INCREASING AIRLINE SALES THE CASE OF VIRGIN ATLANTIC - Assignment Example

?INCREASING AIRLINE SALES – THE CASE OF VIRGIN ATLANTIC Executive summary This report presents a precisemarket strategy to Virgin Atlantic airline suggesting ways of increasing the company sales. The report presents findings from a strategic market audit undertaken utilising the industry standards and frameworks, highlighting the challenges and opportunities in increasing sales for Virgin Atlantic airline. Fundamentally, the report suggests that the major challenges in increasing company sales come from the internal structures and business strategies adopted by the company. The report suggests a number of possible options towards increasing sales for the company, including merchandising, partnerships among others. The report finally concludes by offering suggestions in the recommendations section, on ensuring sustained profitability through increased sales. Table of contents 1.Introduction 4 2.Methodology 4 3.Background to airline industry 4 4.Background to Virgin Atlantic 5 5.Strategic market audit findings – increasing airline sales 6 5.1.Customer choices 6 5.2.Competition 6 5.3.Code share agreements 7 5.4.Frequent-flyer program 7 5.5.Distribution channels 8 6.Strategic options 8 6.1.Partnerships 9 6.2.Merchandising 10 6.3.Consumer research 11 6.4.Competitive mapping 12 7.Recommendations 13 8.Conclusion 14 9.Bibliography 14 10.Appendices 17 11.Annotated bibliography 18 11.1.Primary sources 18 11.2.Secondary sources 19 1. Introduction This report will focus on the airline industry with specific focus on ways of increasing sales for the Virgin Atlantic airline. The research provides impartial findings as it has been undertaken from a neutral perspective by an independent consultant. The report aims at identifying the challenges faced by the company in increasing the sales volume as well as strategies utilised by the company. The report will further analyse Virgin Atlantic’s approach to various marketing strategies and indentify strategies which can be utilised to increase sales, focusing on a 3-5 year timeline. 2. Methodology The research was undertaken through online information gathering system. Various websites were visited in gathering the information contained within this report, different other scholarly resources were also consulted in fathering the information presented in this report. 3. Background to airline industry The airline industry has continuously been transformed since the inception of aircrafts. Airlines have undertaken different income generating methods through including cargo and mail among the items transported. Traditionally airlines offered passenger travel to individuals moving between different locations. Considered a luxury for many individuals, the increasing number of airlines has resulted in airline transport becoming recognised and increasingly utilised. The airlines have further provided different products for their clients aimed at maximising the number of passengers transported. Global ranking for airlines continues to be based on number of passengers transported within passenger airlines. Increased competition within the airline industry continues to present surmountable challenges to various carriers within the industry. Different carrier routes continue to be developed as well as different products aimed at enhancing sales. Within the airline industry, many carriers have continuously focused on enhancing customer satisfaction and flying experience. Passenger carriers have also introduced other services like cargo and mail to increase revenue and diversify business opportunities. Many carriers have taken diversification further through acquisition of cargo planes. While some companies like DHL have specialised in cargo transportation, passenger carriers continue to invest in cargo as they diversify their business opportunities for sustainability 4. Background to Virgin Atlantic Virgin Atlantic is trademark of the Virgin Atlantic Airways Limited, registered in Britain as an airline based at the Gatwick airport in West Sussex, England. The airline operates a fleet of different jets within destinations in United Kingdom, Africa, North America, Australia, Middle East, Asia and the Caribbean. In 2012 the company carried 5.4 million passengers making the airline the seventh-largest British airline based on passenger volumes(Civil Aviation Authority 2012). The company owns a CAA type A licence, which allows the company to integrate passengers, cargo and mail within a single aircraft carrying more than 20 passengers (Civil Aviation Authority 2013). Having operated within the industry for close to three decades, the airline continues to face numerous challenges including operating losses. In February 2013, the company recorded an operating loss of ?128.4 million (Parker 2013). The airline requires adopting strategies aimed at increasing the sales volume in the aim of eliminating operating losses. The adopted strategies should ensure minimisation of operating costs as a way of maximising returns, consequently increasing profits. The airline has continuously been faced with increased competition within the transatlantic route, following the merger between British airways and American Airlines. Increasing the sales volume and cutting the operating costs remains the beginning step towards enhancing profitability of the airline. 5. Strategic market audit findings – increasing airline sales This chapter presents the findings of the research based on the SWOT analysis presented in appendix 1 contained within this report. The following are the key themes identified from the findings 5.1. Customer choices Within the airline industry many customers are provided with limited product choices based on what the airlines provide. Virgin Atlantic offers customers a selection of three options from which to choose. These have been identified as economy, premium economy, and upper class(Virgin atlantic 2013). Traditionally, airlines have always had a business class and first class. Virgin Atlantic provided the upper class through integration of the two classes, to provide their passengers with a unique experience. The choices available to customers, remains relatively low and provision of other products would considerably attract increased number of passengers. The experience of customers becomes sufficiently enhanced by passengers being provided with many products, from which to select. 5.2. Competition Within the airline, industry competition has continued to rise resulting from mergers and airlines increasing their destinations. The transatlantic route remains one of the major markets for the airline; however, because of the increased growth rate of the market, many airlines continue to invest heavily within the route. This has resulted in immense competition within the market as companies position themselves to become market leaders within the route. The merger between British airlines and American Airlines provided the greatest challenge as the companies gained 100% market share in some routes within the transatlantic market. the merger increased the market share for these airlines to 51% making the partnership the biggest carrier in the transatlantic route(Virgin Atlantic 2009). Within other markets where Virgin Atlantic operates, competition is also high although the airline experiences some market leadership in some regions like the UK local market 5.3. Code share agreements Much competition within the airline industry revolves around ticket sales and variable pricing within the industry. Many passengers using air travel prefer boarding direct flights to their destinations. Since airlines cannot provide direct flights to all destinations, code share agreements become a fundamental element in providing customer satisfaction by offering direct flights. Airlines book passengers aboard direct flights owned by other companies utilising the company code. Virgin Atlantic continues to heavily rely on these agreements especially within the Australian and Asian markets. These agreements have continuously provided customer satisfaction though at times the profits gained from ticket sales remain relatively low or even absent. The preference of providing customer satisfaction over company profits could become an element leading to losses within an airline. Virgin Atlantic has increasingly utilised code share agreements in Asian and Australian markets in providing customer satisfaction within these regions. The application of code share agreements in other markets remains relatively low. 5.4. Frequent-flyer program This is a common loyalty service provided by numerous airlines to repeat clients, and aims to increase customer loyalty to an airline. The flying club is a product of Virgin Atlantic in which frequent flyers become rewarded by enrolling and consequently earning points whenever they fly through the airline of partner airlines. The points within this programme are earned based on the miles flown using Virgin Atlantic and partner airlines. The points earned determine a flyer’s status within the tier level. This programme seeks to ensure customer retention by enhancing customer loyalty through rewards and other benefits(Tretheway 1989). The earned points can be redeemed and used as payment for tickets as well as other items on partner companies. As a marketing strategy, this program has achieved significant customer retention(Virgin atlantic 2013). However, the services offered other than ticket payment remain limited to customers in regions where the partner companies operate. The African market customers have limited benefits for enrolling within the programme. 5.5. Distribution channels The ticketing systems utilised within airlines form the fundamental component of distribution channels within the airline industry. Virgin Atlantic has continuously utilised different distribution channels, although internet based ticketing systems have gained increased popularity(Dorinson 2004). The internet continues to be the preferred distribution channel for maximising revenues within the highly competitive airline marketplace. Increased internet utilisation has significantly increased the efficiency of this distribution channel in airline ticketing, consequently increasing ticket sales. Within the British market, this is Virgin Atlantic’s base, online ticketing accounts for 78% of all trip bookings(European Travel Commission 2013). The utilisation of online booking therefore remains an essential element which could be utilised in increasing efficiency of the distribution channels within other markets. The major challenge for internet based booking occurs in markets where internet utilisation is relatively low. The company has to heavily depend on travel agents in making ticket sales, which affects the airline sales because of the commission charged by travel agents. 6. Strategic options There is increased competition arising within the transatlantic route between Europe and North America. The issues identified within the market audit findings will become sufficiently addressed and strategies provided for increasing the sales for Virgin Atlantic. The following chapter addresses the strategic options available to the airline in increasing sales and achieving profitability, ultimately eliminating the recurrent losses experienced over the last two financial years. In identifying the strategic options, the Boston matrix (BCG) was constructed to identify methods for increasing sales volume through improvement of services or introduction of different sales approaches. These options are aimed at enhancing the sales volume of Virgin Atlantic. High Growth rate Low Transatlantic route Establishing partnerships to gain an edge in the highly competitive market Increasing the number of flights to capture the rising number of passengers British local market Increasing the number of local destinations Utilising smaller aircrafts and increasing the number of flights between British destinations Australian market The company should consider partnering with other airlines to transport passengers within this market African route Utilising larger aircrafts which can be used in reaching different destinations while carrying a large number of passengers Low Market share High 6.1. Partnerships With competition likely to increase within the coming years, partnerships remain essential in enabling Virgin Atlantic gain competitive edge. The strategy of establishing partnerships could become essential in increasing the airline’s market share within the transatlantic and Asian markets. Though code sharing has been utilised within Australian and Asian markets, the efficacy of the process has contributed to reduced profits for the airline. The company has gained relatively low benefits from this kind of partnership and a different approach must be utilised to maximise the revenue collection. The company should take different partnership approaches in enhancing competitiveness within the high growth markets, where the company has relatively low market share. The utilisation of joint ventures with potential partners could increase the sales, especially within the transatlantic routes. Joint venture would become more beneficial that the current code sharing agreements established with different partners. Within the joint venture partnerships companies operate as a single unit providing increased flight numbers within the market. Such ventures would increase the market share for Virgin Atlantic, consequently increasing pressure upon market leaders, through increased competitiveness of the airline. Many of the competitor airlines have undertaken joint ventures aimed at increasing the market share within the transatlantic routes. 6.2. Merchandising Merchandising can be described as marketing process in which sellers pay increasingly close attention to products available within the market, and determine the best approaches in presenting the products to target customers. The fundamental element behind merchandising remains establishment of reasonable prices for the various products. Within a traditional setting this would have included making bargains with customers on product prices(Friend & Walker 2001). The utilisation of internet based services can effectively integrate this strategy within the pricing aspects for airline products. Various aspects might be considered when integrating merchandising strategy within the distribution channels of airline companies. Successful implementation of the merchandising strategy would include undertaking customer awareness campaign through advertising and offering incentives to the customers. The development of high quality products would essentially become an enticing aspect, which could be utilised by Virgin Atlantic to attract customers. The flying club benefits can also become clearly integrated into a pricing system as a way of implementing the merchandising strategy within the distribution channels. As a cost cutting distribution channel, the company can introduce discounts on booking made through online systems. This would increase the ticketing revenue generated through online sales. Such discounting would contribute significantly towards successful implementation of the strategy, and consequently increase sales. 6.3. Consumer research Consumer research is the process of undertaking an extensive study of the market, commonly aimed at providing a company with increased understanding of customer requirements and satisfaction levels(Harvard ManageMentor 2010). These researches are undertaken when companies seek to introduce new products within the market. The consumer research would ensure elimination of product failure and maximisation of returns upon launching products. A consumer research remains a fundamental element in increasing sales revenue for Virgin Atlantic as the airline would introduce products meeting the customer requirements within different markets. Through the consumer researches the airline can effectively adopt and implement products which would increase the sales revenue for the company The marketing strategies adopted by the airline would become aimed at ensuring satisfaction within the target market. Consumer research will significantly enable the airline to introduce target marketing concept, informing customers about the products available within their market segment. Through consumer research, market segmentation would be implemented and products developed according to the requirements of different markets(NetMBA 2013). Target marketing as opposed to mass marketing would sufficiently enhance customer satisfaction. This satisfaction would consequently result in increased sales for the company especially in markets identified as experiencing relatively low market share. Virgin Atlantic’s market share would become increased within these markets. 6.4. Competitive mapping This involves development of processes aimed at determining the desired competitive position of a company within a given industry(D’Aveni 2007). Competitive mapping begins the understanding of competitor, commonly done through competitor analysis. Competitive mapping process would ensure the airline identifies the different challenges encountered in dealing with increasing competition especially within the transatlantic market. This would identify the challenges faced and define the various approaches which could be applied in gaining a competitive advantage within different markets(D’Aveni 2007). The competitive mapping strategy would sufficiently be utilised in overcoming the prevailing competition within different markets, resulting in a competitive advantage. This would be effectively implemented through identifying the markets experiencing highest levels of competition. Following the identification of the market, the pricing aspect for different products offered within the market becomes essential in development of a map. A cost benefit analysis remains essential in ensuring efficacy in the pricing component for different products available within various markets. The pricing can either be based on existing competitor prices or life cycle costs for different products. The mapping strategy remains the best approach for establishing competitive positions within the hypercompetitive markets. Employing the competitive mapping strategy within the airline would enable Virgin Atlantic to develop methods for outdoing competitors within the different markets. 7. Recommendations Increasing airline sales remains fundamental in ensuring the company becomes profitable in the coming years. Subsequent losses experienced in the current years can be sufficiently addressed through implementation of strategies seeking to enhance profitability of the company. Many of the strategies will seek to reduce operating costs, consequently resulting in profitability. This, however, remains a short term strategy for making the company profitable. Sustainability of the achieved profitability remains essential in ensuring the continued growth of the airline. This would involve implementation of long-term strategies which could enable Virgin Atlantic sustain profitable operations. The following strategies could be utilised in ensuring sustainability of the achieved profitability level. Entering into a joint venture within the transatlantic market to increase the market share for the airline. This would consequently enable the airline to compete successfully with other airlines operating within the market. Increasing the destinations within the local UK market for continued success within the market. As a market leader within the local market, increasing the destinations would enable the airline to maintain similar operating level. This would efficiently deal with the competition presented by new entrants into the market The company should consider quitting the Australian market and retain code share agreements with airlines operating within this market. this would ensure reduce operation costs, while customer satisfaction becomes efficiently addressed Reducing the number of flights to African market through utilising larger capacity carrier aircrafts. These aircrafts would ensure the company serves the existing customers within the market and does not loose potential clients 8. Conclusion The finding presented within this report present the various opportunities which Virgin Atlantic can efficiently maximise in increasing the sales volume, consequently eliminating operation losses and become profitable. Recognizing the potentials for the airline in achieving increased sales, the company would also increase the market share. The airline must remain focused on achieving a competitive advantage through increasing sales and consequently eliminating operating losses. The report suggests partnerships, merchandising, consumer research and competitive mapping as critical in the airline’s future endeavours. This report provides valuable information to Virgin Atlantic which can be utilised to ensure sustainable business operating profit levels. 9. Bibliography Civil Aviation Authority, 2012. All Services 2012. , p.2. Available at: http://www.caa.co.uk/docs/80/airline_data/2012Annual/Table_0_1_6_All_Services_2012.pdf [Accessed December 17, 2013]. Civil Aviation Authority, 2013. Type A Operating Licence Holders. Available at: http://www.caa.co.uk/default.aspx?catid=183&pagetype=90&pageid=340 [Accessed December 17, 2013]. D’Aveni, R.A., 2007. Mapping your competitive position. Harvard Business Review, 85(11), pp.110–120. Available at: http://hbr.org/2007/11/mapping-your-competitive-position/ar/1. Dorinson, D.M., 2004. The evolution of airline distribution channels and their effects on revenue management performance. Massachusetts Institute of Technology. European Travel Commission, 2013. Online Travel Market. Newsletter, p.3. Available at: http://www.newmediatrendwatch.com/world-overview/91-online-travel-market?start=1 [Accessed December 18, 2013]. Friend, S.C. & Walker, P.H., 2001. Welcome to the new world of merchandising. Harvard Business Review, 79(10), pp.133–141. Available at: http://hbr.org/2001/11/welcome-to-the-new-world-of-merchandising/ar/1. Harvard ManageMentor, 2010. Customer Focus: Harvard ManageMentor Online Module. Available at: http://hbr.org/product/customer-focus-harvard-managementor-online-module [Accessed December 18, 2013]. NetMBA, 2013. Target Market Selection. Available at: http://www.netmba.com/marketing/market/target/ [Accessed December 18, 2013]. Parker, A., 2013. Virgin Atlantic chief vows return to profit. Airlines. Available at: http://www.ft.com/intl/cms/s/0/970cdbca-be22-11e2-9b27-00144feab7de.html#axzz2czryWg5v [Accessed December 17, 2013]. Tretheway, M.W., 1989. Frequent Flyer Programs: Marketing Bonanza or Anti-Competitive Tool? Journal of the Transportation Research Forum, 30(1), pp.195–201. Available at: http://www.library.northwestern.edu/li.../services/document-delivery-ill-services. Virgin Atlantic, 2009. No way BA/AA. Press Release. Available at: http://www.virgin-atlantic.com/en/us/allaboutus/pressoffice/pressreleases/news/sixreasons.jsp [Accessed December 18, 2013]. Virgin atlantic, 2013. Virgin experience. Available at: http://www.virgin-atlantic.com/us/en/the-virgin-experience.html [Accessed December 18, 2013].  10. Appendices Appendix 1 company SWOT analysis Strengths Ranked 7th largest airline in UK by passenger numbers Strategically based at the Heathrow, which connects most cross Atlantic flights Reward system of flying club Weaknesses Relatively low market share in some markets Recurrent operating losses Opportunities Utilisation of technological ticketing systems Partnerships with interested airlines operating in similar markets Code share agreements with other airlines Threats Competition arising from mergers, and new entrants Increased rivalry with Britain’s largest carrier, British Airways Appendix 2 top transatlantic carriers and market share Appendix 3 the airline’s theoretical distribution channel 11. Annotated bibliography 11.1. Primary sources Parker, A., 2013. Virgin Atlantic chief vows return to profit. Airlines. Available at: http://www.ft.com/intl/cms/s/0/970cdbca-be22-11e2-9b27-00144feab7de.html#axzz2czryWg5v [Accessed December 17, 2013]. Virgin Atlantic has incurred operating losses within the past years which have resulted in the company hiring a new CEO. The article presents information regarding the first interview with the new chief executive. The CEO provides his perceptions regarding the situation facing the company. Within the article, some strategies within the short-term become identified as the CEO seeks an immediate return to profitability. Tretheway, M.W., 1989. Frequent Flyer Programs: Marketing Bonanza or Anti-Competitive Tool? Journal of the Transportation Research Forum, 30(1), pp.195–201. Available at: http://www.library.northwestern.edu/li.../services/document-delivery-ill-services The frequent flyer programmes have been utilised by airlines for a long time. The impacts of these programmes have different influence on different stakeholders within the industry. This article analyses these programmes from perspectives of the airline, passenger, the individuals paying for the ticket, and the public policy available within the market. The paper provides an insight on why these programmes should not be considered as discounts from the airlines. Virgin atlantic, 2013. Virgin experience. Available at: http://www.virgin-atlantic.com/us/en/the-virgin-experience.html [Accessed December 18, 2013] The virgin Atlantic website provides information regarding the airline’s operations and other aspects of the company profile. The different products available to customers can also be reviewed within the website. Notable among these products is the frequent-flyer program in which individuals can enrol from the website. Many other services including tickets can be accessed from the website. The website provides an interactive interface for users to access company information. 11.2. Secondary sources D’Aveni, R.A., 2007. Mapping your competitive position. Harvard Business Review, 85(11), pp.110–120. Available at: http://hbr.org/2007/11/mapping-your-competitive-position/ar/1 Competitive mapping remains an essential aspect for enabling companies to understand their position within a highly competitive market. This article presents a discussion on the element of pricing in relation to achievement of competitive advantage. The article identifies the need for companies to become fully aware of their customer expectations, consequently ensuring products meet expectations. The key element in utilising this tool effectively remains proper pricing based on competitor prices or price benefits European Travel Commission, 2013. Online Travel Market. Newsletter, p.3. Available at: http://www.newmediatrendwatch.com/world-overview/91-online-travel-market?start=1 [Accessed December 18, 2013]. This article discusses the utilisation of various online distribution channels within the airline industry. The element of making bookings remains the fundamental business aspects aimed at increasing through online distribution channels. The article provides data on the utilisation of information technology systems in undertaking online services offered by airline companies. The article further provides data regarding the devices individuals utilise to access online services within different global regions and airline markets. NetMBA, 2013. Target Market Selection. Available at: http://www.netmba.com/marketing/market/target/ [Accessed December 18, 2013]. Market segmentation remains a fundamental component when making market selection within different industries. This article presents analysis of factors which are considered when making market selections. These include attractiveness and suitability, and the article further provides analysis of the various strategies employed in selecting following consideration of these factors. Different approaches which companies can utilise are also covered within the scope of this article. Read More