VIRGIN AIRLINES

PART 1

PEST Analysis

Political Influences

There are factors that influenced different governments entering into economics and thereby affecting businesses in that economy. Over the years there have been many political influences on virgin airlines. Some of these influences include the government itself, VAT tax, income tax, airport tax, import tax, laws that deal with labor or the environment and international deals and agreements such as trade tariffs as well as restrictions. Taxes are a major way under which the government is able to earn income. Big corporations such as virgin air always end up contributing to a large percentage of the governments’ income through one form of tax or the other. At the end of the year 2012, it was reported that the airline had made revenues of up to 2,740 million pounds. In this case, the VAT that is a mandatorily placed on services carried out by the airline is huge and perhaps the largest income generating tax of virgin airlines followed by others that are imposed directly on the airline. Furthermore, it should be considered that the airline employs a lot of man power ranking from the smallest to the largest. All these personnel have to be paid their monthly wages which are then taxed by the government (Macsai, 2009, p 28).

Other political influences include other legislations that touch on either the daily running or the daily interactions of the airline. A case example would have to be environmental law, aviation laws as well as labor law which have to be constantly adhered to by the airline and failure of which the airline will face steep penalties from the government. The government also has to ensure a balance in trade thus it has to come up with tariffs that need adhering to by all industry players, the airline being no exception. While the airline may not participate in government deals with other countries, it is imperative that it conforms to trade agreements made by the government (Gregory, 2010, p. 53).

Finally, political stability plays a very important role in the airlines business. This is because without one, the other cannot operate. While Britain has enjoyed relative piece for the longest period, there are countries in which virgin airlines operate who do not share the same stability. Operations in such countries have to be halted for the sake of safeguarding the airlines interests as well as its staffs’ safety.

Economic Influences

The economy of a given country greatly influences how the businesses of the country are carried out, how they generally fair and the decisions made in those businesses. These factors include the economic rates of the country, interest, exchange and inflation rate of both the company and the business which in this case is the airline.

As of the beginning the second quarter of 2013, Britain’s Gross Domestic Product (GDP) was at 0.7. Currently, the United Kingdom is the world second largest economy. Its biggest sector that is likely to contribute to 75% of its income is the service industry. Transport falls under this sector, making virgin airlines a very lucrative business. The interest rates of any given country play an important role in ensuring the stability of that country’s economy. While this is a good sign, the airline has not been without its fair share of economic setbacks. One of them is the government imposing other regulations on airlines such as forcing the airlines to reduce prices on high traffic routs. Over the years for example the government has The airline like many others has had to cope also with high landing charges which is in addition to other taxes levied on the public which makes flying expensive. So far, UKs economy has not suffered much loss although virgin airline is thinking of offering an IPO sometime this year. This decision was made in light of factors such as jet fuel prices, the cost of purchasing new planes and adding new routes which will cost the airline additional money. Other world events also directly affect the airlines economy such as wars in different countries and outbreak of highly contagious diseases. So far, it can be concluded that the airline has been able to enjoy relative growth and expansion as a private entity due the economy which has not been doing so bad over the last couple of years. This is reflected in the profits as well as the steps in growth that the country has been making since its inception (Morrell, 2002, p. 99).

Social Influences

The airline operates on the basis on its customers who are society in general. Many travelers fly frequently to different destinations due to the fact that they have a variety of airlines to choose. However, there are events that influence whether an individual wants to fly or not. Epidemic outbreaks as well as increased number of airplane terrorist attacks have instilled fear in the minds of travelers. This may end up influencing the number of frequent flight users who may fear using the airline. It is therefore important for the airline to try and reassure the society of the destinations they fly in as well as the security in the airplane mode of transport. In recent years, the social media has also played an important role in the creation of good or bad publicity as well as a mode of advertisement. This is because society has quickly transformed into the E-generation. It is therefore important for the airline to conform to the current trends in society or risk losing a customer base (Cento, 2009, p. 33).

Technological Influence

For any airline and in this case virgin airline, the safety of its passengers as well as the crew is imperative and remains the prime concern for the airline. However, thanks to rapidly advancing technology, there is need to invest in new and current aircrafts. This also means that the airline has to constantly upgrade its fleets to more current planes. There is also the fact that advancing technology allows for the advancing of the provision of better customer services. A case example is the fact that since society has gone digital there was need to install cable less internet (Wi-Fi) to allow the customers to be able to use the internet while travelling. The world as a whole is now emphasizing on the reduction of carbon emission in all industries, airlines included. Thus the airline has had to invest in better airline technology that cuts down on this kind of emission. An example is the purchase of the Airbus A330-300 which is at least 9% less efficient as compared to the previous 15% planes. The airline has also had to invest in new technologies that would ultimately ensure the further reduction of carbon emissions by the reduction of fuel consumption (Davenport et.al, 2006, p.124).  

PART 2

Supply And Demand Factors        

Like all the other airlines in the travel industry, virgin airline depends largely on the supply and demand of its customer base. Thus, like all other, airlines, the company is likely to face similar problems that are likely to face the other air lines. These problems vary and are influenced by both internal and external factor. What is clear is that in this particular industry it is possible to gain as much profit as one can gain in a day and incur as much loss. The game of chance is that while there may be demand, the airline may fail to meet the supply and vice-versa.

The oil industry is a key player in any airline operation. This relationship is such that one cannot survive without the other. However, the oil industry is unstable with oil prices fluctuating all the time. These fluctuations usually play important roles in the pricing of the services provided by the airline. While there may not be any immediate solution to this co-dependence, it is important for virgin airlines to seek other possible fuel alternatives in the future. This would lead to the reduction of the airlines dependence on the oil industry. An immediate solution however consists of purchasing of aircrafts that consume and utilize less fuel (Burghouwt, 2007, p. 145).

Strikes are very bad for airlines due to the fact that they disrupt the demand supply chain. It is imperative that the airline ensure that the wages paid to its staff is sufficient to sustain them. This will ensure that the possibility of strikes is minimal among the workers.

Tragedies, whether of a natural or man-made disasters more often than not always end up disrupting the airline industry. Case study are the SARS epidemic and the 9/11 terrorist attacks. Due to the nature of these two disasters, flights had to be grounded and flights counseled. While disaster cannot be averted the airlines assure the public of its commitment to them and to their safety (Balmforth, 2009, p. 39).

Other external factors that influence the airline include monetary and fiscal regulations set up by governments to ensure the protection of the society’s’ best interest. Other than suing the government where extreme cases are involved, the airlines’ best alternative to adhere to the rules set by the respective governments.

Finally, the IT sector has in recent years continued to play an important role in the airline business. It is important for the airline to invest in the IT business. This ensures that the airline is up to date with the latest technology in the field.

PART 3

Type of Competitive Market

Virgin airline operates in the airline industry which is a very competitive industry. The major characteristic of this industry is the substantial price completion more so when it comes to domestic markets. Thus during low season or when clients are not as many as expected, airlines offer discount fare to attract clients. Thus the airline competes on the basis of price, customer service, costs, frequent flier benefits, frequency and convenience of scheduling, the airlines productivity and its efficiency. Some of its major competitors include, Air France-KLM, Japan Airlines System, AMR, Cathay Pacific, Delta Air Lines, United Airlines, and Lufthansa.

Airlines also compete for share capital by increasing the number of their routes as well as the markets they serve. The discounts offered by other flights especially of the domestic nature always have adverse effect on the airline (Berry, 1998, p. 63).

 

Due to the global recession, more and more airline companies are merging to form single airlines. These consolidations have led to the formation of large corporations with significantly superior monetary resources. This creates more favorable circumvent against fuel price while lowering the overall cost structures as compared to the previous smaller companies. Finally, it is imperative the company keep abreast with current social matters. This is because in seeking to draw more customers, the airline industry has become more innovative in a bid to draw specific clientele.

 

PART 4

Competing on Domestic and International Level

 

Virgin Atlantic is one of the largest British long haul international airlines that is known to offer comprehensive long haul services. The airline's passenger services unit is usually in charge of arranging check-in facilities, in-flight entertainment , meal catering, and baggage handling. The airline also has a special assistance department in charge of helping passengers with special travel needs such as special meals or providing mobility aids, health camps at departure and arrival airports. The company also has a department known as Virgin Holidays which is one of the largest transatlantic tour operators in the UK (Cornelissen, 2005, p.131).

The company also operates Virgin Atlantic Cargo which is a business unit for cargo transport. It also offers Must Ride program as well as VEX express courier services for its customers, the former is a guaranteed service for urgent and perishable shipments while the later offers urgent airport to airport shipments. Through its direct flight operating schedule, the company's on-forwarding network stretches to over 350 destinations worldwide, with the help of its global interline and trucking partners. The airline offers a Flying Club which is a frequent flier program aimed to tap the high value customers.

 

However, the company’s strongest point is its strong brand image. It is one of the UK's largest long haul airline company operating a fleet of 38 aircraft to 30 destinations, including 10 routes to the US, six routes to Asia Pacific, four routes to Africa, one route to Indian Ocean, one route to the Middle East and eight routes to the Caribbean. This strong brand image makes the company's entry into new markets easier and provides the company an edge in the airline market (Iatrou et.al, 2007, p.51).

 

 

 

 

 

 

 

 

 

 

 

 

 

Bibliography

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BURGHOUWT, G. (2007). Airline network development in Europe and its implications for airport planning. Aldershot, Ashgate.

CENTO, A. (2009). The airline industry challenges in the 21st century. Heidelberg, Physica-Verl.

CORNELISSEN, S. (2005). The global tourism system: governance, development and lessons from South Africa. Aldershot, Angleterre, Ashgate.        

DAVENPORT, T. H., LEIBOLD, M., & VOELPEL, S. (2006). Strategic management in the innovation economy strategy approaches and tools for dynamic innovation capabilities. Erlangen, Publicis. http://public.eblib.com/EBLPublic/PublicView.do?ptiID=481521.

GREGORY, A. (2010). Planning and managing public relations campaigns: a strategic approach. London, Kogan Page.

IATROU, K., & ORETTI, M. (2007). Airline choices for the future from alliances to mergers. Aldershot, England, Ashgate.

MACSAI, D (2009), 'VIRGIN ATLANTIC'S 25TH ANNIVERSARY', Fast Company, 136, p. 28, Business Source Complete, EBSCOhost, viewed 25 August 2013.

MORRELL, P. S. (2002). Airline finance. Aldershot [u.a.], Ashgate.

'Virgin Atlantic Airways Limited, SWOT Analysis' (2013), Virgin Atlantic Airways SWOT Analysis, pp. 1-7, Business Source Complete, EBSCOhost, viewed 25 August 2013.