that have positioned Virgin Airways near the high quality quadrant of the map Although

price is an important factor for customers in their purchase decisions Virgin Airways is

trying to nullify the cost difference by adding more services and add-ons to create a halo

effect and engage the customers with their service delivery process

26 Financial Performance

The financial performance of the company has been analysed from the annual report and the

stock performance of Virgin Atlantic Airways Virgin Airways served over 6 million

customers across 33 destinations in the year 2014 which resulted in operating cash flow of

pound121 million (Virgin-Atlantic 2014) The firm experienced an increase in the unit revenue

per airline passenger by 48 whereas the operating cost increased by 03 from that of

2013 (Virgin-Atlantic 2014) The profit before tax and exceptional items of Virgin Airlines

increased by pound65 million from 2013 to pound14 million in 2014 on year on year basis However

the stock performance of Virgin Airways has fallen since the year 2014 from a point of 4381

to 3823 in 2015 The stock curve of the company has been consistently decreasing in 2015

since the sale of 49 stock to Delta Group of Airlines (FinanceYahoo 2015)

27

Figure 6 Stock Performance of Virgin Atlantic Airways 2014-2015

(Source FinanceYahoo 2015)

27 Outcome of Critical Analysis of Virgin Airways

Based on the above given internal and external analysis of Virgin Atlantic Airways it can be

considered that Virgin Airways has been growing significantly with their service structure

However there has been a decrease in their revenue generation process as Little Red segment

failed to perform in the shot-haul domestic flights and the long-haul flights are also facing

steep competition from other big brands such as British Airways Emirates and Lufthansa In

context of their organisational structure the top management body does not have a spot for

the human resource management department and has implanted the HR systems within the

middle level management The top management has been structured with a flat hierarchical

structure whereas the operational level of the company reflects a matrix structure for smooth

functioning

28

The marketing processes of Virgin Airways are the key to their customer relationship

process The company has an interactive website and efficient customer communication

methods for connecting the customers with the organisation Apart from this the service

structure of the company is continuously upgraded with innovative technology in order to

engage the customers with the firm Although the pricing of the company is higher in

comparison to their competitors individual focus towards customer needs and expectations

helps them in managing their business growth and development

28 Conclusion

Being a luxury service provider and one of the top brands of the international aviation

industry Virgin Atlantic Airlines has generated huge brand value in their respective industry

Virgin Airways has always followed an unconventional route for designing their business

strategies and tried to capture their target markets with exceptional and innovative service

structures While the company progresses in terms of their operational and managerial

efficacies the financial performance of the firm has suffered in the domestic short-haul flight

segment The long-haul flights have also shown a gradual decrease that lead to the selling of

49 of stock to Delta Airlines Based on the analysis performed it can be suggested that

Virgin Atlantic Airways needs to innovate new strategies for reducing their operational

expenses and also expanding their services to more destinations across the world

29

Reference List

Aguirregabiria V and Ho C Y 2012 A dynamic oligopoly game of the US airline

industry Estimation and policy experiments Journal of Econometrics 168(1) pp 156-173

Agusdinata B and de Klein W 2002 The Dynamics of Airline Alliances Journal of Air

Transport Management 8(4) pp 201-211

Barrett S D 2000 Airport Competition in the Deregulated European Aviation Market

Journal of Air Transport Management 6(1) pp 13-27

Barwise P and Meehan S 2010 The one thing you must get right when building a

brand Harvard Business Review 88(12) pp 80-84

Belobaba P Odoni A and Barnhart C 2009 The Global Airline Industry New Jersey

John Wiley amp Sons

Bergantino A S and Capozza C 2015 Airline Pricing Behavior under Limited

Inter‐Modal Competition Economic Inquiry 53(1) pp 700-713

Bilotkach V Gaggero A A and Piga C A 2015 Airline pricing under different market

conditions Evidence from European Low-Cost Carriers Tourism Management 47 pp 152-

163

Cento A 2008 The Airline Industry Challenges in the 21st Century Berlin Springer

Science amp Business Media

Ciliberto F and Tamer E 2009 Market structure and multiple equilibria in airline

markets Econometrica 77(6) pp 1791-1828

30

Clausen J Larsen A Larsen J and Rezanova N J 2010 Disruption management in the

airline industrymdashConcepts models and methodsComputers and Operations Research 37(5)

pp 809-821

Doganis R 2002 Flying Off Course The Economics of International Airlines London

Psychology Press

Doganis R 2006 The Airline Business London Psychology Press

Economist 2014 Little Redrsquos Big Problem [Online] Available at lt

httpwwweconomistcomblogsgulliver201410virgin-atlantics-woes gt [Accessed 22nd

August 2015]

FinanceYahoo 2015 Virgin America Inc [Online] Available at lt

httpfinanceyahoocomechartss=VA+InteractiverangemaxallowChartStackingtr

ue gt [Accessed 22nd August 2015]

Gerardi K S and Shapiro A H 2009 Does competition reduce price dispersion New

evidence from the airline industry Journal of Political Economy 117(1) pp 1-37

Gilbert D Child D and Bennett M 2001 The qualitative study of the current practices of

lsquono-frillsrsquo airlines operating in the UK Journal of Vacation Marketing 7(4) pp 302-315

Goumlssling S and Peeters P 2007 lsquoIt does not harm the environmentrsquoAn analysis of

industry discourses on tourism air travel and the environmentJournal of Sustainable

Tourism 15(4) pp 402-417

Hanlon J P 2007 Global Airlines Competition in a Transnational Industry London

Routledge

9

The market powers of the companies entering into merger are enhanced It was noted that

market where a merging company was present construct a control group This group is

devoid of presence of any merger The fare was increased significantly during the post-

merger situation There are still significant price rise along the routes where one of the

merging companies was a potential entrant Mergers tend to reduce market competition and

increasing the fares market-wise (Belobaba Odoni and Barnhart 2009) However it was also

observed that in some mergers the firm-level price affect is negative mainly due to efficiency

gains The consequence of merger in some cases is the formation of consolidated market

where the merged firms offer lower fares since the rise in their efficiency level due to merger

(Williams 2003)

14 The Need for Bilateral Agreements

International Aviation Organisation (ICAO) is an inter-governmental agency which governs

and coordinates the world operational and worldwide technical standards Bilateral air

transport agreement also known as bilateral air service agreement or ASA or ATA is an

agreement signed by two countries in order to permit international commercial air transport

services between geographical territories (Bergantino and Capozza 2015) The traffic rights

for each operating carriers number of carriers the number of airports in which airplanes will

operate and frequencies of flights between the fixed airports are specified by the bilateral

agreements With the development of airline sector flying became very popular necessitating

the expansion of their service This popularity prompted countries and their related airlines

around the world to develop service agreements in order to make easy the provisions of

international air service to build opportunities for the same airlines serving outside the home

countryrsquos borders and to protect the airlines against unfair foreign competition These

agreements are basically needed to build an efficient airline sector of any country by

promoting fair competition practices and by inviting global opportunities The agreement is a

10

contract formulated so that aviation services of commercial civil aviation can be liberalised

between contracting parties This is important since it allows the airplanes of both the

participating states to launch their commercial flights which cover the transport of cargoes

and passengers of both the nations (Bilotkach Gaggero and Piga 2015) The agreement may

also involve the transport of military personnel of the contracting nations According to the

agreement the airplanes of the participating nations also bring cargoes and passengers to a

third nation or pick up cargoes and passengers from the host nation to the home nation of the

airplane or to a third nation in which the participating countries have existing open skies

agreement

The liberalised form of ASA can be called an open sky agreements Open skies is a global

policy notion of the international aviation sector that requires liberalisation of the regulations

and rules of especially commercial aviation (Kawaura 2015) This is done with the aim of

creating a free-market scenario for the airline industry This agreement is also essential

keeping in mind the objectives that it aims to achieve The main objectives of the agreement

include

To liberalise the rules that govern global aviation markets and reduce government

intervention that is applicable for passengers scheduled and charter service combined air

transportation and all-cargo

To adjust in such a way so that other state based and military flights can be permitted

It has been noticed that the open skies can become effective if bilateral agreements are

concluded between two or more countries Liberalisation of international airline industry is

necessary in order to generate major extra opportunities for customers carriers direct and

indirect entities and shippers (Bilotkach Gaggero and Piga 2015)

11

15 Role of Regulatory Authorities

Any industry that is functioning to serve the society and maximise its profit needs a

governing body that will monitor the operations of the industry and formulates policies so

that the companies do not indulge into unfair trade practices and to enhance the efficiency of

the concerned sector (Wensveen 2010) The role of regulatory authorities in airline industry

includes the creation of transparent and less complex structure that offers highest safety level

for air transport services The responsibilities include providing fair access to adequate

infrastructure and to commercial prospects The framework of the regulatory authorities

should reveal legitimate environmental and military concerns The regulatory body aims at

ensuring consistency cost-effectiveness effective application both for the airlines and for the

governing body (Lelieur 2003) It is also accountable for all the decisions taken The body

also encompasses the global dimensions of aviation and targets to provide the industry with

safe cost-efficient and fair access to other places of the world

There are various functions of the regulatory body such as

Rule Preparation structuring regulatory material by a company that avails the technical

competence to do so In order to prepare the material the company needs to follow

appropriate procedures to ensure that inputs are coming from those who are also affected by

the regulations

Rule-setting the spread of binding requirements in a specific context that permits for

effective enforcement of these rules and policies for political and legal accountability for the

choices that have been made

Operational approval or licensing or certification the body is solely responsible for providing

licenses to airlines procedures etc so that authorisation can be provided to the conduct of

specific activities

12

Inspection monitoring this process is ex post evaluation of continuing compliance with the

requirements of the body and the beginning of corrective measures and actions where needed

Enforcement in order to guarantee compliance with the requirements of the regulatory the

formal powers are exercised which include imposition of proportionate sanctions

Implementation support it comprises of a wide range of activities that aims at assisting the

companies which are given the responsibility related to the application of regulatory needs

like certification monitoring etc

The main area of concern of the regulatory body is to maintain security and safety of the

passengers and crew members protect nature by reducing the emission of harmful pollutants

organisation markets sustain international cooperation and coordination optimal allocation

of scarce resources such as slots airspace maintain control over price structure so that

welfare of the customers are not jeopardise (Lelieur 2003)

16 Development of Alliances Strategies and Political Factors

The cooperative arrangements between airlines which vary extremely in breadth scope and

depth are referred to as airline alliances Airlines may engage into a wide range of

cooperation agreements that ranges from those with restricted cooperation like marketing

arrangements or interline agreements to highly integrated structures of cooperation like

metal-neutral revenue sharing joint ventures (Mahoney 2014) The vital benefit associated

with the alliance is accesses to traffic that are restricted due to bilateral agreements With the

help of the alliances the airline can overcome the entry barriers and engage in the process of

expanding their networks into large geographic regions by code-sharing with other airline

The alliance partner identifies the reciprocal code sharing advantages in the home boundary

of its new partner Both airlines together combine their networks and deliver many more

itinerary combinations than either airline could provide on its own (Wensveen 2010)

13

The alliances can be broadly categorised into two main groups namely strategic and tactical

alliances Tactical alliances comprise of two or more carriers which are designed to address

particular gaps in the networks of individual carrier by offering connectivity between the

networks of the carriers This is in contrast to the strategic alliances which are more

comprehensive and broader structures of cooperation between numerous carriers This

strategy aims at building large international joint networks Rather than closing gaps this

strategy tries to optimise networks thereby influencing the carriers and their routes and

capacities There are three main alliances such as Skyteam Oneworld and Star Alliance

(Bilotkach Gaggero and Piga 2015) Integrated alliance that includes coordinated pricing

yield and inventory management are usually governed by designated alliance committee The

representatives of the partner carriers are the members of the committee It has given the

responsibility to monitor and administer cooperative activities After the re-optimisation of

the joint networks schedules and pricing by the committee dissolving the alliance causes

substantial costs to the partner carriers As a result of the substantial costs carriers usually

look for anti-trust immunity

The political environment is highly regulated favouring the passengers more than airlines It

is because the safety of the passengers is of utmost importance The political environment has

become crucial due to earlier tendencies towards monopolistic behaviour of the sector This

has necessitated the implementation of tighter regulation of the functions of airlines (Taylor

et al 2006) There have also been instances where deregulation has been recognised in the

supply side implying stiff competition among airlines and regulation of demand side

implying that passengers are in charge of lowering prices and demand for more amenities

14

Question 2

20 Introduction

With the increase in competition business management is also getting complex (Bergantino

and Capozza 2015) The corporate sector is one of the most dominant economic forces in the

international sphere today and has successfully raised the bar for quality and productivity

According to Hanlon (2007) corporate houses face many challenges in context of their

internal and external management processes and have to continuously improve and design

new strategies for overcoming them In this report the focus is on analysis of British Airlines

Company Virgin Atlantic Airways The aviation segment is one of the most popular and

dominating segments in the luxury as well as travel and tourism industry With rapid new

entrants in this industry firms are trying to create long-term competitive advantage for

overcoming the economic and managerial challenges The succeeding sections of the study

will focus on analysing the internal and external environment of Virgin Atlantic in

comparison to its performance

21 Organisational Background

Virgin Atlantic Airways began its journey in the year 1984 when entrepreneur Sir Richard

Branson decided to launch a value-added airlines services In the first year of its launch

Virgin Airways had flown over 1 million passengers with the help of their exceptional and

high-profile service structure (Virgin-Atlantic 2015a) By the end of the eighties Sir Richard

Branson sold Virgin Music and invested the gains in Virgin Atlantic and also launched the

much appreciated economy service structure of Virgin Airways (Virgin-Atlantic 2015a) In

the year 1999 49 stake of the company was sold to Singapore Airlines valuing at pound1225

billion Since the beginning of the 21st century Virgin Airways started expanding their

services into the global market and added numerous new features to their services such as the

Upper Class Suite and Virgin Clubhouses (Virgin-Atlantic 2015a) Virgin Airways has

15

continuously remained in the customer focus because of their many awards such as the

Online Retail Awards including ORA Prix drsquoOR Best Leisure amp Travel Website World

Travel Awards BIMA Awards Digital Impact Awards APEX Passenger Choice Awards etc

(Virgin-Atlantic 2015a) The company is currently operating with a fleet size of 39 aircrafts

travelling between 31 destinations The employee base of the firm is formed of 9231 people

According to the annual report of 2014 the revenue of Virgin Atlantic was pound293 billion and

the operating income was pound144 million (Virgin-Atlantic 2015a)

22 Internal Structure and Operations

The organisational structure of Virgin Airways has been formed in two parts the top and

middle management have a flat structure whereas the operational structure is in matrix form

16

Figure 1 Organisational Structure Virgin Atlantic Airways

(Source TheOfficialBoard 2014)

17

The above given figure shows the flat hierarchy of the top management of Virgin Airways

The hierarchy represents the detailed segmentation of every functional departments of the

organisation and can be the reason behind the clarity in the operational processes of the

company However as noted there is no separate group for Human Resource Management in

the given structure The HRM activities of Virgin Airways are carried by the operations head

and the HR managers have been designated in the middle level management of the

organisation This has allowed the company to create individual space for monitoring the

actvities of each department and develop a closely knitted relationship with the customers

(Barwise and Meehan 2010) On the other hand Aguirregabiria and Ho (2012) criticised that

absence of human resource management in the top level management can reduce the ability

of the organisation to attend to the problems faced by the workforce Apart from this the gap

in communication between the operational level employees and the top managers can hamper

the present organisational structure of Virgin Airways

The operational structure of the company however has been designed in a matrix structure for

ensuring better communication among the middle level managers and the line managers

According to Stacey (2011) matrix structure helps an organisation in ensuring optimal

resource utilisation by creating a multi-tasking work culture

18

Figure 2 Operational Level Structure Virgin Atlantic Airways

(Source Papatheodorou and Forsyth 2010 p364)

The given framework of matrix structure reflects that each team operates under different

functional heads simultaneously which increases the productivity and reduces the time of

working for the company Gilbert Child and Bennett (2001) stated that matrix structure often

creates job clashes among the work processes of a firm because of multi-tasking processes

However Tsai and Hsu (2008) and Nolan (2010) maintained that matrix structures creates

flexibility and team work within the employee base of a firm allowing them to shift through

the transition period of a firm and also managing the changes in the internal structure without

hampering the productivity

Supply Chain of Virgin Atlantic

The supply chain actvities of Virgin Atlantic highlights their operational processes and the

aspects that add value to their services The following value chain model explains the strategy

and actvities used for designing the internal actvities of Virgin Atlantic Airways

Production HR Marketing Finance

Team 1

Team 3

Team 2

Staff Staff Staff Staff

Staff

Staff

Staff Staff Staff

Staff Staff Staff

19

Figure 3 Value Chain Analysis of Airline Company

(Source Clausen et al 2010 p816)

The value chain analysis of the airline segment is different from that of manufacturing

organisations The different actvities being performed within the operational scope of the

firm has been added in the analysis based on their contribution towards the overall value

added It can be observed that Information and Communications Technology is the core

process that supports all other actvities of the firms The regulatory policies and bodies form

the infrastructure of the organisations Virgin Airways in this regard has ensured that all the

Financial Policies Accounting Regulations and Policies Community Affairs

Flight route

and yield

analyst

Pilot and

Safety

training

Baggage

Handling

training

Agent

training

In-flight

Training

Computer

Reservatio

n System

In-flight

Scheduling

System

Yield

Manageme

nt System

Product

Developmen

t Market

Research

Baggage

Tracking

System

Information and Communications Technology

Route

Selection

Passenger

Service

System

Pricing

Fuel Flight

Scheduling

Crew

Manageme

nt System

Facilities

Planning

Aircraft

Acquisition

Ticket

Counter

Operations

Gate

Operations

Aircraft

Operations

On-Board

Service

Baggage

Handling

Ticket

Offices

Baggage

System

Flight

Connection

s

Rental Car

and Hotel

Reservatio

n System

Promotion

Advertising

Advantages

Program

Travel

Agent

Program

Group

Sales

Lost Baggage

Service

Complaint

Follow-up

Marg

in

Mar

gin

Firm

Infrastructu

re

HRM

Technology

Developmen

t

Procureme

nt

Inbound

Logistics Operations Outbound

Logistics

Marketing

amp Sales Service

20

air route rules and policies associated with their operations are being fulfilled (Clausen et al

2010) The supporting actvities and primary actvities are connected with the ICT system of

the firm Additional services such as Rental Car and Hotel Reservations form the outbound

services which also contribute towards revenue generation The primary operations and

monitoring processes such as ticket counters gate operations etc are essential for ensuring

appropriate service delivery Relating the given value chain analysis to the service structure

of Virgin Airways additional services of in-flight and in waiting areas help the company in

increasing the value proposition of their services for the customers

23 Mission and Vision Statement

The mission statement of Virgin Atlantic Airways has been designed based on the core values

of the organisation Scheelhaase and Grimme (2007) observed that Virgin Airways has

focused on developing an emotional connection with their stakeholders The mission

statement of the company is

ldquoTo embrace the human spirit and let it flyrdquo (Virgin-Atlantic 2015a)

Virgin Atlantic has always been known for its ability to introduce innovative service aspects

which attract and engage the customers The mission statement highlights the basic contents

of human nature ie freedom Terms such as ldquohuman spiritrdquo have been used in order to

connect with a diverse customer base irrespective of the differences in their needs and

expectations Relating the mission with their service structure Virgin Airways has developed

premium economy flights for lower income customers whereas their executive level

customers have been provided with premium level Upper Class Suites and Virgin

Clubhouses This shows that Virgin Airways has an in-built customer centric approach that

meets the needs of individual customers

21

24 Key Drivers of Virgin Airways

According to Doganis (2006) in the existing scenario innovation is the key driver for growth

and development of business houses Virgin Atlanticrsquos innovation is focused on improving

their operational efficacy for ensuring a better service structure for their customers They

have continuously designed and developed their services for Upper class as well as economy

customers Virgin Airwaysrsquo service structure does not categorise their customers in terms of

lower and business class they have economy premium economy class and upper class levels

Apart from this customers can spend their miles (received when they purchase a ticket of

Virgin Atlantic Airways) for paying instead of money (Goumlssling and Peeters 2007) These

minute additions in customer service help Virgin Airways in generating a steadily increase

revenue curve Another driver for Virgin Atlantic is their pricing processes although the

charges of the company are higher in comparison to other big competitors such as British

Airways or Jet Airways the differences between the different levels of services are minimal

This allows the customers to easily shift from economy level to premium level creating

psychological satisfaction (Van Dender 2007)

Considering their marketing actvities the individual relationship of Virgin Airways with their

customers is one of the main drivers for their growth As per the study of Sutcliffe (2002)

knowing the needs of the customers their complaints their conditions and the existing

marketing condition in relation to competitor strategies ensures better service structure for

firms It can be mentioned that Virgin Airways has won several awards for their website

support and marketing processes such as Online Retail Awards Digital Impact Awards

Travel Agent Choice Award etc (Virgin-Atlantic 2015a) This shows the ability of the firm

to continuously improve on their services and accommodate the growing needs and

expectations of the customers

22

25 External Environment

The external environment of Virgin Atlantic Airways will be analysed with the help of

PESTLE analysis and also in a comparative manner with their competitors with the help of

perceptual mapping process

PESTLE Analysis

Figure 4 PESTLE Analysis of Virgin Atlantic Airways

(Source Scheelhaase and Grimme 2007 p253)

Political One of the major political influences on Virgin Atlantic Airways took place when

the UK Government abolished the London Air Traffic Distribution rules in the year 1991 and

allowed Virgin Airways to operate from the Heathrow Airport (Ciliberto and Tamer 2009)

This move helped Virgin Airways expand their services globally and reach new destinations

mainly in the Asian and African segments However regulations and restrictions of

international bodies such as Civil Aviation Authority create some barriers for Virgin Airways

23

in context of the environmental regulations Other than this the changes in the taxation

policies of the government also hamper the revenue level of the organisation Another

political factor is the relationship of the UK government with Russia and their dispute over

the fuel prices that in turn fluctuates the cost of operations of the airline companies (Gerardi

and Shapiro 2009)

Economical The economical conditions are among the primary factors that influence the

operations of a firm (Wensveen 2010) The global financial crisis of 2007-08 had created a

major manipulation in the operations of the luxury services such as that of Virgin Airways

Mainly in nations such as UK USA Japan Italy Germany etc where customers started

ploughing back their money from the market and created a shortfall in the national

economies airline sector faced difficulties in operations Furthermore the reduction in

Government subsidies also hampered the operations of the business processes On the other

hand instability in the exchange rate increased the fuel prices and reduced the deregulation in

the airline industry (Ciliberto and Tamer 2009) However Virgin Airlines had reduced the

price of their tickets for retaining their customer base and also provided discount plans

Social The social influence on Virgin Airlines is largely associated with the customer and

employee management systems Being one of the largest multination airlines of the world

diversity is a natural occurrence in their customer and employee base The ability to manage

the cultural diversity ensures effective service delivery and customer response for the

company Goumlssling and Peeters (2007) noted that owner Richard Branson wanted to certify

an exceptional service and experience for their customers that required the staff to know and

acknowledge the various cultural factors The in-flight crew of the company provides elegant

services related to the individual needs of the customers such as Virgin Airlines has a

minimum of 4-6 cuisines in their flights at any given point of time to meet the needs of the

customers (Van Dender 2007)

24

Technological It was observed in the value chain analysis that all the operational actvities of

Virgin Airways have been linked with their information and communications technology

This highlights the importance of technological support for the Airlines service Virgin

Airways has always concentrated on guarantying technological superiority for better service

design The fleet of 39 aircrafts have been remodelled regularly to keep them updated with

the industry trends Virgin Airways added 9 Boeing 787 jumbos in their fleet in the year 2014

which are expected to replace the Airbus A330 soon (Virgin-Atlantic 2015b) Services such

as individual television sets for each passenger are an example of technological usage in

Virgin Airways In context of the operational necessities the fleet of Virgin Atlantic has

installed the latest radar systems (AirNav RadarBox) with ADS-B radar systems (Van

Dender 2007)

Legal One of the most prominent legal issues faced by Virgin Atlantic is related to their

domestic service provider Little Red The domestic air traffic of the UK has been consistently

falling the launch of Little Red generated huge controversy among the stakeholders of the

organisation (Bilotkach Gaggero and Piga 2015) Furthermore failure to acquire British

Midland had further reduced the scope of recovering from the losses encountered by Little

Red division of Virgin Atlantic Airways In case of long-haul flights also Virgin Airways is

trying to merge with Delta Airlines but the foreign ownership rules is proving to be a

challenge for both the concerned firms (Economist 2014)

Environmental The environmental issues have always been in the lime-light for airline

organisations based on the pollution generated from flights and the management of the in-

flight wastages (Rea and Kerzner 2012) In this respect Virgin Airlines is trying to reduce

their environmental impact by developing an efficient business service process The bio fuel

demonstration provided by the company has shown potential for reducing the emissions by

25

4 annually (Kawaura 2015) On the other hand the increasing number of flights and

destinations of the company is equally contributing to the increase in green house gases

Perceptual Mapping

Figure 5 Perceptual Mapping Virgin Atlantic Airways

(Source Created by Author)

The above performed perceptual mapping has been derived on the basis of two criteria

namely quality and cost It can be noted that the most suitably positioned airlines group is the

Delta Airlines whereas big brands such as Lufthansa Virgin Airways British Airways etc

are positioned near high cost and high quality factors Evaluating from the given perceptual

map the primary competitor of Virgin Airlines can be noted as Lufthansa British Airways

High Quality

Low Quality

Low

Cost

Hig

h C

ost

Lufthansa

Virgin Atlantic Air France

Continental

Airlines

British Airways

Delta

Frontier

airTrar

Japan Airlines

Ryan Air

Thai

Sky Airline

Air Asia US Airways

Air Canada

26

Continental Airways Air France and Delta Airlines Virgin Airways has always been known

for their premium service category (Goumlssling and Peeters 2007) They have tried to provide

the best of services to their customers such as Clubhouses and in-flight bars and television

that have positioned Virgin Airways near the high quality quadrant of the map Although

price is an important factor for customers in their purchase decisions Virgin Airways is

trying to nullify the cost difference by adding more services and add-ons to create a halo

effect and engage the customers with their service delivery process

26 Financial Performance

The financial performance of the company has been analysed from the annual report and the

stock performance of Virgin Atlantic Airways Virgin Airways served over 6 million

customers across 33 destinations in the year 2014 which resulted in operating cash flow of

pound121 million (Virgin-Atlantic 2014) The firm experienced an increase in the unit revenue

per airline passenger by 48 whereas the operating cost increased by 03 from that of

2013 (Virgin-Atlantic 2014) The profit before tax and exceptional items of Virgin Airlines

increased by pound65 million from 2013 to pound14 million in 2014 on year on year basis However

the stock performance of Virgin Airways has fallen since the year 2014 from a point of 4381

to 3823 in 2015 The stock curve of the company has been consistently decreasing in 2015

since the sale of 49 stock to Delta Group of Airlines (FinanceYahoo 2015)

27

Figure 6 Stock Performance of Virgin Atlantic Airways 2014-2015

(Source FinanceYahoo 2015)

27 Outcome of Critical Analysis of Virgin Airways

Based on the above given internal and external analysis of Virgin Atlantic Airways it can be

considered that Virgin Airways has been growing significantly with their service structure

However there has been a decrease in their revenue generation process as Little Red segment

failed to perform in the shot-haul domestic flights and the long-haul flights are also facing

steep competition from other big brands such as British Airways Emirates and Lufthansa In

context of their organisational structure the top management body does not have a spot for

the human resource management department and has implanted the HR systems within the

middle level management The top management has been structured with a flat hierarchical

structure whereas the operational level of the company reflects a matrix structure for smooth

functioning

28

The marketing processes of Virgin Airways are the key to their customer relationship

process The company has an interactive website and efficient customer communication

methods for connecting the customers with the organisation Apart from this the service

structure of the company is continuously upgraded with innovative technology in order to

engage the customers with the firm Although the pricing of the company is higher in

comparison to their competitors individual focus towards customer needs and expectations

helps them in managing their business growth and development

28 Conclusion

Being a luxury service provider and one of the top brands of the international aviation

industry Virgin Atlantic Airlines has generated huge brand value in their respective industry

Virgin Airways has always followed an unconventional route for designing their business

strategies and tried to capture their target markets with exceptional and innovative service

structures While the company progresses in terms of their operational and managerial

efficacies the financial performance of the firm has suffered in the domestic short-haul flight

segment The long-haul flights have also shown a gradual decrease that lead to the selling of

49 of stock to Delta Airlines Based on the analysis performed it can be suggested that

Virgin Atlantic Airways needs to innovate new strategies for reducing their operational

expenses and also expanding their services to more destinations across the world

29

Reference List

Aguirregabiria V and Ho C Y 2012 A dynamic oligopoly game of the US airline

industry Estimation and policy experiments Journal of Econometrics 168(1) pp 156-173

Agusdinata B and de Klein W 2002 The Dynamics of Airline Alliances Journal of Air

Transport Management 8(4) pp 201-211

Barrett S D 2000 Airport Competition in the Deregulated European Aviation Market

Journal of Air Transport Management 6(1) pp 13-27

Barwise P and Meehan S 2010 The one thing you must get right when building a

brand Harvard Business Review 88(12) pp 80-84

Belobaba P Odoni A and Barnhart C 2009 The Global Airline Industry New Jersey

John Wiley amp Sons

Bergantino A S and Capozza C 2015 Airline Pricing Behavior under Limited

Inter‐Modal Competition Economic Inquiry 53(1) pp 700-713

Bilotkach V Gaggero A A and Piga C A 2015 Airline pricing under different market

conditions Evidence from European Low-Cost Carriers Tourism Management 47 pp 152-

163

Cento A 2008 The Airline Industry Challenges in the 21st Century Berlin Springer

Science amp Business Media

Ciliberto F and Tamer E 2009 Market structure and multiple equilibria in airline

markets Econometrica 77(6) pp 1791-1828

30

Clausen J Larsen A Larsen J and Rezanova N J 2010 Disruption management in the

airline industrymdashConcepts models and methodsComputers and Operations Research 37(5)

pp 809-821

Doganis R 2002 Flying Off Course The Economics of International Airlines London

Psychology Press

Doganis R 2006 The Airline Business London Psychology Press

Economist 2014 Little Redrsquos Big Problem [Online] Available at lt

httpwwweconomistcomblogsgulliver201410virgin-atlantics-woes gt [Accessed 22nd

August 2015]

FinanceYahoo 2015 Virgin America Inc [Online] Available at lt

httpfinanceyahoocomechartss=VA+InteractiverangemaxallowChartStackingtr

ue gt [Accessed 22nd August 2015]

Gerardi K S and Shapiro A H 2009 Does competition reduce price dispersion New

evidence from the airline industry Journal of Political Economy 117(1) pp 1-37

Gilbert D Child D and Bennett M 2001 The qualitative study of the current practices of

lsquono-frillsrsquo airlines operating in the UK Journal of Vacation Marketing 7(4) pp 302-315

Goumlssling S and Peeters P 2007 lsquoIt does not harm the environmentrsquoAn analysis of

industry discourses on tourism air travel and the environmentJournal of Sustainable

Tourism 15(4) pp 402-417

Hanlon J P 2007 Global Airlines Competition in a Transnational Industry London

Routledge

10

contract formulated so that aviation services of commercial civil aviation can be liberalised

between contracting parties This is important since it allows the airplanes of both the

participating states to launch their commercial flights which cover the transport of cargoes

and passengers of both the nations (Bilotkach Gaggero and Piga 2015) The agreement may

also involve the transport of military personnel of the contracting nations According to the

agreement the airplanes of the participating nations also bring cargoes and passengers to a

third nation or pick up cargoes and passengers from the host nation to the home nation of the

airplane or to a third nation in which the participating countries have existing open skies

agreement

The liberalised form of ASA can be called an open sky agreements Open skies is a global

policy notion of the international aviation sector that requires liberalisation of the regulations

and rules of especially commercial aviation (Kawaura 2015) This is done with the aim of

creating a free-market scenario for the airline industry This agreement is also essential

keeping in mind the objectives that it aims to achieve The main objectives of the agreement

include

To liberalise the rules that govern global aviation markets and reduce government

intervention that is applicable for passengers scheduled and charter service combined air

transportation and all-cargo

To adjust in such a way so that other state based and military flights can be permitted

It has been noticed that the open skies can become effective if bilateral agreements are

concluded between two or more countries Liberalisation of international airline industry is

necessary in order to generate major extra opportunities for customers carriers direct and

indirect entities and shippers (Bilotkach Gaggero and Piga 2015)

11

15 Role of Regulatory Authorities

Any industry that is functioning to serve the society and maximise its profit needs a

governing body that will monitor the operations of the industry and formulates policies so

that the companies do not indulge into unfair trade practices and to enhance the efficiency of

the concerned sector (Wensveen 2010) The role of regulatory authorities in airline industry

includes the creation of transparent and less complex structure that offers highest safety level

for air transport services The responsibilities include providing fair access to adequate

infrastructure and to commercial prospects The framework of the regulatory authorities

should reveal legitimate environmental and military concerns The regulatory body aims at

ensuring consistency cost-effectiveness effective application both for the airlines and for the

governing body (Lelieur 2003) It is also accountable for all the decisions taken The body

also encompasses the global dimensions of aviation and targets to provide the industry with

safe cost-efficient and fair access to other places of the world

There are various functions of the regulatory body such as

Rule Preparation structuring regulatory material by a company that avails the technical

competence to do so In order to prepare the material the company needs to follow

appropriate procedures to ensure that inputs are coming from those who are also affected by

the regulations

Rule-setting the spread of binding requirements in a specific context that permits for

effective enforcement of these rules and policies for political and legal accountability for the

choices that have been made

Operational approval or licensing or certification the body is solely responsible for providing

licenses to airlines procedures etc so that authorisation can be provided to the conduct of

specific activities

12

Inspection monitoring this process is ex post evaluation of continuing compliance with the

requirements of the body and the beginning of corrective measures and actions where needed

Enforcement in order to guarantee compliance with the requirements of the regulatory the

formal powers are exercised which include imposition of proportionate sanctions

Implementation support it comprises of a wide range of activities that aims at assisting the

companies which are given the responsibility related to the application of regulatory needs

like certification monitoring etc

The main area of concern of the regulatory body is to maintain security and safety of the

passengers and crew members protect nature by reducing the emission of harmful pollutants

organisation markets sustain international cooperation and coordination optimal allocation

of scarce resources such as slots airspace maintain control over price structure so that

welfare of the customers are not jeopardise (Lelieur 2003)

16 Development of Alliances Strategies and Political Factors

The cooperative arrangements between airlines which vary extremely in breadth scope and

depth are referred to as airline alliances Airlines may engage into a wide range of

cooperation agreements that ranges from those with restricted cooperation like marketing

arrangements or interline agreements to highly integrated structures of cooperation like

metal-neutral revenue sharing joint ventures (Mahoney 2014) The vital benefit associated

with the alliance is accesses to traffic that are restricted due to bilateral agreements With the

help of the alliances the airline can overcome the entry barriers and engage in the process of

expanding their networks into large geographic regions by code-sharing with other airline

The alliance partner identifies the reciprocal code sharing advantages in the home boundary

of its new partner Both airlines together combine their networks and deliver many more

itinerary combinations than either airline could provide on its own (Wensveen 2010)

13

The alliances can be broadly categorised into two main groups namely strategic and tactical

alliances Tactical alliances comprise of two or more carriers which are designed to address

particular gaps in the networks of individual carrier by offering connectivity between the

networks of the carriers This is in contrast to the strategic alliances which are more

comprehensive and broader structures of cooperation between numerous carriers This

strategy aims at building large international joint networks Rather than closing gaps this

strategy tries to optimise networks thereby influencing the carriers and their routes and

capacities There are three main alliances such as Skyteam Oneworld and Star Alliance

(Bilotkach Gaggero and Piga 2015) Integrated alliance that includes coordinated pricing

yield and inventory management are usually governed by designated alliance committee The

representatives of the partner carriers are the members of the committee It has given the

responsibility to monitor and administer cooperative activities After the re-optimisation of

the joint networks schedules and pricing by the committee dissolving the alliance causes

substantial costs to the partner carriers As a result of the substantial costs carriers usually

look for anti-trust immunity

The political environment is highly regulated favouring the passengers more than airlines It

is because the safety of the passengers is of utmost importance The political environment has

become crucial due to earlier tendencies towards monopolistic behaviour of the sector This

has necessitated the implementation of tighter regulation of the functions of airlines (Taylor

et al 2006) There have also been instances where deregulation has been recognised in the

supply side implying stiff competition among airlines and regulation of demand side

implying that passengers are in charge of lowering prices and demand for more amenities

14

Question 2

20 Introduction

With the increase in competition business management is also getting complex (Bergantino

and Capozza 2015) The corporate sector is one of the most dominant economic forces in the

international sphere today and has successfully raised the bar for quality and productivity

According to Hanlon (2007) corporate houses face many challenges in context of their

internal and external management processes and have to continuously improve and design

new strategies for overcoming them In this report the focus is on analysis of British Airlines

Company Virgin Atlantic Airways The aviation segment is one of the most popular and

dominating segments in the luxury as well as travel and tourism industry With rapid new

entrants in this industry firms are trying to create long-term competitive advantage for

overcoming the economic and managerial challenges The succeeding sections of the study

will focus on analysing the internal and external environment of Virgin Atlantic in

comparison to its performance

21 Organisational Background

Virgin Atlantic Airways began its journey in the year 1984 when entrepreneur Sir Richard

Branson decided to launch a value-added airlines services In the first year of its launch

Virgin Airways had flown over 1 million passengers with the help of their exceptional and

high-profile service structure (Virgin-Atlantic 2015a) By the end of the eighties Sir Richard

Branson sold Virgin Music and invested the gains in Virgin Atlantic and also launched the

much appreciated economy service structure of Virgin Airways (Virgin-Atlantic 2015a) In

the year 1999 49 stake of the company was sold to Singapore Airlines valuing at pound1225

billion Since the beginning of the 21st century Virgin Airways started expanding their

services into the global market and added numerous new features to their services such as the

Upper Class Suite and Virgin Clubhouses (Virgin-Atlantic 2015a) Virgin Airways has

15

continuously remained in the customer focus because of their many awards such as the

Online Retail Awards including ORA Prix drsquoOR Best Leisure amp Travel Website World

Travel Awards BIMA Awards Digital Impact Awards APEX Passenger Choice Awards etc

(Virgin-Atlantic 2015a) The company is currently operating with a fleet size of 39 aircrafts

travelling between 31 destinations The employee base of the firm is formed of 9231 people

According to the annual report of 2014 the revenue of Virgin Atlantic was pound293 billion and

the operating income was pound144 million (Virgin-Atlantic 2015a)

22 Internal Structure and Operations

The organisational structure of Virgin Airways has been formed in two parts the top and

middle management have a flat structure whereas the operational structure is in matrix form

16

Figure 1 Organisational Structure Virgin Atlantic Airways

(Source TheOfficialBoard 2014)

17

The above given figure shows the flat hierarchy of the top management of Virgin Airways

The hierarchy represents the detailed segmentation of every functional departments of the

organisation and can be the reason behind the clarity in the operational processes of the

company However as noted there is no separate group for Human Resource Management in

the given structure The HRM activities of Virgin Airways are carried by the operations head

and the HR managers have been designated in the middle level management of the

organisation This has allowed the company to create individual space for monitoring the

actvities of each department and develop a closely knitted relationship with the customers

(Barwise and Meehan 2010) On the other hand Aguirregabiria and Ho (2012) criticised that

absence of human resource management in the top level management can reduce the ability

of the organisation to attend to the problems faced by the workforce Apart from this the gap

in communication between the operational level employees and the top managers can hamper

the present organisational structure of Virgin Airways

The operational structure of the company however has been designed in a matrix structure for

ensuring better communication among the middle level managers and the line managers

According to Stacey (2011) matrix structure helps an organisation in ensuring optimal

resource utilisation by creating a multi-tasking work culture

18

Figure 2 Operational Level Structure Virgin Atlantic Airways

(Source Papatheodorou and Forsyth 2010 p364)

The given framework of matrix structure reflects that each team operates under different

functional heads simultaneously which increases the productivity and reduces the time of

working for the company Gilbert Child and Bennett (2001) stated that matrix structure often

creates job clashes among the work processes of a firm because of multi-tasking processes

However Tsai and Hsu (2008) and Nolan (2010) maintained that matrix structures creates

flexibility and team work within the employee base of a firm allowing them to shift through

the transition period of a firm and also managing the changes in the internal structure without

hampering the productivity

Supply Chain of Virgin Atlantic

The supply chain actvities of Virgin Atlantic highlights their operational processes and the

aspects that add value to their services The following value chain model explains the strategy

and actvities used for designing the internal actvities of Virgin Atlantic Airways

Production HR Marketing Finance

Team 1

Team 3

Team 2

Staff Staff Staff Staff

Staff

Staff

Staff Staff Staff

Staff Staff Staff

19

Figure 3 Value Chain Analysis of Airline Company

(Source Clausen et al 2010 p816)

The value chain analysis of the airline segment is different from that of manufacturing

organisations The different actvities being performed within the operational scope of the

firm has been added in the analysis based on their contribution towards the overall value

added It can be observed that Information and Communications Technology is the core

process that supports all other actvities of the firms The regulatory policies and bodies form

the infrastructure of the organisations Virgin Airways in this regard has ensured that all the

Financial Policies Accounting Regulations and Policies Community Affairs

Flight route

and yield

analyst

Pilot and

Safety

training

Baggage

Handling

training

Agent

training

In-flight

Training

Computer

Reservatio

n System

In-flight

Scheduling

System

Yield

Manageme

nt System

Product

Developmen

t Market

Research

Baggage

Tracking

System

Information and Communications Technology

Route

Selection

Passenger

Service

System

Pricing

Fuel Flight

Scheduling

Crew

Manageme

nt System

Facilities

Planning

Aircraft

Acquisition

Ticket

Counter

Operations

Gate

Operations

Aircraft

Operations

On-Board

Service

Baggage

Handling

Ticket

Offices

Baggage

System

Flight

Connection

s

Rental Car

and Hotel

Reservatio

n System

Promotion

Advertising

Advantages

Program

Travel

Agent

Program

Group

Sales

Lost Baggage

Service

Complaint

Follow-up

Marg

in

Mar

gin

Firm

Infrastructu

re

HRM

Technology

Developmen

t

Procureme

nt

Inbound

Logistics Operations Outbound

Logistics

Marketing

amp Sales Service

20

air route rules and policies associated with their operations are being fulfilled (Clausen et al

2010) The supporting actvities and primary actvities are connected with the ICT system of

the firm Additional services such as Rental Car and Hotel Reservations form the outbound

services which also contribute towards revenue generation The primary operations and

monitoring processes such as ticket counters gate operations etc are essential for ensuring

appropriate service delivery Relating the given value chain analysis to the service structure

of Virgin Airways additional services of in-flight and in waiting areas help the company in

increasing the value proposition of their services for the customers

23 Mission and Vision Statement

The mission statement of Virgin Atlantic Airways has been designed based on the core values

of the organisation Scheelhaase and Grimme (2007) observed that Virgin Airways has

focused on developing an emotional connection with their stakeholders The mission

statement of the company is

ldquoTo embrace the human spirit and let it flyrdquo (Virgin-Atlantic 2015a)

Virgin Atlantic has always been known for its ability to introduce innovative service aspects

which attract and engage the customers The mission statement highlights the basic contents

of human nature ie freedom Terms such as ldquohuman spiritrdquo have been used in order to

connect with a diverse customer base irrespective of the differences in their needs and

expectations Relating the mission with their service structure Virgin Airways has developed

premium economy flights for lower income customers whereas their executive level

customers have been provided with premium level Upper Class Suites and Virgin

Clubhouses This shows that Virgin Airways has an in-built customer centric approach that

meets the needs of individual customers

21

24 Key Drivers of Virgin Airways

According to Doganis (2006) in the existing scenario innovation is the key driver for growth

and development of business houses Virgin Atlanticrsquos innovation is focused on improving

their operational efficacy for ensuring a better service structure for their customers They

have continuously designed and developed their services for Upper class as well as economy

customers Virgin Airwaysrsquo service structure does not categorise their customers in terms of

lower and business class they have economy premium economy class and upper class levels

Apart from this customers can spend their miles (received when they purchase a ticket of

Virgin Atlantic Airways) for paying instead of money (Goumlssling and Peeters 2007) These

minute additions in customer service help Virgin Airways in generating a steadily increase

revenue curve Another driver for Virgin Atlantic is their pricing processes although the

charges of the company are higher in comparison to other big competitors such as British

Airways or Jet Airways the differences between the different levels of services are minimal

This allows the customers to easily shift from economy level to premium level creating

psychological satisfaction (Van Dender 2007)

Considering their marketing actvities the individual relationship of Virgin Airways with their

customers is one of the main drivers for their growth As per the study of Sutcliffe (2002)

knowing the needs of the customers their complaints their conditions and the existing

marketing condition in relation to competitor strategies ensures better service structure for

firms It can be mentioned that Virgin Airways has won several awards for their website

support and marketing processes such as Online Retail Awards Digital Impact Awards

Travel Agent Choice Award etc (Virgin-Atlantic 2015a) This shows the ability of the firm

to continuously improve on their services and accommodate the growing needs and

expectations of the customers

22

25 External Environment

The external environment of Virgin Atlantic Airways will be analysed with the help of

PESTLE analysis and also in a comparative manner with their competitors with the help of

perceptual mapping process

PESTLE Analysis

Figure 4 PESTLE Analysis of Virgin Atlantic Airways

(Source Scheelhaase and Grimme 2007 p253)

Political One of the major political influences on Virgin Atlantic Airways took place when

the UK Government abolished the London Air Traffic Distribution rules in the year 1991 and

allowed Virgin Airways to operate from the Heathrow Airport (Ciliberto and Tamer 2009)

This move helped Virgin Airways expand their services globally and reach new destinations

mainly in the Asian and African segments However regulations and restrictions of

international bodies such as Civil Aviation Authority create some barriers for Virgin Airways

23

in context of the environmental regulations Other than this the changes in the taxation

policies of the government also hamper the revenue level of the organisation Another

political factor is the relationship of the UK government with Russia and their dispute over

the fuel prices that in turn fluctuates the cost of operations of the airline companies (Gerardi

and Shapiro 2009)

Economical The economical conditions are among the primary factors that influence the

operations of a firm (Wensveen 2010) The global financial crisis of 2007-08 had created a

major manipulation in the operations of the luxury services such as that of Virgin Airways

Mainly in nations such as UK USA Japan Italy Germany etc where customers started

ploughing back their money from the market and created a shortfall in the national

economies airline sector faced difficulties in operations Furthermore the reduction in

Government subsidies also hampered the operations of the business processes On the other

hand instability in the exchange rate increased the fuel prices and reduced the deregulation in

the airline industry (Ciliberto and Tamer 2009) However Virgin Airlines had reduced the

price of their tickets for retaining their customer base and also provided discount plans

Social The social influence on Virgin Airlines is largely associated with the customer and

employee management systems Being one of the largest multination airlines of the world

diversity is a natural occurrence in their customer and employee base The ability to manage

the cultural diversity ensures effective service delivery and customer response for the

company Goumlssling and Peeters (2007) noted that owner Richard Branson wanted to certify

an exceptional service and experience for their customers that required the staff to know and

acknowledge the various cultural factors The in-flight crew of the company provides elegant

services related to the individual needs of the customers such as Virgin Airlines has a

minimum of 4-6 cuisines in their flights at any given point of time to meet the needs of the

customers (Van Dender 2007)

24

Technological It was observed in the value chain analysis that all the operational actvities of

Virgin Airways have been linked with their information and communications technology

This highlights the importance of technological support for the Airlines service Virgin

Airways has always concentrated on guarantying technological superiority for better service

design The fleet of 39 aircrafts have been remodelled regularly to keep them updated with

the industry trends Virgin Airways added 9 Boeing 787 jumbos in their fleet in the year 2014

which are expected to replace the Airbus A330 soon (Virgin-Atlantic 2015b) Services such

as individual television sets for each passenger are an example of technological usage in

Virgin Airways In context of the operational necessities the fleet of Virgin Atlantic has

installed the latest radar systems (AirNav RadarBox) with ADS-B radar systems (Van

Dender 2007)

Legal One of the most prominent legal issues faced by Virgin Atlantic is related to their

domestic service provider Little Red The domestic air traffic of the UK has been consistently

falling the launch of Little Red generated huge controversy among the stakeholders of the

organisation (Bilotkach Gaggero and Piga 2015) Furthermore failure to acquire British

Midland had further reduced the scope of recovering from the losses encountered by Little

Red division of Virgin Atlantic Airways In case of long-haul flights also Virgin Airways is

trying to merge with Delta Airlines but the foreign ownership rules is proving to be a

challenge for both the concerned firms (Economist 2014)

Environmental The environmental issues have always been in the lime-light for airline

organisations based on the pollution generated from flights and the management of the in-

flight wastages (Rea and Kerzner 2012) In this respect Virgin Airlines is trying to reduce

their environmental impact by developing an efficient business service process The bio fuel

demonstration provided by the company has shown potential for reducing the emissions by

25

4 annually (Kawaura 2015) On the other hand the increasing number of flights and

destinations of the company is equally contributing to the increase in green house gases

Perceptual Mapping

Figure 5 Perceptual Mapping Virgin Atlantic Airways

(Source Created by Author)

The above performed perceptual mapping has been derived on the basis of two criteria

namely quality and cost It can be noted that the most suitably positioned airlines group is the

Delta Airlines whereas big brands such as Lufthansa Virgin Airways British Airways etc

are positioned near high cost and high quality factors Evaluating from the given perceptual

map the primary competitor of Virgin Airlines can be noted as Lufthansa British Airways

High Quality

Low Quality

Low

Cost

Hig

h C

ost

Lufthansa

Virgin Atlantic Air France

Continental

Airlines

British Airways

Delta

Frontier

airTrar

Japan Airlines

Ryan Air

Thai

Sky Airline

Air Asia US Airways

Air Canada

26

Continental Airways Air France and Delta Airlines Virgin Airways has always been known

for their premium service category (Goumlssling and Peeters 2007) They have tried to provide

the best of services to their customers such as Clubhouses and in-flight bars and television

that have positioned Virgin Airways near the high quality quadrant of the map Although

price is an important factor for customers in their purchase decisions Virgin Airways is

trying to nullify the cost difference by adding more services and add-ons to create a halo

effect and engage the customers with their service delivery process

26 Financial Performance

The financial performance of the company has been analysed from the annual report and the

stock performance of Virgin Atlantic Airways Virgin Airways served over 6 million

customers across 33 destinations in the year 2014 which resulted in operating cash flow of

pound121 million (Virgin-Atlantic 2014) The firm experienced an increase in the unit revenue

per airline passenger by 48 whereas the operating cost increased by 03 from that of

2013 (Virgin-Atlantic 2014) The profit before tax and exceptional items of Virgin Airlines

increased by pound65 million from 2013 to pound14 million in 2014 on year on year basis However

the stock performance of Virgin Airways has fallen since the year 2014 from a point of 4381

to 3823 in 2015 The stock curve of the company has been consistently decreasing in 2015

since the sale of 49 stock to Delta Group of Airlines (FinanceYahoo 2015)

27

Figure 6 Stock Performance of Virgin Atlantic Airways 2014-2015

(Source FinanceYahoo 2015)

27 Outcome of Critical Analysis of Virgin Airways

Based on the above given internal and external analysis of Virgin Atlantic Airways it can be

considered that Virgin Airways has been growing significantly with their service structure

However there has been a decrease in their revenue generation process as Little Red segment

failed to perform in the shot-haul domestic flights and the long-haul flights are also facing

steep competition from other big brands such as British Airways Emirates and Lufthansa In

context of their organisational structure the top management body does not have a spot for

the human resource management department and has implanted the HR systems within the

middle level management The top management has been structured with a flat hierarchical

structure whereas the operational level of the company reflects a matrix structure for smooth

functioning

28

The marketing processes of Virgin Airways are the key to their customer relationship

process The company has an interactive website and efficient customer communication

methods for connecting the customers with the organisation Apart from this the service

structure of the company is continuously upgraded with innovative technology in order to

engage the customers with the firm Although the pricing of the company is higher in

comparison to their competitors individual focus towards customer needs and expectations

helps them in managing their business growth and development

28 Conclusion

Being a luxury service provider and one of the top brands of the international aviation

industry Virgin Atlantic Airlines has generated huge brand value in their respective industry

Virgin Airways has always followed an unconventional route for designing their business

strategies and tried to capture their target markets with exceptional and innovative service

structures While the company progresses in terms of their operational and managerial

efficacies the financial performance of the firm has suffered in the domestic short-haul flight

segment The long-haul flights have also shown a gradual decrease that lead to the selling of

49 of stock to Delta Airlines Based on the analysis performed it can be suggested that

Virgin Atlantic Airways needs to innovate new strategies for reducing their operational

expenses and also expanding their services to more destinations across the world

29

Reference List

Aguirregabiria V and Ho C Y 2012 A dynamic oligopoly game of the US airline

industry Estimation and policy experiments Journal of Econometrics 168(1) pp 156-173

Agusdinata B and de Klein W 2002 The Dynamics of Airline Alliances Journal of Air

Transport Management 8(4) pp 201-211

Barrett S D 2000 Airport Competition in the Deregulated European Aviation Market

Journal of Air Transport Management 6(1) pp 13-27

Barwise P and Meehan S 2010 The one thing you must get right when building a

brand Harvard Business Review 88(12) pp 80-84

Belobaba P Odoni A and Barnhart C 2009 The Global Airline Industry New Jersey

John Wiley amp Sons

Bergantino A S and Capozza C 2015 Airline Pricing Behavior under Limited

Inter‐Modal Competition Economic Inquiry 53(1) pp 700-713

Bilotkach V Gaggero A A and Piga C A 2015 Airline pricing under different market

conditions Evidence from European Low-Cost Carriers Tourism Management 47 pp 152-

163

Cento A 2008 The Airline Industry Challenges in the 21st Century Berlin Springer

Science amp Business Media

Ciliberto F and Tamer E 2009 Market structure and multiple equilibria in airline

markets Econometrica 77(6) pp 1791-1828

30

Clausen J Larsen A Larsen J and Rezanova N J 2010 Disruption management in the

airline industrymdashConcepts models and methodsComputers and Operations Research 37(5)

pp 809-821

Doganis R 2002 Flying Off Course The Economics of International Airlines London

Psychology Press

Doganis R 2006 The Airline Business London Psychology Press

Economist 2014 Little Redrsquos Big Problem [Online] Available at lt

httpwwweconomistcomblogsgulliver201410virgin-atlantics-woes gt [Accessed 22nd

August 2015]

FinanceYahoo 2015 Virgin America Inc [Online] Available at lt

httpfinanceyahoocomechartss=VA+InteractiverangemaxallowChartStackingtr

ue gt [Accessed 22nd August 2015]

Gerardi K S and Shapiro A H 2009 Does competition reduce price dispersion New

evidence from the airline industry Journal of Political Economy 117(1) pp 1-37

Gilbert D Child D and Bennett M 2001 The qualitative study of the current practices of

lsquono-frillsrsquo airlines operating in the UK Journal of Vacation Marketing 7(4) pp 302-315

Goumlssling S and Peeters P 2007 lsquoIt does not harm the environmentrsquoAn analysis of

industry discourses on tourism air travel and the environmentJournal of Sustainable

Tourism 15(4) pp 402-417

Hanlon J P 2007 Global Airlines Competition in a Transnational Industry London

Routledge

11

15 Role of Regulatory Authorities

Any industry that is functioning to serve the society and maximise its profit needs a

governing body that will monitor the operations of the industry and formulates policies so

that the companies do not indulge into unfair trade practices and to enhance the efficiency of

the concerned sector (Wensveen 2010) The role of regulatory authorities in airline industry

includes the creation of transparent and less complex structure that offers highest safety level

for air transport services The responsibilities include providing fair access to adequate

infrastructure and to commercial prospects The framework of the regulatory authorities

should reveal legitimate environmental and military concerns The regulatory body aims at

ensuring consistency cost-effectiveness effective application both for the airlines and for the

governing body (Lelieur 2003) It is also accountable for all the decisions taken The body

also encompasses the global dimensions of aviation and targets to provide the industry with

safe cost-efficient and fair access to other places of the world

There are various functions of the regulatory body such as

Rule Preparation structuring regulatory material by a company that avails the technical

competence to do so In order to prepare the material the company needs to follow

appropriate procedures to ensure that inputs are coming from those who are also affected by

the regulations

Rule-setting the spread of binding requirements in a specific context that permits for

effective enforcement of these rules and policies for political and legal accountability for the

choices that have been made

Operational approval or licensing or certification the body is solely responsible for providing

licenses to airlines procedures etc so that authorisation can be provided to the conduct of

specific activities

12

Inspection monitoring this process is ex post evaluation of continuing compliance with the

requirements of the body and the beginning of corrective measures and actions where needed

Enforcement in order to guarantee compliance with the requirements of the regulatory the

formal powers are exercised which include imposition of proportionate sanctions

Implementation support it comprises of a wide range of activities that aims at assisting the

companies which are given the responsibility related to the application of regulatory needs

like certification monitoring etc

The main area of concern of the regulatory body is to maintain security and safety of the

passengers and crew members protect nature by reducing the emission of harmful pollutants

organisation markets sustain international cooperation and coordination optimal allocation

of scarce resources such as slots airspace maintain control over price structure so that

welfare of the customers are not jeopardise (Lelieur 2003)

16 Development of Alliances Strategies and Political Factors

The cooperative arrangements between airlines which vary extremely in breadth scope and

depth are referred to as airline alliances Airlines may engage into a wide range of

cooperation agreements that ranges from those with restricted cooperation like marketing

arrangements or interline agreements to highly integrated structures of cooperation like

metal-neutral revenue sharing joint ventures (Mahoney 2014) The vital benefit associated

with the alliance is accesses to traffic that are restricted due to bilateral agreements With the

help of the alliances the airline can overcome the entry barriers and engage in the process of

expanding their networks into large geographic regions by code-sharing with other airline

The alliance partner identifies the reciprocal code sharing advantages in the home boundary

of its new partner Both airlines together combine their networks and deliver many more

itinerary combinations than either airline could provide on its own (Wensveen 2010)

13

The alliances can be broadly categorised into two main groups namely strategic and tactical

alliances Tactical alliances comprise of two or more carriers which are designed to address

particular gaps in the networks of individual carrier by offering connectivity between the

networks of the carriers This is in contrast to the strategic alliances which are more

comprehensive and broader structures of cooperation between numerous carriers This

strategy aims at building large international joint networks Rather than closing gaps this

strategy tries to optimise networks thereby influencing the carriers and their routes and

capacities There are three main alliances such as Skyteam Oneworld and Star Alliance

(Bilotkach Gaggero and Piga 2015) Integrated alliance that includes coordinated pricing

yield and inventory management are usually governed by designated alliance committee The

representatives of the partner carriers are the members of the committee It has given the

responsibility to monitor and administer cooperative activities After the re-optimisation of

the joint networks schedules and pricing by the committee dissolving the alliance causes

substantial costs to the partner carriers As a result of the substantial costs carriers usually

look for anti-trust immunity

The political environment is highly regulated favouring the passengers more than airlines It

is because the safety of the passengers is of utmost importance The political environment has

become crucial due to earlier tendencies towards monopolistic behaviour of the sector This

has necessitated the implementation of tighter regulation of the functions of airlines (Taylor

et al 2006) There have also been instances where deregulation has been recognised in the

supply side implying stiff competition among airlines and regulation of demand side

implying that passengers are in charge of lowering prices and demand for more amenities

14

Question 2

20 Introduction

With the increase in competition business management is also getting complex (Bergantino

and Capozza 2015) The corporate sector is one of the most dominant economic forces in the

international sphere today and has successfully raised the bar for quality and productivity

According to Hanlon (2007) corporate houses face many challenges in context of their

internal and external management processes and have to continuously improve and design

new strategies for overcoming them In this report the focus is on analysis of British Airlines

Company Virgin Atlantic Airways The aviation segment is one of the most popular and

dominating segments in the luxury as well as travel and tourism industry With rapid new

entrants in this industry firms are trying to create long-term competitive advantage for

overcoming the economic and managerial challenges The succeeding sections of the study

will focus on analysing the internal and external environment of Virgin Atlantic in

comparison to its performance

21 Organisational Background

Virgin Atlantic Airways began its journey in the year 1984 when entrepreneur Sir Richard

Branson decided to launch a value-added airlines services In the first year of its launch

Virgin Airways had flown over 1 million passengers with the help of their exceptional and

high-profile service structure (Virgin-Atlantic 2015a) By the end of the eighties Sir Richard

Branson sold Virgin Music and invested the gains in Virgin Atlantic and also launched the

much appreciated economy service structure of Virgin Airways (Virgin-Atlantic 2015a) In

the year 1999 49 stake of the company was sold to Singapore Airlines valuing at pound1225

billion Since the beginning of the 21st century Virgin Airways started expanding their

services into the global market and added numerous new features to their services such as the

Upper Class Suite and Virgin Clubhouses (Virgin-Atlantic 2015a) Virgin Airways has

15

continuously remained in the customer focus because of their many awards such as the

Online Retail Awards including ORA Prix drsquoOR Best Leisure amp Travel Website World

Travel Awards BIMA Awards Digital Impact Awards APEX Passenger Choice Awards etc

(Virgin-Atlantic 2015a) The company is currently operating with a fleet size of 39 aircrafts

travelling between 31 destinations The employee base of the firm is formed of 9231 people

According to the annual report of 2014 the revenue of Virgin Atlantic was pound293 billion and

the operating income was pound144 million (Virgin-Atlantic 2015a)

22 Internal Structure and Operations

The organisational structure of Virgin Airways has been formed in two parts the top and

middle management have a flat structure whereas the operational structure is in matrix form

16

Figure 1 Organisational Structure Virgin Atlantic Airways

(Source TheOfficialBoard 2014)

17

The above given figure shows the flat hierarchy of the top management of Virgin Airways

The hierarchy represents the detailed segmentation of every functional departments of the

organisation and can be the reason behind the clarity in the operational processes of the

company However as noted there is no separate group for Human Resource Management in

the given structure The HRM activities of Virgin Airways are carried by the operations head

and the HR managers have been designated in the middle level management of the

organisation This has allowed the company to create individual space for monitoring the

actvities of each department and develop a closely knitted relationship with the customers

(Barwise and Meehan 2010) On the other hand Aguirregabiria and Ho (2012) criticised that

absence of human resource management in the top level management can reduce the ability

of the organisation to attend to the problems faced by the workforce Apart from this the gap

in communication between the operational level employees and the top managers can hamper

the present organisational structure of Virgin Airways

The operational structure of the company however has been designed in a matrix structure for

ensuring better communication among the middle level managers and the line managers

According to Stacey (2011) matrix structure helps an organisation in ensuring optimal

resource utilisation by creating a multi-tasking work culture

18

Figure 2 Operational Level Structure Virgin Atlantic Airways

(Source Papatheodorou and Forsyth 2010 p364)

The given framework of matrix structure reflects that each team operates under different

functional heads simultaneously which increases the productivity and reduces the time of

working for the company Gilbert Child and Bennett (2001) stated that matrix structure often

creates job clashes among the work processes of a firm because of multi-tasking processes

However Tsai and Hsu (2008) and Nolan (2010) maintained that matrix structures creates

flexibility and team work within the employee base of a firm allowing them to shift through

the transition period of a firm and also managing the changes in the internal structure without

hampering the productivity

Supply Chain of Virgin Atlantic

The supply chain actvities of Virgin Atlantic highlights their operational processes and the

aspects that add value to their services The following value chain model explains the strategy

and actvities used for designing the internal actvities of Virgin Atlantic Airways

Production HR Marketing Finance

Team 1

Team 3

Team 2

Staff Staff Staff Staff

Staff

Staff

Staff Staff Staff

Staff Staff Staff

19

Figure 3 Value Chain Analysis of Airline Company

(Source Clausen et al 2010 p816)

The value chain analysis of the airline segment is different from that of manufacturing

organisations The different actvities being performed within the operational scope of the

firm has been added in the analysis based on their contribution towards the overall value

added It can be observed that Information and Communications Technology is the core

process that supports all other actvities of the firms The regulatory policies and bodies form

the infrastructure of the organisations Virgin Airways in this regard has ensured that all the

Financial Policies Accounting Regulations and Policies Community Affairs

Flight route

and yield

analyst

Pilot and

Safety

training

Baggage

Handling

training

Agent

training

In-flight

Training

Computer

Reservatio

n System

In-flight

Scheduling

System

Yield

Manageme

nt System

Product

Developmen

t Market

Research

Baggage

Tracking

System

Information and Communications Technology

Route

Selection

Passenger

Service

System

Pricing

Fuel Flight

Scheduling

Crew

Manageme

nt System

Facilities

Planning

Aircraft

Acquisition

Ticket

Counter

Operations

Gate

Operations

Aircraft

Operations

On-Board

Service

Baggage

Handling

Ticket

Offices

Baggage

System

Flight

Connection

s

Rental Car

and Hotel

Reservatio

n System

Promotion

Advertising

Advantages

Program

Travel

Agent

Program

Group

Sales

Lost Baggage

Service

Complaint

Follow-up

Marg

in

Mar

gin

Firm

Infrastructu

re

HRM

Technology

Developmen

t

Procureme

nt

Inbound

Logistics Operations Outbound

Logistics

Marketing

amp Sales Service

20

air route rules and policies associated with their operations are being fulfilled (Clausen et al

2010) The supporting actvities and primary actvities are connected with the ICT system of

the firm Additional services such as Rental Car and Hotel Reservations form the outbound

services which also contribute towards revenue generation The primary operations and

monitoring processes such as ticket counters gate operations etc are essential for ensuring

appropriate service delivery Relating the given value chain analysis to the service structure

of Virgin Airways additional services of in-flight and in waiting areas help the company in

increasing the value proposition of their services for the customers

23 Mission and Vision Statement

The mission statement of Virgin Atlantic Airways has been designed based on the core values

of the organisation Scheelhaase and Grimme (2007) observed that Virgin Airways has

focused on developing an emotional connection with their stakeholders The mission

statement of the company is

ldquoTo embrace the human spirit and let it flyrdquo (Virgin-Atlantic 2015a)

Virgin Atlantic has always been known for its ability to introduce innovative service aspects

which attract and engage the customers The mission statement highlights the basic contents

of human nature ie freedom Terms such as ldquohuman spiritrdquo have been used in order to

connect with a diverse customer base irrespective of the differences in their needs and

expectations Relating the mission with their service structure Virgin Airways has developed

premium economy flights for lower income customers whereas their executive level

customers have been provided with premium level Upper Class Suites and Virgin

Clubhouses This shows that Virgin Airways has an in-built customer centric approach that

meets the needs of individual customers

21

24 Key Drivers of Virgin Airways

According to Doganis (2006) in the existing scenario innovation is the key driver for growth

and development of business houses Virgin Atlanticrsquos innovation is focused on improving

their operational efficacy for ensuring a better service structure for their customers They

have continuously designed and developed their services for Upper class as well as economy

customers Virgin Airwaysrsquo service structure does not categorise their customers in terms of

lower and business class they have economy premium economy class and upper class levels

Apart from this customers can spend their miles (received when they purchase a ticket of

Virgin Atlantic Airways) for paying instead of money (Goumlssling and Peeters 2007) These

minute additions in customer service help Virgin Airways in generating a steadily increase

revenue curve Another driver for Virgin Atlantic is their pricing processes although the

charges of the company are higher in comparison to other big competitors such as British

Airways or Jet Airways the differences between the different levels of services are minimal

This allows the customers to easily shift from economy level to premium level creating

psychological satisfaction (Van Dender 2007)

Considering their marketing actvities the individual relationship of Virgin Airways with their

customers is one of the main drivers for their growth As per the study of Sutcliffe (2002)

knowing the needs of the customers their complaints their conditions and the existing

marketing condition in relation to competitor strategies ensures better service structure for

firms It can be mentioned that Virgin Airways has won several awards for their website

support and marketing processes such as Online Retail Awards Digital Impact Awards

Travel Agent Choice Award etc (Virgin-Atlantic 2015a) This shows the ability of the firm

to continuously improve on their services and accommodate the growing needs and

expectations of the customers

22

25 External Environment

The external environment of Virgin Atlantic Airways will be analysed with the help of

PESTLE analysis and also in a comparative manner with their competitors with the help of

perceptual mapping process

PESTLE Analysis

Figure 4 PESTLE Analysis of Virgin Atlantic Airways

(Source Scheelhaase and Grimme 2007 p253)

Political One of the major political influences on Virgin Atlantic Airways took place when

the UK Government abolished the London Air Traffic Distribution rules in the year 1991 and

allowed Virgin Airways to operate from the Heathrow Airport (Ciliberto and Tamer 2009)

This move helped Virgin Airways expand their services globally and reach new destinations

mainly in the Asian and African segments However regulations and restrictions of

international bodies such as Civil Aviation Authority create some barriers for Virgin Airways

23

in context of the environmental regulations Other than this the changes in the taxation

policies of the government also hamper the revenue level of the organisation Another

political factor is the relationship of the UK government with Russia and their dispute over

the fuel prices that in turn fluctuates the cost of operations of the airline companies (Gerardi

and Shapiro 2009)

Economical The economical conditions are among the primary factors that influence the

operations of a firm (Wensveen 2010) The global financial crisis of 2007-08 had created a

major manipulation in the operations of the luxury services such as that of Virgin Airways

Mainly in nations such as UK USA Japan Italy Germany etc where customers started

ploughing back their money from the market and created a shortfall in the national

economies airline sector faced difficulties in operations Furthermore the reduction in

Government subsidies also hampered the operations of the business processes On the other

hand instability in the exchange rate increased the fuel prices and reduced the deregulation in

the airline industry (Ciliberto and Tamer 2009) However Virgin Airlines had reduced the

price of their tickets for retaining their customer base and also provided discount plans

Social The social influence on Virgin Airlines is largely associated with the customer and

employee management systems Being one of the largest multination airlines of the world

diversity is a natural occurrence in their customer and employee base The ability to manage

the cultural diversity ensures effective service delivery and customer response for the

company Goumlssling and Peeters (2007) noted that owner Richard Branson wanted to certify

an exceptional service and experience for their customers that required the staff to know and

acknowledge the various cultural factors The in-flight crew of the company provides elegant

services related to the individual needs of the customers such as Virgin Airlines has a

minimum of 4-6 cuisines in their flights at any given point of time to meet the needs of the

customers (Van Dender 2007)

24

Technological It was observed in the value chain analysis that all the operational actvities of

Virgin Airways have been linked with their information and communications technology

This highlights the importance of technological support for the Airlines service Virgin

Airways has always concentrated on guarantying technological superiority for better service

design The fleet of 39 aircrafts have been remodelled regularly to keep them updated with

the industry trends Virgin Airways added 9 Boeing 787 jumbos in their fleet in the year 2014

which are expected to replace the Airbus A330 soon (Virgin-Atlantic 2015b) Services such

as individual television sets for each passenger are an example of technological usage in

Virgin Airways In context of the operational necessities the fleet of Virgin Atlantic has

installed the latest radar systems (AirNav RadarBox) with ADS-B radar systems (Van

Dender 2007)

Legal One of the most prominent legal issues faced by Virgin Atlantic is related to their

domestic service provider Little Red The domestic air traffic of the UK has been consistently

falling the launch of Little Red generated huge controversy among the stakeholders of the

organisation (Bilotkach Gaggero and Piga 2015) Furthermore failure to acquire British

Midland had further reduced the scope of recovering from the losses encountered by Little

Red division of Virgin Atlantic Airways In case of long-haul flights also Virgin Airways is

trying to merge with Delta Airlines but the foreign ownership rules is proving to be a

challenge for both the concerned firms (Economist 2014)

Environmental The environmental issues have always been in the lime-light for airline

organisations based on the pollution generated from flights and the management of the in-

flight wastages (Rea and Kerzner 2012) In this respect Virgin Airlines is trying to reduce

their environmental impact by developing an efficient business service process The bio fuel

demonstration provided by the company has shown potential for reducing the emissions by

25

4 annually (Kawaura 2015) On the other hand the increasing number of flights and

destinations of the company is equally contributing to the increase in green house gases

Perceptual Mapping

Figure 5 Perceptual Mapping Virgin Atlantic Airways

(Source Created by Author)

The above performed perceptual mapping has been derived on the basis of two criteria

namely quality and cost It can be noted that the most suitably positioned airlines group is the

Delta Airlines whereas big brands such as Lufthansa Virgin Airways British Airways etc

are positioned near high cost and high quality factors Evaluating from the given perceptual

map the primary competitor of Virgin Airlines can be noted as Lufthansa British Airways

High Quality

Low Quality

Low

Cost

Hig

h C

ost

Lufthansa

Virgin Atlantic Air France

Continental

Airlines

British Airways

Delta

Frontier

airTrar

Japan Airlines

Ryan Air

Thai

Sky Airline

Air Asia US Airways

Air Canada

26

Continental Airways Air France and Delta Airlines Virgin Airways has always been known

for their premium service category (Goumlssling and Peeters 2007) They have tried to provide

the best of services to their customers such as Clubhouses and in-flight bars and television

that have positioned Virgin Airways near the high quality quadrant of the map Although

price is an important factor for customers in their purchase decisions Virgin Airways is

trying to nullify the cost difference by adding more services and add-ons to create a halo

effect and engage the customers with their service delivery process

26 Financial Performance

The financial performance of the company has been analysed from the annual report and the

stock performance of Virgin Atlantic Airways Virgin Airways served over 6 million

customers across 33 destinations in the year 2014 which resulted in operating cash flow of

pound121 million (Virgin-Atlantic 2014) The firm experienced an increase in the unit revenue

per airline passenger by 48 whereas the operating cost increased by 03 from that of

2013 (Virgin-Atlantic 2014) The profit before tax and exceptional items of Virgin Airlines

increased by pound65 million from 2013 to pound14 million in 2014 on year on year basis However

the stock performance of Virgin Airways has fallen since the year 2014 from a point of 4381

to 3823 in 2015 The stock curve of the company has been consistently decreasing in 2015

since the sale of 49 stock to Delta Group of Airlines (FinanceYahoo 2015)

27

Figure 6 Stock Performance of Virgin Atlantic Airways 2014-2015

(Source FinanceYahoo 2015)

27 Outcome of Critical Analysis of Virgin Airways

Based on the above given internal and external analysis of Virgin Atlantic Airways it can be

considered that Virgin Airways has been growing significantly with their service structure

However there has been a decrease in their revenue generation process as Little Red segment

failed to perform in the shot-haul domestic flights and the long-haul flights are also facing

steep competition from other big brands such as British Airways Emirates and Lufthansa In

context of their organisational structure the top management body does not have a spot for

the human resource management department and has implanted the HR systems within the

middle level management The top management has been structured with a flat hierarchical

structure whereas the operational level of the company reflects a matrix structure for smooth

functioning

28

The marketing processes of Virgin Airways are the key to their customer relationship

process The company has an interactive website and efficient customer communication

methods for connecting the customers with the organisation Apart from this the service

structure of the company is continuously upgraded with innovative technology in order to

engage the customers with the firm Although the pricing of the company is higher in

comparison to their competitors individual focus towards customer needs and expectations

helps them in managing their business growth and development

28 Conclusion

Being a luxury service provider and one of the top brands of the international aviation

industry Virgin Atlantic Airlines has generated huge brand value in their respective industry

Virgin Airways has always followed an unconventional route for designing their business

strategies and tried to capture their target markets with exceptional and innovative service

structures While the company progresses in terms of their operational and managerial

efficacies the financial performance of the firm has suffered in the domestic short-haul flight

segment The long-haul flights have also shown a gradual decrease that lead to the selling of

49 of stock to Delta Airlines Based on the analysis performed it can be suggested that

Virgin Atlantic Airways needs to innovate new strategies for reducing their operational

expenses and also expanding their services to more destinations across the world

29

Reference List

Aguirregabiria V and Ho C Y 2012 A dynamic oligopoly game of the US airline

industry Estimation and policy experiments Journal of Econometrics 168(1) pp 156-173

Agusdinata B and de Klein W 2002 The Dynamics of Airline Alliances Journal of Air

Transport Management 8(4) pp 201-211

Barrett S D 2000 Airport Competition in the Deregulated European Aviation Market

Journal of Air Transport Management 6(1) pp 13-27

Barwise P and Meehan S 2010 The one thing you must get right when building a

brand Harvard Business Review 88(12) pp 80-84

Belobaba P Odoni A and Barnhart C 2009 The Global Airline Industry New Jersey

John Wiley amp Sons

Bergantino A S and Capozza C 2015 Airline Pricing Behavior under Limited

Inter‐Modal Competition Economic Inquiry 53(1) pp 700-713

Bilotkach V Gaggero A A and Piga C A 2015 Airline pricing under different market

conditions Evidence from European Low-Cost Carriers Tourism Management 47 pp 152-

163

Cento A 2008 The Airline Industry Challenges in the 21st Century Berlin Springer

Science amp Business Media

Ciliberto F and Tamer E 2009 Market structure and multiple equilibria in airline

markets Econometrica 77(6) pp 1791-1828

30

Clausen J Larsen A Larsen J and Rezanova N J 2010 Disruption management in the

airline industrymdashConcepts models and methodsComputers and Operations Research 37(5)

pp 809-821

Doganis R 2002 Flying Off Course The Economics of International Airlines London

Psychology Press

Doganis R 2006 The Airline Business London Psychology Press

Economist 2014 Little Redrsquos Big Problem [Online] Available at lt

httpwwweconomistcomblogsgulliver201410virgin-atlantics-woes gt [Accessed 22nd

August 2015]

FinanceYahoo 2015 Virgin America Inc [Online] Available at lt

httpfinanceyahoocomechartss=VA+InteractiverangemaxallowChartStackingtr

ue gt [Accessed 22nd August 2015]

Gerardi K S and Shapiro A H 2009 Does competition reduce price dispersion New

evidence from the airline industry Journal of Political Economy 117(1) pp 1-37

Gilbert D Child D and Bennett M 2001 The qualitative study of the current practices of

lsquono-frillsrsquo airlines operating in the UK Journal of Vacation Marketing 7(4) pp 302-315

Goumlssling S and Peeters P 2007 lsquoIt does not harm the environmentrsquoAn analysis of

industry discourses on tourism air travel and the environmentJournal of Sustainable

Tourism 15(4) pp 402-417

Hanlon J P 2007 Global Airlines Competition in a Transnational Industry London

Routledge

12

Inspection monitoring this process is ex post evaluation of continuing compliance with the

requirements of the body and the beginning of corrective measures and actions where needed

Enforcement in order to guarantee compliance with the requirements of the regulatory the

formal powers are exercised which include imposition of proportionate sanctions

Implementation support it comprises of a wide range of activities that aims at assisting the

companies which are given the responsibility related to the application of regulatory needs

like certification monitoring etc

The main area of concern of the regulatory body is to maintain security and safety of the

passengers and crew members protect nature by reducing the emission of harmful pollutants

organisation markets sustain international cooperation and coordination optimal allocation

of scarce resources such as slots airspace maintain control over price structure so that

welfare of the customers are not jeopardise (Lelieur 2003)

16 Development of Alliances Strategies and Political Factors

The cooperative arrangements between airlines which vary extremely in breadth scope and

depth are referred to as airline alliances Airlines may engage into a wide range of

cooperation agreements that ranges from those with restricted cooperation like marketing

arrangements or interline agreements to highly integrated structures of cooperation like

metal-neutral revenue sharing joint ventures (Mahoney 2014) The vital benefit associated

with the alliance is accesses to traffic that are restricted due to bilateral agreements With the

help of the alliances the airline can overcome the entry barriers and engage in the process of

expanding their networks into large geographic regions by code-sharing with other airline

The alliance partner identifies the reciprocal code sharing advantages in the home boundary

of its new partner Both airlines together combine their networks and deliver many more

itinerary combinations than either airline could provide on its own (Wensveen 2010)

13

The alliances can be broadly categorised into two main groups namely strategic and tactical

alliances Tactical alliances comprise of two or more carriers which are designed to address

particular gaps in the networks of individual carrier by offering connectivity between the

networks of the carriers This is in contrast to the strategic alliances which are more

comprehensive and broader structures of cooperation between numerous carriers This

strategy aims at building large international joint networks Rather than closing gaps this

strategy tries to optimise networks thereby influencing the carriers and their routes and

capacities There are three main alliances such as Skyteam Oneworld and Star Alliance

(Bilotkach Gaggero and Piga 2015) Integrated alliance that includes coordinated pricing

yield and inventory management are usually governed by designated alliance committee The

representatives of the partner carriers are the members of the committee It has given the

responsibility to monitor and administer cooperative activities After the re-optimisation of

the joint networks schedules and pricing by the committee dissolving the alliance causes

substantial costs to the partner carriers As a result of the substantial costs carriers usually

look for anti-trust immunity

The political environment is highly regulated favouring the passengers more than airlines It

is because the safety of the passengers is of utmost importance The political environment has

become crucial due to earlier tendencies towards monopolistic behaviour of the sector This

has necessitated the implementation of tighter regulation of the functions of airlines (Taylor

et al 2006) There have also been instances where deregulation has been recognised in the

supply side implying stiff competition among airlines and regulation of demand side

implying that passengers are in charge of lowering prices and demand for more amenities

14

Question 2

20 Introduction

With the increase in competition business management is also getting complex (Bergantino

and Capozza 2015) The corporate sector is one of the most dominant economic forces in the

international sphere today and has successfully raised the bar for quality and productivity

According to Hanlon (2007) corporate houses face many challenges in context of their

internal and external management processes and have to continuously improve and design

new strategies for overcoming them In this report the focus is on analysis of British Airlines

Company Virgin Atlantic Airways The aviation segment is one of the most popular and

dominating segments in the luxury as well as travel and tourism industry With rapid new

entrants in this industry firms are trying to create long-term competitive advantage for

overcoming the economic and managerial challenges The succeeding sections of the study

will focus on analysing the internal and external environment of Virgin Atlantic in

comparison to its performance

21 Organisational Background

Virgin Atlantic Airways began its journey in the year 1984 when entrepreneur Sir Richard

Branson decided to launch a value-added airlines services In the first year of its launch

Virgin Airways had flown over 1 million passengers with the help of their exceptional and

high-profile service structure (Virgin-Atlantic 2015a) By the end of the eighties Sir Richard

Branson sold Virgin Music and invested the gains in Virgin Atlantic and also launched the

much appreciated economy service structure of Virgin Airways (Virgin-Atlantic 2015a) In

the year 1999 49 stake of the company was sold to Singapore Airlines valuing at pound1225

billion Since the beginning of the 21st century Virgin Airways started expanding their

services into the global market and added numerous new features to their services such as the

Upper Class Suite and Virgin Clubhouses (Virgin-Atlantic 2015a) Virgin Airways has

15

continuously remained in the customer focus because of their many awards such as the

Online Retail Awards including ORA Prix drsquoOR Best Leisure amp Travel Website World

Travel Awards BIMA Awards Digital Impact Awards APEX Passenger Choice Awards etc

(Virgin-Atlantic 2015a) The company is currently operating with a fleet size of 39 aircrafts

travelling between 31 destinations The employee base of the firm is formed of 9231 people

According to the annual report of 2014 the revenue of Virgin Atlantic was pound293 billion and

the operating income was pound144 million (Virgin-Atlantic 2015a)

22 Internal Structure and Operations

The organisational structure of Virgin Airways has been formed in two parts the top and

middle management have a flat structure whereas the operational structure is in matrix form

16

Figure 1 Organisational Structure Virgin Atlantic Airways

(Source TheOfficialBoard 2014)

17

The above given figure shows the flat hierarchy of the top management of Virgin Airways

The hierarchy represents the detailed segmentation of every functional departments of the

organisation and can be the reason behind the clarity in the operational processes of the

company However as noted there is no separate group for Human Resource Management in

the given structure The HRM activities of Virgin Airways are carried by the operations head

and the HR managers have been designated in the middle level management of the

organisation This has allowed the company to create individual space for monitoring the

actvities of each department and develop a closely knitted relationship with the customers

(Barwise and Meehan 2010) On the other hand Aguirregabiria and Ho (2012) criticised that

absence of human resource management in the top level management can reduce the ability

of the organisation to attend to the problems faced by the workforce Apart from this the gap

in communication between the operational level employees and the top managers can hamper

the present organisational structure of Virgin Airways

The operational structure of the company however has been designed in a matrix structure for

ensuring better communication among the middle level managers and the line managers

According to Stacey (2011) matrix structure helps an organisation in ensuring optimal

resource utilisation by creating a multi-tasking work culture

18

Figure 2 Operational Level Structure Virgin Atlantic Airways

(Source Papatheodorou and Forsyth 2010 p364)

The given framework of matrix structure reflects that each team operates under different

functional heads simultaneously which increases the productivity and reduces the time of

working for the company Gilbert Child and Bennett (2001) stated that matrix structure often

creates job clashes among the work processes of a firm because of multi-tasking processes

However Tsai and Hsu (2008) and Nolan (2010) maintained that matrix structures creates

flexibility and team work within the employee base of a firm allowing them to shift through

the transition period of a firm and also managing the changes in the internal structure without

hampering the productivity

Supply Chain of Virgin Atlantic

The supply chain actvities of Virgin Atlantic highlights their operational processes and the

aspects that add value to their services The following value chain model explains the strategy

and actvities used for designing the internal actvities of Virgin Atlantic Airways

Production HR Marketing Finance

Team 1

Team 3

Team 2

Staff Staff Staff Staff

Staff

Staff

Staff Staff Staff

Staff Staff Staff

19

Figure 3 Value Chain Analysis of Airline Company

(Source Clausen et al 2010 p816)

The value chain analysis of the airline segment is different from that of manufacturing

organisations The different actvities being performed within the operational scope of the

firm has been added in the analysis based on their contribution towards the overall value

added It can be observed that Information and Communications Technology is the core

process that supports all other actvities of the firms The regulatory policies and bodies form

the infrastructure of the organisations Virgin Airways in this regard has ensured that all the

Financial Policies Accounting Regulations and Policies Community Affairs

Flight route

and yield

analyst

Pilot and

Safety

training

Baggage

Handling

training

Agent

training

In-flight

Training

Computer

Reservatio

n System

In-flight

Scheduling

System

Yield

Manageme

nt System

Product

Developmen

t Market

Research

Baggage

Tracking

System

Information and Communications Technology

Route

Selection

Passenger

Service

System

Pricing

Fuel Flight

Scheduling

Crew

Manageme

nt System

Facilities

Planning

Aircraft

Acquisition

Ticket

Counter

Operations

Gate

Operations

Aircraft

Operations

On-Board

Service

Baggage

Handling

Ticket

Offices

Baggage

System

Flight

Connection

s

Rental Car

and Hotel

Reservatio

n System

Promotion

Advertising

Advantages

Program

Travel

Agent

Program

Group

Sales

Lost Baggage

Service

Complaint

Follow-up

Marg

in

Mar

gin

Firm

Infrastructu

re

HRM

Technology

Developmen

t

Procureme

nt

Inbound

Logistics Operations Outbound

Logistics

Marketing

amp Sales Service

20

air route rules and policies associated with their operations are being fulfilled (Clausen et al

2010) The supporting actvities and primary actvities are connected with the ICT system of

the firm Additional services such as Rental Car and Hotel Reservations form the outbound

services which also contribute towards revenue generation The primary operations and

monitoring processes such as ticket counters gate operations etc are essential for ensuring

appropriate service delivery Relating the given value chain analysis to the service structure

of Virgin Airways additional services of in-flight and in waiting areas help the company in

increasing the value proposition of their services for the customers

23 Mission and Vision Statement

The mission statement of Virgin Atlantic Airways has been designed based on the core values

of the organisation Scheelhaase and Grimme (2007) observed that Virgin Airways has

focused on developing an emotional connection with their stakeholders The mission

statement of the company is

ldquoTo embrace the human spirit and let it flyrdquo (Virgin-Atlantic 2015a)

Virgin Atlantic has always been known for its ability to introduce innovative service aspects

which attract and engage the customers The mission statement highlights the basic contents

of human nature ie freedom Terms such as ldquohuman spiritrdquo have been used in order to

connect with a diverse customer base irrespective of the differences in their needs and

expectations Relating the mission with their service structure Virgin Airways has developed

premium economy flights for lower income customers whereas their executive level

customers have been provided with premium level Upper Class Suites and Virgin

Clubhouses This shows that Virgin Airways has an in-built customer centric approach that

meets the needs of individual customers

21

24 Key Drivers of Virgin Airways

According to Doganis (2006) in the existing scenario innovation is the key driver for growth

and development of business houses Virgin Atlanticrsquos innovation is focused on improving

their operational efficacy for ensuring a better service structure for their customers They

have continuously designed and developed their services for Upper class as well as economy

customers Virgin Airwaysrsquo service structure does not categorise their customers in terms of

lower and business class they have economy premium economy class and upper class levels

Apart from this customers can spend their miles (received when they purchase a ticket of

Virgin Atlantic Airways) for paying instead of money (Goumlssling and Peeters 2007) These

minute additions in customer service help Virgin Airways in generating a steadily increase

revenue curve Another driver for Virgin Atlantic is their pricing processes although the

charges of the company are higher in comparison to other big competitors such as British

Airways or Jet Airways the differences between the different levels of services are minimal

This allows the customers to easily shift from economy level to premium level creating

psychological satisfaction (Van Dender 2007)

Considering their marketing actvities the individual relationship of Virgin Airways with their

customers is one of the main drivers for their growth As per the study of Sutcliffe (2002)

knowing the needs of the customers their complaints their conditions and the existing

marketing condition in relation to competitor strategies ensures better service structure for

firms It can be mentioned that Virgin Airways has won several awards for their website

support and marketing processes such as Online Retail Awards Digital Impact Awards

Travel Agent Choice Award etc (Virgin-Atlantic 2015a) This shows the ability of the firm

to continuously improve on their services and accommodate the growing needs and

expectations of the customers

22

25 External Environment

The external environment of Virgin Atlantic Airways will be analysed with the help of

PESTLE analysis and also in a comparative manner with their competitors with the help of

perceptual mapping process

PESTLE Analysis

Figure 4 PESTLE Analysis of Virgin Atlantic Airways

(Source Scheelhaase and Grimme 2007 p253)

Political One of the major political influences on Virgin Atlantic Airways took place when

the UK Government abolished the London Air Traffic Distribution rules in the year 1991 and

allowed Virgin Airways to operate from the Heathrow Airport (Ciliberto and Tamer 2009)

This move helped Virgin Airways expand their services globally and reach new destinations

mainly in the Asian and African segments However regulations and restrictions of

international bodies such as Civil Aviation Authority create some barriers for Virgin Airways

23

in context of the environmental regulations Other than this the changes in the taxation

policies of the government also hamper the revenue level of the organisation Another

political factor is the relationship of the UK government with Russia and their dispute over

the fuel prices that in turn fluctuates the cost of operations of the airline companies (Gerardi

and Shapiro 2009)

Economical The economical conditions are among the primary factors that influence the

operations of a firm (Wensveen 2010) The global financial crisis of 2007-08 had created a

major manipulation in the operations of the luxury services such as that of Virgin Airways

Mainly in nations such as UK USA Japan Italy Germany etc where customers started

ploughing back their money from the market and created a shortfall in the national

economies airline sector faced difficulties in operations Furthermore the reduction in

Government subsidies also hampered the operations of the business processes On the other

hand instability in the exchange rate increased the fuel prices and reduced the deregulation in

the airline industry (Ciliberto and Tamer 2009) However Virgin Airlines had reduced the

price of their tickets for retaining their customer base and also provided discount plans

Social The social influence on Virgin Airlines is largely associated with the customer and

employee management systems Being one of the largest multination airlines of the world

diversity is a natural occurrence in their customer and employee base The ability to manage

the cultural diversity ensures effective service delivery and customer response for the

company Goumlssling and Peeters (2007) noted that owner Richard Branson wanted to certify

an exceptional service and experience for their customers that required the staff to know and

acknowledge the various cultural factors The in-flight crew of the company provides elegant

services related to the individual needs of the customers such as Virgin Airlines has a

minimum of 4-6 cuisines in their flights at any given point of time to meet the needs of the

customers (Van Dender 2007)

24

Technological It was observed in the value chain analysis that all the operational actvities of

Virgin Airways have been linked with their information and communications technology

This highlights the importance of technological support for the Airlines service Virgin

Airways has always concentrated on guarantying technological superiority for better service

design The fleet of 39 aircrafts have been remodelled regularly to keep them updated with

the industry trends Virgin Airways added 9 Boeing 787 jumbos in their fleet in the year 2014

which are expected to replace the Airbus A330 soon (Virgin-Atlantic 2015b) Services such

as individual television sets for each passenger are an example of technological usage in

Virgin Airways In context of the operational necessities the fleet of Virgin Atlantic has

installed the latest radar systems (AirNav RadarBox) with ADS-B radar systems (Van

Dender 2007)

Legal One of the most prominent legal issues faced by Virgin Atlantic is related to their

domestic service provider Little Red The domestic air traffic of the UK has been consistently

falling the launch of Little Red generated huge controversy among the stakeholders of the

organisation (Bilotkach Gaggero and Piga 2015) Furthermore failure to acquire British

Midland had further reduced the scope of recovering from the losses encountered by Little

Red division of Virgin Atlantic Airways In case of long-haul flights also Virgin Airways is

trying to merge with Delta Airlines but the foreign ownership rules is proving to be a

challenge for both the concerned firms (Economist 2014)

Environmental The environmental issues have always been in the lime-light for airline

organisations based on the pollution generated from flights and the management of the in-

flight wastages (Rea and Kerzner 2012) In this respect Virgin Airlines is trying to reduce

their environmental impact by developing an efficient business service process The bio fuel

demonstration provided by the company has shown potential for reducing the emissions by

25

4 annually (Kawaura 2015) On the other hand the increasing number of flights and

destinations of the company is equally contributing to the increase in green house gases

Perceptual Mapping

Figure 5 Perceptual Mapping Virgin Atlantic Airways

(Source Created by Author)

The above performed perceptual mapping has been derived on the basis of two criteria

namely quality and cost It can be noted that the most suitably positioned airlines group is the

Delta Airlines whereas big brands such as Lufthansa Virgin Airways British Airways etc

are positioned near high cost and high quality factors Evaluating from the given perceptual

map the primary competitor of Virgin Airlines can be noted as Lufthansa British Airways

High Quality

Low Quality

Low

Cost

Hig

h C

ost

Lufthansa

Virgin Atlantic Air France

Continental

Airlines

British Airways

Delta

Frontier

airTrar

Japan Airlines

Ryan Air

Thai

Sky Airline

Air Asia US Airways

Air Canada

26

Continental Airways Air France and Delta Airlines Virgin Airways has always been known

for their premium service category (Goumlssling and Peeters 2007) They have tried to provide

the best of services to their customers such as Clubhouses and in-flight bars and television

that have positioned Virgin Airways near the high quality quadrant of the map Although

price is an important factor for customers in their purchase decisions Virgin Airways is

trying to nullify the cost difference by adding more services and add-ons to create a halo

effect and engage the customers with their service delivery process

26 Financial Performance

The financial performance of the company has been analysed from the annual report and the

stock performance of Virgin Atlantic Airways Virgin Airways served over 6 million

customers across 33 destinations in the year 2014 which resulted in operating cash flow of

pound121 million (Virgin-Atlantic 2014) The firm experienced an increase in the unit revenue

per airline passenger by 48 whereas the operating cost increased by 03 from that of

2013 (Virgin-Atlantic 2014) The profit before tax and exceptional items of Virgin Airlines

increased by pound65 million from 2013 to pound14 million in 2014 on year on year basis However

the stock performance of Virgin Airways has fallen since the year 2014 from a point of 4381

to 3823 in 2015 The stock curve of the company has been consistently decreasing in 2015

since the sale of 49 stock to Delta Group of Airlines (FinanceYahoo 2015)

27

Figure 6 Stock Performance of Virgin Atlantic Airways 2014-2015

(Source FinanceYahoo 2015)

27 Outcome of Critical Analysis of Virgin Airways

Based on the above given internal and external analysis of Virgin Atlantic Airways it can be

considered that Virgin Airways has been growing significantly with their service structure

However there has been a decrease in their revenue generation process as Little Red segment

failed to perform in the shot-haul domestic flights and the long-haul flights are also facing

steep competition from other big brands such as British Airways Emirates and Lufthansa In

context of their organisational structure the top management body does not have a spot for

the human resource management department and has implanted the HR systems within the

middle level management The top management has been structured with a flat hierarchical

structure whereas the operational level of the company reflects a matrix structure for smooth

functioning

28

The marketing processes of Virgin Airways are the key to their customer relationship

process The company has an interactive website and efficient customer communication

methods for connecting the customers with the organisation Apart from this the service

structure of the company is continuously upgraded with innovative technology in order to

engage the customers with the firm Although the pricing of the company is higher in

comparison to their competitors individual focus towards customer needs and expectations

helps them in managing their business growth and development

28 Conclusion

Being a luxury service provider and one of the top brands of the international aviation

industry Virgin Atlantic Airlines has generated huge brand value in their respective industry

Virgin Airways has always followed an unconventional route for designing their business

strategies and tried to capture their target markets with exceptional and innovative service

structures While the company progresses in terms of their operational and managerial

efficacies the financial performance of the firm has suffered in the domestic short-haul flight

segment The long-haul flights have also shown a gradual decrease that lead to the selling of

49 of stock to Delta Airlines Based on the analysis performed it can be suggested that

Virgin Atlantic Airways needs to innovate new strategies for reducing their operational

expenses and also expanding their services to more destinations across the world

29

Reference List

Aguirregabiria V and Ho C Y 2012 A dynamic oligopoly game of the US airline

industry Estimation and policy experiments Journal of Econometrics 168(1) pp 156-173

Agusdinata B and de Klein W 2002 The Dynamics of Airline Alliances Journal of Air

Transport Management 8(4) pp 201-211

Barrett S D 2000 Airport Competition in the Deregulated European Aviation Market

Journal of Air Transport Management 6(1) pp 13-27

Barwise P and Meehan S 2010 The one thing you must get right when building a

brand Harvard Business Review 88(12) pp 80-84

Belobaba P Odoni A and Barnhart C 2009 The Global Airline Industry New Jersey

John Wiley amp Sons

Bergantino A S and Capozza C 2015 Airline Pricing Behavior under Limited

Inter‐Modal Competition Economic Inquiry 53(1) pp 700-713

Bilotkach V Gaggero A A and Piga C A 2015 Airline pricing under different market

conditions Evidence from European Low-Cost Carriers Tourism Management 47 pp 152-

163

Cento A 2008 The Airline Industry Challenges in the 21st Century Berlin Springer

Science amp Business Media

Ciliberto F and Tamer E 2009 Market structure and multiple equilibria in airline

markets Econometrica 77(6) pp 1791-1828

30

Clausen J Larsen A Larsen J and Rezanova N J 2010 Disruption management in the

airline industrymdashConcepts models and methodsComputers and Operations Research 37(5)

pp 809-821

Doganis R 2002 Flying Off Course The Economics of International Airlines London

Psychology Press

Doganis R 2006 The Airline Business London Psychology Press

Economist 2014 Little Redrsquos Big Problem [Online] Available at lt

httpwwweconomistcomblogsgulliver201410virgin-atlantics-woes gt [Accessed 22nd

August 2015]

FinanceYahoo 2015 Virgin America Inc [Online] Available at lt

httpfinanceyahoocomechartss=VA+InteractiverangemaxallowChartStackingtr

ue gt [Accessed 22nd August 2015]

Gerardi K S and Shapiro A H 2009 Does competition reduce price dispersion New

evidence from the airline industry Journal of Political Economy 117(1) pp 1-37

Gilbert D Child D and Bennett M 2001 The qualitative study of the current practices of

lsquono-frillsrsquo airlines operating in the UK Journal of Vacation Marketing 7(4) pp 302-315

Goumlssling S and Peeters P 2007 lsquoIt does not harm the environmentrsquoAn analysis of

industry discourses on tourism air travel and the environmentJournal of Sustainable

Tourism 15(4) pp 402-417

Hanlon J P 2007 Global Airlines Competition in a Transnational Industry London

Routledge

13

The alliances can be broadly categorised into two main groups namely strategic and tactical

alliances Tactical alliances comprise of two or more carriers which are designed to address

particular gaps in the networks of individual carrier by offering connectivity between the

networks of the carriers This is in contrast to the strategic alliances which are more

comprehensive and broader structures of cooperation between numerous carriers This

strategy aims at building large international joint networks Rather than closing gaps this

strategy tries to optimise networks thereby influencing the carriers and their routes and

capacities There are three main alliances such as Skyteam Oneworld and Star Alliance

(Bilotkach Gaggero and Piga 2015) Integrated alliance that includes coordinated pricing

yield and inventory management are usually governed by designated alliance committee The

representatives of the partner carriers are the members of the committee It has given the

responsibility to monitor and administer cooperative activities After the re-optimisation of

the joint networks schedules and pricing by the committee dissolving the alliance causes

substantial costs to the partner carriers As a result of the substantial costs carriers usually

look for anti-trust immunity

The political environment is highly regulated favouring the passengers more than airlines It

is because the safety of the passengers is of utmost importance The political environment has

become crucial due to earlier tendencies towards monopolistic behaviour of the sector This

has necessitated the implementation of tighter regulation of the functions of airlines (Taylor

et al 2006) There have also been instances where deregulation has been recognised in the

supply side implying stiff competition among airlines and regulation of demand side

implying that passengers are in charge of lowering prices and demand for more amenities

14

Question 2

20 Introduction

With the increase in competition business management is also getting complex (Bergantino

and Capozza 2015) The corporate sector is one of the most dominant economic forces in the

international sphere today and has successfully raised the bar for quality and productivity

According to Hanlon (2007) corporate houses face many challenges in context of their

internal and external management processes and have to continuously improve and design

new strategies for overcoming them In this report the focus is on analysis of British Airlines

Company Virgin Atlantic Airways The aviation segment is one of the most popular and

dominating segments in the luxury as well as travel and tourism industry With rapid new

entrants in this industry firms are trying to create long-term competitive advantage for

overcoming the economic and managerial challenges The succeeding sections of the study

will focus on analysing the internal and external environment of Virgin Atlantic in

comparison to its performance

21 Organisational Background

Virgin Atlantic Airways began its journey in the year 1984 when entrepreneur Sir Richard

Branson decided to launch a value-added airlines services In the first year of its launch

Virgin Airways had flown over 1 million passengers with the help of their exceptional and

high-profile service structure (Virgin-Atlantic 2015a) By the end of the eighties Sir Richard

Branson sold Virgin Music and invested the gains in Virgin Atlantic and also launched the

much appreciated economy service structure of Virgin Airways (Virgin-Atlantic 2015a) In

the year 1999 49 stake of the company was sold to Singapore Airlines valuing at pound1225

billion Since the beginning of the 21st century Virgin Airways started expanding their

services into the global market and added numerous new features to their services such as the

Upper Class Suite and Virgin Clubhouses (Virgin-Atlantic 2015a) Virgin Airways has

15

continuously remained in the customer focus because of their many awards such as the

Online Retail Awards including ORA Prix drsquoOR Best Leisure amp Travel Website World

Travel Awards BIMA Awards Digital Impact Awards APEX Passenger Choice Awards etc

(Virgin-Atlantic 2015a) The company is currently operating with a fleet size of 39 aircrafts

travelling between 31 destinations The employee base of the firm is formed of 9231 people

According to the annual report of 2014 the revenue of Virgin Atlantic was pound293 billion and

the operating income was pound144 million (Virgin-Atlantic 2015a)

22 Internal Structure and Operations

The organisational structure of Virgin Airways has been formed in two parts the top and

middle management have a flat structure whereas the operational structure is in matrix form

16

Figure 1 Organisational Structure Virgin Atlantic Airways

(Source TheOfficialBoard 2014)

17

The above given figure shows the flat hierarchy of the top management of Virgin Airways

The hierarchy represents the detailed segmentation of every functional departments of the

organisation and can be the reason behind the clarity in the operational processes of the

company However as noted there is no separate group for Human Resource Management in

the given structure The HRM activities of Virgin Airways are carried by the operations head

and the HR managers have been designated in the middle level management of the

organisation This has allowed the company to create individual space for monitoring the

actvities of each department and develop a closely knitted relationship with the customers

(Barwise and Meehan 2010) On the other hand Aguirregabiria and Ho (2012) criticised that

absence of human resource management in the top level management can reduce the ability

of the organisation to attend to the problems faced by the workforce Apart from this the gap

in communication between the operational level employees and the top managers can hamper

the present organisational structure of Virgin Airways

The operational structure of the company however has been designed in a matrix structure for

ensuring better communication among the middle level managers and the line managers

According to Stacey (2011) matrix structure helps an organisation in ensuring optimal

resource utilisation by creating a multi-tasking work culture

18

Figure 2 Operational Level Structure Virgin Atlantic Airways

(Source Papatheodorou and Forsyth 2010 p364)

The given framework of matrix structure reflects that each team operates under different

functional heads simultaneously which increases the productivity and reduces the time of

working for the company Gilbert Child and Bennett (2001) stated that matrix structure often

creates job clashes among the work processes of a firm because of multi-tasking processes

However Tsai and Hsu (2008) and Nolan (2010) maintained that matrix structures creates

flexibility and team work within the employee base of a firm allowing them to shift through

the transition period of a firm and also managing the changes in the internal structure without

hampering the productivity

Supply Chain of Virgin Atlantic

The supply chain actvities of Virgin Atlantic highlights their operational processes and the

aspects that add value to their services The following value chain model explains the strategy

and actvities used for designing the internal actvities of Virgin Atlantic Airways

Production HR Marketing Finance

Team 1

Team 3

Team 2

Staff Staff Staff Staff

Staff

Staff

Staff Staff Staff

Staff Staff Staff

19

Figure 3 Value Chain Analysis of Airline Company

(Source Clausen et al 2010 p816)

The value chain analysis of the airline segment is different from that of manufacturing

organisations The different actvities being performed within the operational scope of the

firm has been added in the analysis based on their contribution towards the overall value

added It can be observed that Information and Communications Technology is the core

process that supports all other actvities of the firms The regulatory policies and bodies form

the infrastructure of the organisations Virgin Airways in this regard has ensured that all the

Financial Policies Accounting Regulations and Policies Community Affairs

Flight route

and yield

analyst

Pilot and

Safety

training

Baggage

Handling

training

Agent

training

In-flight

Training

Computer

Reservatio

n System

In-flight

Scheduling

System

Yield

Manageme

nt System

Product

Developmen

t Market

Research

Baggage

Tracking

System

Information and Communications Technology

Route

Selection

Passenger

Service

System

Pricing

Fuel Flight

Scheduling

Crew

Manageme

nt System

Facilities

Planning

Aircraft

Acquisition

Ticket

Counter

Operations

Gate

Operations

Aircraft

Operations

On-Board

Service

Baggage

Handling

Ticket

Offices

Baggage

System

Flight

Connection

s

Rental Car

and Hotel

Reservatio

n System

Promotion

Advertising

Advantages

Program

Travel

Agent

Program

Group

Sales

Lost Baggage

Service

Complaint

Follow-up

Marg

in

Mar

gin

Firm

Infrastructu

re

HRM

Technology

Developmen

t

Procureme

nt

Inbound

Logistics Operations Outbound

Logistics

Marketing

amp Sales Service

20

air route rules and policies associated with their operations are being fulfilled (Clausen et al

2010) The supporting actvities and primary actvities are connected with the ICT system of

the firm Additional services such as Rental Car and Hotel Reservations form the outbound

services which also contribute towards revenue generation The primary operations and

monitoring processes such as ticket counters gate operations etc are essential for ensuring

appropriate service delivery Relating the given value chain analysis to the service structure

of Virgin Airways additional services of in-flight and in waiting areas help the company in

increasing the value proposition of their services for the customers

23 Mission and Vision Statement

The mission statement of Virgin Atlantic Airways has been designed based on the core values

of the organisation Scheelhaase and Grimme (2007) observed that Virgin Airways has

focused on developing an emotional connection with their stakeholders The mission

statement of the company is

ldquoTo embrace the human spirit and let it flyrdquo (Virgin-Atlantic 2015a)

Virgin Atlantic has always been known for its ability to introduce innovative service aspects

which attract and engage the customers The mission statement highlights the basic contents

of human nature ie freedom Terms such as ldquohuman spiritrdquo have been used in order to

connect with a diverse customer base irrespective of the differences in their needs and

expectations Relating the mission with their service structure Virgin Airways has developed

premium economy flights for lower income customers whereas their executive level

customers have been provided with premium level Upper Class Suites and Virgin

Clubhouses This shows that Virgin Airways has an in-built customer centric approach that

meets the needs of individual customers

21

24 Key Drivers of Virgin Airways

According to Doganis (2006) in the existing scenario innovation is the key driver for growth

and development of business houses Virgin Atlanticrsquos innovation is focused on improving

their operational efficacy for ensuring a better service structure for their customers They

have continuously designed and developed their services for Upper class as well as economy

customers Virgin Airwaysrsquo service structure does not categorise their customers in terms of

lower and business class they have economy premium economy class and upper class levels

Apart from this customers can spend their miles (received when they purchase a ticket of

Virgin Atlantic Airways) for paying instead of money (Goumlssling and Peeters 2007) These

minute additions in customer service help Virgin Airways in generating a steadily increase

revenue curve Another driver for Virgin Atlantic is their pricing processes although the

charges of the company are higher in comparison to other big competitors such as British

Airways or Jet Airways the differences between the different levels of services are minimal

This allows the customers to easily shift from economy level to premium level creating

psychological satisfaction (Van Dender 2007)

Considering their marketing actvities the individual relationship of Virgin Airways with their

customers is one of the main drivers for their growth As per the study of Sutcliffe (2002)

knowing the needs of the customers their complaints their conditions and the existing

marketing condition in relation to competitor strategies ensures better service structure for

firms It can be mentioned that Virgin Airways has won several awards for their website

support and marketing processes such as Online Retail Awards Digital Impact Awards

Travel Agent Choice Award etc (Virgin-Atlantic 2015a) This shows the ability of the firm

to continuously improve on their services and accommodate the growing needs and

expectations of the customers

22

25 External Environment

The external environment of Virgin Atlantic Airways will be analysed with the help of

PESTLE analysis and also in a comparative manner with their competitors with the help of

perceptual mapping process

PESTLE Analysis

Figure 4 PESTLE Analysis of Virgin Atlantic Airways

(Source Scheelhaase and Grimme 2007 p253)

Political One of the major political influences on Virgin Atlantic Airways took place when

the UK Government abolished the London Air Traffic Distribution rules in the year 1991 and

allowed Virgin Airways to operate from the Heathrow Airport (Ciliberto and Tamer 2009)

This move helped Virgin Airways expand their services globally and reach new destinations

mainly in the Asian and African segments However regulations and restrictions of

international bodies such as Civil Aviation Authority create some barriers for Virgin Airways

23

in context of the environmental regulations Other than this the changes in the taxation

policies of the government also hamper the revenue level of the organisation Another

political factor is the relationship of the UK government with Russia and their dispute over

the fuel prices that in turn fluctuates the cost of operations of the airline companies (Gerardi

and Shapiro 2009)

Economical The economical conditions are among the primary factors that influence the

operations of a firm (Wensveen 2010) The global financial crisis of 2007-08 had created a

major manipulation in the operations of the luxury services such as that of Virgin Airways

Mainly in nations such as UK USA Japan Italy Germany etc where customers started

ploughing back their money from the market and created a shortfall in the national

economies airline sector faced difficulties in operations Furthermore the reduction in

Government subsidies also hampered the operations of the business processes On the other

hand instability in the exchange rate increased the fuel prices and reduced the deregulation in

the airline industry (Ciliberto and Tamer 2009) However Virgin Airlines had reduced the

price of their tickets for retaining their customer base and also provided discount plans

Social The social influence on Virgin Airlines is largely associated with the customer and

employee management systems Being one of the largest multination airlines of the world

diversity is a natural occurrence in their customer and employee base The ability to manage

the cultural diversity ensures effective service delivery and customer response for the

company Goumlssling and Peeters (2007) noted that owner Richard Branson wanted to certify

an exceptional service and experience for their customers that required the staff to know and

acknowledge the various cultural factors The in-flight crew of the company provides elegant

services related to the individual needs of the customers such as Virgin Airlines has a

minimum of 4-6 cuisines in their flights at any given point of time to meet the needs of the

customers (Van Dender 2007)

24

Technological It was observed in the value chain analysis that all the operational actvities of

Virgin Airways have been linked with their information and communications technology

This highlights the importance of technological support for the Airlines service Virgin

Airways has always concentrated on guarantying technological superiority for better service

design The fleet of 39 aircrafts have been remodelled regularly to keep them updated with

the industry trends Virgin Airways added 9 Boeing 787 jumbos in their fleet in the year 2014

which are expected to replace the Airbus A330 soon (Virgin-Atlantic 2015b) Services such

as individual television sets for each passenger are an example of technological usage in

Virgin Airways In context of the operational necessities the fleet of Virgin Atlantic has

installed the latest radar systems (AirNav RadarBox) with ADS-B radar systems (Van

Dender 2007)

Legal One of the most prominent legal issues faced by Virgin Atlantic is related to their

domestic service provider Little Red The domestic air traffic of the UK has been consistently

falling the launch of Little Red generated huge controversy among the stakeholders of the

organisation (Bilotkach Gaggero and Piga 2015) Furthermore failure to acquire British

Midland had further reduced the scope of recovering from the losses encountered by Little

Red division of Virgin Atlantic Airways In case of long-haul flights also Virgin Airways is

trying to merge with Delta Airlines but the foreign ownership rules is proving to be a

challenge for both the concerned firms (Economist 2014)

Environmental The environmental issues have always been in the lime-light for airline

organisations based on the pollution generated from flights and the management of the in-

flight wastages (Rea and Kerzner 2012) In this respect Virgin Airlines is trying to reduce

their environmental impact by developing an efficient business service process The bio fuel

demonstration provided by the company has shown potential for reducing the emissions by

25

4 annually (Kawaura 2015) On the other hand the increasing number of flights and

destinations of the company is equally contributing to the increase in green house gases

Perceptual Mapping

Figure 5 Perceptual Mapping Virgin Atlantic Airways

(Source Created by Author)

The above performed perceptual mapping has been derived on the basis of two criteria

namely quality and cost It can be noted that the most suitably positioned airlines group is the

Delta Airlines whereas big brands such as Lufthansa Virgin Airways British Airways etc

are positioned near high cost and high quality factors Evaluating from the given perceptual

map the primary competitor of Virgin Airlines can be noted as Lufthansa British Airways

High Quality

Low Quality

Low

Cost

Hig

h C

ost

Lufthansa

Virgin Atlantic Air France

Continental

Airlines

British Airways

Delta

Frontier

airTrar

Japan Airlines

Ryan Air

Thai

Sky Airline

Air Asia US Airways

Air Canada

26

Continental Airways Air France and Delta Airlines Virgin Airways has always been known

for their premium service category (Goumlssling and Peeters 2007) They have tried to provide

the best of services to their customers such as Clubhouses and in-flight bars and television

that have positioned Virgin Airways near the high quality quadrant of the map Although

price is an important factor for customers in their purchase decisions Virgin Airways is

trying to nullify the cost difference by adding more services and add-ons to create a halo

effect and engage the customers with their service delivery process

26 Financial Performance

The financial performance of the company has been analysed from the annual report and the

stock performance of Virgin Atlantic Airways Virgin Airways served over 6 million

customers across 33 destinations in the year 2014 which resulted in operating cash flow of

pound121 million (Virgin-Atlantic 2014) The firm experienced an increase in the unit revenue

per airline passenger by 48 whereas the operating cost increased by 03 from that of

2013 (Virgin-Atlantic 2014) The profit before tax and exceptional items of Virgin Airlines

increased by pound65 million from 2013 to pound14 million in 2014 on year on year basis However

the stock performance of Virgin Airways has fallen since the year 2014 from a point of 4381

to 3823 in 2015 The stock curve of the company has been consistently decreasing in 2015

since the sale of 49 stock to Delta Group of Airlines (FinanceYahoo 2015)

27

Figure 6 Stock Performance of Virgin Atlantic Airways 2014-2015

(Source FinanceYahoo 2015)

27 Outcome of Critical Analysis of Virgin Airways

Based on the above given internal and external analysis of Virgin Atlantic Airways it can be

considered that Virgin Airways has been growing significantly with their service structure

However there has been a decrease in their revenue generation process as Little Red segment

failed to perform in the shot-haul domestic flights and the long-haul flights are also facing

steep competition from other big brands such as British Airways Emirates and Lufthansa In

context of their organisational structure the top management body does not have a spot for

the human resource management department and has implanted the HR systems within the

middle level management The top management has been structured with a flat hierarchical

structure whereas the operational level of the company reflects a matrix structure for smooth

functioning

28

The marketing processes of Virgin Airways are the key to their customer relationship

process The company has an interactive website and efficient customer communication

methods for connecting the customers with the organisation Apart from this the service

structure of the company is continuously upgraded with innovative technology in order to

engage the customers with the firm Although the pricing of the company is higher in

comparison to their competitors individual focus towards customer needs and expectations

helps them in managing their business growth and development

28 Conclusion

Being a luxury service provider and one of the top brands of the international aviation

industry Virgin Atlantic Airlines has generated huge brand value in their respective industry

Virgin Airways has always followed an unconventional route for designing their business

strategies and tried to capture their target markets with exceptional and innovative service

structures While the company progresses in terms of their operational and managerial

efficacies the financial performance of the firm has suffered in the domestic short-haul flight

segment The long-haul flights have also shown a gradual decrease that lead to the selling of

49 of stock to Delta Airlines Based on the analysis performed it can be suggested that

Virgin Atlantic Airways needs to innovate new strategies for reducing their operational

expenses and also expanding their services to more destinations across the world

29

Reference List

Aguirregabiria V and Ho C Y 2012 A dynamic oligopoly game of the US airline

industry Estimation and policy experiments Journal of Econometrics 168(1) pp 156-173

Agusdinata B and de Klein W 2002 The Dynamics of Airline Alliances Journal of Air

Transport Management 8(4) pp 201-211

Barrett S D 2000 Airport Competition in the Deregulated European Aviation Market

Journal of Air Transport Management 6(1) pp 13-27

Barwise P and Meehan S 2010 The one thing you must get right when building a

brand Harvard Business Review 88(12) pp 80-84

Belobaba P Odoni A and Barnhart C 2009 The Global Airline Industry New Jersey

John Wiley amp Sons

Bergantino A S and Capozza C 2015 Airline Pricing Behavior under Limited

Inter‐Modal Competition Economic Inquiry 53(1) pp 700-713

Bilotkach V Gaggero A A and Piga C A 2015 Airline pricing under different market

conditions Evidence from European Low-Cost Carriers Tourism Management 47 pp 152-

163

Cento A 2008 The Airline Industry Challenges in the 21st Century Berlin Springer

Science amp Business Media

Ciliberto F and Tamer E 2009 Market structure and multiple equilibria in airline

markets Econometrica 77(6) pp 1791-1828

30

Clausen J Larsen A Larsen J and Rezanova N J 2010 Disruption management in the

airline industrymdashConcepts models and methodsComputers and Operations Research 37(5)

pp 809-821

Doganis R 2002 Flying Off Course The Economics of International Airlines London

Psychology Press

Doganis R 2006 The Airline Business London Psychology Press

Economist 2014 Little Redrsquos Big Problem [Online] Available at lt

httpwwweconomistcomblogsgulliver201410virgin-atlantics-woes gt [Accessed 22nd

August 2015]

FinanceYahoo 2015 Virgin America Inc [Online] Available at lt

httpfinanceyahoocomechartss=VA+InteractiverangemaxallowChartStackingtr

ue gt [Accessed 22nd August 2015]

Gerardi K S and Shapiro A H 2009 Does competition reduce price dispersion New

evidence from the airline industry Journal of Political Economy 117(1) pp 1-37

Gilbert D Child D and Bennett M 2001 The qualitative study of the current practices of

lsquono-frillsrsquo airlines operating in the UK Journal of Vacation Marketing 7(4) pp 302-315

Goumlssling S and Peeters P 2007 lsquoIt does not harm the environmentrsquoAn analysis of

industry discourses on tourism air travel and the environmentJournal of Sustainable

Tourism 15(4) pp 402-417

Hanlon J P 2007 Global Airlines Competition in a Transnational Industry London

Routledge

14

Question 2

20 Introduction

With the increase in competition business management is also getting complex (Bergantino

and Capozza 2015) The corporate sector is one of the most dominant economic forces in the

international sphere today and has successfully raised the bar for quality and productivity

According to Hanlon (2007) corporate houses face many challenges in context of their

internal and external management processes and have to continuously improve and design

new strategies for overcoming them In this report the focus is on analysis of British Airlines

Company Virgin Atlantic Airways The aviation segment is one of the most popular and

dominating segments in the luxury as well as travel and tourism industry With rapid new

entrants in this industry firms are trying to create long-term competitive advantage for

overcoming the economic and managerial challenges The succeeding sections of the study

will focus on analysing the internal and external environment of Virgin Atlantic in

comparison to its performance

21 Organisational Background

Virgin Atlantic Airways began its journey in the year 1984 when entrepreneur Sir Richard

Branson decided to launch a value-added airlines services In the first year of its launch

Virgin Airways had flown over 1 million passengers with the help of their exceptional and

high-profile service structure (Virgin-Atlantic 2015a) By the end of the eighties Sir Richard

Branson sold Virgin Music and invested the gains in Virgin Atlantic and also launched the

much appreciated economy service structure of Virgin Airways (Virgin-Atlantic 2015a) In

the year 1999 49 stake of the company was sold to Singapore Airlines valuing at pound1225

billion Since the beginning of the 21st century Virgin Airways started expanding their

services into the global market and added numerous new features to their services such as the

Upper Class Suite and Virgin Clubhouses (Virgin-Atlantic 2015a) Virgin Airways has

15

continuously remained in the customer focus because of their many awards such as the

Online Retail Awards including ORA Prix drsquoOR Best Leisure amp Travel Website World

Travel Awards BIMA Awards Digital Impact Awards APEX Passenger Choice Awards etc

(Virgin-Atlantic 2015a) The company is currently operating with a fleet size of 39 aircrafts

travelling between 31 destinations The employee base of the firm is formed of 9231 people

According to the annual report of 2014 the revenue of Virgin Atlantic was pound293 billion and

the operating income was pound144 million (Virgin-Atlantic 2015a)

22 Internal Structure and Operations

The organisational structure of Virgin Airways has been formed in two parts the top and

middle management have a flat structure whereas the operational structure is in matrix form

16

Figure 1 Organisational Structure Virgin Atlantic Airways

(Source TheOfficialBoard 2014)

17

The above given figure shows the flat hierarchy of the top management of Virgin Airways

The hierarchy represents the detailed segmentation of every functional departments of the

organisation and can be the reason behind the clarity in the operational processes of the

company However as noted there is no separate group for Human Resource Management in

the given structure The HRM activities of Virgin Airways are carried by the operations head

and the HR managers have been designated in the middle level management of the

organisation This has allowed the company to create individual space for monitoring the

actvities of each department and develop a closely knitted relationship with the customers

(Barwise and Meehan 2010) On the other hand Aguirregabiria and Ho (2012) criticised that

absence of human resource management in the top level management can reduce the ability

of the organisation to attend to the problems faced by the workforce Apart from this the gap

in communication between the operational level employees and the top managers can hamper

the present organisational structure of Virgin Airways

The operational structure of the company however has been designed in a matrix structure for

ensuring better communication among the middle level managers and the line managers

According to Stacey (2011) matrix structure helps an organisation in ensuring optimal

resource utilisation by creating a multi-tasking work culture

18

Figure 2 Operational Level Structure Virgin Atlantic Airways

(Source Papatheodorou and Forsyth 2010 p364)

The given framework of matrix structure reflects that each team operates under different

functional heads simultaneously which increases the productivity and reduces the time of

working for the company Gilbert Child and Bennett (2001) stated that matrix structure often

creates job clashes among the work processes of a firm because of multi-tasking processes

However Tsai and Hsu (2008) and Nolan (2010) maintained that matrix structures creates

flexibility and team work within the employee base of a firm allowing them to shift through

the transition period of a firm and also managing the changes in the internal structure without

hampering the productivity

Supply Chain of Virgin Atlantic

The supply chain actvities of Virgin Atlantic highlights their operational processes and the

aspects that add value to their services The following value chain model explains the strategy

and actvities used for designing the internal actvities of Virgin Atlantic Airways

Production HR Marketing Finance

Team 1

Team 3

Team 2

Staff Staff Staff Staff

Staff

Staff

Staff Staff Staff

Staff Staff Staff

19

Figure 3 Value Chain Analysis of Airline Company

(Source Clausen et al 2010 p816)

The value chain analysis of the airline segment is different from that of manufacturing

organisations The different actvities being performed within the operational scope of the

firm has been added in the analysis based on their contribution towards the overall value

added It can be observed that Information and Communications Technology is the core

process that supports all other actvities of the firms The regulatory policies and bodies form

the infrastructure of the organisations Virgin Airways in this regard has ensured that all the

Financial Policies Accounting Regulations and Policies Community Affairs

Flight route

and yield

analyst

Pilot and

Safety

training

Baggage

Handling

training

Agent

training

In-flight

Training

Computer

Reservatio

n System

In-flight

Scheduling

System

Yield

Manageme

nt System

Product

Developmen

t Market

Research

Baggage

Tracking

System

Information and Communications Technology

Route

Selection

Passenger

Service

System

Pricing

Fuel Flight

Scheduling

Crew

Manageme

nt System

Facilities

Planning

Aircraft

Acquisition

Ticket

Counter

Operations

Gate

Operations

Aircraft

Operations

On-Board

Service

Baggage

Handling

Ticket

Offices

Baggage

System

Flight

Connection

s

Rental Car

and Hotel

Reservatio

n System

Promotion

Advertising

Advantages

Program

Travel

Agent

Program

Group

Sales

Lost Baggage

Service

Complaint

Follow-up

Marg

in

Mar

gin

Firm

Infrastructu

re

HRM

Technology

Developmen

t

Procureme

nt

Inbound

Logistics Operations Outbound

Logistics

Marketing

amp Sales Service

20

air route rules and policies associated with their operations are being fulfilled (Clausen et al

2010) The supporting actvities and primary actvities are connected with the ICT system of

the firm Additional services such as Rental Car and Hotel Reservations form the outbound

services which also contribute towards revenue generation The primary operations and

monitoring processes such as ticket counters gate operations etc are essential for ensuring

appropriate service delivery Relating the given value chain analysis to the service structure

of Virgin Airways additional services of in-flight and in waiting areas help the company in

increasing the value proposition of their services for the customers

23 Mission and Vision Statement

The mission statement of Virgin Atlantic Airways has been designed based on the core values

of the organisation Scheelhaase and Grimme (2007) observed that Virgin Airways has

focused on developing an emotional connection with their stakeholders The mission

statement of the company is

ldquoTo embrace the human spirit and let it flyrdquo (Virgin-Atlantic 2015a)

Virgin Atlantic has always been known for its ability to introduce innovative service aspects

which attract and engage the customers The mission statement highlights the basic contents

of human nature ie freedom Terms such as ldquohuman spiritrdquo have been used in order to

connect with a diverse customer base irrespective of the differences in their needs and

expectations Relating the mission with their service structure Virgin Airways has developed

premium economy flights for lower income customers whereas their executive level

customers have been provided with premium level Upper Class Suites and Virgin

Clubhouses This shows that Virgin Airways has an in-built customer centric approach that

meets the needs of individual customers

21

24 Key Drivers of Virgin Airways

According to Doganis (2006) in the existing scenario innovation is the key driver for growth

and development of business houses Virgin Atlanticrsquos innovation is focused on improving

their operational efficacy for ensuring a better service structure for their customers They

have continuously designed and developed their services for Upper class as well as economy

customers Virgin Airwaysrsquo service structure does not categorise their customers in terms of

lower and business class they have economy premium economy class and upper class levels

Apart from this customers can spend their miles (received when they purchase a ticket of

Virgin Atlantic Airways) for paying instead of money (Goumlssling and Peeters 2007) These

minute additions in customer service help Virgin Airways in generating a steadily increase

revenue curve Another driver for Virgin Atlantic is their pricing processes although the

charges of the company are higher in comparison to other big competitors such as British

Airways or Jet Airways the differences between the different levels of services are minimal

This allows the customers to easily shift from economy level to premium level creating

psychological satisfaction (Van Dender 2007)

Considering their marketing actvities the individual relationship of Virgin Airways with their

customers is one of the main drivers for their growth As per the study of Sutcliffe (2002)

knowing the needs of the customers their complaints their conditions and the existing

marketing condition in relation to competitor strategies ensures better service structure for

firms It can be mentioned that Virgin Airways has won several awards for their website

support and marketing processes such as Online Retail Awards Digital Impact Awards

Travel Agent Choice Award etc (Virgin-Atlantic 2015a) This shows the ability of the firm

to continuously improve on their services and accommodate the growing needs and

expectations of the customers

22

25 External Environment

The external environment of Virgin Atlantic Airways will be analysed with the help of

PESTLE analysis and also in a comparative manner with their competitors with the help of

perceptual mapping process

PESTLE Analysis

Figure 4 PESTLE Analysis of Virgin Atlantic Airways

(Source Scheelhaase and Grimme 2007 p253)

Political One of the major political influences on Virgin Atlantic Airways took place when

the UK Government abolished the London Air Traffic Distribution rules in the year 1991 and

allowed Virgin Airways to operate from the Heathrow Airport (Ciliberto and Tamer 2009)

This move helped Virgin Airways expand their services globally and reach new destinations

mainly in the Asian and African segments However regulations and restrictions of

international bodies such as Civil Aviation Authority create some barriers for Virgin Airways

23

in context of the environmental regulations Other than this the changes in the taxation

policies of the government also hamper the revenue level of the organisation Another

political factor is the relationship of the UK government with Russia and their dispute over

the fuel prices that in turn fluctuates the cost of operations of the airline companies (Gerardi

and Shapiro 2009)

Economical The economical conditions are among the primary factors that influence the

operations of a firm (Wensveen 2010) The global financial crisis of 2007-08 had created a

major manipulation in the operations of the luxury services such as that of Virgin Airways

Mainly in nations such as UK USA Japan Italy Germany etc where customers started

ploughing back their money from the market and created a shortfall in the national

economies airline sector faced difficulties in operations Furthermore the reduction in

Government subsidies also hampered the operations of the business processes On the other

hand instability in the exchange rate increased the fuel prices and reduced the deregulation in

the airline industry (Ciliberto and Tamer 2009) However Virgin Airlines had reduced the

price of their tickets for retaining their customer base and also provided discount plans

Social The social influence on Virgin Airlines is largely associated with the customer and

employee management systems Being one of the largest multination airlines of the world

diversity is a natural occurrence in their customer and employee base The ability to manage

the cultural diversity ensures effective service delivery and customer response for the

company Goumlssling and Peeters (2007) noted that owner Richard Branson wanted to certify

an exceptional service and experience for their customers that required the staff to know and

acknowledge the various cultural factors The in-flight crew of the company provides elegant

services related to the individual needs of the customers such as Virgin Airlines has a

minimum of 4-6 cuisines in their flights at any given point of time to meet the needs of the

customers (Van Dender 2007)

24

Technological It was observed in the value chain analysis that all the operational actvities of

Virgin Airways have been linked with their information and communications technology

This highlights the importance of technological support for the Airlines service Virgin

Airways has always concentrated on guarantying technological superiority for better service

design The fleet of 39 aircrafts have been remodelled regularly to keep them updated with

the industry trends Virgin Airways added 9 Boeing 787 jumbos in their fleet in the year 2014

which are expected to replace the Airbus A330 soon (Virgin-Atlantic 2015b) Services such

as individual television sets for each passenger are an example of technological usage in

Virgin Airways In context of the operational necessities the fleet of Virgin Atlantic has

installed the latest radar systems (AirNav RadarBox) with ADS-B radar systems (Van

Dender 2007)

Legal One of the most prominent legal issues faced by Virgin Atlantic is related to their

domestic service provider Little Red The domestic air traffic of the UK has been consistently

falling the launch of Little Red generated huge controversy among the stakeholders of the

organisation (Bilotkach Gaggero and Piga 2015) Furthermore failure to acquire British

Midland had further reduced the scope of recovering from the losses encountered by Little

Red division of Virgin Atlantic Airways In case of long-haul flights also Virgin Airways is

trying to merge with Delta Airlines but the foreign ownership rules is proving to be a

challenge for both the concerned firms (Economist 2014)

Environmental The environmental issues have always been in the lime-light for airline

organisations based on the pollution generated from flights and the management of the in-

flight wastages (Rea and Kerzner 2012) In this respect Virgin Airlines is trying to reduce

their environmental impact by developing an efficient business service process The bio fuel

demonstration provided by the company has shown potential for reducing the emissions by

25

4 annually (Kawaura 2015) On the other hand the increasing number of flights and

destinations of the company is equally contributing to the increase in green house gases

Perceptual Mapping

Figure 5 Perceptual Mapping Virgin Atlantic Airways

(Source Created by Author)

The above performed perceptual mapping has been derived on the basis of two criteria

namely quality and cost It can be noted that the most suitably positioned airlines group is the

Delta Airlines whereas big brands such as Lufthansa Virgin Airways British Airways etc

are positioned near high cost and high quality factors Evaluating from the given perceptual

map the primary competitor of Virgin Airlines can be noted as Lufthansa British Airways

High Quality

Low Quality

Low

Cost

Hig

h C

ost

Lufthansa

Virgin Atlantic Air France

Continental

Airlines

British Airways

Delta

Frontier

airTrar

Japan Airlines

Ryan Air

Thai

Sky Airline

Air Asia US Airways

Air Canada

26

Continental Airways Air France and Delta Airlines Virgin Airways has always been known

for their premium service category (Goumlssling and Peeters 2007) They have tried to provide

the best of services to their customers such as Clubhouses and in-flight bars and television

that have positioned Virgin Airways near the high quality quadrant of the map Although

price is an important factor for customers in their purchase decisions Virgin Airways is

trying to nullify the cost difference by adding more services and add-ons to create a halo

effect and engage the customers with their service delivery process

26 Financial Performance

The financial performance of the company has been analysed from the annual report and the

stock performance of Virgin Atlantic Airways Virgin Airways served over 6 million

customers across 33 destinations in the year 2014 which resulted in operating cash flow of

pound121 million (Virgin-Atlantic 2014) The firm experienced an increase in the unit revenue

per airline passenger by 48 whereas the operating cost increased by 03 from that of

2013 (Virgin-Atlantic 2014) The profit before tax and exceptional items of Virgin Airlines

increased by pound65 million from 2013 to pound14 million in 2014 on year on year basis However

the stock performance of Virgin Airways has fallen since the year 2014 from a point of 4381

to 3823 in 2015 The stock curve of the company has been consistently decreasing in 2015

since the sale of 49 stock to Delta Group of Airlines (FinanceYahoo 2015)

27

Figure 6 Stock Performance of Virgin Atlantic Airways 2014-2015

(Source FinanceYahoo 2015)

27 Outcome of Critical Analysis of Virgin Airways

Based on the above given internal and external analysis of Virgin Atlantic Airways it can be

considered that Virgin Airways has been growing significantly with their service structure

However there has been a decrease in their revenue generation process as Little Red segment

failed to perform in the shot-haul domestic flights and the long-haul flights are also facing

steep competition from other big brands such as British Airways Emirates and Lufthansa In

context of their organisational structure the top management body does not have a spot for

the human resource management department and has implanted the HR systems within the

middle level management The top management has been structured with a flat hierarchical

structure whereas the operational level of the company reflects a matrix structure for smooth

functioning

28

The marketing processes of Virgin Airways are the key to their customer relationship

process The company has an interactive website and efficient customer communication

methods for connecting the customers with the organisation Apart from this the service

structure of the company is continuously upgraded with innovative technology in order to

engage the customers with the firm Although the pricing of the company is higher in

comparison to their competitors individual focus towards customer needs and expectations

helps them in managing their business growth and development

28 Conclusion

Being a luxury service provider and one of the top brands of the international aviation

industry Virgin Atlantic Airlines has generated huge brand value in their respective industry

Virgin Airways has always followed an unconventional route for designing their business

strategies and tried to capture their target markets with exceptional and innovative service

structures While the company progresses in terms of their operational and managerial

efficacies the financial performance of the firm has suffered in the domestic short-haul flight

segment The long-haul flights have also shown a gradual decrease that lead to the selling of

49 of stock to Delta Airlines Based on the analysis performed it can be suggested that

Virgin Atlantic Airways needs to innovate new strategies for reducing their operational

expenses and also expanding their services to more destinations across the world

29

Reference List

Aguirregabiria V and Ho C Y 2012 A dynamic oligopoly game of the US airline

industry Estimation and policy experiments Journal of Econometrics 168(1) pp 156-173

Agusdinata B and de Klein W 2002 The Dynamics of Airline Alliances Journal of Air

Transport Management 8(4) pp 201-211

Barrett S D 2000 Airport Competition in the Deregulated European Aviation Market

Journal of Air Transport Management 6(1) pp 13-27

Barwise P and Meehan S 2010 The one thing you must get right when building a

brand Harvard Business Review 88(12) pp 80-84

Belobaba P Odoni A and Barnhart C 2009 The Global Airline Industry New Jersey

John Wiley amp Sons

Bergantino A S and Capozza C 2015 Airline Pricing Behavior under Limited

Inter‐Modal Competition Economic Inquiry 53(1) pp 700-713

Bilotkach V Gaggero A A and Piga C A 2015 Airline pricing under different market

conditions Evidence from European Low-Cost Carriers Tourism Management 47 pp 152-

163

Cento A 2008 The Airline Industry Challenges in the 21st Century Berlin Springer

Science amp Business Media

Ciliberto F and Tamer E 2009 Market structure and multiple equilibria in airline

markets Econometrica 77(6) pp 1791-1828

30

Clausen J Larsen A Larsen J and Rezanova N J 2010 Disruption management in the

airline industrymdashConcepts models and methodsComputers and Operations Research 37(5)

pp 809-821

Doganis R 2002 Flying Off Course The Economics of International Airlines London

Psychology Press

Doganis R 2006 The Airline Business London Psychology Press

Economist 2014 Little Redrsquos Big Problem [Online] Available at lt

httpwwweconomistcomblogsgulliver201410virgin-atlantics-woes gt [Accessed 22nd

August 2015]

FinanceYahoo 2015 Virgin America Inc [Online] Available at lt

httpfinanceyahoocomechartss=VA+InteractiverangemaxallowChartStackingtr

ue gt [Accessed 22nd August 2015]

Gerardi K S and Shapiro A H 2009 Does competition reduce price dispersion New

evidence from the airline industry Journal of Political Economy 117(1) pp 1-37

Gilbert D Child D and Bennett M 2001 The qualitative study of the current practices of

lsquono-frillsrsquo airlines operating in the UK Journal of Vacation Marketing 7(4) pp 302-315

Goumlssling S and Peeters P 2007 lsquoIt does not harm the environmentrsquoAn analysis of

industry discourses on tourism air travel and the environmentJournal of Sustainable

Tourism 15(4) pp 402-417

Hanlon J P 2007 Global Airlines Competition in a Transnational Industry London

Routledge

15

continuously remained in the customer focus because of their many awards such as the

Online Retail Awards including ORA Prix drsquoOR Best Leisure amp Travel Website World

Travel Awards BIMA Awards Digital Impact Awards APEX Passenger Choice Awards etc

(Virgin-Atlantic 2015a) The company is currently operating with a fleet size of 39 aircrafts

travelling between 31 destinations The employee base of the firm is formed of 9231 people

According to the annual report of 2014 the revenue of Virgin Atlantic was pound293 billion and

the operating income was pound144 million (Virgin-Atlantic 2015a)

22 Internal Structure and Operations

The organisational structure of Virgin Airways has been formed in two parts the top and

middle management have a flat structure whereas the operational structure is in matrix form

16

Figure 1 Organisational Structure Virgin Atlantic Airways

(Source TheOfficialBoard 2014)

17

The above given figure shows the flat hierarchy of the top management of Virgin Airways

The hierarchy represents the detailed segmentation of every functional departments of the

organisation and can be the reason behind the clarity in the operational processes of the

company However as noted there is no separate group for Human Resource Management in

the given structure The HRM activities of Virgin Airways are carried by the operations head

and the HR managers have been designated in the middle level management of the

organisation This has allowed the company to create individual space for monitoring the

actvities of each department and develop a closely knitted relationship with the customers

(Barwise and Meehan 2010) On the other hand Aguirregabiria and Ho (2012) criticised that

absence of human resource management in the top level management can reduce the ability

of the organisation to attend to the problems faced by the workforce Apart from this the gap

in communication between the operational level employees and the top managers can hamper

the present organisational structure of Virgin Airways

The operational structure of the company however has been designed in a matrix structure for

ensuring better communication among the middle level managers and the line managers

According to Stacey (2011) matrix structure helps an organisation in ensuring optimal

resource utilisation by creating a multi-tasking work culture

18

Figure 2 Operational Level Structure Virgin Atlantic Airways

(Source Papatheodorou and Forsyth 2010 p364)

The given framework of matrix structure reflects that each team operates under different

functional heads simultaneously which increases the productivity and reduces the time of

working for the company Gilbert Child and Bennett (2001) stated that matrix structure often

creates job clashes among the work processes of a firm because of multi-tasking processes

However Tsai and Hsu (2008) and Nolan (2010) maintained that matrix structures creates

flexibility and team work within the employee base of a firm allowing them to shift through

the transition period of a firm and also managing the changes in the internal structure without

hampering the productivity

Supply Chain of Virgin Atlantic

The supply chain actvities of Virgin Atlantic highlights their operational processes and the

aspects that add value to their services The following value chain model explains the strategy

and actvities used for designing the internal actvities of Virgin Atlantic Airways

Production HR Marketing Finance

Team 1

Team 3

Team 2

Staff Staff Staff Staff

Staff

Staff

Staff Staff Staff

Staff Staff Staff

19

Figure 3 Value Chain Analysis of Airline Company

(Source Clausen et al 2010 p816)

The value chain analysis of the airline segment is different from that of manufacturing

organisations The different actvities being performed within the operational scope of the

firm has been added in the analysis based on their contribution towards the overall value

added It can be observed that Information and Communications Technology is the core

process that supports all other actvities of the firms The regulatory policies and bodies form

the infrastructure of the organisations Virgin Airways in this regard has ensured that all the

Financial Policies Accounting Regulations and Policies Community Affairs

Flight route

and yield

analyst

Pilot and

Safety

training

Baggage

Handling

training

Agent

training

In-flight

Training

Computer

Reservatio

n System

In-flight

Scheduling

System

Yield

Manageme

nt System

Product

Developmen

t Market

Research

Baggage

Tracking

System

Information and Communications Technology

Route

Selection

Passenger

Service

System

Pricing

Fuel Flight

Scheduling

Crew

Manageme

nt System

Facilities

Planning

Aircraft

Acquisition

Ticket

Counter

Operations

Gate

Operations

Aircraft

Operations

On-Board

Service

Baggage

Handling

Ticket

Offices

Baggage

System

Flight

Connection

s

Rental Car

and Hotel

Reservatio

n System

Promotion

Advertising

Advantages

Program

Travel

Agent

Program

Group

Sales

Lost Baggage

Service

Complaint

Follow-up

Marg

in

Mar

gin

Firm

Infrastructu

re

HRM

Technology

Developmen

t

Procureme

nt

Inbound

Logistics Operations Outbound

Logistics

Marketing

amp Sales Service

20

air route rules and policies associated with their operations are being fulfilled (Clausen et al

2010) The supporting actvities and primary actvities are connected with the ICT system of

the firm Additional services such as Rental Car and Hotel Reservations form the outbound

services which also contribute towards revenue generation The primary operations and

monitoring processes such as ticket counters gate operations etc are essential for ensuring

appropriate service delivery Relating the given value chain analysis to the service structure

of Virgin Airways additional services of in-flight and in waiting areas help the company in

increasing the value proposition of their services for the customers

23 Mission and Vision Statement

The mission statement of Virgin Atlantic Airways has been designed based on the core values

of the organisation Scheelhaase and Grimme (2007) observed that Virgin Airways has

focused on developing an emotional connection with their stakeholders The mission

statement of the company is

ldquoTo embrace the human spirit and let it flyrdquo (Virgin-Atlantic 2015a)

Virgin Atlantic has always been known for its ability to introduce innovative service aspects

which attract and engage the customers The mission statement highlights the basic contents

of human nature ie freedom Terms such as ldquohuman spiritrdquo have been used in order to

connect with a diverse customer base irrespective of the differences in their needs and

expectations Relating the mission with their service structure Virgin Airways has developed

premium economy flights for lower income customers whereas their executive level

customers have been provided with premium level Upper Class Suites and Virgin

Clubhouses This shows that Virgin Airways has an in-built customer centric approach that

meets the needs of individual customers

21

24 Key Drivers of Virgin Airways

According to Doganis (2006) in the existing scenario innovation is the key driver for growth

and development of business houses Virgin Atlanticrsquos innovation is focused on improving

their operational efficacy for ensuring a better service structure for their customers They

have continuously designed and developed their services for Upper class as well as economy

customers Virgin Airwaysrsquo service structure does not categorise their customers in terms of

lower and business class they have economy premium economy class and upper class levels

Apart from this customers can spend their miles (received when they purchase a ticket of

Virgin Atlantic Airways) for paying instead of money (Goumlssling and Peeters 2007) These

minute additions in customer service help Virgin Airways in generating a steadily increase

revenue curve Another driver for Virgin Atlantic is their pricing processes although the

charges of the company are higher in comparison to other big competitors such as British

Airways or Jet Airways the differences between the different levels of services are minimal

This allows the customers to easily shift from economy level to premium level creating

psychological satisfaction (Van Dender 2007)

Considering their marketing actvities the individual relationship of Virgin Airways with their

customers is one of the main drivers for their growth As per the study of Sutcliffe (2002)

knowing the needs of the customers their complaints their conditions and the existing

marketing condition in relation to competitor strategies ensures better service structure for

firms It can be mentioned that Virgin Airways has won several awards for their website

support and marketing processes such as Online Retail Awards Digital Impact Awards

Travel Agent Choice Award etc (Virgin-Atlantic 2015a) This shows the ability of the firm

to continuously improve on their services and accommodate the growing needs and

expectations of the customers

22

25 External Environment

The external environment of Virgin Atlantic Airways will be analysed with the help of

PESTLE analysis and also in a comparative manner with their competitors with the help of

perceptual mapping process

PESTLE Analysis

Figure 4 PESTLE Analysis of Virgin Atlantic Airways

(Source Scheelhaase and Grimme 2007 p253)

Political One of the major political influences on Virgin Atlantic Airways took place when

the UK Government abolished the London Air Traffic Distribution rules in the year 1991 and

allowed Virgin Airways to operate from the Heathrow Airport (Ciliberto and Tamer 2009)

This move helped Virgin Airways expand their services globally and reach new destinations

mainly in the Asian and African segments However regulations and restrictions of

international bodies such as Civil Aviation Authority create some barriers for Virgin Airways

23

in context of the environmental regulations Other than this the changes in the taxation

policies of the government also hamper the revenue level of the organisation Another

political factor is the relationship of the UK government with Russia and their dispute over

the fuel prices that in turn fluctuates the cost of operations of the airline companies (Gerardi

and Shapiro 2009)

Economical The economical conditions are among the primary factors that influence the

operations of a firm (Wensveen 2010) The global financial crisis of 2007-08 had created a

major manipulation in the operations of the luxury services such as that of Virgin Airways

Mainly in nations such as UK USA Japan Italy Germany etc where customers started

ploughing back their money from the market and created a shortfall in the national

economies airline sector faced difficulties in operations Furthermore the reduction in

Government subsidies also hampered the operations of the business processes On the other

hand instability in the exchange rate increased the fuel prices and reduced the deregulation in

the airline industry (Ciliberto and Tamer 2009) However Virgin Airlines had reduced the

price of their tickets for retaining their customer base and also provided discount plans

Social The social influence on Virgin Airlines is largely associated with the customer and

employee management systems Being one of the largest multination airlines of the world

diversity is a natural occurrence in their customer and employee base The ability to manage

the cultural diversity ensures effective service delivery and customer response for the

company Goumlssling and Peeters (2007) noted that owner Richard Branson wanted to certify

an exceptional service and experience for their customers that required the staff to know and

acknowledge the various cultural factors The in-flight crew of the company provides elegant

services related to the individual needs of the customers such as Virgin Airlines has a

minimum of 4-6 cuisines in their flights at any given point of time to meet the needs of the

customers (Van Dender 2007)

24

Technological It was observed in the value chain analysis that all the operational actvities of

Virgin Airways have been linked with their information and communications technology

This highlights the importance of technological support for the Airlines service Virgin

Airways has always concentrated on guarantying technological superiority for better service

design The fleet of 39 aircrafts have been remodelled regularly to keep them updated with

the industry trends Virgin Airways added 9 Boeing 787 jumbos in their fleet in the year 2014

which are expected to replace the Airbus A330 soon (Virgin-Atlantic 2015b) Services such

as individual television sets for each passenger are an example of technological usage in

Virgin Airways In context of the operational necessities the fleet of Virgin Atlantic has

installed the latest radar systems (AirNav RadarBox) with ADS-B radar systems (Van

Dender 2007)

Legal One of the most prominent legal issues faced by Virgin Atlantic is related to their

domestic service provider Little Red The domestic air traffic of the UK has been consistently

falling the launch of Little Red generated huge controversy among the stakeholders of the

organisation (Bilotkach Gaggero and Piga 2015) Furthermore failure to acquire British

Midland had further reduced the scope of recovering from the losses encountered by Little

Red division of Virgin Atlantic Airways In case of long-haul flights also Virgin Airways is

trying to merge with Delta Airlines but the foreign ownership rules is proving to be a

challenge for both the concerned firms (Economist 2014)

Environmental The environmental issues have always been in the lime-light for airline

organisations based on the pollution generated from flights and the management of the in-

flight wastages (Rea and Kerzner 2012) In this respect Virgin Airlines is trying to reduce

their environmental impact by developing an efficient business service process The bio fuel

demonstration provided by the company has shown potential for reducing the emissions by

25

4 annually (Kawaura 2015) On the other hand the increasing number of flights and

destinations of the company is equally contributing to the increase in green house gases

Perceptual Mapping

Figure 5 Perceptual Mapping Virgin Atlantic Airways

(Source Created by Author)

The above performed perceptual mapping has been derived on the basis of two criteria

namely quality and cost It can be noted that the most suitably positioned airlines group is the

Delta Airlines whereas big brands such as Lufthansa Virgin Airways British Airways etc

are positioned near high cost and high quality factors Evaluating from the given perceptual

map the primary competitor of Virgin Airlines can be noted as Lufthansa British Airways

High Quality

Low Quality

Low

Cost

Hig

h C

ost

Lufthansa

Virgin Atlantic Air France

Continental

Airlines

British Airways

Delta

Frontier

airTrar

Japan Airlines

Ryan Air

Thai

Sky Airline

Air Asia US Airways

Air Canada

26

Continental Airways Air France and Delta Airlines Virgin Airways has always been known

for their premium service category (Goumlssling and Peeters 2007) They have tried to provide

the best of services to their customers such as Clubhouses and in-flight bars and television

that have positioned Virgin Airways near the high quality quadrant of the map Although

price is an important factor for customers in their purchase decisions Virgin Airways is

trying to nullify the cost difference by adding more services and add-ons to create a halo

effect and engage the customers with their service delivery process

26 Financial Performance

The financial performance of the company has been analysed from the annual report and the

stock performance of Virgin Atlantic Airways Virgin Airways served over 6 million

customers across 33 destinations in the year 2014 which resulted in operating cash flow of

pound121 million (Virgin-Atlantic 2014) The firm experienced an increase in the unit revenue

per airline passenger by 48 whereas the operating cost increased by 03 from that of

2013 (Virgin-Atlantic 2014) The profit before tax and exceptional items of Virgin Airlines

increased by pound65 million from 2013 to pound14 million in 2014 on year on year basis However

the stock performance of Virgin Airways has fallen since the year 2014 from a point of 4381

to 3823 in 2015 The stock curve of the company has been consistently decreasing in 2015

since the sale of 49 stock to Delta Group of Airlines (FinanceYahoo 2015)

27

Figure 6 Stock Performance of Virgin Atlantic Airways 2014-2015

(Source FinanceYahoo 2015)

27 Outcome of Critical Analysis of Virgin Airways

Based on the above given internal and external analysis of Virgin Atlantic Airways it can be

considered that Virgin Airways has been growing significantly with their service structure

However there has been a decrease in their revenue generation process as Little Red segment

failed to perform in the shot-haul domestic flights and the long-haul flights are also facing

steep competition from other big brands such as British Airways Emirates and Lufthansa In

context of their organisational structure the top management body does not have a spot for

the human resource management department and has implanted the HR systems within the

middle level management The top management has been structured with a flat hierarchical

structure whereas the operational level of the company reflects a matrix structure for smooth

functioning

28

The marketing processes of Virgin Airways are the key to their customer relationship

process The company has an interactive website and efficient customer communication

methods for connecting the customers with the organisation Apart from this the service

structure of the company is continuously upgraded with innovative technology in order to

engage the customers with the firm Although the pricing of the company is higher in

comparison to their competitors individual focus towards customer needs and expectations

helps them in managing their business growth and development

28 Conclusion

Being a luxury service provider and one of the top brands of the international aviation

industry Virgin Atlantic Airlines has generated huge brand value in their respective industry

Virgin Airways has always followed an unconventional route for designing their business

strategies and tried to capture their target markets with exceptional and innovative service

structures While the company progresses in terms of their operational and managerial

efficacies the financial performance of the firm has suffered in the domestic short-haul flight

segment The long-haul flights have also shown a gradual decrease that lead to the selling of

49 of stock to Delta Airlines Based on the analysis performed it can be suggested that

Virgin Atlantic Airways needs to innovate new strategies for reducing their operational

expenses and also expanding their services to more destinations across the world

29

Reference List

Aguirregabiria V and Ho C Y 2012 A dynamic oligopoly game of the US airline

industry Estimation and policy experiments Journal of Econometrics 168(1) pp 156-173

Agusdinata B and de Klein W 2002 The Dynamics of Airline Alliances Journal of Air

Transport Management 8(4) pp 201-211

Barrett S D 2000 Airport Competition in the Deregulated European Aviation Market

Journal of Air Transport Management 6(1) pp 13-27

Barwise P and Meehan S 2010 The one thing you must get right when building a

brand Harvard Business Review 88(12) pp 80-84

Belobaba P Odoni A and Barnhart C 2009 The Global Airline Industry New Jersey

John Wiley amp Sons

Bergantino A S and Capozza C 2015 Airline Pricing Behavior under Limited

Inter‐Modal Competition Economic Inquiry 53(1) pp 700-713

Bilotkach V Gaggero A A and Piga C A 2015 Airline pricing under different market

conditions Evidence from European Low-Cost Carriers Tourism Management 47 pp 152-

163

Cento A 2008 The Airline Industry Challenges in the 21st Century Berlin Springer

Science amp Business Media

Ciliberto F and Tamer E 2009 Market structure and multiple equilibria in airline

markets Econometrica 77(6) pp 1791-1828

30

Clausen J Larsen A Larsen J and Rezanova N J 2010 Disruption management in the

airline industrymdashConcepts models and methodsComputers and Operations Research 37(5)

pp 809-821

Doganis R 2002 Flying Off Course The Economics of International Airlines London

Psychology Press

Doganis R 2006 The Airline Business London Psychology Press

Economist 2014 Little Redrsquos Big Problem [Online] Available at lt

httpwwweconomistcomblogsgulliver201410virgin-atlantics-woes gt [Accessed 22nd

August 2015]

FinanceYahoo 2015 Virgin America Inc [Online] Available at lt

httpfinanceyahoocomechartss=VA+InteractiverangemaxallowChartStackingtr

ue gt [Accessed 22nd August 2015]

Gerardi K S and Shapiro A H 2009 Does competition reduce price dispersion New

evidence from the airline industry Journal of Political Economy 117(1) pp 1-37

Gilbert D Child D and Bennett M 2001 The qualitative study of the current practices of

lsquono-frillsrsquo airlines operating in the UK Journal of Vacation Marketing 7(4) pp 302-315

Goumlssling S and Peeters P 2007 lsquoIt does not harm the environmentrsquoAn analysis of

industry discourses on tourism air travel and the environmentJournal of Sustainable

Tourism 15(4) pp 402-417

Hanlon J P 2007 Global Airlines Competition in a Transnational Industry London

Routledge

16

Figure 1 Organisational Structure Virgin Atlantic Airways

(Source TheOfficialBoard 2014)

17

The above given figure shows the flat hierarchy of the top management of Virgin Airways

The hierarchy represents the detailed segmentation of every functional departments of the

organisation and can be the reason behind the clarity in the operational processes of the

company However as noted there is no separate group for Human Resource Management in

the given structure The HRM activities of Virgin Airways are carried by the operations head

and the HR managers have been designated in the middle level management of the

organisation This has allowed the company to create individual space for monitoring the

actvities of each department and develop a closely knitted relationship with the customers

(Barwise and Meehan 2010) On the other hand Aguirregabiria and Ho (2012) criticised that

absence of human resource management in the top level management can reduce the ability

of the organisation to attend to the problems faced by the workforce Apart from this the gap

in communication between the operational level employees and the top managers can hamper

the present organisational structure of Virgin Airways

The operational structure of the company however has been designed in a matrix structure for

ensuring better communication among the middle level managers and the line managers

According to Stacey (2011) matrix structure helps an organisation in ensuring optimal

resource utilisation by creating a multi-tasking work culture

18

Figure 2 Operational Level Structure Virgin Atlantic Airways

(Source Papatheodorou and Forsyth 2010 p364)

The given framework of matrix structure reflects that each team operates under different

functional heads simultaneously which increases the productivity and reduces the time of

working for the company Gilbert Child and Bennett (2001) stated that matrix structure often

creates job clashes among the work processes of a firm because of multi-tasking processes

However Tsai and Hsu (2008) and Nolan (2010) maintained that matrix structures creates

flexibility and team work within the employee base of a firm allowing them to shift through

the transition period of a firm and also managing the changes in the internal structure without

hampering the productivity

Supply Chain of Virgin Atlantic

The supply chain actvities of Virgin Atlantic highlights their operational processes and the

aspects that add value to their services The following value chain model explains the strategy

and actvities used for designing the internal actvities of Virgin Atlantic Airways

Production HR Marketing Finance

Team 1

Team 3

Team 2

Staff Staff Staff Staff

Staff

Staff

Staff Staff Staff

Staff Staff Staff

19

Figure 3 Value Chain Analysis of Airline Company

(Source Clausen et al 2010 p816)

The value chain analysis of the airline segment is different from that of manufacturing

organisations The different actvities being performed within the operational scope of the

firm has been added in the analysis based on their contribution towards the overall value

added It can be observed that Information and Communications Technology is the core

process that supports all other actvities of the firms The regulatory policies and bodies form

the infrastructure of the organisations Virgin Airways in this regard has ensured that all the

Financial Policies Accounting Regulations and Policies Community Affairs

Flight route

and yield

analyst

Pilot and

Safety

training

Baggage

Handling

training

Agent

training

In-flight

Training

Computer

Reservatio

n System

In-flight

Scheduling

System

Yield

Manageme

nt System

Product

Developmen

t Market

Research

Baggage

Tracking

System

Information and Communications Technology

Route

Selection

Passenger

Service

System

Pricing

Fuel Flight

Scheduling

Crew

Manageme

nt System

Facilities

Planning

Aircraft

Acquisition

Ticket

Counter

Operations

Gate

Operations

Aircraft

Operations

On-Board

Service

Baggage

Handling

Ticket

Offices

Baggage

System

Flight

Connection

s

Rental Car

and Hotel

Reservatio

n System

Promotion

Advertising

Advantages

Program

Travel

Agent

Program

Group

Sales

Lost Baggage

Service

Complaint

Follow-up

Marg

in

Mar

gin

Firm

Infrastructu

re

HRM

Technology

Developmen

t

Procureme

nt

Inbound

Logistics Operations Outbound

Logistics

Marketing

amp Sales Service

20

air route rules and policies associated with their operations are being fulfilled (Clausen et al

2010) The supporting actvities and primary actvities are connected with the ICT system of

the firm Additional services such as Rental Car and Hotel Reservations form the outbound

services which also contribute towards revenue generation The primary operations and

monitoring processes such as ticket counters gate operations etc are essential for ensuring

appropriate service delivery Relating the given value chain analysis to the service structure

of Virgin Airways additional services of in-flight and in waiting areas help the company in

increasing the value proposition of their services for the customers

23 Mission and Vision Statement

The mission statement of Virgin Atlantic Airways has been designed based on the core values

of the organisation Scheelhaase and Grimme (2007) observed that Virgin Airways has

focused on developing an emotional connection with their stakeholders The mission

statement of the company is

ldquoTo embrace the human spirit and let it flyrdquo (Virgin-Atlantic 2015a)

Virgin Atlantic has always been known for its ability to introduce innovative service aspects

which attract and engage the customers The mission statement highlights the basic contents

of human nature ie freedom Terms such as ldquohuman spiritrdquo have been used in order to

connect with a diverse customer base irrespective of the differences in their needs and

expectations Relating the mission with their service structure Virgin Airways has developed

premium economy flights for lower income customers whereas their executive level

customers have been provided with premium level Upper Class Suites and Virgin

Clubhouses This shows that Virgin Airways has an in-built customer centric approach that

meets the needs of individual customers

21

24 Key Drivers of Virgin Airways

According to Doganis (2006) in the existing scenario innovation is the key driver for growth

and development of business houses Virgin Atlanticrsquos innovation is focused on improving

their operational efficacy for ensuring a better service structure for their customers They

have continuously designed and developed their services for Upper class as well as economy

customers Virgin Airwaysrsquo service structure does not categorise their customers in terms of

lower and business class they have economy premium economy class and upper class levels

Apart from this customers can spend their miles (received when they purchase a ticket of

Virgin Atlantic Airways) for paying instead of money (Goumlssling and Peeters 2007) These

minute additions in customer service help Virgin Airways in generating a steadily increase

revenue curve Another driver for Virgin Atlantic is their pricing processes although the

charges of the company are higher in comparison to other big competitors such as British

Airways or Jet Airways the differences between the different levels of services are minimal

This allows the customers to easily shift from economy level to premium level creating

psychological satisfaction (Van Dender 2007)

Considering their marketing actvities the individual relationship of Virgin Airways with their

customers is one of the main drivers for their growth As per the study of Sutcliffe (2002)

knowing the needs of the customers their complaints their conditions and the existing

marketing condition in relation to competitor strategies ensures better service structure for

firms It can be mentioned that Virgin Airways has won several awards for their website

support and marketing processes such as Online Retail Awards Digital Impact Awards

Travel Agent Choice Award etc (Virgin-Atlantic 2015a) This shows the ability of the firm

to continuously improve on their services and accommodate the growing needs and

expectations of the customers

22

25 External Environment

The external environment of Virgin Atlantic Airways will be analysed with the help of

PESTLE analysis and also in a comparative manner with their competitors with the help of

perceptual mapping process

PESTLE Analysis

Figure 4 PESTLE Analysis of Virgin Atlantic Airways

(Source Scheelhaase and Grimme 2007 p253)

Political One of the major political influences on Virgin Atlantic Airways took place when

the UK Government abolished the London Air Traffic Distribution rules in the year 1991 and

allowed Virgin Airways to operate from the Heathrow Airport (Ciliberto and Tamer 2009)

This move helped Virgin Airways expand their services globally and reach new destinations

mainly in the Asian and African segments However regulations and restrictions of

international bodies such as Civil Aviation Authority create some barriers for Virgin Airways

23

in context of the environmental regulations Other than this the changes in the taxation

policies of the government also hamper the revenue level of the organisation Another

political factor is the relationship of the UK government with Russia and their dispute over

the fuel prices that in turn fluctuates the cost of operations of the airline companies (Gerardi

and Shapiro 2009)

Economical The economical conditions are among the primary factors that influence the

operations of a firm (Wensveen 2010) The global financial crisis of 2007-08 had created a

major manipulation in the operations of the luxury services such as that of Virgin Airways

Mainly in nations such as UK USA Japan Italy Germany etc where customers started

ploughing back their money from the market and created a shortfall in the national

economies airline sector faced difficulties in operations Furthermore the reduction in

Government subsidies also hampered the operations of the business processes On the other

hand instability in the exchange rate increased the fuel prices and reduced the deregulation in

the airline industry (Ciliberto and Tamer 2009) However Virgin Airlines had reduced the

price of their tickets for retaining their customer base and also provided discount plans

Social The social influence on Virgin Airlines is largely associated with the customer and

employee management systems Being one of the largest multination airlines of the world

diversity is a natural occurrence in their customer and employee base The ability to manage

the cultural diversity ensures effective service delivery and customer response for the

company Goumlssling and Peeters (2007) noted that owner Richard Branson wanted to certify

an exceptional service and experience for their customers that required the staff to know and

acknowledge the various cultural factors The in-flight crew of the company provides elegant

services related to the individual needs of the customers such as Virgin Airlines has a

minimum of 4-6 cuisines in their flights at any given point of time to meet the needs of the

customers (Van Dender 2007)

24

Technological It was observed in the value chain analysis that all the operational actvities of

Virgin Airways have been linked with their information and communications technology

This highlights the importance of technological support for the Airlines service Virgin

Airways has always concentrated on guarantying technological superiority for better service

design The fleet of 39 aircrafts have been remodelled regularly to keep them updated with

the industry trends Virgin Airways added 9 Boeing 787 jumbos in their fleet in the year 2014

which are expected to replace the Airbus A330 soon (Virgin-Atlantic 2015b) Services such

as individual television sets for each passenger are an example of technological usage in

Virgin Airways In context of the operational necessities the fleet of Virgin Atlantic has

installed the latest radar systems (AirNav RadarBox) with ADS-B radar systems (Van

Dender 2007)

Legal One of the most prominent legal issues faced by Virgin Atlantic is related to their

domestic service provider Little Red The domestic air traffic of the UK has been consistently

falling the launch of Little Red generated huge controversy among the stakeholders of the

organisation (Bilotkach Gaggero and Piga 2015) Furthermore failure to acquire British

Midland had further reduced the scope of recovering from the losses encountered by Little

Red division of Virgin Atlantic Airways In case of long-haul flights also Virgin Airways is

trying to merge with Delta Airlines but the foreign ownership rules is proving to be a

challenge for both the concerned firms (Economist 2014)

Environmental The environmental issues have always been in the lime-light for airline

organisations based on the pollution generated from flights and the management of the in-

flight wastages (Rea and Kerzner 2012) In this respect Virgin Airlines is trying to reduce

their environmental impact by developing an efficient business service process The bio fuel

demonstration provided by the company has shown potential for reducing the emissions by

25

4 annually (Kawaura 2015) On the other hand the increasing number of flights and

destinations of the company is equally contributing to the increase in green house gases

Perceptual Mapping

Figure 5 Perceptual Mapping Virgin Atlantic Airways

(Source Created by Author)

The above performed perceptual mapping has been derived on the basis of two criteria

namely quality and cost It can be noted that the most suitably positioned airlines group is the

Delta Airlines whereas big brands such as Lufthansa Virgin Airways British Airways etc

are positioned near high cost and high quality factors Evaluating from the given perceptual

map the primary competitor of Virgin Airlines can be noted as Lufthansa British Airways

High Quality

Low Quality

Low

Cost

Hig

h C

ost

Lufthansa

Virgin Atlantic Air France

Continental

Airlines

British Airways

Delta

Frontier

airTrar

Japan Airlines

Ryan Air

Thai

Sky Airline

Air Asia US Airways

Air Canada

26

Continental Airways Air France and Delta Airlines Virgin Airways has always been known

for their premium service category (Goumlssling and Peeters 2007) They have tried to provide

the best of services to their customers such as Clubhouses and in-flight bars and television

that have positioned Virgin Airways near the high quality quadrant of the map Although

price is an important factor for customers in their purchase decisions Virgin Airways is

trying to nullify the cost difference by adding more services and add-ons to create a halo

effect and engage the customers with their service delivery process

26 Financial Performance

The financial performance of the company has been analysed from the annual report and the

stock performance of Virgin Atlantic Airways Virgin Airways served over 6 million

customers across 33 destinations in the year 2014 which resulted in operating cash flow of

pound121 million (Virgin-Atlantic 2014) The firm experienced an increase in the unit revenue

per airline passenger by 48 whereas the operating cost increased by 03 from that of

2013 (Virgin-Atlantic 2014) The profit before tax and exceptional items of Virgin Airlines

increased by pound65 million from 2013 to pound14 million in 2014 on year on year basis However

the stock performance of Virgin Airways has fallen since the year 2014 from a point of 4381

to 3823 in 2015 The stock curve of the company has been consistently decreasing in 2015

since the sale of 49 stock to Delta Group of Airlines (FinanceYahoo 2015)

27

Figure 6 Stock Performance of Virgin Atlantic Airways 2014-2015

(Source FinanceYahoo 2015)

27 Outcome of Critical Analysis of Virgin Airways

Based on the above given internal and external analysis of Virgin Atlantic Airways it can be

considered that Virgin Airways has been growing significantly with their service structure

However there has been a decrease in their revenue generation process as Little Red segment

failed to perform in the shot-haul domestic flights and the long-haul flights are also facing

steep competition from other big brands such as British Airways Emirates and Lufthansa In

context of their organisational structure the top management body does not have a spot for

the human resource management department and has implanted the HR systems within the

middle level management The top management has been structured with a flat hierarchical

structure whereas the operational level of the company reflects a matrix structure for smooth

functioning

28

The marketing processes of Virgin Airways are the key to their customer relationship

process The company has an interactive website and efficient customer communication

methods for connecting the customers with the organisation Apart from this the service

structure of the company is continuously upgraded with innovative technology in order to

engage the customers with the firm Although the pricing of the company is higher in

comparison to their competitors individual focus towards customer needs and expectations

helps them in managing their business growth and development

28 Conclusion

Being a luxury service provider and one of the top brands of the international aviation

industry Virgin Atlantic Airlines has generated huge brand value in their respective industry

Virgin Airways has always followed an unconventional route for designing their business

strategies and tried to capture their target markets with exceptional and innovative service

structures While the company progresses in terms of their operational and managerial

efficacies the financial performance of the firm has suffered in the domestic short-haul flight

segment The long-haul flights have also shown a gradual decrease that lead to the selling of

49 of stock to Delta Airlines Based on the analysis performed it can be suggested that

Virgin Atlantic Airways needs to innovate new strategies for reducing their operational

expenses and also expanding their services to more destinations across the world

29

Reference List

Aguirregabiria V and Ho C Y 2012 A dynamic oligopoly game of the US airline

industry Estimation and policy experiments Journal of Econometrics 168(1) pp 156-173

Agusdinata B and de Klein W 2002 The Dynamics of Airline Alliances Journal of Air

Transport Management 8(4) pp 201-211

Barrett S D 2000 Airport Competition in the Deregulated European Aviation Market

Journal of Air Transport Management 6(1) pp 13-27

Barwise P and Meehan S 2010 The one thing you must get right when building a

brand Harvard Business Review 88(12) pp 80-84

Belobaba P Odoni A and Barnhart C 2009 The Global Airline Industry New Jersey

John Wiley amp Sons

Bergantino A S and Capozza C 2015 Airline Pricing Behavior under Limited

Inter‐Modal Competition Economic Inquiry 53(1) pp 700-713

Bilotkach V Gaggero A A and Piga C A 2015 Airline pricing under different market

conditions Evidence from European Low-Cost Carriers Tourism Management 47 pp 152-

163

Cento A 2008 The Airline Industry Challenges in the 21st Century Berlin Springer

Science amp Business Media

Ciliberto F and Tamer E 2009 Market structure and multiple equilibria in airline

markets Econometrica 77(6) pp 1791-1828

30

Clausen J Larsen A Larsen J and Rezanova N J 2010 Disruption management in the

airline industrymdashConcepts models and methodsComputers and Operations Research 37(5)

pp 809-821

Doganis R 2002 Flying Off Course The Economics of International Airlines London

Psychology Press

Doganis R 2006 The Airline Business London Psychology Press

Economist 2014 Little Redrsquos Big Problem [Online] Available at lt

httpwwweconomistcomblogsgulliver201410virgin-atlantics-woes gt [Accessed 22nd

August 2015]

FinanceYahoo 2015 Virgin America Inc [Online] Available at lt

httpfinanceyahoocomechartss=VA+InteractiverangemaxallowChartStackingtr

ue gt [Accessed 22nd August 2015]

Gerardi K S and Shapiro A H 2009 Does competition reduce price dispersion New

evidence from the airline industry Journal of Political Economy 117(1) pp 1-37

Gilbert D Child D and Bennett M 2001 The qualitative study of the current practices of

lsquono-frillsrsquo airlines operating in the UK Journal of Vacation Marketing 7(4) pp 302-315

Goumlssling S and Peeters P 2007 lsquoIt does not harm the environmentrsquoAn analysis of

industry discourses on tourism air travel and the environmentJournal of Sustainable

Tourism 15(4) pp 402-417

Hanlon J P 2007 Global Airlines Competition in a Transnational Industry London

Routledge

17

The above given figure shows the flat hierarchy of the top management of Virgin Airways

The hierarchy represents the detailed segmentation of every functional departments of the

organisation and can be the reason behind the clarity in the operational processes of the

company However as noted there is no separate group for Human Resource Management in

the given structure The HRM activities of Virgin Airways are carried by the operations head

and the HR managers have been designated in the middle level management of the

organisation This has allowed the company to create individual space for monitoring the

actvities of each department and develop a closely knitted relationship with the customers

(Barwise and Meehan 2010) On the other hand Aguirregabiria and Ho (2012) criticised that

absence of human resource management in the top level management can reduce the ability

of the organisation to attend to the problems faced by the workforce Apart from this the gap

in communication between the operational level employees and the top managers can hamper

the present organisational structure of Virgin Airways

The operational structure of the company however has been designed in a matrix structure for

ensuring better communication among the middle level managers and the line managers

According to Stacey (2011) matrix structure helps an organisation in ensuring optimal

resource utilisation by creating a multi-tasking work culture

18

Figure 2 Operational Level Structure Virgin Atlantic Airways

(Source Papatheodorou and Forsyth 2010 p364)

The given framework of matrix structure reflects that each team operates under different

functional heads simultaneously which increases the productivity and reduces the time of

working for the company Gilbert Child and Bennett (2001) stated that matrix structure often

creates job clashes among the work processes of a firm because of multi-tasking processes

However Tsai and Hsu (2008) and Nolan (2010) maintained that matrix structures creates

flexibility and team work within the employee base of a firm allowing them to shift through

the transition period of a firm and also managing the changes in the internal structure without

hampering the productivity

Supply Chain of Virgin Atlantic

The supply chain actvities of Virgin Atlantic highlights their operational processes and the

aspects that add value to their services The following value chain model explains the strategy

and actvities used for designing the internal actvities of Virgin Atlantic Airways

Production HR Marketing Finance

Team 1

Team 3

Team 2

Staff Staff Staff Staff

Staff

Staff

Staff Staff Staff

Staff Staff Staff

19

Figure 3 Value Chain Analysis of Airline Company

(Source Clausen et al 2010 p816)

The value chain analysis of the airline segment is different from that of manufacturing

organisations The different actvities being performed within the operational scope of the

firm has been added in the analysis based on their contribution towards the overall value

added It can be observed that Information and Communications Technology is the core

process that supports all other actvities of the firms The regulatory policies and bodies form

the infrastructure of the organisations Virgin Airways in this regard has ensured that all the

Financial Policies Accounting Regulations and Policies Community Affairs

Flight route

and yield

analyst

Pilot and

Safety

training

Baggage

Handling

training

Agent

training

In-flight

Training

Computer

Reservatio

n System

In-flight

Scheduling

System

Yield

Manageme

nt System

Product

Developmen

t Market

Research

Baggage

Tracking

System

Information and Communications Technology

Route

Selection

Passenger

Service

System

Pricing

Fuel Flight

Scheduling

Crew

Manageme

nt System

Facilities

Planning

Aircraft

Acquisition

Ticket

Counter

Operations

Gate

Operations

Aircraft

Operations

On-Board

Service

Baggage

Handling

Ticket

Offices

Baggage

System

Flight

Connection

s

Rental Car

and Hotel

Reservatio

n System

Promotion

Advertising

Advantages

Program

Travel

Agent

Program

Group

Sales

Lost Baggage

Service

Complaint

Follow-up

Marg

in

Mar

gin

Firm

Infrastructu

re

HRM

Technology

Developmen

t

Procureme

nt

Inbound

Logistics Operations Outbound

Logistics

Marketing

amp Sales Service

20

air route rules and policies associated with their operations are being fulfilled (Clausen et al

2010) The supporting actvities and primary actvities are connected with the ICT system of

the firm Additional services such as Rental Car and Hotel Reservations form the outbound

services which also contribute towards revenue generation The primary operations and

monitoring processes such as ticket counters gate operations etc are essential for ensuring

appropriate service delivery Relating the given value chain analysis to the service structure

of Virgin Airways additional services of in-flight and in waiting areas help the company in

increasing the value proposition of their services for the customers

23 Mission and Vision Statement

The mission statement of Virgin Atlantic Airways has been designed based on the core values

of the organisation Scheelhaase and Grimme (2007) observed that Virgin Airways has

focused on developing an emotional connection with their stakeholders The mission

statement of the company is

ldquoTo embrace the human spirit and let it flyrdquo (Virgin-Atlantic 2015a)

Virgin Atlantic has always been known for its ability to introduce innovative service aspects

which attract and engage the customers The mission statement highlights the basic contents

of human nature ie freedom Terms such as ldquohuman spiritrdquo have been used in order to

connect with a diverse customer base irrespective of the differences in their needs and

expectations Relating the mission with their service structure Virgin Airways has developed

premium economy flights for lower income customers whereas their executive level

customers have been provided with premium level Upper Class Suites and Virgin

Clubhouses This shows that Virgin Airways has an in-built customer centric approach that

meets the needs of individual customers

21

24 Key Drivers of Virgin Airways

According to Doganis (2006) in the existing scenario innovation is the key driver for growth

and development of business houses Virgin Atlanticrsquos innovation is focused on improving

their operational efficacy for ensuring a better service structure for their customers They

have continuously designed and developed their services for Upper class as well as economy

customers Virgin Airwaysrsquo service structure does not categorise their customers in terms of

lower and business class they have economy premium economy class and upper class levels

Apart from this customers can spend their miles (received when they purchase a ticket of

Virgin Atlantic Airways) for paying instead of money (Goumlssling and Peeters 2007) These

minute additions in customer service help Virgin Airways in generating a steadily increase

revenue curve Another driver for Virgin Atlantic is their pricing processes although the

charges of the company are higher in comparison to other big competitors such as British

Airways or Jet Airways the differences between the different levels of services are minimal

This allows the customers to easily shift from economy level to premium level creating

psychological satisfaction (Van Dender 2007)

Considering their marketing actvities the individual relationship of Virgin Airways with their

customers is one of the main drivers for their growth As per the study of Sutcliffe (2002)

knowing the needs of the customers their complaints their conditions and the existing

marketing condition in relation to competitor strategies ensures better service structure for

firms It can be mentioned that Virgin Airways has won several awards for their website

support and marketing processes such as Online Retail Awards Digital Impact Awards

Travel Agent Choice Award etc (Virgin-Atlantic 2015a) This shows the ability of the firm

to continuously improve on their services and accommodate the growing needs and

expectations of the customers

22

25 External Environment

The external environment of Virgin Atlantic Airways will be analysed with the help of

PESTLE analysis and also in a comparative manner with their competitors with the help of

perceptual mapping process

PESTLE Analysis

Figure 4 PESTLE Analysis of Virgin Atlantic Airways

(Source Scheelhaase and Grimme 2007 p253)

Political One of the major political influences on Virgin Atlantic Airways took place when

the UK Government abolished the London Air Traffic Distribution rules in the year 1991 and

allowed Virgin Airways to operate from the Heathrow Airport (Ciliberto and Tamer 2009)

This move helped Virgin Airways expand their services globally and reach new destinations

mainly in the Asian and African segments However regulations and restrictions of

international bodies such as Civil Aviation Authority create some barriers for Virgin Airways

23

in context of the environmental regulations Other than this the changes in the taxation

policies of the government also hamper the revenue level of the organisation Another

political factor is the relationship of the UK government with Russia and their dispute over

the fuel prices that in turn fluctuates the cost of operations of the airline companies (Gerardi

and Shapiro 2009)

Economical The economical conditions are among the primary factors that influence the

operations of a firm (Wensveen 2010) The global financial crisis of 2007-08 had created a

major manipulation in the operations of the luxury services such as that of Virgin Airways

Mainly in nations such as UK USA Japan Italy Germany etc where customers started

ploughing back their money from the market and created a shortfall in the national

economies airline sector faced difficulties in operations Furthermore the reduction in

Government subsidies also hampered the operations of the business processes On the other

hand instability in the exchange rate increased the fuel prices and reduced the deregulation in

the airline industry (Ciliberto and Tamer 2009) However Virgin Airlines had reduced the

price of their tickets for retaining their customer base and also provided discount plans

Social The social influence on Virgin Airlines is largely associated with the customer and

employee management systems Being one of the largest multination airlines of the world

diversity is a natural occurrence in their customer and employee base The ability to manage

the cultural diversity ensures effective service delivery and customer response for the

company Goumlssling and Peeters (2007) noted that owner Richard Branson wanted to certify

an exceptional service and experience for their customers that required the staff to know and

acknowledge the various cultural factors The in-flight crew of the company provides elegant

services related to the individual needs of the customers such as Virgin Airlines has a

minimum of 4-6 cuisines in their flights at any given point of time to meet the needs of the

customers (Van Dender 2007)

24

Technological It was observed in the value chain analysis that all the operational actvities of

Virgin Airways have been linked with their information and communications technology

This highlights the importance of technological support for the Airlines service Virgin

Airways has always concentrated on guarantying technological superiority for better service

design The fleet of 39 aircrafts have been remodelled regularly to keep them updated with

the industry trends Virgin Airways added 9 Boeing 787 jumbos in their fleet in the year 2014

which are expected to replace the Airbus A330 soon (Virgin-Atlantic 2015b) Services such

as individual television sets for each passenger are an example of technological usage in

Virgin Airways In context of the operational necessities the fleet of Virgin Atlantic has

installed the latest radar systems (AirNav RadarBox) with ADS-B radar systems (Van

Dender 2007)

Legal One of the most prominent legal issues faced by Virgin Atlantic is related to their

domestic service provider Little Red The domestic air traffic of the UK has been consistently

falling the launch of Little Red generated huge controversy among the stakeholders of the

organisation (Bilotkach Gaggero and Piga 2015) Furthermore failure to acquire British

Midland had further reduced the scope of recovering from the losses encountered by Little

Red division of Virgin Atlantic Airways In case of long-haul flights also Virgin Airways is

trying to merge with Delta Airlines but the foreign ownership rules is proving to be a

challenge for both the concerned firms (Economist 2014)

Environmental The environmental issues have always been in the lime-light for airline

organisations based on the pollution generated from flights and the management of the in-

flight wastages (Rea and Kerzner 2012) In this respect Virgin Airlines is trying to reduce

their environmental impact by developing an efficient business service process The bio fuel

demonstration provided by the company has shown potential for reducing the emissions by

25

4 annually (Kawaura 2015) On the other hand the increasing number of flights and

destinations of the company is equally contributing to the increase in green house gases

Perceptual Mapping

Figure 5 Perceptual Mapping Virgin Atlantic Airways

(Source Created by Author)

The above performed perceptual mapping has been derived on the basis of two criteria

namely quality and cost It can be noted that the most suitably positioned airlines group is the

Delta Airlines whereas big brands such as Lufthansa Virgin Airways British Airways etc

are positioned near high cost and high quality factors Evaluating from the given perceptual

map the primary competitor of Virgin Airlines can be noted as Lufthansa British Airways

High Quality

Low Quality

Low

Cost

Hig

h C

ost

Lufthansa

Virgin Atlantic Air France

Continental

Airlines

British Airways

Delta

Frontier

airTrar

Japan Airlines

Ryan Air

Thai

Sky Airline

Air Asia US Airways

Air Canada

26

Continental Airways Air France and Delta Airlines Virgin Airways has always been known

for their premium service category (Goumlssling and Peeters 2007) They have tried to provide

the best of services to their customers such as Clubhouses and in-flight bars and television

that have positioned Virgin Airways near the high quality quadrant of the map Although

price is an important factor for customers in their purchase decisions Virgin Airways is

trying to nullify the cost difference by adding more services and add-ons to create a halo

effect and engage the customers with their service delivery process

26 Financial Performance

The financial performance of the company has been analysed from the annual report and the

stock performance of Virgin Atlantic Airways Virgin Airways served over 6 million

customers across 33 destinations in the year 2014 which resulted in operating cash flow of

pound121 million (Virgin-Atlantic 2014) The firm experienced an increase in the unit revenue

per airline passenger by 48 whereas the operating cost increased by 03 from that of

2013 (Virgin-Atlantic 2014) The profit before tax and exceptional items of Virgin Airlines

increased by pound65 million from 2013 to pound14 million in 2014 on year on year basis However

the stock performance of Virgin Airways has fallen since the year 2014 from a point of 4381

to 3823 in 2015 The stock curve of the company has been consistently decreasing in 2015

since the sale of 49 stock to Delta Group of Airlines (FinanceYahoo 2015)

27

Figure 6 Stock Performance of Virgin Atlantic Airways 2014-2015

(Source FinanceYahoo 2015)

27 Outcome of Critical Analysis of Virgin Airways

Based on the above given internal and external analysis of Virgin Atlantic Airways it can be

considered that Virgin Airways has been growing significantly with their service structure

However there has been a decrease in their revenue generation process as Little Red segment

failed to perform in the shot-haul domestic flights and the long-haul flights are also facing

steep competition from other big brands such as British Airways Emirates and Lufthansa In

context of their organisational structure the top management body does not have a spot for

the human resource management department and has implanted the HR systems within the

middle level management The top management has been structured with a flat hierarchical

structure whereas the operational level of the company reflects a matrix structure for smooth

functioning

28

The marketing processes of Virgin Airways are the key to their customer relationship

process The company has an interactive website and efficient customer communication

methods for connecting the customers with the organisation Apart from this the service

structure of the company is continuously upgraded with innovative technology in order to

engage the customers with the firm Although the pricing of the company is higher in

comparison to their competitors individual focus towards customer needs and expectations

helps them in managing their business growth and development

28 Conclusion

Being a luxury service provider and one of the top brands of the international aviation

industry Virgin Atlantic Airlines has generated huge brand value in their respective industry

Virgin Airways has always followed an unconventional route for designing their business

strategies and tried to capture their target markets with exceptional and innovative service

structures While the company progresses in terms of their operational and managerial

efficacies the financial performance of the firm has suffered in the domestic short-haul flight

segment The long-haul flights have also shown a gradual decrease that lead to the selling of

49 of stock to Delta Airlines Based on the analysis performed it can be suggested that

Virgin Atlantic Airways needs to innovate new strategies for reducing their operational

expenses and also expanding their services to more destinations across the world

29

Reference List

Aguirregabiria V and Ho C Y 2012 A dynamic oligopoly game of the US airline

industry Estimation and policy experiments Journal of Econometrics 168(1) pp 156-173

Agusdinata B and de Klein W 2002 The Dynamics of Airline Alliances Journal of Air

Transport Management 8(4) pp 201-211

Barrett S D 2000 Airport Competition in the Deregulated European Aviation Market

Journal of Air Transport Management 6(1) pp 13-27

Barwise P and Meehan S 2010 The one thing you must get right when building a

brand Harvard Business Review 88(12) pp 80-84

Belobaba P Odoni A and Barnhart C 2009 The Global Airline Industry New Jersey

John Wiley amp Sons

Bergantino A S and Capozza C 2015 Airline Pricing Behavior under Limited

Inter‐Modal Competition Economic Inquiry 53(1) pp 700-713

Bilotkach V Gaggero A A and Piga C A 2015 Airline pricing under different market

conditions Evidence from European Low-Cost Carriers Tourism Management 47 pp 152-

163

Cento A 2008 The Airline Industry Challenges in the 21st Century Berlin Springer

Science amp Business Media

Ciliberto F and Tamer E 2009 Market structure and multiple equilibria in airline

markets Econometrica 77(6) pp 1791-1828

30

Clausen J Larsen A Larsen J and Rezanova N J 2010 Disruption management in the

airline industrymdashConcepts models and methodsComputers and Operations Research 37(5)

pp 809-821

Doganis R 2002 Flying Off Course The Economics of International Airlines London

Psychology Press

Doganis R 2006 The Airline Business London Psychology Press

Economist 2014 Little Redrsquos Big Problem [Online] Available at lt

httpwwweconomistcomblogsgulliver201410virgin-atlantics-woes gt [Accessed 22nd

August 2015]

FinanceYahoo 2015 Virgin America Inc [Online] Available at lt

httpfinanceyahoocomechartss=VA+InteractiverangemaxallowChartStackingtr

ue gt [Accessed 22nd August 2015]

Gerardi K S and Shapiro A H 2009 Does competition reduce price dispersion New

evidence from the airline industry Journal of Political Economy 117(1) pp 1-37

Gilbert D Child D and Bennett M 2001 The qualitative study of the current practices of

lsquono-frillsrsquo airlines operating in the UK Journal of Vacation Marketing 7(4) pp 302-315

Goumlssling S and Peeters P 2007 lsquoIt does not harm the environmentrsquoAn analysis of

industry discourses on tourism air travel and the environmentJournal of Sustainable

Tourism 15(4) pp 402-417

Hanlon J P 2007 Global Airlines Competition in a Transnational Industry London

Routledge

18

Figure 2 Operational Level Structure Virgin Atlantic Airways

(Source Papatheodorou and Forsyth 2010 p364)

The given framework of matrix structure reflects that each team operates under different

functional heads simultaneously which increases the productivity and reduces the time of

working for the company Gilbert Child and Bennett (2001) stated that matrix structure often

creates job clashes among the work processes of a firm because of multi-tasking processes

However Tsai and Hsu (2008) and Nolan (2010) maintained that matrix structures creates

flexibility and team work within the employee base of a firm allowing them to shift through

the transition period of a firm and also managing the changes in the internal structure without

hampering the productivity

Supply Chain of Virgin Atlantic

The supply chain actvities of Virgin Atlantic highlights their operational processes and the

aspects that add value to their services The following value chain model explains the strategy

and actvities used for designing the internal actvities of Virgin Atlantic Airways

Production HR Marketing Finance

Team 1

Team 3

Team 2

Staff Staff Staff Staff

Staff

Staff

Staff Staff Staff

Staff Staff Staff

19

Figure 3 Value Chain Analysis of Airline Company

(Source Clausen et al 2010 p816)

The value chain analysis of the airline segment is different from that of manufacturing

organisations The different actvities being performed within the operational scope of the

firm has been added in the analysis based on their contribution towards the overall value

added It can be observed that Information and Communications Technology is the core

process that supports all other actvities of the firms The regulatory policies and bodies form

the infrastructure of the organisations Virgin Airways in this regard has ensured that all the

Financial Policies Accounting Regulations and Policies Community Affairs

Flight route

and yield

analyst

Pilot and

Safety

training

Baggage

Handling

training

Agent

training

In-flight

Training

Computer

Reservatio

n System

In-flight

Scheduling

System

Yield

Manageme

nt System

Product

Developmen

t Market

Research

Baggage

Tracking

System

Information and Communications Technology

Route

Selection

Passenger

Service

System

Pricing

Fuel Flight

Scheduling

Crew

Manageme

nt System

Facilities

Planning

Aircraft

Acquisition

Ticket

Counter

Operations

Gate

Operations

Aircraft

Operations

On-Board

Service

Baggage

Handling

Ticket

Offices

Baggage

System

Flight

Connection

s

Rental Car

and Hotel

Reservatio

n System

Promotion

Advertising

Advantages

Program

Travel

Agent

Program

Group

Sales

Lost Baggage

Service

Complaint

Follow-up

Marg

in

Mar

gin

Firm

Infrastructu

re

HRM

Technology

Developmen

t

Procureme

nt

Inbound

Logistics Operations Outbound

Logistics

Marketing

amp Sales Service

20

air route rules and policies associated with their operations are being fulfilled (Clausen et al

2010) The supporting actvities and primary actvities are connected with the ICT system of

the firm Additional services such as Rental Car and Hotel Reservations form the outbound

services which also contribute towards revenue generation The primary operations and

monitoring processes such as ticket counters gate operations etc are essential for ensuring

appropriate service delivery Relating the given value chain analysis to the service structure

of Virgin Airways additional services of in-flight and in waiting areas help the company in

increasing the value proposition of their services for the customers

23 Mission and Vision Statement

The mission statement of Virgin Atlantic Airways has been designed based on the core values

of the organisation Scheelhaase and Grimme (2007) observed that Virgin Airways has

focused on developing an emotional connection with their stakeholders The mission

statement of the company is

ldquoTo embrace the human spirit and let it flyrdquo (Virgin-Atlantic 2015a)

Virgin Atlantic has always been known for its ability to introduce innovative service aspects

which attract and engage the customers The mission statement highlights the basic contents

of human nature ie freedom Terms such as ldquohuman spiritrdquo have been used in order to

connect with a diverse customer base irrespective of the differences in their needs and

expectations Relating the mission with their service structure Virgin Airways has developed

premium economy flights for lower income customers whereas their executive level

customers have been provided with premium level Upper Class Suites and Virgin

Clubhouses This shows that Virgin Airways has an in-built customer centric approach that

meets the needs of individual customers

21

24 Key Drivers of Virgin Airways

According to Doganis (2006) in the existing scenario innovation is the key driver for growth

and development of business houses Virgin Atlanticrsquos innovation is focused on improving

their operational efficacy for ensuring a better service structure for their customers They

have continuously designed and developed their services for Upper class as well as economy

customers Virgin Airwaysrsquo service structure does not categorise their customers in terms of

lower and business class they have economy premium economy class and upper class levels

Apart from this customers can spend their miles (received when they purchase a ticket of

Virgin Atlantic Airways) for paying instead of money (Goumlssling and Peeters 2007) These

minute additions in customer service help Virgin Airways in generating a steadily increase

revenue curve Another driver for Virgin Atlantic is their pricing processes although the

charges of the company are higher in comparison to other big competitors such as British

Airways or Jet Airways the differences between the different levels of services are minimal

This allows the customers to easily shift from economy level to premium level creating

psychological satisfaction (Van Dender 2007)

Considering their marketing actvities the individual relationship of Virgin Airways with their

customers is one of the main drivers for their growth As per the study of Sutcliffe (2002)

knowing the needs of the customers their complaints their conditions and the existing

marketing condition in relation to competitor strategies ensures better service structure for

firms It can be mentioned that Virgin Airways has won several awards for their website

support and marketing processes such as Online Retail Awards Digital Impact Awards

Travel Agent Choice Award etc (Virgin-Atlantic 2015a) This shows the ability of the firm

to continuously improve on their services and accommodate the growing needs and

expectations of the customers

22

25 External Environment

The external environment of Virgin Atlantic Airways will be analysed with the help of

PESTLE analysis and also in a comparative manner with their competitors with the help of

perceptual mapping process

PESTLE Analysis

Figure 4 PESTLE Analysis of Virgin Atlantic Airways

(Source Scheelhaase and Grimme 2007 p253)

Political One of the major political influences on Virgin Atlantic Airways took place when

the UK Government abolished the London Air Traffic Distribution rules in the year 1991 and

allowed Virgin Airways to operate from the Heathrow Airport (Ciliberto and Tamer 2009)

This move helped Virgin Airways expand their services globally and reach new destinations

mainly in the Asian and African segments However regulations and restrictions of

international bodies such as Civil Aviation Authority create some barriers for Virgin Airways

23

in context of the environmental regulations Other than this the changes in the taxation

policies of the government also hamper the revenue level of the organisation Another

political factor is the relationship of the UK government with Russia and their dispute over

the fuel prices that in turn fluctuates the cost of operations of the airline companies (Gerardi

and Shapiro 2009)

Economical The economical conditions are among the primary factors that influence the

operations of a firm (Wensveen 2010) The global financial crisis of 2007-08 had created a

major manipulation in the operations of the luxury services such as that of Virgin Airways

Mainly in nations such as UK USA Japan Italy Germany etc where customers started

ploughing back their money from the market and created a shortfall in the national

economies airline sector faced difficulties in operations Furthermore the reduction in

Government subsidies also hampered the operations of the business processes On the other

hand instability in the exchange rate increased the fuel prices and reduced the deregulation in

the airline industry (Ciliberto and Tamer 2009) However Virgin Airlines had reduced the

price of their tickets for retaining their customer base and also provided discount plans

Social The social influence on Virgin Airlines is largely associated with the customer and

employee management systems Being one of the largest multination airlines of the world

diversity is a natural occurrence in their customer and employee base The ability to manage

the cultural diversity ensures effective service delivery and customer response for the

company Goumlssling and Peeters (2007) noted that owner Richard Branson wanted to certify

an exceptional service and experience for their customers that required the staff to know and

acknowledge the various cultural factors The in-flight crew of the company provides elegant

services related to the individual needs of the customers such as Virgin Airlines has a

minimum of 4-6 cuisines in their flights at any given point of time to meet the needs of the

customers (Van Dender 2007)

24

Technological It was observed in the value chain analysis that all the operational actvities of

Virgin Airways have been linked with their information and communications technology

This highlights the importance of technological support for the Airlines service Virgin

Airways has always concentrated on guarantying technological superiority for better service

design The fleet of 39 aircrafts have been remodelled regularly to keep them updated with

the industry trends Virgin Airways added 9 Boeing 787 jumbos in their fleet in the year 2014

which are expected to replace the Airbus A330 soon (Virgin-Atlantic 2015b) Services such

as individual television sets for each passenger are an example of technological usage in

Virgin Airways In context of the operational necessities the fleet of Virgin Atlantic has

installed the latest radar systems (AirNav RadarBox) with ADS-B radar systems (Van

Dender 2007)

Legal One of the most prominent legal issues faced by Virgin Atlantic is related to their

domestic service provider Little Red The domestic air traffic of the UK has been consistently

falling the launch of Little Red generated huge controversy among the stakeholders of the

organisation (Bilotkach Gaggero and Piga 2015) Furthermore failure to acquire British

Midland had further reduced the scope of recovering from the losses encountered by Little

Red division of Virgin Atlantic Airways In case of long-haul flights also Virgin Airways is

trying to merge with Delta Airlines but the foreign ownership rules is proving to be a

challenge for both the concerned firms (Economist 2014)

Environmental The environmental issues have always been in the lime-light for airline

organisations based on the pollution generated from flights and the management of the in-

flight wastages (Rea and Kerzner 2012) In this respect Virgin Airlines is trying to reduce

their environmental impact by developing an efficient business service process The bio fuel

demonstration provided by the company has shown potential for reducing the emissions by

25

4 annually (Kawaura 2015) On the other hand the increasing number of flights and

destinations of the company is equally contributing to the increase in green house gases

Perceptual Mapping

Figure 5 Perceptual Mapping Virgin Atlantic Airways

(Source Created by Author)

The above performed perceptual mapping has been derived on the basis of two criteria

namely quality and cost It can be noted that the most suitably positioned airlines group is the

Delta Airlines whereas big brands such as Lufthansa Virgin Airways British Airways etc

are positioned near high cost and high quality factors Evaluating from the given perceptual

map the primary competitor of Virgin Airlines can be noted as Lufthansa British Airways

High Quality

Low Quality

Low

Cost

Hig

h C

ost

Lufthansa

Virgin Atlantic Air France

Continental

Airlines

British Airways

Delta

Frontier

airTrar

Japan Airlines

Ryan Air

Thai

Sky Airline

Air Asia US Airways

Air Canada

26

Continental Airways Air France and Delta Airlines Virgin Airways has always been known

for their premium service category (Goumlssling and Peeters 2007) They have tried to provide

the best of services to their customers such as Clubhouses and in-flight bars and television

that have positioned Virgin Airways near the high quality quadrant of the map Although

price is an important factor for customers in their purchase decisions Virgin Airways is

trying to nullify the cost difference by adding more services and add-ons to create a halo

effect and engage the customers with their service delivery process

26 Financial Performance

The financial performance of the company has been analysed from the annual report and the

stock performance of Virgin Atlantic Airways Virgin Airways served over 6 million

customers across 33 destinations in the year 2014 which resulted in operating cash flow of

pound121 million (Virgin-Atlantic 2014) The firm experienced an increase in the unit revenue

per airline passenger by 48 whereas the operating cost increased by 03 from that of

2013 (Virgin-Atlantic 2014) The profit before tax and exceptional items of Virgin Airlines

increased by pound65 million from 2013 to pound14 million in 2014 on year on year basis However

the stock performance of Virgin Airways has fallen since the year 2014 from a point of 4381

to 3823 in 2015 The stock curve of the company has been consistently decreasing in 2015

since the sale of 49 stock to Delta Group of Airlines (FinanceYahoo 2015)

27

Figure 6 Stock Performance of Virgin Atlantic Airways 2014-2015

(Source FinanceYahoo 2015)

27 Outcome of Critical Analysis of Virgin Airways

Based on the above given internal and external analysis of Virgin Atlantic Airways it can be

considered that Virgin Airways has been growing significantly with their service structure

However there has been a decrease in their revenue generation process as Little Red segment

failed to perform in the shot-haul domestic flights and the long-haul flights are also facing

steep competition from other big brands such as British Airways Emirates and Lufthansa In

context of their organisational structure the top management body does not have a spot for

the human resource management department and has implanted the HR systems within the

middle level management The top management has been structured with a flat hierarchical

structure whereas the operational level of the company reflects a matrix structure for smooth

functioning

28

The marketing processes of Virgin Airways are the key to their customer relationship

process The company has an interactive website and efficient customer communication

methods for connecting the customers with the organisation Apart from this the service

structure of the company is continuously upgraded with innovative technology in order to

engage the customers with the firm Although the pricing of the company is higher in

comparison to their competitors individual focus towards customer needs and expectations

helps them in managing their business growth and development

28 Conclusion

Being a luxury service provider and one of the top brands of the international aviation

industry Virgin Atlantic Airlines has generated huge brand value in their respective industry

Virgin Airways has always followed an unconventional route for designing their business

strategies and tried to capture their target markets with exceptional and innovative service

structures While the company progresses in terms of their operational and managerial

efficacies the financial performance of the firm has suffered in the domestic short-haul flight

segment The long-haul flights have also shown a gradual decrease that lead to the selling of

49 of stock to Delta Airlines Based on the analysis performed it can be suggested that

Virgin Atlantic Airways needs to innovate new strategies for reducing their operational

expenses and also expanding their services to more destinations across the world

29

Reference List

Aguirregabiria V and Ho C Y 2012 A dynamic oligopoly game of the US airline

industry Estimation and policy experiments Journal of Econometrics 168(1) pp 156-173

Agusdinata B and de Klein W 2002 The Dynamics of Airline Alliances Journal of Air

Transport Management 8(4) pp 201-211

Barrett S D 2000 Airport Competition in the Deregulated European Aviation Market

Journal of Air Transport Management 6(1) pp 13-27

Barwise P and Meehan S 2010 The one thing you must get right when building a

brand Harvard Business Review 88(12) pp 80-84

Belobaba P Odoni A and Barnhart C 2009 The Global Airline Industry New Jersey

John Wiley amp Sons

Bergantino A S and Capozza C 2015 Airline Pricing Behavior under Limited

Inter‐Modal Competition Economic Inquiry 53(1) pp 700-713

Bilotkach V Gaggero A A and Piga C A 2015 Airline pricing under different market

conditions Evidence from European Low-Cost Carriers Tourism Management 47 pp 152-

163

Cento A 2008 The Airline Industry Challenges in the 21st Century Berlin Springer

Science amp Business Media

Ciliberto F and Tamer E 2009 Market structure and multiple equilibria in airline

markets Econometrica 77(6) pp 1791-1828

30

Clausen J Larsen A Larsen J and Rezanova N J 2010 Disruption management in the

airline industrymdashConcepts models and methodsComputers and Operations Research 37(5)

pp 809-821

Doganis R 2002 Flying Off Course The Economics of International Airlines London

Psychology Press

Doganis R 2006 The Airline Business London Psychology Press

Economist 2014 Little Redrsquos Big Problem [Online] Available at lt

httpwwweconomistcomblogsgulliver201410virgin-atlantics-woes gt [Accessed 22nd

August 2015]

FinanceYahoo 2015 Virgin America Inc [Online] Available at lt

httpfinanceyahoocomechartss=VA+InteractiverangemaxallowChartStackingtr

ue gt [Accessed 22nd August 2015]

Gerardi K S and Shapiro A H 2009 Does competition reduce price dispersion New

evidence from the airline industry Journal of Political Economy 117(1) pp 1-37

Gilbert D Child D and Bennett M 2001 The qualitative study of the current practices of

lsquono-frillsrsquo airlines operating in the UK Journal of Vacation Marketing 7(4) pp 302-315

Goumlssling S and Peeters P 2007 lsquoIt does not harm the environmentrsquoAn analysis of

industry discourses on tourism air travel and the environmentJournal of Sustainable

Tourism 15(4) pp 402-417

Hanlon J P 2007 Global Airlines Competition in a Transnational Industry London

Routledge

19

Figure 3 Value Chain Analysis of Airline Company

(Source Clausen et al 2010 p816)

The value chain analysis of the airline segment is different from that of manufacturing

organisations The different actvities being performed within the operational scope of the

firm has been added in the analysis based on their contribution towards the overall value

added It can be observed that Information and Communications Technology is the core

process that supports all other actvities of the firms The regulatory policies and bodies form

the infrastructure of the organisations Virgin Airways in this regard has ensured that all the

Financial Policies Accounting Regulations and Policies Community Affairs

Flight route

and yield

analyst

Pilot and

Safety

training

Baggage

Handling

training

Agent

training

In-flight

Training

Computer

Reservatio

n System

In-flight

Scheduling

System

Yield

Manageme

nt System

Product

Developmen

t Market

Research

Baggage

Tracking

System

Information and Communications Technology

Route

Selection

Passenger

Service

System

Pricing

Fuel Flight

Scheduling

Crew

Manageme

nt System

Facilities

Planning

Aircraft

Acquisition

Ticket

Counter

Operations

Gate

Operations

Aircraft

Operations

On-Board

Service

Baggage

Handling

Ticket

Offices

Baggage

System

Flight

Connection

s

Rental Car

and Hotel

Reservatio

n System

Promotion

Advertising

Advantages

Program

Travel

Agent

Program

Group

Sales

Lost Baggage

Service

Complaint

Follow-up

Marg

in

Mar

gin

Firm

Infrastructu

re

HRM

Technology

Developmen

t

Procureme

nt

Inbound

Logistics Operations Outbound

Logistics

Marketing

amp Sales Service

20

air route rules and policies associated with their operations are being fulfilled (Clausen et al

2010) The supporting actvities and primary actvities are connected with the ICT system of

the firm Additional services such as Rental Car and Hotel Reservations form the outbound

services which also contribute towards revenue generation The primary operations and

monitoring processes such as ticket counters gate operations etc are essential for ensuring

appropriate service delivery Relating the given value chain analysis to the service structure

of Virgin Airways additional services of in-flight and in waiting areas help the company in

increasing the value proposition of their services for the customers

23 Mission and Vision Statement

The mission statement of Virgin Atlantic Airways has been designed based on the core values

of the organisation Scheelhaase and Grimme (2007) observed that Virgin Airways has

focused on developing an emotional connection with their stakeholders The mission

statement of the company is

ldquoTo embrace the human spirit and let it flyrdquo (Virgin-Atlantic 2015a)

Virgin Atlantic has always been known for its ability to introduce innovative service aspects

which attract and engage the customers The mission statement highlights the basic contents

of human nature ie freedom Terms such as ldquohuman spiritrdquo have been used in order to

connect with a diverse customer base irrespective of the differences in their needs and

expectations Relating the mission with their service structure Virgin Airways has developed

premium economy flights for lower income customers whereas their executive level

customers have been provided with premium level Upper Class Suites and Virgin

Clubhouses This shows that Virgin Airways has an in-built customer centric approach that

meets the needs of individual customers

21

24 Key Drivers of Virgin Airways

According to Doganis (2006) in the existing scenario innovation is the key driver for growth

and development of business houses Virgin Atlanticrsquos innovation is focused on improving

their operational efficacy for ensuring a better service structure for their customers They

have continuously designed and developed their services for Upper class as well as economy

customers Virgin Airwaysrsquo service structure does not categorise their customers in terms of

lower and business class they have economy premium economy class and upper class levels

Apart from this customers can spend their miles (received when they purchase a ticket of

Virgin Atlantic Airways) for paying instead of money (Goumlssling and Peeters 2007) These

minute additions in customer service help Virgin Airways in generating a steadily increase

revenue curve Another driver for Virgin Atlantic is their pricing processes although the

charges of the company are higher in comparison to other big competitors such as British

Airways or Jet Airways the differences between the different levels of services are minimal

This allows the customers to easily shift from economy level to premium level creating

psychological satisfaction (Van Dender 2007)

Considering their marketing actvities the individual relationship of Virgin Airways with their

customers is one of the main drivers for their growth As per the study of Sutcliffe (2002)

knowing the needs of the customers their complaints their conditions and the existing

marketing condition in relation to competitor strategies ensures better service structure for

firms It can be mentioned that Virgin Airways has won several awards for their website

support and marketing processes such as Online Retail Awards Digital Impact Awards

Travel Agent Choice Award etc (Virgin-Atlantic 2015a) This shows the ability of the firm

to continuously improve on their services and accommodate the growing needs and

expectations of the customers

22

25 External Environment

The external environment of Virgin Atlantic Airways will be analysed with the help of

PESTLE analysis and also in a comparative manner with their competitors with the help of

perceptual mapping process

PESTLE Analysis

Figure 4 PESTLE Analysis of Virgin Atlantic Airways

(Source Scheelhaase and Grimme 2007 p253)

Political One of the major political influences on Virgin Atlantic Airways took place when

the UK Government abolished the London Air Traffic Distribution rules in the year 1991 and

allowed Virgin Airways to operate from the Heathrow Airport (Ciliberto and Tamer 2009)

This move helped Virgin Airways expand their services globally and reach new destinations

mainly in the Asian and African segments However regulations and restrictions of

international bodies such as Civil Aviation Authority create some barriers for Virgin Airways

23

in context of the environmental regulations Other than this the changes in the taxation

policies of the government also hamper the revenue level of the organisation Another

political factor is the relationship of the UK government with Russia and their dispute over

the fuel prices that in turn fluctuates the cost of operations of the airline companies (Gerardi

and Shapiro 2009)

Economical The economical conditions are among the primary factors that influence the

operations of a firm (Wensveen 2010) The global financial crisis of 2007-08 had created a

major manipulation in the operations of the luxury services such as that of Virgin Airways

Mainly in nations such as UK USA Japan Italy Germany etc where customers started

ploughing back their money from the market and created a shortfall in the national

economies airline sector faced difficulties in operations Furthermore the reduction in

Government subsidies also hampered the operations of the business processes On the other

hand instability in the exchange rate increased the fuel prices and reduced the deregulation in

the airline industry (Ciliberto and Tamer 2009) However Virgin Airlines had reduced the

price of their tickets for retaining their customer base and also provided discount plans

Social The social influence on Virgin Airlines is largely associated with the customer and

employee management systems Being one of the largest multination airlines of the world

diversity is a natural occurrence in their customer and employee base The ability to manage

the cultural diversity ensures effective service delivery and customer response for the

company Goumlssling and Peeters (2007) noted that owner Richard Branson wanted to certify

an exceptional service and experience for their customers that required the staff to know and

acknowledge the various cultural factors The in-flight crew of the company provides elegant

services related to the individual needs of the customers such as Virgin Airlines has a

minimum of 4-6 cuisines in their flights at any given point of time to meet the needs of the

customers (Van Dender 2007)

24

Technological It was observed in the value chain analysis that all the operational actvities of

Virgin Airways have been linked with their information and communications technology

This highlights the importance of technological support for the Airlines service Virgin

Airways has always concentrated on guarantying technological superiority for better service

design The fleet of 39 aircrafts have been remodelled regularly to keep them updated with

the industry trends Virgin Airways added 9 Boeing 787 jumbos in their fleet in the year 2014

which are expected to replace the Airbus A330 soon (Virgin-Atlantic 2015b) Services such

as individual television sets for each passenger are an example of technological usage in

Virgin Airways In context of the operational necessities the fleet of Virgin Atlantic has

installed the latest radar systems (AirNav RadarBox) with ADS-B radar systems (Van

Dender 2007)

Legal One of the most prominent legal issues faced by Virgin Atlantic is related to their

domestic service provider Little Red The domestic air traffic of the UK has been consistently

falling the launch of Little Red generated huge controversy among the stakeholders of the

organisation (Bilotkach Gaggero and Piga 2015) Furthermore failure to acquire British

Midland had further reduced the scope of recovering from the losses encountered by Little

Red division of Virgin Atlantic Airways In case of long-haul flights also Virgin Airways is

trying to merge with Delta Airlines but the foreign ownership rules is proving to be a

challenge for both the concerned firms (Economist 2014)

Environmental The environmental issues have always been in the lime-light for airline

organisations based on the pollution generated from flights and the management of the in-

flight wastages (Rea and Kerzner 2012) In this respect Virgin Airlines is trying to reduce

their environmental impact by developing an efficient business service process The bio fuel

demonstration provided by the company has shown potential for reducing the emissions by

25

4 annually (Kawaura 2015) On the other hand the increasing number of flights and

destinations of the company is equally contributing to the increase in green house gases

Perceptual Mapping

Figure 5 Perceptual Mapping Virgin Atlantic Airways

(Source Created by Author)

The above performed perceptual mapping has been derived on the basis of two criteria

namely quality and cost It can be noted that the most suitably positioned airlines group is the

Delta Airlines whereas big brands such as Lufthansa Virgin Airways British Airways etc

are positioned near high cost and high quality factors Evaluating from the given perceptual

map the primary competitor of Virgin Airlines can be noted as Lufthansa British Airways

High Quality

Low Quality

Low

Cost

Hig

h C

ost

Lufthansa

Virgin Atlantic Air France

Continental

Airlines

British Airways

Delta

Frontier

airTrar

Japan Airlines

Ryan Air

Thai

Sky Airline

Air Asia US Airways

Air Canada

26

Continental Airways Air France and Delta Airlines Virgin Airways has always been known

for their premium service category (Goumlssling and Peeters 2007) They have tried to provide

the best of services to their customers such as Clubhouses and in-flight bars and television

that have positioned Virgin Airways near the high quality quadrant of the map Although

price is an important factor for customers in their purchase decisions Virgin Airways is

trying to nullify the cost difference by adding more services and add-ons to create a halo

effect and engage the customers with their service delivery process

26 Financial Performance

The financial performance of the company has been analysed from the annual report and the

stock performance of Virgin Atlantic Airways Virgin Airways served over 6 million

customers across 33 destinations in the year 2014 which resulted in operating cash flow of

pound121 million (Virgin-Atlantic 2014) The firm experienced an increase in the unit revenue

per airline passenger by 48 whereas the operating cost increased by 03 from that of

2013 (Virgin-Atlantic 2014) The profit before tax and exceptional items of Virgin Airlines

increased by pound65 million from 2013 to pound14 million in 2014 on year on year basis However

the stock performance of Virgin Airways has fallen since the year 2014 from a point of 4381

to 3823 in 2015 The stock curve of the company has been consistently decreasing in 2015

since the sale of 49 stock to Delta Group of Airlines (FinanceYahoo 2015)

27

Figure 6 Stock Performance of Virgin Atlantic Airways 2014-2015

(Source FinanceYahoo 2015)

27 Outcome of Critical Analysis of Virgin Airways

Based on the above given internal and external analysis of Virgin Atlantic Airways it can be

considered that Virgin Airways has been growing significantly with their service structure

However there has been a decrease in their revenue generation process as Little Red segment

failed to perform in the shot-haul domestic flights and the long-haul flights are also facing

steep competition from other big brands such as British Airways Emirates and Lufthansa In

context of their organisational structure the top management body does not have a spot for

the human resource management department and has implanted the HR systems within the

middle level management The top management has been structured with a flat hierarchical

structure whereas the operational level of the company reflects a matrix structure for smooth

functioning

28

The marketing processes of Virgin Airways are the key to their customer relationship

process The company has an interactive website and efficient customer communication

methods for connecting the customers with the organisation Apart from this the service

structure of the company is continuously upgraded with innovative technology in order to

engage the customers with the firm Although the pricing of the company is higher in

comparison to their competitors individual focus towards customer needs and expectations

helps them in managing their business growth and development

28 Conclusion

Being a luxury service provider and one of the top brands of the international aviation

industry Virgin Atlantic Airlines has generated huge brand value in their respective industry

Virgin Airways has always followed an unconventional route for designing their business

strategies and tried to capture their target markets with exceptional and innovative service

structures While the company progresses in terms of their operational and managerial

efficacies the financial performance of the firm has suffered in the domestic short-haul flight

segment The long-haul flights have also shown a gradual decrease that lead to the selling of

49 of stock to Delta Airlines Based on the analysis performed it can be suggested that

Virgin Atlantic Airways needs to innovate new strategies for reducing their operational

expenses and also expanding their services to more destinations across the world

29

Reference List

Aguirregabiria V and Ho C Y 2012 A dynamic oligopoly game of the US airline

industry Estimation and policy experiments Journal of Econometrics 168(1) pp 156-173

Agusdinata B and de Klein W 2002 The Dynamics of Airline Alliances Journal of Air

Transport Management 8(4) pp 201-211

Barrett S D 2000 Airport Competition in the Deregulated European Aviation Market

Journal of Air Transport Management 6(1) pp 13-27

Barwise P and Meehan S 2010 The one thing you must get right when building a

brand Harvard Business Review 88(12) pp 80-84

Belobaba P Odoni A and Barnhart C 2009 The Global Airline Industry New Jersey

John Wiley amp Sons

Bergantino A S and Capozza C 2015 Airline Pricing Behavior under Limited

Inter‐Modal Competition Economic Inquiry 53(1) pp 700-713

Bilotkach V Gaggero A A and Piga C A 2015 Airline pricing under different market

conditions Evidence from European Low-Cost Carriers Tourism Management 47 pp 152-

163

Cento A 2008 The Airline Industry Challenges in the 21st Century Berlin Springer

Science amp Business Media

Ciliberto F and Tamer E 2009 Market structure and multiple equilibria in airline

markets Econometrica 77(6) pp 1791-1828

30

Clausen J Larsen A Larsen J and Rezanova N J 2010 Disruption management in the

airline industrymdashConcepts models and methodsComputers and Operations Research 37(5)

pp 809-821

Doganis R 2002 Flying Off Course The Economics of International Airlines London

Psychology Press

Doganis R 2006 The Airline Business London Psychology Press

Economist 2014 Little Redrsquos Big Problem [Online] Available at lt

httpwwweconomistcomblogsgulliver201410virgin-atlantics-woes gt [Accessed 22nd

August 2015]

FinanceYahoo 2015 Virgin America Inc [Online] Available at lt

httpfinanceyahoocomechartss=VA+InteractiverangemaxallowChartStackingtr

ue gt [Accessed 22nd August 2015]

Gerardi K S and Shapiro A H 2009 Does competition reduce price dispersion New

evidence from the airline industry Journal of Political Economy 117(1) pp 1-37

Gilbert D Child D and Bennett M 2001 The qualitative study of the current practices of

lsquono-frillsrsquo airlines operating in the UK Journal of Vacation Marketing 7(4) pp 302-315

Goumlssling S and Peeters P 2007 lsquoIt does not harm the environmentrsquoAn analysis of

industry discourses on tourism air travel and the environmentJournal of Sustainable

Tourism 15(4) pp 402-417

Hanlon J P 2007 Global Airlines Competition in a Transnational Industry London

Routledge

20

air route rules and policies associated with their operations are being fulfilled (Clausen et al

2010) The supporting actvities and primary actvities are connected with the ICT system of

the firm Additional services such as Rental Car and Hotel Reservations form the outbound

services which also contribute towards revenue generation The primary operations and

monitoring processes such as ticket counters gate operations etc are essential for ensuring

appropriate service delivery Relating the given value chain analysis to the service structure

of Virgin Airways additional services of in-flight and in waiting areas help the company in

increasing the value proposition of their services for the customers

23 Mission and Vision Statement

The mission statement of Virgin Atlantic Airways has been designed based on the core values

of the organisation Scheelhaase and Grimme (2007) observed that Virgin Airways has

focused on developing an emotional connection with their stakeholders The mission

statement of the company is

ldquoTo embrace the human spirit and let it flyrdquo (Virgin-Atlantic 2015a)

Virgin Atlantic has always been known for its ability to introduce innovative service aspects

which attract and engage the customers The mission statement highlights the basic contents

of human nature ie freedom Terms such as ldquohuman spiritrdquo have been used in order to

connect with a diverse customer base irrespective of the differences in their needs and

expectations Relating the mission with their service structure Virgin Airways has developed

premium economy flights for lower income customers whereas their executive level

customers have been provided with premium level Upper Class Suites and Virgin

Clubhouses This shows that Virgin Airways has an in-built customer centric approach that

meets the needs of individual customers

21

24 Key Drivers of Virgin Airways

According to Doganis (2006) in the existing scenario innovation is the key driver for growth

and development of business houses Virgin Atlanticrsquos innovation is focused on improving

their operational efficacy for ensuring a better service structure for their customers They

have continuously designed and developed their services for Upper class as well as economy

customers Virgin Airwaysrsquo service structure does not categorise their customers in terms of

lower and business class they have economy premium economy class and upper class levels

Apart from this customers can spend their miles (received when they purchase a ticket of

Virgin Atlantic Airways) for paying instead of money (Goumlssling and Peeters 2007) These

minute additions in customer service help Virgin Airways in generating a steadily increase

revenue curve Another driver for Virgin Atlantic is their pricing processes although the

charges of the company are higher in comparison to other big competitors such as British

Airways or Jet Airways the differences between the different levels of services are minimal

This allows the customers to easily shift from economy level to premium level creating

psychological satisfaction (Van Dender 2007)

Considering their marketing actvities the individual relationship of Virgin Airways with their

customers is one of the main drivers for their growth As per the study of Sutcliffe (2002)

knowing the needs of the customers their complaints their conditions and the existing

marketing condition in relation to competitor strategies ensures better service structure for

firms It can be mentioned that Virgin Airways has won several awards for their website

support and marketing processes such as Online Retail Awards Digital Impact Awards

Travel Agent Choice Award etc (Virgin-Atlantic 2015a) This shows the ability of the firm

to continuously improve on their services and accommodate the growing needs and

expectations of the customers

22

25 External Environment

The external environment of Virgin Atlantic Airways will be analysed with the help of

PESTLE analysis and also in a comparative manner with their competitors with the help of

perceptual mapping process

PESTLE Analysis

Figure 4 PESTLE Analysis of Virgin Atlantic Airways

(Source Scheelhaase and Grimme 2007 p253)

Political One of the major political influences on Virgin Atlantic Airways took place when

the UK Government abolished the London Air Traffic Distribution rules in the year 1991 and

allowed Virgin Airways to operate from the Heathrow Airport (Ciliberto and Tamer 2009)

This move helped Virgin Airways expand their services globally and reach new destinations

mainly in the Asian and African segments However regulations and restrictions of

international bodies such as Civil Aviation Authority create some barriers for Virgin Airways

23

in context of the environmental regulations Other than this the changes in the taxation

policies of the government also hamper the revenue level of the organisation Another

political factor is the relationship of the UK government with Russia and their dispute over

the fuel prices that in turn fluctuates the cost of operations of the airline companies (Gerardi

and Shapiro 2009)

Economical The economical conditions are among the primary factors that influence the

operations of a firm (Wensveen 2010) The global financial crisis of 2007-08 had created a

major manipulation in the operations of the luxury services such as that of Virgin Airways

Mainly in nations such as UK USA Japan Italy Germany etc where customers started

ploughing back their money from the market and created a shortfall in the national

economies airline sector faced difficulties in operations Furthermore the reduction in

Government subsidies also hampered the operations of the business processes On the other

hand instability in the exchange rate increased the fuel prices and reduced the deregulation in

the airline industry (Ciliberto and Tamer 2009) However Virgin Airlines had reduced the

price of their tickets for retaining their customer base and also provided discount plans

Social The social influence on Virgin Airlines is largely associated with the customer and

employee management systems Being one of the largest multination airlines of the world

diversity is a natural occurrence in their customer and employee base The ability to manage

the cultural diversity ensures effective service delivery and customer response for the

company Goumlssling and Peeters (2007) noted that owner Richard Branson wanted to certify

an exceptional service and experience for their customers that required the staff to know and

acknowledge the various cultural factors The in-flight crew of the company provides elegant

services related to the individual needs of the customers such as Virgin Airlines has a

minimum of 4-6 cuisines in their flights at any given point of time to meet the needs of the

customers (Van Dender 2007)

24

Technological It was observed in the value chain analysis that all the operational actvities of

Virgin Airways have been linked with their information and communications technology

This highlights the importance of technological support for the Airlines service Virgin

Airways has always concentrated on guarantying technological superiority for better service

design The fleet of 39 aircrafts have been remodelled regularly to keep them updated with

the industry trends Virgin Airways added 9 Boeing 787 jumbos in their fleet in the year 2014

which are expected to replace the Airbus A330 soon (Virgin-Atlantic 2015b) Services such

as individual television sets for each passenger are an example of technological usage in

Virgin Airways In context of the operational necessities the fleet of Virgin Atlantic has

installed the latest radar systems (AirNav RadarBox) with ADS-B radar systems (Van

Dender 2007)

Legal One of the most prominent legal issues faced by Virgin Atlantic is related to their

domestic service provider Little Red The domestic air traffic of the UK has been consistently

falling the launch of Little Red generated huge controversy among the stakeholders of the

organisation (Bilotkach Gaggero and Piga 2015) Furthermore failure to acquire British

Midland had further reduced the scope of recovering from the losses encountered by Little

Red division of Virgin Atlantic Airways In case of long-haul flights also Virgin Airways is

trying to merge with Delta Airlines but the foreign ownership rules is proving to be a

challenge for both the concerned firms (Economist 2014)

Environmental The environmental issues have always been in the lime-light for airline

organisations based on the pollution generated from flights and the management of the in-

flight wastages (Rea and Kerzner 2012) In this respect Virgin Airlines is trying to reduce

their environmental impact by developing an efficient business service process The bio fuel

demonstration provided by the company has shown potential for reducing the emissions by

25

4 annually (Kawaura 2015) On the other hand the increasing number of flights and

destinations of the company is equally contributing to the increase in green house gases

Perceptual Mapping

Figure 5 Perceptual Mapping Virgin Atlantic Airways

(Source Created by Author)

The above performed perceptual mapping has been derived on the basis of two criteria

namely quality and cost It can be noted that the most suitably positioned airlines group is the

Delta Airlines whereas big brands such as Lufthansa Virgin Airways British Airways etc

are positioned near high cost and high quality factors Evaluating from the given perceptual

map the primary competitor of Virgin Airlines can be noted as Lufthansa British Airways

High Quality

Low Quality

Low

Cost

Hig

h C

ost

Lufthansa

Virgin Atlantic Air France

Continental

Airlines

British Airways

Delta

Frontier

airTrar

Japan Airlines

Ryan Air

Thai

Sky Airline

Air Asia US Airways

Air Canada

26

Continental Airways Air France and Delta Airlines Virgin Airways has always been known

for their premium service category (Goumlssling and Peeters 2007) They have tried to provide

the best of services to their customers such as Clubhouses and in-flight bars and television

that have positioned Virgin Airways near the high quality quadrant of the map Although

price is an important factor for customers in their purchase decisions Virgin Airways is

trying to nullify the cost difference by adding more services and add-ons to create a halo

effect and engage the customers with their service delivery process

26 Financial Performance

The financial performance of the company has been analysed from the annual report and the

stock performance of Virgin Atlantic Airways Virgin Airways served over 6 million

customers across 33 destinations in the year 2014 which resulted in operating cash flow of

pound121 million (Virgin-Atlantic 2014) The firm experienced an increase in the unit revenue

per airline passenger by 48 whereas the operating cost increased by 03 from that of

2013 (Virgin-Atlantic 2014) The profit before tax and exceptional items of Virgin Airlines

increased by pound65 million from 2013 to pound14 million in 2014 on year on year basis However

the stock performance of Virgin Airways has fallen since the year 2014 from a point of 4381

to 3823 in 2015 The stock curve of the company has been consistently decreasing in 2015

since the sale of 49 stock to Delta Group of Airlines (FinanceYahoo 2015)

27

Figure 6 Stock Performance of Virgin Atlantic Airways 2014-2015

(Source FinanceYahoo 2015)

27 Outcome of Critical Analysis of Virgin Airways

Based on the above given internal and external analysis of Virgin Atlantic Airways it can be

considered that Virgin Airways has been growing significantly with their service structure

However there has been a decrease in their revenue generation process as Little Red segment

failed to perform in the shot-haul domestic flights and the long-haul flights are also facing

steep competition from other big brands such as British Airways Emirates and Lufthansa In

context of their organisational structure the top management body does not have a spot for

the human resource management department and has implanted the HR systems within the

middle level management The top management has been structured with a flat hierarchical

structure whereas the operational level of the company reflects a matrix structure for smooth

functioning

28

The marketing processes of Virgin Airways are the key to their customer relationship

process The company has an interactive website and efficient customer communication

methods for connecting the customers with the organisation Apart from this the service

structure of the company is continuously upgraded with innovative technology in order to

engage the customers with the firm Although the pricing of the company is higher in

comparison to their competitors individual focus towards customer needs and expectations

helps them in managing their business growth and development

28 Conclusion

Being a luxury service provider and one of the top brands of the international aviation

industry Virgin Atlantic Airlines has generated huge brand value in their respective industry

Virgin Airways has always followed an unconventional route for designing their business

strategies and tried to capture their target markets with exceptional and innovative service

structures While the company progresses in terms of their operational and managerial

efficacies the financial performance of the firm has suffered in the domestic short-haul flight

segment The long-haul flights have also shown a gradual decrease that lead to the selling of

49 of stock to Delta Airlines Based on the analysis performed it can be suggested that

Virgin Atlantic Airways needs to innovate new strategies for reducing their operational

expenses and also expanding their services to more destinations across the world

29

Reference List

Aguirregabiria V and Ho C Y 2012 A dynamic oligopoly game of the US airline

industry Estimation and policy experiments Journal of Econometrics 168(1) pp 156-173

Agusdinata B and de Klein W 2002 The Dynamics of Airline Alliances Journal of Air

Transport Management 8(4) pp 201-211

Barrett S D 2000 Airport Competition in the Deregulated European Aviation Market

Journal of Air Transport Management 6(1) pp 13-27

Barwise P and Meehan S 2010 The one thing you must get right when building a

brand Harvard Business Review 88(12) pp 80-84

Belobaba P Odoni A and Barnhart C 2009 The Global Airline Industry New Jersey

John Wiley amp Sons

Bergantino A S and Capozza C 2015 Airline Pricing Behavior under Limited

Inter‐Modal Competition Economic Inquiry 53(1) pp 700-713

Bilotkach V Gaggero A A and Piga C A 2015 Airline pricing under different market

conditions Evidence from European Low-Cost Carriers Tourism Management 47 pp 152-

163

Cento A 2008 The Airline Industry Challenges in the 21st Century Berlin Springer

Science amp Business Media

Ciliberto F and Tamer E 2009 Market structure and multiple equilibria in airline

markets Econometrica 77(6) pp 1791-1828

30

Clausen J Larsen A Larsen J and Rezanova N J 2010 Disruption management in the

airline industrymdashConcepts models and methodsComputers and Operations Research 37(5)

pp 809-821

Doganis R 2002 Flying Off Course The Economics of International Airlines London

Psychology Press

Doganis R 2006 The Airline Business London Psychology Press

Economist 2014 Little Redrsquos Big Problem [Online] Available at lt

httpwwweconomistcomblogsgulliver201410virgin-atlantics-woes gt [Accessed 22nd

August 2015]

FinanceYahoo 2015 Virgin America Inc [Online] Available at lt

httpfinanceyahoocomechartss=VA+InteractiverangemaxallowChartStackingtr

ue gt [Accessed 22nd August 2015]

Gerardi K S and Shapiro A H 2009 Does competition reduce price dispersion New

evidence from the airline industry Journal of Political Economy 117(1) pp 1-37

Gilbert D Child D and Bennett M 2001 The qualitative study of the current practices of

lsquono-frillsrsquo airlines operating in the UK Journal of Vacation Marketing 7(4) pp 302-315

Goumlssling S and Peeters P 2007 lsquoIt does not harm the environmentrsquoAn analysis of

industry discourses on tourism air travel and the environmentJournal of Sustainable

Tourism 15(4) pp 402-417

Hanlon J P 2007 Global Airlines Competition in a Transnational Industry London

Routledge

21

24 Key Drivers of Virgin Airways

According to Doganis (2006) in the existing scenario innovation is the key driver for growth

and development of business houses Virgin Atlanticrsquos innovation is focused on improving

their operational efficacy for ensuring a better service structure for their customers They

have continuously designed and developed their services for Upper class as well as economy

customers Virgin Airwaysrsquo service structure does not categorise their customers in terms of

lower and business class they have economy premium economy class and upper class levels

Apart from this customers can spend their miles (received when they purchase a ticket of

Virgin Atlantic Airways) for paying instead of money (Goumlssling and Peeters 2007) These

minute additions in customer service help Virgin Airways in generating a steadily increase

revenue curve Another driver for Virgin Atlantic is their pricing processes although the

charges of the company are higher in comparison to other big competitors such as British

Airways or Jet Airways the differences between the different levels of services are minimal

This allows the customers to easily shift from economy level to premium level creating

psychological satisfaction (Van Dender 2007)

Considering their marketing actvities the individual relationship of Virgin Airways with their

customers is one of the main drivers for their growth As per the study of Sutcliffe (2002)

knowing the needs of the customers their complaints their conditions and the existing

marketing condition in relation to competitor strategies ensures better service structure for

firms It can be mentioned that Virgin Airways has won several awards for their website

support and marketing processes such as Online Retail Awards Digital Impact Awards

Travel Agent Choice Award etc (Virgin-Atlantic 2015a) This shows the ability of the firm

to continuously improve on their services and accommodate the growing needs and

expectations of the customers

22

25 External Environment

The external environment of Virgin Atlantic Airways will be analysed with the help of

PESTLE analysis and also in a comparative manner with their competitors with the help of

perceptual mapping process

PESTLE Analysis

Figure 4 PESTLE Analysis of Virgin Atlantic Airways

(Source Scheelhaase and Grimme 2007 p253)

Political One of the major political influences on Virgin Atlantic Airways took place when

the UK Government abolished the London Air Traffic Distribution rules in the year 1991 and

allowed Virgin Airways to operate from the Heathrow Airport (Ciliberto and Tamer 2009)

This move helped Virgin Airways expand their services globally and reach new destinations

mainly in the Asian and African segments However regulations and restrictions of

international bodies such as Civil Aviation Authority create some barriers for Virgin Airways

23

in context of the environmental regulations Other than this the changes in the taxation

policies of the government also hamper the revenue level of the organisation Another

political factor is the relationship of the UK government with Russia and their dispute over

the fuel prices that in turn fluctuates the cost of operations of the airline companies (Gerardi

and Shapiro 2009)

Economical The economical conditions are among the primary factors that influence the

operations of a firm (Wensveen 2010) The global financial crisis of 2007-08 had created a

major manipulation in the operations of the luxury services such as that of Virgin Airways

Mainly in nations such as UK USA Japan Italy Germany etc where customers started

ploughing back their money from the market and created a shortfall in the national

economies airline sector faced difficulties in operations Furthermore the reduction in

Government subsidies also hampered the operations of the business processes On the other

hand instability in the exchange rate increased the fuel prices and reduced the deregulation in

the airline industry (Ciliberto and Tamer 2009) However Virgin Airlines had reduced the

price of their tickets for retaining their customer base and also provided discount plans

Social The social influence on Virgin Airlines is largely associated with the customer and

employee management systems Being one of the largest multination airlines of the world

diversity is a natural occurrence in their customer and employee base The ability to manage

the cultural diversity ensures effective service delivery and customer response for the

company Goumlssling and Peeters (2007) noted that owner Richard Branson wanted to certify

an exceptional service and experience for their customers that required the staff to know and

acknowledge the various cultural factors The in-flight crew of the company provides elegant

services related to the individual needs of the customers such as Virgin Airlines has a

minimum of 4-6 cuisines in their flights at any given point of time to meet the needs of the

customers (Van Dender 2007)

24

Technological It was observed in the value chain analysis that all the operational actvities of

Virgin Airways have been linked with their information and communications technology

This highlights the importance of technological support for the Airlines service Virgin

Airways has always concentrated on guarantying technological superiority for better service

design The fleet of 39 aircrafts have been remodelled regularly to keep them updated with

the industry trends Virgin Airways added 9 Boeing 787 jumbos in their fleet in the year 2014

which are expected to replace the Airbus A330 soon (Virgin-Atlantic 2015b) Services such

as individual television sets for each passenger are an example of technological usage in

Virgin Airways In context of the operational necessities the fleet of Virgin Atlantic has

installed the latest radar systems (AirNav RadarBox) with ADS-B radar systems (Van

Dender 2007)

Legal One of the most prominent legal issues faced by Virgin Atlantic is related to their

domestic service provider Little Red The domestic air traffic of the UK has been consistently

falling the launch of Little Red generated huge controversy among the stakeholders of the

organisation (Bilotkach Gaggero and Piga 2015) Furthermore failure to acquire British

Midland had further reduced the scope of recovering from the losses encountered by Little

Red division of Virgin Atlantic Airways In case of long-haul flights also Virgin Airways is

trying to merge with Delta Airlines but the foreign ownership rules is proving to be a

challenge for both the concerned firms (Economist 2014)

Environmental The environmental issues have always been in the lime-light for airline

organisations based on the pollution generated from flights and the management of the in-

flight wastages (Rea and Kerzner 2012) In this respect Virgin Airlines is trying to reduce

their environmental impact by developing an efficient business service process The bio fuel

demonstration provided by the company has shown potential for reducing the emissions by

25

4 annually (Kawaura 2015) On the other hand the increasing number of flights and

destinations of the company is equally contributing to the increase in green house gases

Perceptual Mapping

Figure 5 Perceptual Mapping Virgin Atlantic Airways

(Source Created by Author)

The above performed perceptual mapping has been derived on the basis of two criteria

namely quality and cost It can be noted that the most suitably positioned airlines group is the

Delta Airlines whereas big brands such as Lufthansa Virgin Airways British Airways etc

are positioned near high cost and high quality factors Evaluating from the given perceptual

map the primary competitor of Virgin Airlines can be noted as Lufthansa British Airways

High Quality

Low Quality

Low

Cost

Hig

h C

ost

Lufthansa

Virgin Atlantic Air France

Continental

Airlines

British Airways

Delta

Frontier

airTrar

Japan Airlines

Ryan Air

Thai

Sky Airline

Air Asia US Airways

Air Canada

26

Continental Airways Air France and Delta Airlines Virgin Airways has always been known

for their premium service category (Goumlssling and Peeters 2007) They have tried to provide

the best of services to their customers such as Clubhouses and in-flight bars and television

that have positioned Virgin Airways near the high quality quadrant of the map Although

price is an important factor for customers in their purchase decisions Virgin Airways is

trying to nullify the cost difference by adding more services and add-ons to create a halo

effect and engage the customers with their service delivery process

26 Financial Performance

The financial performance of the company has been analysed from the annual report and the

stock performance of Virgin Atlantic Airways Virgin Airways served over 6 million

customers across 33 destinations in the year 2014 which resulted in operating cash flow of

pound121 million (Virgin-Atlantic 2014) The firm experienced an increase in the unit revenue

per airline passenger by 48 whereas the operating cost increased by 03 from that of

2013 (Virgin-Atlantic 2014) The profit before tax and exceptional items of Virgin Airlines

increased by pound65 million from 2013 to pound14 million in 2014 on year on year basis However

the stock performance of Virgin Airways has fallen since the year 2014 from a point of 4381

to 3823 in 2015 The stock curve of the company has been consistently decreasing in 2015

since the sale of 49 stock to Delta Group of Airlines (FinanceYahoo 2015)

27

Figure 6 Stock Performance of Virgin Atlantic Airways 2014-2015

(Source FinanceYahoo 2015)

27 Outcome of Critical Analysis of Virgin Airways

Based on the above given internal and external analysis of Virgin Atlantic Airways it can be

considered that Virgin Airways has been growing significantly with their service structure

However there has been a decrease in their revenue generation process as Little Red segment

failed to perform in the shot-haul domestic flights and the long-haul flights are also facing

steep competition from other big brands such as British Airways Emirates and Lufthansa In

context of their organisational structure the top management body does not have a spot for

the human resource management department and has implanted the HR systems within the

middle level management The top management has been structured with a flat hierarchical

structure whereas the operational level of the company reflects a matrix structure for smooth

functioning

28

The marketing processes of Virgin Airways are the key to their customer relationship

process The company has an interactive website and efficient customer communication

methods for connecting the customers with the organisation Apart from this the service

structure of the company is continuously upgraded with innovative technology in order to

engage the customers with the firm Although the pricing of the company is higher in

comparison to their competitors individual focus towards customer needs and expectations

helps them in managing their business growth and development

28 Conclusion

Being a luxury service provider and one of the top brands of the international aviation

industry Virgin Atlantic Airlines has generated huge brand value in their respective industry

Virgin Airways has always followed an unconventional route for designing their business

strategies and tried to capture their target markets with exceptional and innovative service

structures While the company progresses in terms of their operational and managerial

efficacies the financial performance of the firm has suffered in the domestic short-haul flight

segment The long-haul flights have also shown a gradual decrease that lead to the selling of

49 of stock to Delta Airlines Based on the analysis performed it can be suggested that

Virgin Atlantic Airways needs to innovate new strategies for reducing their operational

expenses and also expanding their services to more destinations across the world

29

Reference List

Aguirregabiria V and Ho C Y 2012 A dynamic oligopoly game of the US airline

industry Estimation and policy experiments Journal of Econometrics 168(1) pp 156-173

Agusdinata B and de Klein W 2002 The Dynamics of Airline Alliances Journal of Air

Transport Management 8(4) pp 201-211

Barrett S D 2000 Airport Competition in the Deregulated European Aviation Market

Journal of Air Transport Management 6(1) pp 13-27

Barwise P and Meehan S 2010 The one thing you must get right when building a

brand Harvard Business Review 88(12) pp 80-84

Belobaba P Odoni A and Barnhart C 2009 The Global Airline Industry New Jersey

John Wiley amp Sons

Bergantino A S and Capozza C 2015 Airline Pricing Behavior under Limited

Inter‐Modal Competition Economic Inquiry 53(1) pp 700-713

Bilotkach V Gaggero A A and Piga C A 2015 Airline pricing under different market

conditions Evidence from European Low-Cost Carriers Tourism Management 47 pp 152-

163

Cento A 2008 The Airline Industry Challenges in the 21st Century Berlin Springer

Science amp Business Media

Ciliberto F and Tamer E 2009 Market structure and multiple equilibria in airline

markets Econometrica 77(6) pp 1791-1828

30

Clausen J Larsen A Larsen J and Rezanova N J 2010 Disruption management in the

airline industrymdashConcepts models and methodsComputers and Operations Research 37(5)

pp 809-821

Doganis R 2002 Flying Off Course The Economics of International Airlines London

Psychology Press

Doganis R 2006 The Airline Business London Psychology Press

Economist 2014 Little Redrsquos Big Problem [Online] Available at lt

httpwwweconomistcomblogsgulliver201410virgin-atlantics-woes gt [Accessed 22nd

August 2015]

FinanceYahoo 2015 Virgin America Inc [Online] Available at lt

httpfinanceyahoocomechartss=VA+InteractiverangemaxallowChartStackingtr

ue gt [Accessed 22nd August 2015]

Gerardi K S and Shapiro A H 2009 Does competition reduce price dispersion New

evidence from the airline industry Journal of Political Economy 117(1) pp 1-37

Gilbert D Child D and Bennett M 2001 The qualitative study of the current practices of

lsquono-frillsrsquo airlines operating in the UK Journal of Vacation Marketing 7(4) pp 302-315

Goumlssling S and Peeters P 2007 lsquoIt does not harm the environmentrsquoAn analysis of

industry discourses on tourism air travel and the environmentJournal of Sustainable

Tourism 15(4) pp 402-417

Hanlon J P 2007 Global Airlines Competition in a Transnational Industry London

Routledge

22

25 External Environment

The external environment of Virgin Atlantic Airways will be analysed with the help of

PESTLE analysis and also in a comparative manner with their competitors with the help of

perceptual mapping process

PESTLE Analysis

Figure 4 PESTLE Analysis of Virgin Atlantic Airways

(Source Scheelhaase and Grimme 2007 p253)

Political One of the major political influences on Virgin Atlantic Airways took place when

the UK Government abolished the London Air Traffic Distribution rules in the year 1991 and

allowed Virgin Airways to operate from the Heathrow Airport (Ciliberto and Tamer 2009)

This move helped Virgin Airways expand their services globally and reach new destinations

mainly in the Asian and African segments However regulations and restrictions of

international bodies such as Civil Aviation Authority create some barriers for Virgin Airways

23

in context of the environmental regulations Other than this the changes in the taxation

policies of the government also hamper the revenue level of the organisation Another

political factor is the relationship of the UK government with Russia and their dispute over

the fuel prices that in turn fluctuates the cost of operations of the airline companies (Gerardi

and Shapiro 2009)

Economical The economical conditions are among the primary factors that influence the

operations of a firm (Wensveen 2010) The global financial crisis of 2007-08 had created a

major manipulation in the operations of the luxury services such as that of Virgin Airways

Mainly in nations such as UK USA Japan Italy Germany etc where customers started

ploughing back their money from the market and created a shortfall in the national

economies airline sector faced difficulties in operations Furthermore the reduction in

Government subsidies also hampered the operations of the business processes On the other

hand instability in the exchange rate increased the fuel prices and reduced the deregulation in

the airline industry (Ciliberto and Tamer 2009) However Virgin Airlines had reduced the

price of their tickets for retaining their customer base and also provided discount plans

Social The social influence on Virgin Airlines is largely associated with the customer and

employee management systems Being one of the largest multination airlines of the world

diversity is a natural occurrence in their customer and employee base The ability to manage

the cultural diversity ensures effective service delivery and customer response for the

company Goumlssling and Peeters (2007) noted that owner Richard Branson wanted to certify

an exceptional service and experience for their customers that required the staff to know and

acknowledge the various cultural factors The in-flight crew of the company provides elegant

services related to the individual needs of the customers such as Virgin Airlines has a

minimum of 4-6 cuisines in their flights at any given point of time to meet the needs of the

customers (Van Dender 2007)

24

Technological It was observed in the value chain analysis that all the operational actvities of

Virgin Airways have been linked with their information and communications technology

This highlights the importance of technological support for the Airlines service Virgin

Airways has always concentrated on guarantying technological superiority for better service

design The fleet of 39 aircrafts have been remodelled regularly to keep them updated with

the industry trends Virgin Airways added 9 Boeing 787 jumbos in their fleet in the year 2014

which are expected to replace the Airbus A330 soon (Virgin-Atlantic 2015b) Services such

as individual television sets for each passenger are an example of technological usage in

Virgin Airways In context of the operational necessities the fleet of Virgin Atlantic has

installed the latest radar systems (AirNav RadarBox) with ADS-B radar systems (Van

Dender 2007)

Legal One of the most prominent legal issues faced by Virgin Atlantic is related to their

domestic service provider Little Red The domestic air traffic of the UK has been consistently

falling the launch of Little Red generated huge controversy among the stakeholders of the

organisation (Bilotkach Gaggero and Piga 2015) Furthermore failure to acquire British

Midland had further reduced the scope of recovering from the losses encountered by Little

Red division of Virgin Atlantic Airways In case of long-haul flights also Virgin Airways is

trying to merge with Delta Airlines but the foreign ownership rules is proving to be a

challenge for both the concerned firms (Economist 2014)

Environmental The environmental issues have always been in the lime-light for airline

organisations based on the pollution generated from flights and the management of the in-

flight wastages (Rea and Kerzner 2012) In this respect Virgin Airlines is trying to reduce

their environmental impact by developing an efficient business service process The bio fuel

demonstration provided by the company has shown potential for reducing the emissions by

25

4 annually (Kawaura 2015) On the other hand the increasing number of flights and

destinations of the company is equally contributing to the increase in green house gases

Perceptual Mapping

Figure 5 Perceptual Mapping Virgin Atlantic Airways

(Source Created by Author)

The above performed perceptual mapping has been derived on the basis of two criteria

namely quality and cost It can be noted that the most suitably positioned airlines group is the

Delta Airlines whereas big brands such as Lufthansa Virgin Airways British Airways etc

are positioned near high cost and high quality factors Evaluating from the given perceptual

map the primary competitor of Virgin Airlines can be noted as Lufthansa British Airways

High Quality

Low Quality

Low

Cost

Hig

h C

ost

Lufthansa

Virgin Atlantic Air France

Continental

Airlines

British Airways

Delta

Frontier

airTrar

Japan Airlines

Ryan Air

Thai

Sky Airline

Air Asia US Airways

Air Canada

26

Continental Airways Air France and Delta Airlines Virgin Airways has always been known

for their premium service category (Goumlssling and Peeters 2007) They have tried to provide

the best of services to their customers such as Clubhouses and in-flight bars and television

that have positioned Virgin Airways near the high quality quadrant of the map Although

price is an important factor for customers in their purchase decisions Virgin Airways is

trying to nullify the cost difference by adding more services and add-ons to create a halo

effect and engage the customers with their service delivery process

26 Financial Performance

The financial performance of the company has been analysed from the annual report and the

stock performance of Virgin Atlantic Airways Virgin Airways served over 6 million

customers across 33 destinations in the year 2014 which resulted in operating cash flow of

pound121 million (Virgin-Atlantic 2014) The firm experienced an increase in the unit revenue

per airline passenger by 48 whereas the operating cost increased by 03 from that of

2013 (Virgin-Atlantic 2014) The profit before tax and exceptional items of Virgin Airlines

increased by pound65 million from 2013 to pound14 million in 2014 on year on year basis However

the stock performance of Virgin Airways has fallen since the year 2014 from a point of 4381

to 3823 in 2015 The stock curve of the company has been consistently decreasing in 2015

since the sale of 49 stock to Delta Group of Airlines (FinanceYahoo 2015)

27

Figure 6 Stock Performance of Virgin Atlantic Airways 2014-2015

(Source FinanceYahoo 2015)

27 Outcome of Critical Analysis of Virgin Airways

Based on the above given internal and external analysis of Virgin Atlantic Airways it can be

considered that Virgin Airways has been growing significantly with their service structure

However there has been a decrease in their revenue generation process as Little Red segment

failed to perform in the shot-haul domestic flights and the long-haul flights are also facing

steep competition from other big brands such as British Airways Emirates and Lufthansa In

context of their organisational structure the top management body does not have a spot for

the human resource management department and has implanted the HR systems within the

middle level management The top management has been structured with a flat hierarchical

structure whereas the operational level of the company reflects a matrix structure for smooth

functioning

28

The marketing processes of Virgin Airways are the key to their customer relationship

process The company has an interactive website and efficient customer communication

methods for connecting the customers with the organisation Apart from this the service

structure of the company is continuously upgraded with innovative technology in order to

engage the customers with the firm Although the pricing of the company is higher in

comparison to their competitors individual focus towards customer needs and expectations

helps them in managing their business growth and development

28 Conclusion

Being a luxury service provider and one of the top brands of the international aviation

industry Virgin Atlantic Airlines has generated huge brand value in their respective industry

Virgin Airways has always followed an unconventional route for designing their business

strategies and tried to capture their target markets with exceptional and innovative service

structures While the company progresses in terms of their operational and managerial

efficacies the financial performance of the firm has suffered in the domestic short-haul flight

segment The long-haul flights have also shown a gradual decrease that lead to the selling of

49 of stock to Delta Airlines Based on the analysis performed it can be suggested that

Virgin Atlantic Airways needs to innovate new strategies for reducing their operational

expenses and also expanding their services to more destinations across the world

29

Reference List

Aguirregabiria V and Ho C Y 2012 A dynamic oligopoly game of the US airline

industry Estimation and policy experiments Journal of Econometrics 168(1) pp 156-173

Agusdinata B and de Klein W 2002 The Dynamics of Airline Alliances Journal of Air

Transport Management 8(4) pp 201-211

Barrett S D 2000 Airport Competition in the Deregulated European Aviation Market

Journal of Air Transport Management 6(1) pp 13-27

Barwise P and Meehan S 2010 The one thing you must get right when building a

brand Harvard Business Review 88(12) pp 80-84

Belobaba P Odoni A and Barnhart C 2009 The Global Airline Industry New Jersey

John Wiley amp Sons

Bergantino A S and Capozza C 2015 Airline Pricing Behavior under Limited

Inter‐Modal Competition Economic Inquiry 53(1) pp 700-713

Bilotkach V Gaggero A A and Piga C A 2015 Airline pricing under different market

conditions Evidence from European Low-Cost Carriers Tourism Management 47 pp 152-

163

Cento A 2008 The Airline Industry Challenges in the 21st Century Berlin Springer

Science amp Business Media

Ciliberto F and Tamer E 2009 Market structure and multiple equilibria in airline

markets Econometrica 77(6) pp 1791-1828

30

Clausen J Larsen A Larsen J and Rezanova N J 2010 Disruption management in the

airline industrymdashConcepts models and methodsComputers and Operations Research 37(5)

pp 809-821

Doganis R 2002 Flying Off Course The Economics of International Airlines London

Psychology Press

Doganis R 2006 The Airline Business London Psychology Press

Economist 2014 Little Redrsquos Big Problem [Online] Available at lt

httpwwweconomistcomblogsgulliver201410virgin-atlantics-woes gt [Accessed 22nd

August 2015]

FinanceYahoo 2015 Virgin America Inc [Online] Available at lt

httpfinanceyahoocomechartss=VA+InteractiverangemaxallowChartStackingtr

ue gt [Accessed 22nd August 2015]

Gerardi K S and Shapiro A H 2009 Does competition reduce price dispersion New

evidence from the airline industry Journal of Political Economy 117(1) pp 1-37

Gilbert D Child D and Bennett M 2001 The qualitative study of the current practices of

lsquono-frillsrsquo airlines operating in the UK Journal of Vacation Marketing 7(4) pp 302-315

Goumlssling S and Peeters P 2007 lsquoIt does not harm the environmentrsquoAn analysis of

industry discourses on tourism air travel and the environmentJournal of Sustainable

Tourism 15(4) pp 402-417

Hanlon J P 2007 Global Airlines Competition in a Transnational Industry London

Routledge

23

in context of the environmental regulations Other than this the changes in the taxation

policies of the government also hamper the revenue level of the organisation Another

political factor is the relationship of the UK government with Russia and their dispute over

the fuel prices that in turn fluctuates the cost of operations of the airline companies (Gerardi

and Shapiro 2009)

Economical The economical conditions are among the primary factors that influence the

operations of a firm (Wensveen 2010) The global financial crisis of 2007-08 had created a

major manipulation in the operations of the luxury services such as that of Virgin Airways

Mainly in nations such as UK USA Japan Italy Germany etc where customers started

ploughing back their money from the market and created a shortfall in the national

economies airline sector faced difficulties in operations Furthermore the reduction in

Government subsidies also hampered the operations of the business processes On the other

hand instability in the exchange rate increased the fuel prices and reduced the deregulation in

the airline industry (Ciliberto and Tamer 2009) However Virgin Airlines had reduced the

price of their tickets for retaining their customer base and also provided discount plans

Social The social influence on Virgin Airlines is largely associated with the customer and

employee management systems Being one of the largest multination airlines of the world

diversity is a natural occurrence in their customer and employee base The ability to manage

the cultural diversity ensures effective service delivery and customer response for the

company Goumlssling and Peeters (2007) noted that owner Richard Branson wanted to certify

an exceptional service and experience for their customers that required the staff to know and

acknowledge the various cultural factors The in-flight crew of the company provides elegant

services related to the individual needs of the customers such as Virgin Airlines has a

minimum of 4-6 cuisines in their flights at any given point of time to meet the needs of the

customers (Van Dender 2007)

24

Technological It was observed in the value chain analysis that all the operational actvities of

Virgin Airways have been linked with their information and communications technology

This highlights the importance of technological support for the Airlines service Virgin

Airways has always concentrated on guarantying technological superiority for better service

design The fleet of 39 aircrafts have been remodelled regularly to keep them updated with

the industry trends Virgin Airways added 9 Boeing 787 jumbos in their fleet in the year 2014

which are expected to replace the Airbus A330 soon (Virgin-Atlantic 2015b) Services such

as individual television sets for each passenger are an example of technological usage in

Virgin Airways In context of the operational necessities the fleet of Virgin Atlantic has

installed the latest radar systems (AirNav RadarBox) with ADS-B radar systems (Van

Dender 2007)

Legal One of the most prominent legal issues faced by Virgin Atlantic is related to their

domestic service provider Little Red The domestic air traffic of the UK has been consistently

falling the launch of Little Red generated huge controversy among the stakeholders of the

organisation (Bilotkach Gaggero and Piga 2015) Furthermore failure to acquire British

Midland had further reduced the scope of recovering from the losses encountered by Little

Red division of Virgin Atlantic Airways In case of long-haul flights also Virgin Airways is

trying to merge with Delta Airlines but the foreign ownership rules is proving to be a

challenge for both the concerned firms (Economist 2014)

Environmental The environmental issues have always been in the lime-light for airline

organisations based on the pollution generated from flights and the management of the in-

flight wastages (Rea and Kerzner 2012) In this respect Virgin Airlines is trying to reduce

their environmental impact by developing an efficient business service process The bio fuel

demonstration provided by the company has shown potential for reducing the emissions by

25

4 annually (Kawaura 2015) On the other hand the increasing number of flights and

destinations of the company is equally contributing to the increase in green house gases

Perceptual Mapping

Figure 5 Perceptual Mapping Virgin Atlantic Airways

(Source Created by Author)

The above performed perceptual mapping has been derived on the basis of two criteria

namely quality and cost It can be noted that the most suitably positioned airlines group is the

Delta Airlines whereas big brands such as Lufthansa Virgin Airways British Airways etc

are positioned near high cost and high quality factors Evaluating from the given perceptual

map the primary competitor of Virgin Airlines can be noted as Lufthansa British Airways

High Quality

Low Quality

Low

Cost

Hig

h C

ost

Lufthansa

Virgin Atlantic Air France

Continental

Airlines

British Airways

Delta

Frontier

airTrar

Japan Airlines

Ryan Air

Thai

Sky Airline

Air Asia US Airways

Air Canada

26

Continental Airways Air France and Delta Airlines Virgin Airways has always been known

for their premium service category (Goumlssling and Peeters 2007) They have tried to provide

the best of services to their customers such as Clubhouses and in-flight bars and television

that have positioned Virgin Airways near the high quality quadrant of the map Although

price is an important factor for customers in their purchase decisions Virgin Airways is

trying to nullify the cost difference by adding more services and add-ons to create a halo

effect and engage the customers with their service delivery process

26 Financial Performance

The financial performance of the company has been analysed from the annual report and the

stock performance of Virgin Atlantic Airways Virgin Airways served over 6 million

customers across 33 destinations in the year 2014 which resulted in operating cash flow of

pound121 million (Virgin-Atlantic 2014) The firm experienced an increase in the unit revenue

per airline passenger by 48 whereas the operating cost increased by 03 from that of

2013 (Virgin-Atlantic 2014) The profit before tax and exceptional items of Virgin Airlines

increased by pound65 million from 2013 to pound14 million in 2014 on year on year basis However

the stock performance of Virgin Airways has fallen since the year 2014 from a point of 4381

to 3823 in 2015 The stock curve of the company has been consistently decreasing in 2015

since the sale of 49 stock to Delta Group of Airlines (FinanceYahoo 2015)

27

Figure 6 Stock Performance of Virgin Atlantic Airways 2014-2015

(Source FinanceYahoo 2015)

27 Outcome of Critical Analysis of Virgin Airways

Based on the above given internal and external analysis of Virgin Atlantic Airways it can be

considered that Virgin Airways has been growing significantly with their service structure

However there has been a decrease in their revenue generation process as Little Red segment

failed to perform in the shot-haul domestic flights and the long-haul flights are also facing

steep competition from other big brands such as British Airways Emirates and Lufthansa In

context of their organisational structure the top management body does not have a spot for

the human resource management department and has implanted the HR systems within the

middle level management The top management has been structured with a flat hierarchical

structure whereas the operational level of the company reflects a matrix structure for smooth

functioning

28

The marketing processes of Virgin Airways are the key to their customer relationship

process The company has an interactive website and efficient customer communication

methods for connecting the customers with the organisation Apart from this the service

structure of the company is continuously upgraded with innovative technology in order to

engage the customers with the firm Although the pricing of the company is higher in

comparison to their competitors individual focus towards customer needs and expectations

helps them in managing their business growth and development

28 Conclusion

Being a luxury service provider and one of the top brands of the international aviation

industry Virgin Atlantic Airlines has generated huge brand value in their respective industry

Virgin Airways has always followed an unconventional route for designing their business

strategies and tried to capture their target markets with exceptional and innovative service

structures While the company progresses in terms of their operational and managerial

efficacies the financial performance of the firm has suffered in the domestic short-haul flight

segment The long-haul flights have also shown a gradual decrease that lead to the selling of

49 of stock to Delta Airlines Based on the analysis performed it can be suggested that

Virgin Atlantic Airways needs to innovate new strategies for reducing their operational

expenses and also expanding their services to more destinations across the world

29

Reference List

Aguirregabiria V and Ho C Y 2012 A dynamic oligopoly game of the US airline

industry Estimation and policy experiments Journal of Econometrics 168(1) pp 156-173

Agusdinata B and de Klein W 2002 The Dynamics of Airline Alliances Journal of Air

Transport Management 8(4) pp 201-211

Barrett S D 2000 Airport Competition in the Deregulated European Aviation Market

Journal of Air Transport Management 6(1) pp 13-27

Barwise P and Meehan S 2010 The one thing you must get right when building a

brand Harvard Business Review 88(12) pp 80-84

Belobaba P Odoni A and Barnhart C 2009 The Global Airline Industry New Jersey

John Wiley amp Sons

Bergantino A S and Capozza C 2015 Airline Pricing Behavior under Limited

Inter‐Modal Competition Economic Inquiry 53(1) pp 700-713

Bilotkach V Gaggero A A and Piga C A 2015 Airline pricing under different market

conditions Evidence from European Low-Cost Carriers Tourism Management 47 pp 152-

163

Cento A 2008 The Airline Industry Challenges in the 21st Century Berlin Springer

Science amp Business Media

Ciliberto F and Tamer E 2009 Market structure and multiple equilibria in airline

markets Econometrica 77(6) pp 1791-1828

30

Clausen J Larsen A Larsen J and Rezanova N J 2010 Disruption management in the

airline industrymdashConcepts models and methodsComputers and Operations Research 37(5)

pp 809-821

Doganis R 2002 Flying Off Course The Economics of International Airlines London

Psychology Press

Doganis R 2006 The Airline Business London Psychology Press

Economist 2014 Little Redrsquos Big Problem [Online] Available at lt

httpwwweconomistcomblogsgulliver201410virgin-atlantics-woes gt [Accessed 22nd

August 2015]

FinanceYahoo 2015 Virgin America Inc [Online] Available at lt

httpfinanceyahoocomechartss=VA+InteractiverangemaxallowChartStackingtr

ue gt [Accessed 22nd August 2015]

Gerardi K S and Shapiro A H 2009 Does competition reduce price dispersion New

evidence from the airline industry Journal of Political Economy 117(1) pp 1-37

Gilbert D Child D and Bennett M 2001 The qualitative study of the current practices of

lsquono-frillsrsquo airlines operating in the UK Journal of Vacation Marketing 7(4) pp 302-315

Goumlssling S and Peeters P 2007 lsquoIt does not harm the environmentrsquoAn analysis of

industry discourses on tourism air travel and the environmentJournal of Sustainable

Tourism 15(4) pp 402-417

Hanlon J P 2007 Global Airlines Competition in a Transnational Industry London

Routledge

24

Technological It was observed in the value chain analysis that all the operational actvities of

Virgin Airways have been linked with their information and communications technology

This highlights the importance of technological support for the Airlines service Virgin

Airways has always concentrated on guarantying technological superiority for better service

design The fleet of 39 aircrafts have been remodelled regularly to keep them updated with

the industry trends Virgin Airways added 9 Boeing 787 jumbos in their fleet in the year 2014

which are expected to replace the Airbus A330 soon (Virgin-Atlantic 2015b) Services such

as individual television sets for each passenger are an example of technological usage in

Virgin Airways In context of the operational necessities the fleet of Virgin Atlantic has

installed the latest radar systems (AirNav RadarBox) with ADS-B radar systems (Van

Dender 2007)

Legal One of the most prominent legal issues faced by Virgin Atlantic is related to their

domestic service provider Little Red The domestic air traffic of the UK has been consistently

falling the launch of Little Red generated huge controversy among the stakeholders of the

organisation (Bilotkach Gaggero and Piga 2015) Furthermore failure to acquire British

Midland had further reduced the scope of recovering from the losses encountered by Little

Red division of Virgin Atlantic Airways In case of long-haul flights also Virgin Airways is

trying to merge with Delta Airlines but the foreign ownership rules is proving to be a

challenge for both the concerned firms (Economist 2014)

Environmental The environmental issues have always been in the lime-light for airline

organisations based on the pollution generated from flights and the management of the in-

flight wastages (Rea and Kerzner 2012) In this respect Virgin Airlines is trying to reduce

their environmental impact by developing an efficient business service process The bio fuel

demonstration provided by the company has shown potential for reducing the emissions by

25

4 annually (Kawaura 2015) On the other hand the increasing number of flights and

destinations of the company is equally contributing to the increase in green house gases

Perceptual Mapping

Figure 5 Perceptual Mapping Virgin Atlantic Airways

(Source Created by Author)

The above performed perceptual mapping has been derived on the basis of two criteria

namely quality and cost It can be noted that the most suitably positioned airlines group is the

Delta Airlines whereas big brands such as Lufthansa Virgin Airways British Airways etc

are positioned near high cost and high quality factors Evaluating from the given perceptual

map the primary competitor of Virgin Airlines can be noted as Lufthansa British Airways

High Quality

Low Quality

Low

Cost

Hig

h C

ost

Lufthansa

Virgin Atlantic Air France

Continental

Airlines

British Airways

Delta

Frontier

airTrar

Japan Airlines

Ryan Air

Thai

Sky Airline

Air Asia US Airways

Air Canada

26

Continental Airways Air France and Delta Airlines Virgin Airways has always been known

for their premium service category (Goumlssling and Peeters 2007) They have tried to provide

the best of services to their customers such as Clubhouses and in-flight bars and television

that have positioned Virgin Airways near the high quality quadrant of the map Although

price is an important factor for customers in their purchase decisions Virgin Airways is

trying to nullify the cost difference by adding more services and add-ons to create a halo

effect and engage the customers with their service delivery process

26 Financial Performance

The financial performance of the company has been analysed from the annual report and the

stock performance of Virgin Atlantic Airways Virgin Airways served over 6 million

customers across 33 destinations in the year 2014 which resulted in operating cash flow of

pound121 million (Virgin-Atlantic 2014) The firm experienced an increase in the unit revenue

per airline passenger by 48 whereas the operating cost increased by 03 from that of

2013 (Virgin-Atlantic 2014) The profit before tax and exceptional items of Virgin Airlines

increased by pound65 million from 2013 to pound14 million in 2014 on year on year basis However

the stock performance of Virgin Airways has fallen since the year 2014 from a point of 4381

to 3823 in 2015 The stock curve of the company has been consistently decreasing in 2015

since the sale of 49 stock to Delta Group of Airlines (FinanceYahoo 2015)

27

Figure 6 Stock Performance of Virgin Atlantic Airways 2014-2015

(Source FinanceYahoo 2015)

27 Outcome of Critical Analysis of Virgin Airways

Based on the above given internal and external analysis of Virgin Atlantic Airways it can be

considered that Virgin Airways has been growing significantly with their service structure

However there has been a decrease in their revenue generation process as Little Red segment

failed to perform in the shot-haul domestic flights and the long-haul flights are also facing

steep competition from other big brands such as British Airways Emirates and Lufthansa In

context of their organisational structure the top management body does not have a spot for

the human resource management department and has implanted the HR systems within the

middle level management The top management has been structured with a flat hierarchical

structure whereas the operational level of the company reflects a matrix structure for smooth

functioning

28

The marketing processes of Virgin Airways are the key to their customer relationship

process The company has an interactive website and efficient customer communication

methods for connecting the customers with the organisation Apart from this the service

structure of the company is continuously upgraded with innovative technology in order to

engage the customers with the firm Although the pricing of the company is higher in

comparison to their competitors individual focus towards customer needs and expectations

helps them in managing their business growth and development

28 Conclusion

Being a luxury service provider and one of the top brands of the international aviation

industry Virgin Atlantic Airlines has generated huge brand value in their respective industry

Virgin Airways has always followed an unconventional route for designing their business

strategies and tried to capture their target markets with exceptional and innovative service

structures While the company progresses in terms of their operational and managerial

efficacies the financial performance of the firm has suffered in the domestic short-haul flight

segment The long-haul flights have also shown a gradual decrease that lead to the selling of

49 of stock to Delta Airlines Based on the analysis performed it can be suggested that

Virgin Atlantic Airways needs to innovate new strategies for reducing their operational

expenses and also expanding their services to more destinations across the world

29

Reference List

Aguirregabiria V and Ho C Y 2012 A dynamic oligopoly game of the US airline

industry Estimation and policy experiments Journal of Econometrics 168(1) pp 156-173

Agusdinata B and de Klein W 2002 The Dynamics of Airline Alliances Journal of Air

Transport Management 8(4) pp 201-211

Barrett S D 2000 Airport Competition in the Deregulated European Aviation Market

Journal of Air Transport Management 6(1) pp 13-27

Barwise P and Meehan S 2010 The one thing you must get right when building a

brand Harvard Business Review 88(12) pp 80-84

Belobaba P Odoni A and Barnhart C 2009 The Global Airline Industry New Jersey

John Wiley amp Sons

Bergantino A S and Capozza C 2015 Airline Pricing Behavior under Limited

Inter‐Modal Competition Economic Inquiry 53(1) pp 700-713

Bilotkach V Gaggero A A and Piga C A 2015 Airline pricing under different market

conditions Evidence from European Low-Cost Carriers Tourism Management 47 pp 152-

163

Cento A 2008 The Airline Industry Challenges in the 21st Century Berlin Springer

Science amp Business Media

Ciliberto F and Tamer E 2009 Market structure and multiple equilibria in airline

markets Econometrica 77(6) pp 1791-1828

30

Clausen J Larsen A Larsen J and Rezanova N J 2010 Disruption management in the

airline industrymdashConcepts models and methodsComputers and Operations Research 37(5)

pp 809-821

Doganis R 2002 Flying Off Course The Economics of International Airlines London

Psychology Press

Doganis R 2006 The Airline Business London Psychology Press

Economist 2014 Little Redrsquos Big Problem [Online] Available at lt

httpwwweconomistcomblogsgulliver201410virgin-atlantics-woes gt [Accessed 22nd

August 2015]

FinanceYahoo 2015 Virgin America Inc [Online] Available at lt

httpfinanceyahoocomechartss=VA+InteractiverangemaxallowChartStackingtr

ue gt [Accessed 22nd August 2015]

Gerardi K S and Shapiro A H 2009 Does competition reduce price dispersion New

evidence from the airline industry Journal of Political Economy 117(1) pp 1-37

Gilbert D Child D and Bennett M 2001 The qualitative study of the current practices of

lsquono-frillsrsquo airlines operating in the UK Journal of Vacation Marketing 7(4) pp 302-315

Goumlssling S and Peeters P 2007 lsquoIt does not harm the environmentrsquoAn analysis of

industry discourses on tourism air travel and the environmentJournal of Sustainable

Tourism 15(4) pp 402-417

Hanlon J P 2007 Global Airlines Competition in a Transnational Industry London

Routledge

25

4 annually (Kawaura 2015) On the other hand the increasing number of flights and

destinations of the company is equally contributing to the increase in green house gases

Perceptual Mapping

Figure 5 Perceptual Mapping Virgin Atlantic Airways

(Source Created by Author)

The above performed perceptual mapping has been derived on the basis of two criteria

namely quality and cost It can be noted that the most suitably positioned airlines group is the

Delta Airlines whereas big brands such as Lufthansa Virgin Airways British Airways etc

are positioned near high cost and high quality factors Evaluating from the given perceptual

map the primary competitor of Virgin Airlines can be noted as Lufthansa British Airways

High Quality

Low Quality

Low

Cost

Hig

h C

ost

Lufthansa

Virgin Atlantic Air France

Continental

Airlines

British Airways

Delta

Frontier

airTrar

Japan Airlines

Ryan Air

Thai

Sky Airline

Air Asia US Airways

Air Canada

26

Continental Airways Air France and Delta Airlines Virgin Airways has always been known

for their premium service category (Goumlssling and Peeters 2007) They have tried to provide

the best of services to their customers such as Clubhouses and in-flight bars and television

that have positioned Virgin Airways near the high quality quadrant of the map Although

price is an important factor for customers in their purchase decisions Virgin Airways is

trying to nullify the cost difference by adding more services and add-ons to create a halo

effect and engage the customers with their service delivery process

26 Financial Performance

The financial performance of the company has been analysed from the annual report and the

stock performance of Virgin Atlantic Airways Virgin Airways served over 6 million

customers across 33 destinations in the year 2014 which resulted in operating cash flow of

pound121 million (Virgin-Atlantic 2014) The firm experienced an increase in the unit revenue

per airline passenger by 48 whereas the operating cost increased by 03 from that of

2013 (Virgin-Atlantic 2014) The profit before tax and exceptional items of Virgin Airlines

increased by pound65 million from 2013 to pound14 million in 2014 on year on year basis However

the stock performance of Virgin Airways has fallen since the year 2014 from a point of 4381

to 3823 in 2015 The stock curve of the company has been consistently decreasing in 2015

since the sale of 49 stock to Delta Group of Airlines (FinanceYahoo 2015)

27

Figure 6 Stock Performance of Virgin Atlantic Airways 2014-2015

(Source FinanceYahoo 2015)

27 Outcome of Critical Analysis of Virgin Airways

Based on the above given internal and external analysis of Virgin Atlantic Airways it can be

considered that Virgin Airways has been growing significantly with their service structure

However there has been a decrease in their revenue generation process as Little Red segment

failed to perform in the shot-haul domestic flights and the long-haul flights are also facing

steep competition from other big brands such as British Airways Emirates and Lufthansa In

context of their organisational structure the top management body does not have a spot for

the human resource management department and has implanted the HR systems within the

middle level management The top management has been structured with a flat hierarchical

structure whereas the operational level of the company reflects a matrix structure for smooth

functioning

28

The marketing processes of Virgin Airways are the key to their customer relationship

process The company has an interactive website and efficient customer communication

methods for connecting the customers with the organisation Apart from this the service

structure of the company is continuously upgraded with innovative technology in order to

engage the customers with the firm Although the pricing of the company is higher in

comparison to their competitors individual focus towards customer needs and expectations

helps them in managing their business growth and development

28 Conclusion

Being a luxury service provider and one of the top brands of the international aviation

industry Virgin Atlantic Airlines has generated huge brand value in their respective industry

Virgin Airways has always followed an unconventional route for designing their business

strategies and tried to capture their target markets with exceptional and innovative service

structures While the company progresses in terms of their operational and managerial

efficacies the financial performance of the firm has suffered in the domestic short-haul flight

segment The long-haul flights have also shown a gradual decrease that lead to the selling of

49 of stock to Delta Airlines Based on the analysis performed it can be suggested that

Virgin Atlantic Airways needs to innovate new strategies for reducing their operational

expenses and also expanding their services to more destinations across the world

29

Reference List

Aguirregabiria V and Ho C Y 2012 A dynamic oligopoly game of the US airline

industry Estimation and policy experiments Journal of Econometrics 168(1) pp 156-173

Agusdinata B and de Klein W 2002 The Dynamics of Airline Alliances Journal of Air

Transport Management 8(4) pp 201-211

Barrett S D 2000 Airport Competition in the Deregulated European Aviation Market

Journal of Air Transport Management 6(1) pp 13-27

Barwise P and Meehan S 2010 The one thing you must get right when building a

brand Harvard Business Review 88(12) pp 80-84

Belobaba P Odoni A and Barnhart C 2009 The Global Airline Industry New Jersey

John Wiley amp Sons

Bergantino A S and Capozza C 2015 Airline Pricing Behavior under Limited

Inter‐Modal Competition Economic Inquiry 53(1) pp 700-713

Bilotkach V Gaggero A A and Piga C A 2015 Airline pricing under different market

conditions Evidence from European Low-Cost Carriers Tourism Management 47 pp 152-

163

Cento A 2008 The Airline Industry Challenges in the 21st Century Berlin Springer

Science amp Business Media

Ciliberto F and Tamer E 2009 Market structure and multiple equilibria in airline

markets Econometrica 77(6) pp 1791-1828

30

Clausen J Larsen A Larsen J and Rezanova N J 2010 Disruption management in the

airline industrymdashConcepts models and methodsComputers and Operations Research 37(5)

pp 809-821

Doganis R 2002 Flying Off Course The Economics of International Airlines London

Psychology Press

Doganis R 2006 The Airline Business London Psychology Press

Economist 2014 Little Redrsquos Big Problem [Online] Available at lt

httpwwweconomistcomblogsgulliver201410virgin-atlantics-woes gt [Accessed 22nd

August 2015]

FinanceYahoo 2015 Virgin America Inc [Online] Available at lt

httpfinanceyahoocomechartss=VA+InteractiverangemaxallowChartStackingtr

ue gt [Accessed 22nd August 2015]

Gerardi K S and Shapiro A H 2009 Does competition reduce price dispersion New

evidence from the airline industry Journal of Political Economy 117(1) pp 1-37

Gilbert D Child D and Bennett M 2001 The qualitative study of the current practices of

lsquono-frillsrsquo airlines operating in the UK Journal of Vacation Marketing 7(4) pp 302-315

Goumlssling S and Peeters P 2007 lsquoIt does not harm the environmentrsquoAn analysis of

industry discourses on tourism air travel and the environmentJournal of Sustainable

Tourism 15(4) pp 402-417

Hanlon J P 2007 Global Airlines Competition in a Transnational Industry London

Routledge

26

Continental Airways Air France and Delta Airlines Virgin Airways has always been known

for their premium service category (Goumlssling and Peeters 2007) They have tried to provide

the best of services to their customers such as Clubhouses and in-flight bars and television

that have positioned Virgin Airways near the high quality quadrant of the map Although

price is an important factor for customers in their purchase decisions Virgin Airways is

trying to nullify the cost difference by adding more services and add-ons to create a halo

effect and engage the customers with their service delivery process

26 Financial Performance

The financial performance of the company has been analysed from the annual report and the

stock performance of Virgin Atlantic Airways Virgin Airways served over 6 million

customers across 33 destinations in the year 2014 which resulted in operating cash flow of

pound121 million (Virgin-Atlantic 2014) The firm experienced an increase in the unit revenue

per airline passenger by 48 whereas the operating cost increased by 03 from that of

2013 (Virgin-Atlantic 2014) The profit before tax and exceptional items of Virgin Airlines

increased by pound65 million from 2013 to pound14 million in 2014 on year on year basis However

the stock performance of Virgin Airways has fallen since the year 2014 from a point of 4381

to 3823 in 2015 The stock curve of the company has been consistently decreasing in 2015

since the sale of 49 stock to Delta Group of Airlines (FinanceYahoo 2015)

27

Figure 6 Stock Performance of Virgin Atlantic Airways 2014-2015

(Source FinanceYahoo 2015)

27 Outcome of Critical Analysis of Virgin Airways

Based on the above given internal and external analysis of Virgin Atlantic Airways it can be

considered that Virgin Airways has been growing significantly with their service structure

However there has been a decrease in their revenue generation process as Little Red segment

failed to perform in the shot-haul domestic flights and the long-haul flights are also facing

steep competition from other big brands such as British Airways Emirates and Lufthansa In

context of their organisational structure the top management body does not have a spot for

the human resource management department and has implanted the HR systems within the

middle level management The top management has been structured with a flat hierarchical

structure whereas the operational level of the company reflects a matrix structure for smooth

functioning

28

The marketing processes of Virgin Airways are the key to their customer relationship

process The company has an interactive website and efficient customer communication

methods for connecting the customers with the organisation Apart from this the service

structure of the company is continuously upgraded with innovative technology in order to

engage the customers with the firm Although the pricing of the company is higher in

comparison to their competitors individual focus towards customer needs and expectations

helps them in managing their business growth and development

28 Conclusion

Being a luxury service provider and one of the top brands of the international aviation

industry Virgin Atlantic Airlines has generated huge brand value in their respective industry

Virgin Airways has always followed an unconventional route for designing their business

strategies and tried to capture their target markets with exceptional and innovative service

structures While the company progresses in terms of their operational and managerial

efficacies the financial performance of the firm has suffered in the domestic short-haul flight

segment The long-haul flights have also shown a gradual decrease that lead to the selling of

49 of stock to Delta Airlines Based on the analysis performed it can be suggested that

Virgin Atlantic Airways needs to innovate new strategies for reducing their operational

expenses and also expanding their services to more destinations across the world

29

Reference List

Aguirregabiria V and Ho C Y 2012 A dynamic oligopoly game of the US airline

industry Estimation and policy experiments Journal of Econometrics 168(1) pp 156-173

Agusdinata B and de Klein W 2002 The Dynamics of Airline Alliances Journal of Air

Transport Management 8(4) pp 201-211

Barrett S D 2000 Airport Competition in the Deregulated European Aviation Market

Journal of Air Transport Management 6(1) pp 13-27

Barwise P and Meehan S 2010 The one thing you must get right when building a

brand Harvard Business Review 88(12) pp 80-84

Belobaba P Odoni A and Barnhart C 2009 The Global Airline Industry New Jersey

John Wiley amp Sons

Bergantino A S and Capozza C 2015 Airline Pricing Behavior under Limited

Inter‐Modal Competition Economic Inquiry 53(1) pp 700-713

Bilotkach V Gaggero A A and Piga C A 2015 Airline pricing under different market

conditions Evidence from European Low-Cost Carriers Tourism Management 47 pp 152-

163

Cento A 2008 The Airline Industry Challenges in the 21st Century Berlin Springer

Science amp Business Media

Ciliberto F and Tamer E 2009 Market structure and multiple equilibria in airline

markets Econometrica 77(6) pp 1791-1828

30

Clausen J Larsen A Larsen J and Rezanova N J 2010 Disruption management in the

airline industrymdashConcepts models and methodsComputers and Operations Research 37(5)

pp 809-821

Doganis R 2002 Flying Off Course The Economics of International Airlines London

Psychology Press

Doganis R 2006 The Airline Business London Psychology Press

Economist 2014 Little Redrsquos Big Problem [Online] Available at lt

httpwwweconomistcomblogsgulliver201410virgin-atlantics-woes gt [Accessed 22nd

August 2015]

FinanceYahoo 2015 Virgin America Inc [Online] Available at lt

httpfinanceyahoocomechartss=VA+InteractiverangemaxallowChartStackingtr

ue gt [Accessed 22nd August 2015]

Gerardi K S and Shapiro A H 2009 Does competition reduce price dispersion New

evidence from the airline industry Journal of Political Economy 117(1) pp 1-37

Gilbert D Child D and Bennett M 2001 The qualitative study of the current practices of

lsquono-frillsrsquo airlines operating in the UK Journal of Vacation Marketing 7(4) pp 302-315

Goumlssling S and Peeters P 2007 lsquoIt does not harm the environmentrsquoAn analysis of

industry discourses on tourism air travel and the environmentJournal of Sustainable

Tourism 15(4) pp 402-417

Hanlon J P 2007 Global Airlines Competition in a Transnational Industry London

Routledge

27

Figure 6 Stock Performance of Virgin Atlantic Airways 2014-2015

(Source FinanceYahoo 2015)

27 Outcome of Critical Analysis of Virgin Airways

Based on the above given internal and external analysis of Virgin Atlantic Airways it can be

considered that Virgin Airways has been growing significantly with their service structure

However there has been a decrease in their revenue generation process as Little Red segment

failed to perform in the shot-haul domestic flights and the long-haul flights are also facing

steep competition from other big brands such as British Airways Emirates and Lufthansa In

context of their organisational structure the top management body does not have a spot for

the human resource management department and has implanted the HR systems within the

middle level management The top management has been structured with a flat hierarchical

structure whereas the operational level of the company reflects a matrix structure for smooth

functioning

28

The marketing processes of Virgin Airways are the key to their customer relationship

process The company has an interactive website and efficient customer communication

methods for connecting the customers with the organisation Apart from this the service

structure of the company is continuously upgraded with innovative technology in order to

engage the customers with the firm Although the pricing of the company is higher in

comparison to their competitors individual focus towards customer needs and expectations

helps them in managing their business growth and development

28 Conclusion

Being a luxury service provider and one of the top brands of the international aviation

industry Virgin Atlantic Airlines has generated huge brand value in their respective industry

Virgin Airways has always followed an unconventional route for designing their business

strategies and tried to capture their target markets with exceptional and innovative service

structures While the company progresses in terms of their operational and managerial

efficacies the financial performance of the firm has suffered in the domestic short-haul flight

segment The long-haul flights have also shown a gradual decrease that lead to the selling of

49 of stock to Delta Airlines Based on the analysis performed it can be suggested that

Virgin Atlantic Airways needs to innovate new strategies for reducing their operational

expenses and also expanding their services to more destinations across the world

29

Reference List

Aguirregabiria V and Ho C Y 2012 A dynamic oligopoly game of the US airline

industry Estimation and policy experiments Journal of Econometrics 168(1) pp 156-173

Agusdinata B and de Klein W 2002 The Dynamics of Airline Alliances Journal of Air

Transport Management 8(4) pp 201-211

Barrett S D 2000 Airport Competition in the Deregulated European Aviation Market

Journal of Air Transport Management 6(1) pp 13-27

Barwise P and Meehan S 2010 The one thing you must get right when building a

brand Harvard Business Review 88(12) pp 80-84

Belobaba P Odoni A and Barnhart C 2009 The Global Airline Industry New Jersey

John Wiley amp Sons

Bergantino A S and Capozza C 2015 Airline Pricing Behavior under Limited

Inter‐Modal Competition Economic Inquiry 53(1) pp 700-713

Bilotkach V Gaggero A A and Piga C A 2015 Airline pricing under different market

conditions Evidence from European Low-Cost Carriers Tourism Management 47 pp 152-

163

Cento A 2008 The Airline Industry Challenges in the 21st Century Berlin Springer

Science amp Business Media

Ciliberto F and Tamer E 2009 Market structure and multiple equilibria in airline

markets Econometrica 77(6) pp 1791-1828

30

Clausen J Larsen A Larsen J and Rezanova N J 2010 Disruption management in the

airline industrymdashConcepts models and methodsComputers and Operations Research 37(5)

pp 809-821

Doganis R 2002 Flying Off Course The Economics of International Airlines London

Psychology Press

Doganis R 2006 The Airline Business London Psychology Press

Economist 2014 Little Redrsquos Big Problem [Online] Available at lt

httpwwweconomistcomblogsgulliver201410virgin-atlantics-woes gt [Accessed 22nd

August 2015]

FinanceYahoo 2015 Virgin America Inc [Online] Available at lt

httpfinanceyahoocomechartss=VA+InteractiverangemaxallowChartStackingtr

ue gt [Accessed 22nd August 2015]

Gerardi K S and Shapiro A H 2009 Does competition reduce price dispersion New

evidence from the airline industry Journal of Political Economy 117(1) pp 1-37

Gilbert D Child D and Bennett M 2001 The qualitative study of the current practices of

lsquono-frillsrsquo airlines operating in the UK Journal of Vacation Marketing 7(4) pp 302-315

Goumlssling S and Peeters P 2007 lsquoIt does not harm the environmentrsquoAn analysis of

industry discourses on tourism air travel and the environmentJournal of Sustainable

Tourism 15(4) pp 402-417

Hanlon J P 2007 Global Airlines Competition in a Transnational Industry London

Routledge

28

The marketing processes of Virgin Airways are the key to their customer relationship

process The company has an interactive website and efficient customer communication

methods for connecting the customers with the organisation Apart from this the service

structure of the company is continuously upgraded with innovative technology in order to

engage the customers with the firm Although the pricing of the company is higher in

comparison to their competitors individual focus towards customer needs and expectations

helps them in managing their business growth and development

28 Conclusion

Being a luxury service provider and one of the top brands of the international aviation

industry Virgin Atlantic Airlines has generated huge brand value in their respective industry

Virgin Airways has always followed an unconventional route for designing their business

strategies and tried to capture their target markets with exceptional and innovative service

structures While the company progresses in terms of their operational and managerial

efficacies the financial performance of the firm has suffered in the domestic short-haul flight

segment The long-haul flights have also shown a gradual decrease that lead to the selling of

49 of stock to Delta Airlines Based on the analysis performed it can be suggested that

Virgin Atlantic Airways needs to innovate new strategies for reducing their operational

expenses and also expanding their services to more destinations across the world

29

Reference List

Aguirregabiria V and Ho C Y 2012 A dynamic oligopoly game of the US airline

industry Estimation and policy experiments Journal of Econometrics 168(1) pp 156-173

Agusdinata B and de Klein W 2002 The Dynamics of Airline Alliances Journal of Air

Transport Management 8(4) pp 201-211

Barrett S D 2000 Airport Competition in the Deregulated European Aviation Market

Journal of Air Transport Management 6(1) pp 13-27

Barwise P and Meehan S 2010 The one thing you must get right when building a

brand Harvard Business Review 88(12) pp 80-84

Belobaba P Odoni A and Barnhart C 2009 The Global Airline Industry New Jersey

John Wiley amp Sons

Bergantino A S and Capozza C 2015 Airline Pricing Behavior under Limited

Inter‐Modal Competition Economic Inquiry 53(1) pp 700-713

Bilotkach V Gaggero A A and Piga C A 2015 Airline pricing under different market

conditions Evidence from European Low-Cost Carriers Tourism Management 47 pp 152-

163

Cento A 2008 The Airline Industry Challenges in the 21st Century Berlin Springer

Science amp Business Media

Ciliberto F and Tamer E 2009 Market structure and multiple equilibria in airline

markets Econometrica 77(6) pp 1791-1828

30

Clausen J Larsen A Larsen J and Rezanova N J 2010 Disruption management in the

airline industrymdashConcepts models and methodsComputers and Operations Research 37(5)

pp 809-821

Doganis R 2002 Flying Off Course The Economics of International Airlines London

Psychology Press

Doganis R 2006 The Airline Business London Psychology Press

Economist 2014 Little Redrsquos Big Problem [Online] Available at lt

httpwwweconomistcomblogsgulliver201410virgin-atlantics-woes gt [Accessed 22nd

August 2015]

FinanceYahoo 2015 Virgin America Inc [Online] Available at lt

httpfinanceyahoocomechartss=VA+InteractiverangemaxallowChartStackingtr

ue gt [Accessed 22nd August 2015]

Gerardi K S and Shapiro A H 2009 Does competition reduce price dispersion New

evidence from the airline industry Journal of Political Economy 117(1) pp 1-37

Gilbert D Child D and Bennett M 2001 The qualitative study of the current practices of

lsquono-frillsrsquo airlines operating in the UK Journal of Vacation Marketing 7(4) pp 302-315

Goumlssling S and Peeters P 2007 lsquoIt does not harm the environmentrsquoAn analysis of

industry discourses on tourism air travel and the environmentJournal of Sustainable

Tourism 15(4) pp 402-417

Hanlon J P 2007 Global Airlines Competition in a Transnational Industry London

Routledge

29

Reference List

Aguirregabiria V and Ho C Y 2012 A dynamic oligopoly game of the US airline

industry Estimation and policy experiments Journal of Econometrics 168(1) pp 156-173

Agusdinata B and de Klein W 2002 The Dynamics of Airline Alliances Journal of Air

Transport Management 8(4) pp 201-211

Barrett S D 2000 Airport Competition in the Deregulated European Aviation Market

Journal of Air Transport Management 6(1) pp 13-27

Barwise P and Meehan S 2010 The one thing you must get right when building a

brand Harvard Business Review 88(12) pp 80-84

Belobaba P Odoni A and Barnhart C 2009 The Global Airline Industry New Jersey

John Wiley amp Sons

Bergantino A S and Capozza C 2015 Airline Pricing Behavior under Limited

Inter‐Modal Competition Economic Inquiry 53(1) pp 700-713

Bilotkach V Gaggero A A and Piga C A 2015 Airline pricing under different market

conditions Evidence from European Low-Cost Carriers Tourism Management 47 pp 152-

163

Cento A 2008 The Airline Industry Challenges in the 21st Century Berlin Springer

Science amp Business Media

Ciliberto F and Tamer E 2009 Market structure and multiple equilibria in airline

markets Econometrica 77(6) pp 1791-1828

30

Clausen J Larsen A Larsen J and Rezanova N J 2010 Disruption management in the

airline industrymdashConcepts models and methodsComputers and Operations Research 37(5)

pp 809-821

Doganis R 2002 Flying Off Course The Economics of International Airlines London

Psychology Press

Doganis R 2006 The Airline Business London Psychology Press

Economist 2014 Little Redrsquos Big Problem [Online] Available at lt

httpwwweconomistcomblogsgulliver201410virgin-atlantics-woes gt [Accessed 22nd

August 2015]

FinanceYahoo 2015 Virgin America Inc [Online] Available at lt

httpfinanceyahoocomechartss=VA+InteractiverangemaxallowChartStackingtr

ue gt [Accessed 22nd August 2015]

Gerardi K S and Shapiro A H 2009 Does competition reduce price dispersion New

evidence from the airline industry Journal of Political Economy 117(1) pp 1-37

Gilbert D Child D and Bennett M 2001 The qualitative study of the current practices of

lsquono-frillsrsquo airlines operating in the UK Journal of Vacation Marketing 7(4) pp 302-315

Goumlssling S and Peeters P 2007 lsquoIt does not harm the environmentrsquoAn analysis of

industry discourses on tourism air travel and the environmentJournal of Sustainable

Tourism 15(4) pp 402-417

Hanlon J P 2007 Global Airlines Competition in a Transnational Industry London

Routledge

30

Clausen J Larsen A Larsen J and Rezanova N J 2010 Disruption management in the

airline industrymdashConcepts models and methodsComputers and Operations Research 37(5)

pp 809-821

Doganis R 2002 Flying Off Course The Economics of International Airlines London

Psychology Press

Doganis R 2006 The Airline Business London Psychology Press

Economist 2014 Little Redrsquos Big Problem [Online] Available at lt

httpwwweconomistcomblogsgulliver201410virgin-atlantics-woes gt [Accessed 22nd

August 2015]

FinanceYahoo 2015 Virgin America Inc [Online] Available at lt

httpfinanceyahoocomechartss=VA+InteractiverangemaxallowChartStackingtr

ue gt [Accessed 22nd August 2015]

Gerardi K S and Shapiro A H 2009 Does competition reduce price dispersion New

evidence from the airline industry Journal of Political Economy 117(1) pp 1-37

Gilbert D Child D and Bennett M 2001 The qualitative study of the current practices of

lsquono-frillsrsquo airlines operating in the UK Journal of Vacation Marketing 7(4) pp 302-315

Goumlssling S and Peeters P 2007 lsquoIt does not harm the environmentrsquoAn analysis of

industry discourses on tourism air travel and the environmentJournal of Sustainable

Tourism 15(4) pp 402-417

Hanlon J P 2007 Global Airlines Competition in a Transnational Industry London

Routledge

31

Kawaura A 2015 A Tale of Two Duopolies Collusion and Exit in a Local Airline Industry

Applied Economics Letters 22(8) pp 664-667

Lelieur I 2003 Law and Policy of Substantial Ownership and Effective Control of Airlines

Burlington Ashgate

Mahoney D M 2014 Demand Market Structure Entry and Exit in Airline Markets [PDF]

Scholars Bank Available at

lthttpsscholarsbankuoregoneduxmluibitstreamhandle179418338Mahoney_oregon_01

71A_10943pdfsequence=1gt [Accessed on 21 August 2015]

Nolan T 2010 Applied strategic planning a comprehensive guide 4th ed London

Palgrave Macmillan

Papatheodorou A and Forsyth P 2010 Aviation and Tourism Implications for Leisure

Travel 4th ed London Kogan Page Limited

Rea P and Kerzner H 2012 Strategic planning A Practical Guide 7th ed Oxford

Blackwell Publishing

Scheelhaase J D and Grimme W G 2007 Emissions trading for international aviationmdash

an estimation of the economic impact on selected European airlines Journal of Air Transport

Management 13(5) pp 253-263

Stacey R 2011 Strategic Management and Organisational Dynamics The Challenge of

Complexity to Ways of Thinking about Organisations 6th ed Harlow England New York

Financial Times Prentice Hall

32

Sutcliffe A 2002 Assessing the reliability of heuristic evaluation for Web site attractiveness

and usability In System Sciences 2002 HICSS Proceedings of the 35th Annual Hawaii

International Conference on IEEE pp 1838-1847

Taylor P Derudder B Saey P and Witlox F 2006 Cities in Globalization Practices

Policies and Theories London Routledge

TheOfficialBoard 2014 Virgin Atlantic Airways [Online] Available at lt

httpwwwtheofficialboardcomorg-chartvirgin-atlantic-airways gt [Accessed 22 August

2015]

Tsai W H and Hsu J L 2008 Corporate social responsibility programs choice and costs

assessment in the airline industrymdashA hybrid model Journal of Air Transport

Management 14(4) pp 188-196

Van Dender K 2007 Determinants of fares and operating revenues at US airports Journal

of Urban Economics 62(2) pp 317-336

Virgin-Atlantic 2014 Virgin Atlantic Annual Report 2014 [Online] Available at lt

httpwwwvirgin-

atlanticcomcontentdamVAADocumentsPress20officeVAL_FY14_Annual_Reportpdf

gt [Accessed 22nd August 2015]

Virgin-Atlantic 2015a About Us [Online] Available at lt httpwwwvirgin-

atlanticcomgbenfooterabout-ushtml gt [Accessed 22nd August 2015]

Virgin-Atlantic 2015b Our Fleet [Online] Available at lt httpwwwvirgin-

atlanticcomgbenthe-virgin-experienceour-fleethtml gt [Accessed 22August 2015]

33

Wensveen J 2010 The Airline Industry Trends Challenges Strategies [PDF] The

University of Sydney Available at

lthttpsydneyeduaubusiness__dataassetspdf_file001067789johnw-

presentationpdfgt[Accessed 22 August 2015]