Virgin Strategy1

UNIVERSITY OF SURREY

FACULTY OF MANAGEMENT AND LAW

School of Management

MSc Programmes

Module Leader:

Dr. Laura A. Costanzo

Academic Year: 2010-2011

STRATEGY MODULE

COURSEWORK

Student URN MSc Programme Surname & First Name

6098320 Management Information Systems Hargley Ikechukwu

6142620 International Hotel management Lu Chenyao

6116950 International Hotel management Markan Abhilasha

6141001 International Business

management

Zhang Mansheng

Industry European Airline Industry

Company Virgin Atlantic Airways

“Your airline’s either got it

or it hasn’t”

Virgin Atlantic | 1

Consulting TeamVirgin Atlantic

Contents1.0 Introduction...........................................................................................................................2

1.1 Company Overview........................................................................................................2

2.0 The Analysis of the External of Environment............................................................3

2.1 The Macro-environment................................................................................................3

2.2 The Competitive Environment........................................................................................6

2.3 Strategic Groups..................................................................................................................8

3.0 The Internal Environment.................................................................................................9

3.1 Swot Analysis....................................................................................................................9

3.2 Resource-Based View of Virgin Atlantic................................................................10

3.3 Value Chain Analysis....................................................................................................11

4.0 Recommendation for the Future..................................................................................13

4.1 Analysing the current strategy.................................................................................13

4.2 Future Strategic Direction..........................................................................................14

5.0 Conclusion...........................................................................................................................16

References...........................................................................................................................................17

APPENDIX 1.........................................................................................................................................20

SWOT ANALYSIS........................................................................................................................20

Appendix 2...........................................................................................................................................24

Value chain Analysis................................................................................................................24

APPENDIX 3.....................................................................................................................................27

Table of Figures29

Virgin Atlantic | 2

Figure 4 Virgin Atlantic SWOT analysis.................................................................................................9

Figure 5 Value Chain Analysis .............................................................................................................11

Figure 6 Generic Strategies..................................................................................................................13

Table 1 UK GDP......................................................................................................................................5

Table 2 UK Consumer Price Index..........................................................................................................6

Table 3 Resource based View..............................................................................................................11

Table 4: Strategic Implications of the resources..................................................................................12

1.0 Introduction

This is an executive report on Virgin Atlantic Airways, which contains an External

and internal analysis of the company’s current competitiveness and concludes

with a recommendations on the future strategic direction of the company.

1.1 Company Overview

Virgin Atlantic Airways Limited (Virgin Atlantic) a part of Sir Richard Branson’s

Virgin group is one of Britain’s largest airlines and Europe largest transatlantic

Virgin Atlantic | Introduction 3

airline. It is 51% owned by The Virgin group and 49% owned by Singapore

airlines. In the first quarter of 2010, the revenue went up by 10% to £532 million

(The Virgin Atlantic Press Office, 2010).

Founded in 1984, and headquarter in West Sussex, near that Gatwick Airport, the

company flies long haul to Europe, Africa, Caribbean, Middle East, Asia and North

America. It is a privately owned company and as such does not publish its

financial records.

Mission Statement

Virgin Atlantic’s mission statement is “to grow a profitable airline where people

love to fly and where people love to work”. This mission is profit orientated,

which is a vital factor in strategic decision.

Virgin has had a history of maintaining its strategic positions in Britain competing

intensely with British Airways.

Virgin Atlantic | Introduction 4

2.0 The Analysis of the External of EnvironmentBy external environment, we mean factors that are beyond the control of the

organization and may impact on its strategic direction, its internal processes and

structure (Pearce & Robinson, 2011). The external environment consists of:

1. The macro-environment: analysed with PESTEL (an acronym for Political,

Economic, Socio-cultural, Technological, Environmental and Legal factors)

2. The industry and competitors : analysed by Porters 5 forces framework

with critical success factors and strategic groupings

3. The identification of opportunities and Threats from SWOT Analysis.

An understanding gained from using these frameworks are useful in future

strategic decision making for Virgin Atlantic.

2.1 The Macro-environment

This consists of all the factors that are beyond the control of the firm and can

have a meaningful effect on the firm’s strategy (Dess et al., 2010). A PESTLE

analysis shows the effect of these factors in the Airline industry.

We would examine this effect on Virgin Atlantic.

Political Factors

These are Government operating regulations within which the airlines have to

work with. The Single European Sky (SES) initiative was created to serve as a

regulator for Air traffic management in the European Union. The European airline

deregulation has created a single market, removing restrictions from member

countries and creating international competitiveness. This would mean reduced

competitive advantage of national carriers like British Airways which is a good for

Virgin Atlantic. However, this has also seen the rise of low-cost airlines that has

increased competition for the major airline companies like Virgin Atlantic.

The recent EU-US “open skies” agreement which opens up the transatlantic

route allowing all European carriers to fly to US has also increased competition

for Virgin Atlantic. This is because this route was exclusive to Virgin and 3 other

Airlines.

Economic Factors

Virgin Atlantic | 2.0 The Analysis of the External of Environment 5

Economic factors are concerned with the nature and trend of the economy in

which the firm operates. (Pearce & Robinson, 2011). The profits from the Airline

industry is expected to fall by 40% this year as stated by IATA, this is due in-part

by the rising oil price. (Bisignani, 2011). Another report suggests that revenues

from UK airlines Industry fell by 19.7% in 2009 with passenger volume shrinking

by 7.4% the same year (Datamonitor, 2010).

Virgin Atlantic was also hit by the economic downturn of 2009, reporting an

operating loss of £132m and revenues going down by 8.6% to reach £2,356.6m

(The Virgin Atlantic Press Office, 2010). They however showed signs of a quick

recovery a year later. Some macroeconomic indicators are shown below.

Figure 11


Table 1

Table 22

Socio-cultural Factors

These are factors that influence the beliefs, values and culture of the society

(Dess et al., 2010).

In a recent survey of UK business class travellers, 74% said children was what

annoyed them most about the first class travel and they are currently

clamouring for 18+ only travel. Travel experts are looking at Virgin Atlantic to

start offering this service. (Business Travel and shows, 2011)

The population of the UK is ageing, with an increase of 1.7million of people aged

65 and over in the last 25 years. (Office for National Statistics, 2010). As these

figures are expected to increase in the coming years, this would affect the

generally reduce the number of travellers in airline business and also increase

the cost of building aircrafts that would support over-age passengers.

Technological Factors

Technology is increasing expected to contribute to the success of the aviation

industry.

Also internet technology is changing way Airlines do business, with low-cost

airlines utilizing it with a cost leadership strategy. However, last December

amidst the cancellations of flights due to snow, virgin surpassed British Airways

in its use of Twitter (an internet social network) to provide personalised customer

service.

Environmental Factors

The aviation industry is one of major contributors to Carbon emissions. But the

entire Airline industry under IATA is united with common goals of saving the


environment. Biofuels are considered as the future way for a sustainable

environment for the airline industry (IATA, 2011).

Virgin Atlantic has been a major voice for a sustainable environment. In 2008,

they were the first airline to test a flight run partly on Biofuel, to show that the

future of Biofuels is closer than we think. From 2008 – 2009, their waste was

reduced by 43% and they have a target to reduce all waste from their aircraft to

50% by next year. (Virgin Atlantic, 2010)

Legal Factors

All European airlines are regulated by the European Union and other bodies. The

CEO of Virgin Atlantic has been appointed as the chairman of the Association of

European Airlines (AEA). This would help boost the image of strong leadership at

Virgin Atlantic and to show that they are law-abiding.

2.2 The Competitive Environment

The “five-forces” developed by Professor Michael Porter of Harvard University

would be used to analyse the competitive environment in the airline industry.

They are listed below;

1. The threat of new entrants

2. The bargaining power of buyers

3. The bargaining power of suppliers

4. The threat of substitute products and services

5. The intensity of rivalry among the competitors.

The threat of new entrants

The initial large capital requirement needed to purchase planes is considerable

high. This serves as a barrier to a newcomer, even though it may not really be a

barrier for an existing airline moving to a new region.

It is important for an airline to hold prime airport slots for take-off and landing at

major airports especially during peak holiday periods. Existing airlines have

already occupied these prime slots making it making it difficult for a new entrant

to gain access. The result been the new entrant relegated to off-peak times.

(Datamonitor, 2010)

With an 8.2% Passenger traffic growth in January 2011 (IATA, 2011), and forecast

expect this figures to rise this could attract new entrants, coupled with the EU


regulations. However, figures from last month’s fuel price show an increase of

over 50% (IATA, 2011), meaning that this would give a poor net profit margin for

new comers thereby discouraging them. Generally, there’s a moderate barrier to

new entrants

The bargaining power of buyers

The growth of online price comparison sites makes it easier for consumers’ to

quickly compare prices and would readily go for the cheaper one. This means

that the low –budget airlines can compete well with legacy carriers like Virgin

Atlantic. This increases the power of buyers (consumers).

There’s little or no switching cost for buyers and this strengthens their power.

Overall, buyer power is moderate.

The bargaining power of Suppliers

Airline manufacturers are the major suppliers in the airline industry. Airbus and

Boeing are the two manufacturers dominating the industry, especially for the

large jetliner category where Virgin Atlantic belongs. The lack of substitute

manufacturers increases the supplier’s power. Also, the safety, quality and

continued maintenance of aircrafts is of utmost important, this further increases

the supplier’s power. Virgin’s fleets are made up of Boeing and Airbus aircrafts.

The rising price of Jet fuel is another important input. In 2009, it accounted for

about 35% of virgin Atlantic’s spend (CAA, 2010). There are also a few number of

suppliers, this also increases the supplier power. Generally, the bargaining power

of suppliers in the airline industry is high.

The threats of Substitutes

Even though rail and bus travel is takes a longer time than air travel, it serves as

a substitute because it’s considerably cheaper than air travel.

Advancement in technology in video conferencing and other protocols are also a

form of substitute reducing considerable business travels.

Generally, the threat of substitute is moderate.


The intensity of rivalry among competitors

There’s intense rivalry in Europe’s airline industry and the differentiating line is

beginning to blur. The industry has many large carriers including BA and Air

France-KLM, this rivalry is made stronger by the presence of low-cost carriers as

making the companies compete on price.

Also, storage costs are the costs associated with unsold seats in a flight. This is

why airliners sell slightly more seats than is available for a flight. With high

storage cost, there’s high rivalry among competitors.

2.3 Strategic Groups

Strategic groups are clusters of firms sharing similar strategy. Strategic grouping

can be used to determine Virgin Atlantic Competitors and how they differentiate

themselves. (Dess et al., 2010). The diagram below shows explains.

Strategic Groups

High

Price

Low

Low Figure 22 Breadth of Product Line High

Adopted from Dess et al, 2009

The figure shows a strategic grouping of major European airlines. We can see

that virgin’s major competitors in Europe are British Airways, BMI British

Midlands, AirFrance-KLM. Appendix 3 gives a fuller detail. The recently concluded

merger between, British Airways and Iberia, would intensify competition for

Virgin. Also, the “no frills” group intensifies competition for Major carriers as they

compete on price.


BMI baby AirBerlin

Ryanair Easy Jet

BMI baby AirBerlin

Ryanair Easy Jet

Air France- KLM, Lufthansa, Alitalia, British airways, BMI, Virgin Atlantic

Virgin Atlantic

Air France- KLM, Lufthansa, Alitalia, British airways, BMI, Virgin Atlantic

Virgin Atlantic

3.0 The Internal Environment

3.1 Swot AnalysisThe SWOT analysis is an acronym for Strength, Weakness, Opportunities and Threats. It’s a very popular tool for getting a quick snapshot of the company. It tends to create a “fit” of the company internal resources (Strength and weaknesses) and its external environment (opportunities and threats) (Pearce and Robinson 2011).

(Barney, 1991)

Virgin Atlantic SWOT Analysis

Figure 44 Virgin Atlantic SWOT analysis

Virgin Atlantic | The Internal Environment 11

Figure 3

A full description of the SWOT analysis is attached in Appendix 1.

3.2 Resource-Based View of Virgin AtlanticAccording to Pearce and Robinson, resources are regarded as abundant ‘asset’

for a company and the assets include ‘tangible resources’, ‘intangible resources’,

and ‘organizational capabilities’. (Pearce and Robinson, 2006) Firstly, ‘tangible

resources’ refers to the substance that people can touch or see, especially in

financial and physical perspectives, which have a close relationship with

customers. (Dess et al, 2010)

Compared with tangible resource, intangible resource is more abstract than

specific. It can be divided in to three main resource, ‘reputation resource’,

‘human resource’, and ‘innovation resource’ (Dess et al, 2010)

In order to make good use of ‘tangible and intangible resources’, ‘organizational

capabilities’ should be mentioned. (Dess et al, 2010)

Therefore, ‘tangible resource’, ‘intangible resource’ and ‘organizational

capabilities’ are the three different types of Resource-based view. However, as

the competitive resources, these should have four criteria. They should become

‘valuable’, ‘rare’ resources and they cannot be imitated and substituted. (Dess et

al, 2010).

The table below shows the classification of the resources of Virgin Atlantic


Tangible Resources Fleet: Boeing 747 and Airbus A340Local office buildingsClubhouse (Lounge)Codeshare partnersLimousine Service

Intangible Resources Great Leader: Richard BransonBrand nameInnovative: technology

Organizational Capabilities Innovative check-in processCustomer service.

Table 3 Resources based View3

Resource Valuable Rare Difficult to imitate

Without Substitutes

Strategic Implications

Limousine service

Yes Yes No No Temporary competitive advantage

Clubhouse Yes Yes Yes Yes Sustainable competitive advantage

Codeshare Partners

Yes Yes No No Temporary competitive advantage

Brand name Yes Yes Yes Yes Sustainable competitive advantage

Richard Branson

Yes Yes Yes Yes Sustainable competitive advantage

Fleet Yes No No No Competitive parity.

Table 44: Strategic Implications of the resources

3.3 Value Chain AnalysisValue chain analysis is a strategic analysis of an organization that focuses on

a serial process of value-creating activities. Virgin Atlantic had become the

second largest long haul airline in the UK in only two decades because the

value chain of Virgin Atlantic is very effective. Those activities are divided into

two categories, primary activities and support activities. The primary

activities generally involve operations, inbound and outbound logistics,

marketing and sales, and service.


Primary Activities

Support Activities

Adopted from

Support Activities

Support activities are those activities that add value by themselves or by

relationships with the primary activities. They usually include technology

development, procurement, human resource management and general

administration.

A full description of the value-chain analysis is shown in Appendix 2.


Procurement: Sustainable Procurement Policy

Technology Development: culture of creativity and innovation

Human Resource Management: great employee benefits

Figure 5

4.0 Recommendation for the FutureIn today’s constantly changing business environment, firms must always look for

ways to gain competitive advantage over their competitors, and to sustain the

advantage in the long run. Michael Porter, one of the leading authors in the area

of strategy, presented three generic strategies that a firm can use to outperform

rivals in the industry and achieve competitive advantage. Below is a framework

for competitive advantage:

Competitive Advantage

Uniqueness Perceived by Customer Low Cost Position

Industry wide

Particular Segment Only

(Dess et al., 2010)

4.1 Analysing the current strategyIn an industry where most airlines offer basically the same thing; the same

service, the same aircraft, Virgin Atlantic has been able to use the

differentiation strategy to create competitive advantage. The differentiation

strategy means that there is an obvious distinction between product from the

company and the others product from the competitors, which is viewed by the

customer as unique and valuable (Dess et al., 2010).

Virgin Atlantic | 4.0 Recommendation for the Future 15

Differentiation Cost Leadership

Focus

Figure 6

As a pioneer of visible customer innovation, being first seems to have become a

trademark of the Virgin Atlantic approach. The long list of firsts some of which

include being the first airline to have individual TVs in all classes, to have no

smoking flights, to have drive-thru check-in, to have an arrivals lounge, to allow

mobile connectivity and SMS texting on board, the first to have at-seat

podcasting the first to fly one of its planes using biofuels and most recently the

first airline to introduce Limousines service for the upper class at both ends, the

theme of their current marketing campaign, “Your airline’s either got it or it

hasn’t. (Innovation Leaders, 2008)

The Virgin state of art clubhouse at Heathrow has consistently won best

clubhouse from numerous bodies. Virgin Atlantic has been a leader in sustained

innovation in this industry. (Innovation Leaders, 2008). All these have made the

company enjoy a fair amount of first-mover advantage in the industry.

Also closely related to its strategy of differentiation, virgin Atlantic also uses a

focus strategy. This means narrowing down the market for a particular buyer

group, to a particular segment (Dess et al., 2010). Much of Virgin Atlantic

differentiation strategy is targeted to the upper class passengers. In fact the

£10million marketing campaign is targeted to build its upper class passengers.

(Marketing week, 2010).

´Having changed the perception of business class travel with the introduction of

its Upper Class service, which provided ‘first class experience at a business class

price’, Virgin Atlantic soon caught the target market’s imagination. As

competitors responded with similar products, Virgin Atlantic then followed up

with the introduction of the Upper Class Suite in 2003. This multi award winning

concept introduced a flip over chair providing a completely flat bed and a wider

seat than any alternative airline. In addition, it also included an in-flight cocktail

bar, on-board massage as well as personal limo services for customers´

(Innovation Leaders, 2008). And also the state of art clubhouse is only for the

upper class.

4.2 Future Strategic Direction

From the analyses above, we have seen that virgin Atlantic combines

Differentiation strategy and focus strategy to create competitive advantage. For

sustained competitive advantage, we would like to propose the following:

Building on its core competencies


Virgin Atlantic should maintain the current strategy of combining differentiation

and focus strategy by building on its award winning core competencies which

include:

A. Innovation and creativity

B. Excellent scheduling service

C. Transatlantic long haul service. (Virgin Atlantic, 2010)

By building on these core competencies, virgin Atlantic can create a sustained

competitive advantage.

Strategic Alliances

In his article in the Harvard Business Review, Ekekwe argued that for

organizations to remain relevant in a dynamic global market there would be a

need to re-strategize and go beyond its core competencies. (Ekekwe, 2011). A

careful analysis of the airline industry shows that virgin Atlantics core

competencies are not enough to give it the necessary scale to create a sustained

competitive advantage. This is because in the recent years, the industry has

been characterized by strategic alliances. The three largest are; Star Alliance,

One world and sky team (Appendix 3). Its main competitors are spread among

these alliances.

One major benefit of these alliances is cost reduction in the value chain

activities, because it gives them economy of scale.

Late last year, virgin Atlantic hired the Deutsche bank to help analyse strategic

options as the company is considering joining the star alliance. This is a

commendable effort, as the alliance between British airways and American

Airlines would thicken competition for them (The Telegraph, 2010).


5.0 ConclusionFrom the critical analysis of the Virgin Atlantic strategy, it is obvious that they

use a differentiation and focus strategy maintaining a first-mover advantage in

the industry. We believe that it is important for them to continue this way

focusing more on their core competencies and at the same time consider a

strategic alliance with one of the big three alliances.

Virgin Atlantic | 18

ReferencesBarney, J., 1991. Firm's resources and competitive advantage. Journal of Management, 17(1), pp.77-82.

Bisignani, G., 2011. Airline International. [Online] International Air Transport Association (IATA) Available at: http://www.iata.org/pressroom/airlines-international/february-2011/Pages/ comment.aspx [Accessed 1 March 2011].

Business Travel and shows, 2011. PR Releases: Business Travel and shows. [Online] Available at: http://www.businesstravelshow.com/en/press/pressreleases/11-02-02/BUSINESS_TRAVELLERS_CALL_FOR_KIDS_BAN.aspx?afcode=btupdate [Accessed 10 march 2011].

CAA, 2010. UK Airline Financial Tables: 2009 2010. [Online] CAA Available at: http://www.caa.co.uk/default.aspx?catid=80&pagetype=88&sglid=13&fld=2009_2010 [Accessed 4 March 2011].

Datamonitor, 2010. Airline Industry in the United Kingdom. Industry Analysis.

Datamonitor, 2010. Virgin Atlantic Airways. Company Profile

Dess, G., Lumpkin, G.T. & Eisner, A.B., 2010. Strategic Management: Creating Competitive Advantages. 4th ed. McGraw- Hill.

Ekekwe, N., 2011. Beyond core competence: Harvard Business Review. [Online] Available at: http://blogs.hbr.org/cs/2011/02/beyond_core_competency.html [Accessed 11 March 2011].

IATA, 2011. Press room: IATA. [Online] Available at: http://www.iata.org/pressroom/pr/Pages/2011-02-28-01.aspx [Accessed 3 March 2011].

Virgin Atlantic | References 19

Innovation Leaders, 2008. Virgin Atlantic. [Online] Available at http://www.innovationleaders.net/va_company_profile.html [Accessed 10 March 2011].

Marketing week, 2010. Marketing News. [Online] Available at: www.marketingweek.co.uk [Accessed 7 March 2011].

Office for National Statistics, 2010. Office for National Statistics. [Online] Available at: http://www.statistics.gov.uk/cci/nugget.asp?id=949 [Accessed 25 February 2011].

Pearce, J. & Robinson, R.B., 2011. Strategic Management: Formulation, Implementation, and Control. Twelfth ed. Singapore: McGraw-Hill.

The Telegraph, 2010. Sir Richard Branson begins strategic review of Virgin Atlantic. [Online] Available at: http://www.telegraph.co.uk/finance/newsbysector/transport/8111295/Sir-Richard-Branson- begins-strategic-review-of-Virgin-Atlantic.html [Accessed 11 March 2011].

The Virgin Atlantic Press Office, 2010. All About Us: Virgin Atlantic. [Online] Available at: http://www.virgin-atlantic.com/en/gb/allaboutus/pressoffice/pressreleases/news/financialresults.jsp [Accessed 24 February 2011].

Virgin Atlantic, 2010. Awards. [Online] Available at: http://www.virgin-atlantic.com/en/gb/allaboutus/ourstory/awards.jsp [Accessed 11 March 2011].

Virgin Atlantic, 2010. Brief Sustainability Report 2010. [Online] Virgin Atlantic Available at: http://changeisintheair.virginatlantic.com/ [Accessed 2 March 2011].

Virgin Atlantic | References 20

APPENDIX 1

SWOT ANALYSISStrengths

Strong Brand Image

The virgin brand is part of the global virgin group, a worldwide recognized brand,

in the words of Richards Branson, “A brand name that is known internationally

for innovation, quality and a sense of fun - this is what we have always aspired to

with Virgin." Virgin Atlantic brand has continued to win numerous awards,

notable among them are:

1. Best Airline of the year 2010 (British Travel Awards)

2. Leading Transatlantic Airline (World Travel Awards 2010)

3. No.1 for International Airline with best inflight entertainment (Zagat

Awards 2009)

4. Best Airline based in Western Europe (OAG Airline Industry Awards 2009)

All these awards help to boost the brand image and so gives Virgin atlantic

competitive advantage.

Strong Leader

Under the romantic view of leadership, it’s the assumption that the leader is a

key driver for the success for the organization (Gregory Dess, 2010). Richard

Branson, the British entrepreneur is the key driver behind all the virgin brand.

His sense of fun, innovation and gut, has enabled virgin to be as strong as it is

now. He has been known to personally respond to disgruntled customers. while

this may be seen as strength, what happens at the demise of Richard branson?

Will the virgin brand sustain its edge? This are some of the limitation of this view.

Virgin Atlantic | APPENDIX 1 22

Strategic Alliance and code-share agreements

The company has benefitted from a number of partnerships and code share

agreements. One of them is with Singapore airline which owns 49% of Virgin

Atlantic. Passengers can book and fly through either of the airline. And also

virgin can also leverage on the fleet size of Singapore airlines.

Virgin Atlantic recently extended its codeshare agreement with the second

largest airline in Heathrow, BMI. Under this agreement, virgin Atlantic customers

can book flights on virgin and fly BMI to destinations in the Middle East.

Weakness

Private ownership

As a privately held company, virgin Atlantic is limited in its financial capacity to

expand and increase market share. Most of the competitors are publicly listed

companies and as such have recourse to public fund to fuel their expansion

projects.

Lack of scale

Probably as a consequence of it been a Private company, the company lacks

scale as compared with its competitors in the airline industry. For example,

British Airways (BA) flies to about 169 destinations (not including its codeshare

partners); Air-France KLM operates 249 destinations, while virgin Atlantic

operates about 35 destinations (see Appendix 3). Also BA has a fleet size of 233,

Air France-KLM has about 635, and while virgin has about 39. This lack of scale

limits the company’s ability to compete well with these players.

Opportunities

Growth in the Airline industry

The IATA in December last year predicted that the airline passenger would see

an increase of 5.2% this year, however, last week’s report from IATA has this

forecast increased to about 5.6%. (IATA, 2011).

Furthermore, a forecast into 2014 predicts that half of the 800 million extra

people who would travel by air would be in Asia. Virgin Atlantic is well positioned

to capitalize on this growth with strategic alliance with Singapore airline and


Japan’s All Nippon Airways (ANA). This would increase its market share and

increase revenue.

Increase in cargo traffic

Last week, the IATA predicted the global air cargo would rise by 6.1% this year

(International Air Transport Association (IATA), 2011). This presents an

opportunity for virgin Atlantic who last year reported that its cargo revenue was

up by 36%. Also last month, the company saw a 44% increase in its cargo

delivery of roses for the valentine season. (The Virgin Atlantic Press Office,

2010). Virgin Atlantic would really benefit from this as an additional source of

revenue.

Threats

Rising Oil Price

The price of oil has gone up to a high price of $111 last month; this directly

means that the jet fuel would also rise significantly. This is expected to cause a

46% drop in global airline profit from last year as the graph below depicts.

Virgin Atlantic like all other airline would be hit by this threat as it cost in jet fuel

represents a significant portion of its operating expense.


Price Reduction and Mergers

European airline industry domestic market is characterized by substantial price

reduction by the low-cost carriers like Ryan air and easy jet and this has seen

their market share grow increasingly.

Also the recent partnership and mergers going on in the industry presents a real

threat to Virgin Atlantic. Mergers like Air France and KLM, also that of British

Airways and Iberia. These mergers pose a real threat to the virgin’s market

share, as they can benefit from each other increasing their economy of scale.


Appendix 2

Value chain Analysis

Primary Activities

Inbound

In service organizations, inbound and outbound logistics always means R&D

(research and development) and designs and solutions. As part of efforts to

improve to improve logistics of its supply chain, Virgin Atlantic was the first

airline to implement an RFID tagging technology, to track assets at its warehouse

in London Heathrow airport.

Virgin Atlantic and Boeing, one of its aircraft suppliers are linked by an Airplane

Health Management System. This is an environmental friendly system that

allows them to gather and monitor critical inflight data (Supply Chain Digital,

2008). In an industry where safety and quality is of utmost importance, this is an

excellent control system.

Operations

Last month, Virgin Atlantic, deployed a cutting-edge solution for proactive

operations management. This Aviation Decision Support solution designed by

Weather Service International (WSI) provides virgin to superior global weather

information and flight planning decision support (Weather Service International,

2011).

Also, Virgin has been using environmental friendly operations to achieve

competitive advantage; they were the first airline to start using fair-trade tea,

coffee and chocolates. They have also recently ordered 15 Boeing 787

environmental aircrafts, making it the largest single order in Europe. Their

aircraft seat covers are recycled to produce fashion bags.

Virgin Atlantic | Appendix 2 26

Outbound logistics

Outbound logistics is about distributing products or service to customers or

buyers (Dess et al, 2010). Teaming up with NIIT technologies, Virgin Atlantic

offered the world fastest airline check –in for its upper class wing in heathrow

airport. This allows the upper class passengers walk straight from the chaffeur

driven limo to the clubhouse with less effort.

Virgin has also upgraded its website security with latest SSL certificate security.

This provides a visual reassurance for customers assuring them that their online

transaction is secure by the highest standards thereby increasing buyer trust.

Marketing and sales

Last year, Virgin Atlantic invested £10 million in a marketing campaign in a drive

to boost its value adding benefits among its business class travellers. The theme

of the campaign “Your airline’s either got it or it hasn’t”. This is a follow-up

campaign strategy to their 25th anniversary in 2009 and about £80 million sales

revenue has been made as a result of this campaign (Marketing week, 2010).

It would use TV, cinemas and the internet as a medium for the campaign. It’s

well defined customer segments are First Class passengers are predominately 35

to 45 years old male, travelling on business class offering a limousine service at

both ends. Passengers in Premium Economy are split fairly evenly between

travelling for business or leisure, most are middle aged male. Economy

passengers are a much broader group and travelling mainly for leisure. At the

same time, some less profitable ticket offices were replaced by high performing

telephone reservation and sales centers. Virgin Atlantic also operates a flying

club to encourage loyalty in existing customers.

Service

The customer service of First Class of Virgin Atlantic is superior and constantly

improved to achieve competitive advantage. Virgin Atlantic offers massage,

cleaning and hairdressing services for all First Class passengers. Virgin Atlantic

designed the full fare of Economy Class products in 1992. This product is

targeted to the passengers who are price sensitive but still have comfort

requirements. It had been praised as "the best Economy Class airline" by the

British travel awards (The Virgin Atlantic Press Office, 2010).


Even for those passengers who buy discount tickets, Virgin Atlantic also designed a

variety of services to make the long journey becomes interesting. The distance

between seats is 31 inches, wider than most of Virgin Atlantic's competitors.

Passengers can order meal at any time, including traditional British snacks such as

fish and chips. There are more than 20 selections of television channel with

different programmes and more than 10 Nintendo games. These comprehensive

services won lots of customers for the company.

Support Activities

Human Resource Management

Virgin Atlantic is an equal opportunity employer. Among the various benefits to

staff to motivate them, virgin gives each staff 7 free flights to any destination

they want in a year. (Virgin Atlantic, 2006)

Further more, Richard Branson, creates a sense of fun amongst the employees,

this makes them work better without undue pressure.

Virgin Atlantic CEO Steve ridgeway is the current of Association of European

Airlines shows that the company maintains cordial relations with trade unions.

Procurement

Virgin Atlantic suppliers are audited based on a Sustainable Procurement Policy;

this This policy sets out a range of conditions, from ensuring that no child labour

is used in the manufacture of the products they buy, to reducing the

environmental impact of their supply chain. So far, over £100million of Virgin’s

Atlantic spends has been covered by suppliers signing up this policy. (Virgin

Atlantic, 2010)

Furthermore, with last month’s implementation of a global e-invoicing solution,

virgin has created a win-win relationship with suppliers where virgin benefits

from a tax compliant invoice receipt and suppliers benefits from enhanced

service delivery.

Technology Development

Virgin Atlantic has a culture of that enhances creativity and innovation.

Technological innovation has permeated every aspect of their business, this


include the RFID tagging technology at the warehouse, an e-invoicing solutions,

an airline decision support solutions, etc.

APPENDIX 3Competitor Analysis

Virgin

Atlantic

airways

British

airways

Lufthansa BMI Air – France

KLM

FOUNDED 1984 1974 1954 1949 1933

PARENT

COMPANY

Virgin

group

British

Airways plc

Deustche

Lufthansa

British

midland

airways

limited

Air france,

S.A

OWNER Sir Richard

Branson’s

(51%)

Singapore

Airlines

(49%)

Airways

Aero

Association

Limited

n/a UAL co-

operatio

n

Societe air

france

HEAD OFFICE West

Sussex, UK

Harmonds,

England

Duets,

cologne

Houston,

Texas

Atremblay -

france

HUBS LONDON

GATWICK,

LONDON

HEATHROW

LONDON

GATWICK,

LONDON

HEATHROW

Munich

airport &

many more

GUM,

CLE, IAH,

EWR

Paris

Charles de

airport

ALLIANCE N/A ONEWORLD STAR

ALLIANCE

STAR

ALLIANCE

SKY TEAM

NO. OF

AIRCRAFTS

39 233 722 336 112

DESTINATIONS 35 300 410 262 249


MANAGEMENT Stephen

Murphy

(Chairman)

Steve

Ridgway

(CEO) Julie

(CCO) Steve

griffin

(COO)

Keith

wolliams

(CEO)

Martin

Broynon

(Chairman)

Christoph

franz (CEO)

Jeffery

smisak

(CEO &

Chairman

)

Jean cyrl

spitella

(CEO &

chairman)

EMPLOYEMEN

T

7478 35867 105261 41061 104,720

FISCAL YEAR

END

MARCH MARCH DECEMBER DECEMBE

R

DECEMBER

SCHEDULED

PASSENGERS

SERVICE

OFFERED OFFERED OFFERED OFFERED OFFERED

CARGO

HANDLING


AIRCRAFT

MAINTAINANC

E


LEISURE

TRAVEL

SERVICES



Virgin Strategy1

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