THE COMPETITIVE ENVIRONMENT OF VIRGIN ATLANTIC AIRWAYS
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The Virgin Atlantic Airways is a UK-based private international airline that started operation in 1982. Flying up to 20 destinations in North America, Asia and Africa, it is 51% owned by Virgin Group and 49% owned by Singapore Airlines (Wikipedia). It competes with other local and international airlines including British Airways, the biggest and leading in UK. In 2005, it posted $2.5B in sales and $40M net income with year-on-year sales and net income growth more or less at 37% and 900% respectively (Hoovers). 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.
The External Environment: PEST Analysis
In the local environment, local elections to be held on May this year could made Tony Blair’s concentration in national issues such as health and education shift into local issues such as crime, anti-social behavior and environment (Independent). As a result, transport industries including aviation should consider this early the type of their fuels and fix emission loopholes. They must research oil suppliers that sell environment-conscious fuels and test its efficiency and compatibility with aircraft engines including preparation to possible fluctuations in present fuel costs.
In fuel-related issue, the European Union resorted legal action against member countries like France, Germany and Italy of protecting their utility firms against foreign competition (Independent). As a result, prices of fuels failed to obtain efficiencies of competitive industry making oil prices for the transport sector more costly. Local aviation firms should consider this EU action significant disincentive to their cost-effective strategies because UK, unlike the mentioned countries, fosters foreign imports making oil prices for the industry cheaper. If these countries are able to liberalize the energy sector, possible cost strategy is necessary to retain the prior upper hand.
Research suggests that rural, metropolitan and London population either employed, unemployed or economically inactive dispose most of their weekly budget to transportation along with food and recreation (Business Helper). Since socio-cultural segment affects economic and political/ legal segments (Hitt et al 2003), aviation industry could less be influenced by the latter outcomes despite of their ambiguity (will Blair retain position or will EU countries accept the directive) because consumers are willing to pay with little regard to price, instead, value of service. As a result, it is more strategic to focus on operations than financial structures.
Another finding show that 58% of the household population has computers while 49% of which has internet connection with metropolitan areas like London posted the highest incidence (Business Helper). This information is relevant to most huge firms like Virgin Atlantic Airways who heavily relies in e-business with its interactive website wherein customers can obtain flight schedules and book a flight with their finger tips. The other half of the population without computers can be addressed by the firm through other forms of media. In addition, it can also verify through additional scanning the prevalence of internet café in rural areas where household ownership is relatively low.
The Industry Environment: Five Forces
New entrants in the industry basically face two difficulties: barriers to entry and retaliation from present firms (Hitt et al 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 (Wikipedia), 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 (Boeing). 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 (Bized). 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 (Hoover). 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.
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, companies within this industry are unable to assure their long-term above average returns because they are relatively vulnerable to general environment (low lobbying power) and relatively unsecured to industry forces (potential entrants or larger competitor predation). As a result, Virgin should focus in a specific market niche or specific routes to obtain value other than price and survive the competition.