Virgin Blue Company's Prerequisites to Become a Winner in the Market - Report Example

Name: Professor: Institution: Course: Date: 1.0 Introduction Virgin Australia Airlines Pty Ltd, formally known as Virgin Blue Airlines Pty Ltd is the second largest airline in Australia as well as the largest by fleet size. The airline is a strategic business unit (SBU) and subsidiary of Virgin Group which is one of the UK’s largest private companies (www.virgin.com). Now based in Brisbane, Bowen Hills, Australia and Queensland, the airline was founded by business man Sir Richard Branson in August 2000. The airline had one route, two aircrafts and suddenly found itself catapulted to the position of Australia’s second largest airline after the collapse of Ansett Australia. Currently, John Borghetti is the CEO and Managing Director of Virgin Australia Airline and has lead the company to becoming the first Australian airline to offer remote check-in via your mobile, called “Check-Mate” as well as being awarded the best low-cost Airline (Australia/Pacific) in the 2010 Skytrax World Airline Awards (www.virgin.com). The main competitors of Virgin Airline include Qantas Airways and Jetstar Airways. Qantas airline is Australia’s largest airline and the oldest continuously operated airline in the world and the second oldest in the world overall with its headquarters located in the Qantas centre in Mascot, New South Wales and Sydney. Currently, Australia has three domestic airlines, namely; Qantas, Virgin Australia and Jetstar airline where they hold a market share of 40%, 38% and 23% respectively (www.virgin.com). Virgin airline has grown to directly serve 29 cities in Australia with hubs at Melbourne Airport, Sydney Airport and Brisbane using a fleet of Airbus wide body jets, Embraer jets and narrow-body Boeing (www.virgin.com). 1.1 Industrial Analysis 1.1.1 Competitive Rivalry This threat is probably the greatest of the other Porter’s Five Forces within the airline industry (Porter 1990). Airlines firm such as virgin airline and Jetstar operate in a profitable market referred to as Low Cost Carriers (LCC). The main purpose of LCC is to offer consumers with flights at a lower price. Operating LCC successfully is highly profitable and therefore there have been several successful as well as unsuccessful competitions within a profitable market. Some of the direct competitors of Virgin airlines are Qantas, Jetstar and Virgin Blue who are domestic competitor while International competitors include Air NZ, Emirates, Singapore Airlines, Air Vanuatu, Cathay Pacific, Thai Airways and Japan Airlines. 1.1.2 Barriers to Entry and Exit Capital requirement for entering this industry pose a high entry barrier for the new entrants. If a company intends to enter this industry, it has to consider costs of buying or leasing aircrafts, hiring qualified personnel, acquiring computer reservation systems and renting gate space. Also brand identity poses the most significant threat for all new firms intending to join the industry as they have to launch their product alongside companies that have already established their brand. In airline travel, many clients would prefer to travel with the brand that they trust as a result of the risk perceived with flying. The passengers concerns heightened as a result of the tragic events on 9/11 which ended up affecting the entire industry (Barney, 2008). 1.1.3 Threat of Suppliers The suppliers in the airline industry have high bargaining power. Depending on the level of employees’ unity, this can create a substantial expenditure to any firm operating in this industry. If pilots go on strike, then airlines can lose revenue resulting to low profits. Also, aircrafts manufactures have a high bargaining power since switching cost from one manufacture to the other is high (Airlines Industry Profile, 2007). However, this power can be reduced if an airline firm decides to acquire secondhand airplanes. Fuel providers also pose a great threat to airline companies and with the fluctuation of the fuel prices which has no viable substitute, the suppliers have a higher power over the industry. Generally, the airline industry has many suppliers who have high bargaining and subsequently poses a threat to airline’s profitability. 1.1.4 Threat of Buyers Customers demand for fair prices has lead to rise of Low Cost Carriers (LCC). If an airline company intends to make some good profit from this industry using price as a strategy, then, they must be sure to maintain a large market share in the industry. The airline industry serves a large group of clients and therefore if one airline decides to leave the industry, this will not have any impact on the industry. This means that if an airline is unable to differentiate its services from other airlines, then the customers will be the determining factor. Consequently, the airline which will be in a position to offer high quality services at a reasonable price will definitely be the favourite to the customers (Thompson et al 2010, p. 58). Other factors such as slowing or unstable economy can have an effect on the threat of buyers as they affect the financial viability of customers to travel by air. 1.1.5 Threat of Substitutes All other means of transportation pose a threat of substitution, where in this case we are excluding the competition among airlines carries. Rail, water, highway and transit satisfy the same need of a consumer in a different way. Other factors such as distance, convenience, price and immediacy determines the mode of transport chosen by customer and may also poses a great threat. Short distance travel makes up 89.8 % of the travels total and is considered as 499 miles or less. Bus transportation and personal vehicles are the ones that dominate the short distance group. The airline industry focuses more on long distance travel which is referred to as 500 miles or more. Personal vehicles and airline firms are exposed to high level of substitution in the categories of 750-999, 1000-1499 and 1550 and more miles. Passengers’ vehicles have dominated the transportation sector since they have the highest portion of the market share making and as a result, mode of transport by vehicle poses the greatest threat of substitution to the airline industry (Thompson et al 2010, p. 58). 2.0 SWOT Analysis Strengths First to launch low cost flights in Australia and has vigorously maintained the ‘ low fare policy Highest seat density leading to high efficiency in operations Strong brand name Lowest labour cost due to lowering staff Increased capacity in new fleet leading to lower fares Market share leadership Major earnings from innovative ancillary schemes such us “Check mate” Loyally customers Low overheads due to flat-structured and simple form of organization Point-to-point flights eliminating through-travel service cost Acquiring and merging with other airlines which has reduced competition Aggressive and Innovative leadership Weaknesses High fuel cost lacks in product differentiation High sensitivity to any new taxes that may be imposed Decrease availability of airports in popular or frequently traveled destinations Low employee morale They are not very proactive to introducing new product Different models at assorted amount points Opportunities Offer product variation Differentiate its account from competitors Through make itself distinctive from competitors, it can gain more market share. By providing distinguish services it can increase its customer base Plan to expanding operations into non-European markets in the future Mergers or acquisition could be a way to stretch its operation to popular During any financial downturns, the new fleet could be leased out, undercutting other sources Increase entrepreneurial activities will be a source for economy air travel Threats The upper middle class economy traveler may seek greater value proposition than just low fares Traditional airline are also cutting fares and cost which could affect the market share of virgin Direct competition with other Low Cost Carriers players in the near future is inevitable Limited or no slot availability at major airport could be a hurdle to expansion plans Source: Author (2011) 3.0 PEST Analysis PEST stands for the following: political refers to the current and potential influences from political pressure; Economy, the national, local and world economy impact; Sociological refers to the way in which changes in society affect the company; and Technological refers to the effects of new and emerging technology. On this case, we are going to analyze Virgin Airline in Australia. Political Virgin airline’s compliance to regulatory and legal policies is deliberate. Since it was formed in 2000, the airline management adheres to the requirements specified by authorities The airline’s profits are depended upon annual government operating subsidies The government’s involvement on a step-by-step process for development is expected. The government is involved in the intermediary of progress and also in assisting the market by providing effective agreements and partnership with other countries Economic The possibility of the occurrence in global recessions brought about by organizations closing down and the loss of jobs may have a direct impact on its Virgin Airline business strategy The unprecedented fluctuations in the local and international economy can also affect the financial condition of Virgin Airline, thus there is need for increase financial management strategies Operation levels are diversified taking particular attention to the competitive services rendered to the train passengers Social As industry leader in Australia, Virgin airline’s management trend moves towards more reliable services across their clients for efficient service and product distribution. They provide other needs of the clients supported by their management system and personnel The social responsibility of providing outstanding services for customers is always a major priority. The airline made it a point to consistent with its mission and aim in quality service offering through economic considerations of that the consumer adhere to who belong to the lower end of the customer population Poor punctuality needs to be addressed Technology Virgin airline technological commitment is clear through its sustainable development strategy i.e. it was the first Australian airline to offer remote check-in via your mobile, called “Check-Mate” The poor state of Australia’s airport infrastructure affects the airport operations. The core principle of modern industrial strategy can also be obtained from supporting infrastructure and freeing up resources as well as by facilitating interaction Time-efficient and Cost-effective routing patterns are subject for reassessment 4.0 Mission Statement “Virgin Australia Airlines is dedication to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit.” 5.0 Value Statement “As a company, and as individuals, we value integrity, openness, personal excellence, honesty, constructive self-criticism, continual self-improvement, and mutual respect. We are very committed to our consumers and partners and have a passion for technology and we also take on big challenges, and pride ourselves on seeing them through. We hold ourselves accountable to our customers, shareholders, partners, and employees by honoring our commitments, providing results, and striving for the highest quality" (Author 2011) 6.0 Strategic Objectives Virgin Australia airline believes that security, safety and consistent delivery are viewed as the basic foundation of everything the airline does. For the success of the company as well as the strategies it requires the management to build on the outlined foundation on the business and leisure markets that can help to drive and maintain effectiveness and efficiency. It is very important to consider the stakeholders requirement in decision making and changes in the airline. In addition to that, virgin airline will focus on working hard in order to build brand equity that involves creativity and people friendliness, thus focusing on building an image of innovation, sense of fun and quality. 7.0 Future Strategies Mergers and Acquisition Acquisition and mergers is a very important corporate level strategy in the 21st century. These strategies are very important to company growth and success in any industry. To increase competitive advantage and improve on capabilities, Virgin Blue should acquire other companies such as Jetstar Strategic Human Resource Management Virgin Blue has scarified its processes and services due to its commitment to low cost airfare. Its labour force (human resource) is not seen as a source of competitive advantage since the company does not value its people. Human resource is one source of the sustainable competitive advantage. Within the fast changing environment where technological innovative and other technologies can be copied but it’s the human resource that brings competitive advantage. Virgin Blue should adopt this strategy so as to motivate its employees which in turn will result to increased performance in their task. Marketing plan strategy This company should have a well detailed market plan for its strategic move within the market which will enable them to offer good customer services to its passengers. Such plans may include: offering discounted flights and value promotion which will enable them to keep the competitive advantage at a stable mode. Also, Virgin Blue should focus more on core competencies which will allow them to wisely and partically design suitable airline operations within the bracket of its marketing network services in a market standard based perspective. The airline needs to be goal oriented and should continue rejuvenating and also change its marketing plan strategy from time to time so as to re-invest the performance process upon the changing or upgrading of law mandated by the state. Conclusion Virgin Blue airline company is the only one that in the airline industry that has been able to focus entirely on the low price segment and has been able to make growth rates of up to 38% and more from the creation of this segment. It is very likely that Virgin Blue Company will emerge the winner in this market considering its high profitability and well as its well executed low cost business model. Virgin Blue key challenge the next couple of years will be to formulate a successful challenge which besides helping it to win the Low Price Segment war, it will be able to acquire a strong position in the value segment as well as those new markets that are outside Europe. References Barney, J. B., and Hesterly, W. S. (2008). Strategic Management and Competitive Advantage Pearson Prentice Hall Delfmann , W 2005, ‘Strategic Management in the Aviation Industry ,Ashgate Publishing Ltd., pp 229-230. O’Connell, J. F. and Williams, G., (2005) Passengers’ perceptions of lowcost airlines and full service carriers: a case study involving Ryanair, Aerlingus, AirAsia and Malaysia Airlines, Journal of Air Transport Management, Vol.11, p. 259-272 Porter, M. E. (1990), Competitive Strategy Techniques for AnalyzingIndustries and Competitors,The Free Press, New York. Porter, M. E. (1995), Competitive Advantage: creating and sustainingsuperior performance, The Free Press, New York Thompson, AA, Strickland, AJ & Gamble, JE 2010, Crafting and Executing Strategy: Concepts and Cases, 17th edn, McGraw-Hill Irwin, Boston. Read More

 

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