Virgin Atlantic SWOT, PESTLE and BCG Analysis

Jump to: BCG Matrix | PESTLE Analysis of Virgin Atlantic | Porter’s 5 Forces Analysis | Ansoff Matrix | SWOT Analysis of Virgin Atlantic

The Virgin Atlantic Airways is a UK-based private international airline that started operation in 1984.  Flying up to 35 destinations in North America, Asia and Africa, it is 51% owned by Virgin Group and 49% owned by Singapore Airlines (Wikipedia). Its fleet size is 37 (31 in order)  It competes with other local and international airlines including British Airways, the biggest and leading in UK.  In the year to February 2009, Virgin Atlantic carried 5.77 million passengers and made an annual profit of £68.4 million on turnover of £2,580 million.[2]).  With this information, it suggests firm’s bright future and industry fair share of the market.  However, external and industry environment analysis is a continuous process (Hitt, Hoskisson & Ireland 2003) that every now and then makes prediction and preparedness an integral part of strategic actions of firms to efficiently manage opportunities and threats outside its organization. 

Today, the Virgin Atlantic is one of the world’s most recognized brands and being recognized and trusted through their winning awards for their products and innovative marketing ( 2008).

Internal Environment

• Resource Audit/Value Chain
• Portfolio Analysis
• Core competencies
• bCG matrix
• Stakeholder Analysis
• Organisational Culture/Structure
• Financial Analysis
• Resource Audit/Value Chain(8500 staff worldwid)

The resource audit identifies the resources available to a business. Some of these can be owned (e.g. plant and machinery, trademarks, retail outlets) whereas other resources can be obtained through partnerships, joint ventures or simply supplier arrangements with other businesses whille

Value Chain Analysis describes the activities that take place in a business and relates them to an analysis of the competitive strength of the business. Influential work by Michael Porter suggested that the activities of a business could be grouped under two headings: (1) Primary Activities – those that are directly concerned with creating and delivering a product (e.g. component assembly); and (2) Support Activities, which whilst they are not directly involved in production, may increase effectiveness or efficiency (e.g. human resource management). It is rare for a business to undertake all primary and support activities. Value Chain Analysis is one way of identifying which activities are best undertaken by a business and which are best provided by others (“outsourced”)

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Core Competence Analysis:

Core competencies are those capabilities that are critical to a business achieving competitive advantage. The starting point for analysing core competencies is recognising that competition between businesses is as much a race for competence mastery as it is for market position and market power. Senior management cannot focus on all activities of a business and the competencies required to undertake them. So the goal is for management to focus attention on competencies that really affect competitive advantage

Performance Analysis

The resource audit, value chain analysis and core competence analysis help to define the strategic capabilities of a business. After completing such analysis, questions that can be asked that evaluate the overall performance of the business. These questions include:

How have the resources deployed in the business changed over time; this is “historical analysis”

• How do the resources and capabilities of the business compare with others in the industry -“industry norm analysis”
• How do the resources and capabilities of the business compare with “best-in-class” – wherever that is to be found- “benchmarking”
• How has the financial performance of the business changed over time and how does it compare with key competitors and the industry as a whole? Ratio analysis.

Portfolio Analysis

Portfolio analysis is defined in the Marketing Management Text as the aid to marketing managers to help develop effective marketing plans. Portfolio models are used to classify Strategic Business Units (SBU’s) to determine the future cash contributions that can be expected for each SBU as well as the future resource requirement that each will require. Portfolio models generally examine the competitive position of the SBU and the chances for improving the SBU’s contribution to profitability and cash flow.

The model we will be using for Virgin is the Boston Consulting Group (BCG) model. 

This model is based on the relationship between relative market share and growth of the Market The BCG model classifies products under four areas. These are stars, cash cows, question marks and dogs. Stars are SBU’s with high share or high growth market 

Virgin Atlantic is clearly the cash cow of the Virgin Empire but we have undertaken a Portfolio analysis from the viewpoint of Virgin Atlantic. With regards to Virgin Atlantic Airways we believe that there is no star. The cash cow is the Upper Class section. Cash cows have high share of a low growth market and generate higher cash revenues. This high end product targets wealthy customers and business passengers. This is the highest costing ticket available, usually around $9,000, and there are 50 seats available in this class. Therefore, upper class generates much higher revenues compared to premium economy and economy. Dogs are SBU’s that have low market share in low growth market. We see Virgin Atlantic’s economy class as a dog. Question marks are SBU’s that have high potential but will require great resources to build market share. We believe that Premium Economy is a question mark as it has potential to be a cash generator. Premium economy targets cheaper flying business class passengers and high end couples. There are 38 seats in this class and tickets generally sell for around $3,000. Economy class focuses on families and groups flying together. Tickets for economy class are priced around $500 and there are 271 seats.

BCG Matrix

Virgin Culture

Virgin Atlantic is a unique airline with great people and has a unique culture and it is not easy to sum up our culture in just a few words. Ours is a demanding and fast changing business and every one of our people has to have the intelligence to plan and deliver brilliant airline operations, to think on their feet and be accountable and respond to change and development. All the while, of course, we are all working hard to deliver our unique mix of product and service for which we are famous. All this creates a lively, collaborative environment where everyone knows what’s expected of them and works together to achieve it. We pride ourselves on being as honest and unpretentious as we are inspired and professional – everyone has a chance to voice their opinions and no one’s too proud to ask questions. We embrace innovation – wherever it comes from. If someone, an employee, customer or passenger – has a brainwave… we’ll listen. If we like it – we’ll do it and this is another way in which our people are the driving force behind our success.Of course, it takes a certain sort of person to flourish in such a fast-paced, freethinking environment. Talented, self-motivated, enthusiastic, you’ll have to share in our passion for providing only the very best. Put people like this together, and you create a winning performance culture that thrives on inspirational leadership, positive attitudes, commercial flair and underpinned by solid accountability.

Financial Analysis

Virgin Atlantic has managed a pretax profit of 41.6 million pounds ($76.1 million) on record annual sales of 1.91 billion.The carrier shared that a rise in business class travel helped more than double its pretax, pre-exceptional performance, which stood at 20.1 million pounds for the year ago period. Sales were up 17 percent for its financial year, which ended on February 28 Carrying a record 4.9 million passengers, Virgin had a 2005-06 pre-tax, pre-exceptional items profit of £41.6m – more than double the figure for 2004-05.Virgin’s results announcement comes after reports that it was Virgin that “blew the whistle” on British Airways which is now being investigated by the UK’s Office of Fair Trading (OFT) and the US Department of Justice over alleged cartel activity involving BA and other airlines. Virgin has said that it is helping the OFT and the justice department with their inquiries.Chief executive Steve Ridgway reportedly said the strong performance came on the back of a 10 percent increase in the number of passengers using its Upper Class cabin and the grabbing of market share on the North Atlantic.

According to media, Ridgway denied, however, that Virgin had used the fuel surcharge – like BA’s, £70 on a round-trip ticket – to bolster revenues. “The fuel surcharge has not kept pace with the increased cost of fuel,” he reportedly said. “It has only enabled us to recover around half of our fuel costs. Whereas fuel used to be around 15-16 percent of our costs it is now nearer 30 percent.”Ridgway declined to comment in detail on why Virgin had blown the whistle on alleged conversations between it and BA, which prompted an OFT probe into alleged fuel surcharge price-fixing. According to a report: “BA and VA impose the same surcharge of pound stg. 35 ($87) per individual long-haul flight (pound stg. 70 for a return trip). While BA had often been among the leaders in raising the fuel surcharge, on some occasions Virgin Atlantic, its main long-haul competitor at Heathrow, had also taken the lead. On most occasions the other airlines quickly followed the lead of the first mover. Last September, VA raised the long-haul surcharge from pound stg. 24 to pound stg. 30. It was followed in the same week by BA with the same increase. Virgin lowered the surcharge again in November to pound stg. 25, but BA did not follow suit and in January Virgin returned to pound stg. 30. In March, VA raised the levy to pound stg. 35. BA followed to pound stg. 35 in April. The Office of Fair Trading said last week that the investigation was at a very early stage and that there should be no assumption that there had been any wrongdoing.

The External Environment:

PESTLE Analysis

 PESTLE analysis if you are including legal and environmental.

Airlines are a good one because so many different things affect them.

Political – Taxes that they get charged in different countries for landing, fuel taxation etc

Economic – e.g. How does interest rate movement affext their longterm debt? How as their economic performance compared to the market sector? P/E ratios etc. Oil prices increasing, is this affecting their profits from increased fuel costs?

Social – Safety measures they employ on board and on the ground. Polulations growth – does an ageing poulation affect them i.e. baby boomers, lots of people in that lifestage have more disposable income to spend….

Technological – As things improve technology becomes cheaper. How does this affect them? Does this mean the entries to barrier are lower for competitors to join? Do easyjet have a big R&D dept?

Legal – Different legalities of different countries – some stricter than others… 

Environment – carbon offsetting, what is their CSR policy? 

The Industry Environment: Five Forces

New entrants in the industry basically face two difficulties: barriers to entry and retaliation from present firms (2003)  In the aviation industry, particularly the service passenger-based ones like Virgin Atlantic Airways, in modern economies are privately-operated that calls for substantial financial requirements at the fore.  Since travel services are derived demand (), new entrants should be able to cut a share in the pie in the presently saturated market.  This endeavor could result to another substantial resource to be deployed.  However, with such new entrant engagement, it does not assure of intended results because competitors like Virgin already created strategic links to other country-routes including its alliance with Asian giant Singapore Airlines that makes it easy to create counter-strategy.Boeing, the largest manufacturer of jetliners and supplier of Virgin’s aircrafts, had recently signed long-term agreement with largest aerospace parts distributor Satair for an Integrated Materials Management ().  As a result, Boeing could reduce its inventory and minimize warehousing costs because spare parts will be provided only when needed.  A cost reduction strategy from a supplier can assure customers like Virgin of price management scheme, if not, its another supplier, Airbus (the once number one airline manufacturer) could be resorted.Competitors in the industry have the same capability in terms interactivity of their web pages like Virgin.  This is supported almost fifty percent prevalence of internet connection among UK market, not to mention other countries.  As a result, the power of buyers to gain access to prices and services of firms increase making them knowledgeable of distinction of one from the other.  Companies on their part are obliged to be more competitive especially in maintaining and updating their web sites. The country’s sea transport industry had developed super ferries while the 2003 recorded 17.4% increase of UK passengers who took cruise holidays that reached nearly one million in that year ().  This development would make sense to airline industry tourism and leisure market especially foreigners that like to see the national endowments.  With demand for airline transport rise at faster rate than supply for it, the airline industry is required to effectively allocate its resources in a manner that exploit this supply shortage. Other airline competitors in the likes of AMR Corp., British Airways and Lufthansa are operating in at least 150 destinations compared to Virgin’s 20 As a result, rivalry among these firms against Virgin is relatively insignificant although strategic actions of Virgin that directly and significantly threat their market could spark retaliation in the detriment of relatively small firm.  The firm should focus in its target market and avoid competing with these large firms.

Ansoff’s product / market matrix

Introduction

The Ansoff Growth matrix is a tool that helps businesses decide their product and market growth strategy.

Ansoff’s product/market growth matrix suggests that a business’ attempts to grow depend on whether it markets new or existing products in new or existing markets.

The output from the Ansoff product/market matrix is a series of suggested growth strategies that set the direction for the business strategy.

What is a Critical Success Factor?

Critical Success Factors (CSF’s) are the critical factors or activities required for ensuring the success your business. The term was initially used in the world of data analysis, and business analysis.

(  attracting customers; managing its fleet; managing its people, and managing its finances)

Most smaller and more pragmatic businesses can still use CSF’s but we need to take a different, more pragmatic approach.

Critical Success Factors have been used significantly to present or identify a few key factors that organizations should focus on to be successful.

As a definition, critical success factors refer to “the limited number of areas in which satisfactory results will ensure successful competitive performance for the individual, department, or organization”.

The connection of the Virgin Airline is outrageous because of the media that serves as a huge market competency advantage. Their strategy is using the media such as television, radio, internet, and even newspaper gave the business an opportunity for promotion.

KEY POINTS

 

Virgin Atlantic established the strategy in promotion. They need to communicate with their customers for their initiatives in offering special offers that effectively make an appeal to their customers

The benefits are expected to gain the Airlines 3-month payback on their investment; can utilize the advantage of the company over the technology such as computers; lowering the costs of the promotional materials because of the interaction of the business in the different forms of media; prioritizing the communication to the customers; and having the complete control on the advertising campaigns 

The Virgin Atlantic recently tested the innovation and can continuously apply this in all their system. This strategy deals with the climate change has a great impact in the internal operation of the business such as the investment in the additional technology, better flying planes, building and operating an efficient infrastructure, and positive economic arrangements.

 

Strategy:

Is about to design a desired future and identifying ways to bring it about by stenier1979

.a strategy is the pattern or plan integrate an organisation ‘s major goals polices and actions into a cohesive whole.

 Strategic Planning

Strategy is the direction and scope of an organisation over the long-term: which achieves advantage for the organisation through its configuration of resources within a challenging environment, to meet the needs of markets and to fulfil stakeholder expectations”.

In other words, strategy is about:

* Where is the business trying to get to in the long-term (direction)

* Which markets should a business compete in and what kind of activities are involved in such markets? (markets; scope)

* How can the business perform better than the competition in those markets? (advantage)?

* What resources (skills, assets, finance, relationships, technical competence, facilities) are required in order to be able to compete? (resources)?

* What external, environmental factors affect the businesses’ ability to compete? (environment)?

* What are the values and expectations of those who have power in and around the business? (stakeholders)

Strategy at Different Levels of a Business

(Safety, security and consistent delivery of the basics are the foundation of everything we do.

The success of our three year strategy requires us to build on these foundations by focusing on the business and leisure markets and driving efficiency andeffectiveness.)

Strategies exist at several levels in any organisation – ranging from the overall business (or group of businesses) through to individuals working in it.

Corporate Strategy – is concerned with the overall purpose and scope of the business to meet stakeholder expectations. This is a crucial level since it is heavily influenced by investors in the business and acts to guide strategic decision-making throughout the business. Corporate strategy is often stated explicitly in a “mission statement”.

Business Unit Strategy – is concerned more with how a business competes successfully in a particular market. It concerns strategic decisions about choice of products, meeting needs of customers, gaining advantage over competitors, exploiting or creating new opportunities etc.

Operational Strategy – is concerned with how each part of the business is organised to deliver the corporate and business-unit level strategic direction. Operational strategy therefore focuses on issues of resources, processes, people etc.

How Strategy is Managed – Strategic Management

In its broadest sense, strategic management is about taking “strategic decisions” – decisions that answer the questions above.

In practice, a thorough strategic management process has three main components, shown in the figure below:

Mission Statement

“To grow a profitable airline that people love to fly and where people love to

Work.”

SWOT Analysis

The next segment of reviewing a firm’s strategic plan is to perform a SWOT analysis. This entails identifying a firm’s internal strengths and weaknesses and their external opportunities and threats. After analyzing the external environment and internal resources, strategic decision makers have the information they need to formulate corporate, business, and financial strategies of the organization. A comparison of strengths, weaknesses, opportunities, and threats is normally referred to as a SWOT analysis. A SWOT analysis helps executives summarize the major facts and forecasts derived from the external and internal analysis. From this, executives can derive a series of statements that identify the primary and secondary strategic issues confronting the organization. Strategy formulation builds on SWOT analysis to utilize strengths of the organization in order to capitalize on opportunities, counteract threats, and alleviate internal weaknesses. In short, strategy formulation moves from simply analysis to devising a coherent course of action. The findings of a SWOT analysis are the basis for developing objectives and strategies that can be implemented in a company’s strategic plan. Therefore, it is important for companies to continue to perform SWOT analyses, because external and internal factors affecting companies are constantly changing. New strategies need to be developed and old ones need to be revised in order to reflect the current internal and external conditions that affect a company Internal strengths and weaknesses are activities that a company performs particularly well or poorly. These internal activities stem from all departments and components of a business. After a company identifies its strengths and weaknesses, it should then develop strategies that capitalize on its strengths and minimize or improve its weaknesses External opportunities and threats are events that occur outside of the company and are events that the company has no control over. Companies benefit from external opportunities and are harmed by external threats. It is important for a company to recognize its external opportunities and threats so it can formulate strategies to take advantage of future opportunities and to avoid future threats.

(S)trengths:

• Virgin Brand recognized by 98% of British Public.
• Clients expect good customer service in each separate class Business/Economy.
• Virgin Atlantic introduced innovative technology: including in flight music, ice cream, games, and movies.
• New in flight innovation is offered to gold club holders or J-class with lounges offering quality food and comfort.
• Quality trained employees recruited from other airlines.
• Virgin Atlantic is spawned from as a private company allowing for other Virgin brands and more control.
• Richard Branson’s innovative entrepreneurial management.
• Competitive pricing for business class offers more services.
• Partnership with Singapore airlines because they are the minority shareholder at 49%. The reason why this partnership is beneficial is because their routes are non-overlapping and the partnership allows the transfer of core competencies.
• Load factor is better than competition; therefore, returns are higher and value is greater.
• Positive publicity, in regards to winning every quality award known to man.

(W)eaknesses

• Flight delays: need to improve flight efficiency.
• The travel routes are limited.
• Hot Air magazine separate from traditional airline advertising magazines
• including articles and marketing advertising.
• Cut routes to Chicago, Toronto, and Cape in relation to the September 11 tragedy.
• Late getting on the Internet “Missed the Boat” for web site, web page, and ecommerce.
• Richard Branson is a one man manager being the owner and director of multiple companies.
• Costs associated in the overhead of keeping two five star chefs, lounge, and limo service.
• Virgin’s reliance on Trans Atlantic traffic makes them more vulnerable to the drop in demand for travel to and from the U.S.

(O)pportunities

• Strategic Marketing above the rest utilizing by being innovative, fun, maintaining values, caring, and produce quality.
• Technology adds improvements (Galileo) an advanced inventory system.
• In flight Internet connection.
• Web site needs to be improved possible weakness for e-commerce and regular web site navigation.
• Generate additional routes.
• Virgin Galactic, we are flying into outer space.
• Warehouse facility -Heathrow, London.
• Recession may be an unexpected opportunity for investment.
• On-line strategy in targeting branding and ongoing ad campaigns, through on-line media planning and buying account.

(T)hreats

• Recession, September 11th will and has affected the entire airline industry, order cancellations, risk aversion for flying customers
• Brand Dilution by a rapid expanding brand image may be too global and not focused towards the important products.
• Competition for routes British and United.
• Fuel prices are fluctuating, which accounts for 15% of total airline expense.

Objectives

The results that an organization seeks over a multiyear period are its long-term objectives. Such objectives typically involve some or all of the following areas:

profitability, return on investment, competitive position, technological leadership, productivity, employee relations, public responsibility, and employee development.

Eric Starks, Virgin Atlantic Regional Director, stated the following objective: “To maintain a safe customer environment through the necessary security procedures. Also to concentrate on core competencies by consolidating routes, directly related to downsizing workforce, to remain profitable while targeting business class passengers.”

Strategies

Strategies are statements of how objectives are to be achieved. These are usually long- term strategies and necessitate many different approaches, such as, product development, joint ventures and strategic alliances. Generic strategies such as low cost, differentiation, or focus strategies characterize the competitive orientation of the firm in the marketplace.In order to remain profitable Virgin Atlantic has focused on its core competencies. The company is currently focusing its strategies on sustaining great quality. service and maintaining relationships with their Upper Class customers. This has resulted in the closing of routes to Toronto, Chicago, and Cape Town. The company has also reduced the amount of flights a day and personnel by 20% per route across the North Atlantic. For example, the San Francisco routes were reduced from two flights to one flight per day.

Competitive Strategy Analysis

Segmentation

Market segmentation is defined as the process of dividing a market into groups of similar consumer and selecting the most appropriate group(s) for the firm to serve. This concept is achieved through the following six steps

• Define firm’s current situation.
• Determine consumer wants and needs.
• Divide markets on relevant dimensions.
• Develop product positioning.
• Decide segmentations strategy.
• Design marketing mix strategy.

Targeting

Targeting is when a firm chooses one or more market segments as a specific target markets. Virgin Atlantic is a company that considers every customer to be important and thus offers individualized services to customers. These are nine basic criteria for targeting

• Who buys our product?
• Who does not buy our product?
• What need or function does our product serve?
• What problem does our product solve?
• What are customers currently buying to satisfy the need or solve the problem for
• which our product is targeting?
• What price are they paying for the product they are currently buying?
• When is our product purchased?
• Where is our product purchased?
• Why is our product purchased?

Upon evaluation of these questions the company must then assess opportunity in target markets based on segment size and growth potential, competition, company’s objectives and feasibility of success in this market. Virgin Atlantic has targeted upper class customers who are primarily business passengers traveling on transatlantic routes.

Positioning

Positioning refers to the act of locating a brand in customers’ minds over and against other products in terms of product attributes and benefits that the brand does or does not offer.38 There are many different general strategies for positioning products Attribute or benefit, quality and price, use or application, competition, high-tech and high-touch, can achieve desired positioning. Most significantly, Virgin Atlantic has positioned itself as direct competitor to British Airways on all routes. Firstly, Virgin Atlantic was extremely aggressive in obtaining slots at Heathrow International Airport. Secondly, Virgin Atlantic attacked the proposed British Airways and American Airlines partnership stating that it was unhealthy for competition. Finally, Virgin Atlantic has strived to compete with British Airways on all routes into and out of London. Virgin Atlantic attracts customers by being fun and innovative. On the aircraft passengers experience spacious setting arrangements, state of the art in-flight entertainment system, and most importantly a high level of customer service. In addition,Virgin Atlantic offers a distinctive upper class service at business class prices.Furthermore, Virgin Atlantic is installing Internet capabilities and is implementing Galileo’s Inside Availability (R), a high-tech inventory management system.

• Option one – low price/low added value.

likely to be segment specific.

• Option two – low price.

risk of price war and low margins/need to be a ‘cost leader’.

• Option three – Hybrid.

low cost base and reinvestment in low price and differentiation.

• Option four – Differentiation.

(a)without a price premium:

perceived added value by user, yielding market share benefits.

(b)with a price premium:

perceived added value sufficient to to bear price premium.

• Option five – focussed differentiation.

perceived added value to a ‘particular segment’ warranting a premium price.

• Option six – increased price/standard.

higher margins if competitors do not value follow/risk of losing market share.

• Option seven – increased price/low values.

only feasible in a monopoly situation.

• Option eight – low value/standard price.

loss of market share.

Conclusion

By studying this external and industry analysis on environmental facts, it could be said that Virgin Atlantic Airways is situated in standard cycle markets wherein its competitive advantage is moderately shielded from imitation.  In general, airline industry belongs to slow cycle markets, however, due to relatively smaller capital and operations of some firms like Virgin, compa