Marketing Challenges Facing Virgin Atlantic Airline - Case Study Example

A critical assessment of the marketing challenges facing Virgin Atlantic Airline Name Professor Institution Course Date A critical assessment of the marketing challenges facing Virgin Atlantic Airline Executive Summary This report will critically assess key strategic issues surrounding the operations of Virgin Atlantic Airline Company and their implications. In this assessment the paper will conduct strategic audit on the organization using models, concepts and frameworks on the key issues established. The paper will also discuss various approaches to realizing the marketing orientation and customer value, and provide recommendations for enhancing the current value proposition of the company. Some of the models that will be used to provide a strategic audit include PESTLE analysis, Porter’s five forces, Boston matrix, SWOT analysis, 7 Ps of marketing and a figure of sales report. Table of Contents A critical assessment of the marketing challenges facing Virgin Atlantic Airline 2 Executive Summary 2 Table of Contents 3 1.0 Introduction 4 2.0 Company Overview 4 3.0 The significance and Implications of the key issues identified in the strategic audit 5 3.1 Economic fluctuations 5 3.2 Competition 6 3.3 Price fixing 6 3.4 Environment conservation 6 4.0 Critically evaluate the different approaches to achieving a marketing orientation 7 4.1 Concept of branding and its importance to Virgin Atlantic 7 5.0 Recommendations 9 6.0 Conclusion 9 7.0 Appendices 10 7.1 Strategic Audit 10 8.0 References 18 9.0 sales performance 20 1.0 Introduction With the increase of business and leisure activities has seen the growth of Virgin Atlantic Airline a great deal over the years (Namukasa 2013, p.522). Billions of people travel each year through means of airline to different destinations using this company’s aircrafts. However, many airline companies have joined the industry, making it very competitive. The company has sustained the situation by its innovativeness nature, providing quality and effective services to its customers (Virgin Atlantic 2014). Despite management fighting spirit to sustain change, Virgin Atlantic has been faced with concerns of slow economic expansion, making them to rethink their strategies quite often. Department for Transport (2013) posits that other case of economic turbulence that has been witnessed in the recent also includes the ever increasing fuel prices worldwide. In light of the situation, this report will critically assess key strategic issues surrounding the operations of Virgin Atlantic Airline Company and their implications. In this assessment, the paper will conduct a strategic audit of the organization using models, concepts and frameworks on the key issues established. Some of the models that will be used to provide a strategic audit of Virgin Atlantic Airline include PESTLE analysis, Porter’s five forces, Boston matrix, SWOT analysis, 7Ps of marketing and a figure of sales report. 2.0 Company Overview Virgin Atlantic Airline Company is a British company which was founded in 1984 and has its headquarters Crawley in the UK (Virgin Atlantic 2014). The company has since grown and now serves 32 destinations including The UK, North America, Africa, the Caribbean, Asia and Middle East. Currently, Virgin Group, which is owned by Sir Richard Branson has the largest ownership of this company at 51%, while Delta Air Lines owns 49% (Virgin Atlantic 2014). By 2012, the company had 5.4 million customers, which make it the seventh-leading airline in the UK based on the passenger volume. In the financial year of 2013, Virgin Atlantic reported a pretax loss worth GBP93 M compared to a GBP99 M loss reported in the past year (CCA 2013) (Appendix 1). However, the company’s revenues increased by 4.3 percent, while the operating costs also went by 5.3 percent (CCA) (Appendix 2). The Virgin Atlantic’s annual report does not separate fuel costs, but higher fuel prices net of hedging contributed to the growth in costs. 3.0 The significance and Implications of the key issues identified in the strategic audit 3.1 Economic fluctuations The UK Airline sector has improved after undergoing strong losses at the time of global economic recession of 2008 (Department for Transport 2013). However, the industry profits are projected to go up at yearly rates of 7.4% in the next five through to 2018. Department for Transport (2013) maintains that the normality sense is back in the sector and income growth is anticipated to be stable in 2014/2015. Demand for the air traveling is projected to go up between 1 - 3 percent each year up to the year 2050 as compared to the historical rates of growth of 5 percent every year in the past 40 years (Department for Transport 2013). However, this stability may not stay longer because this industry depends mostly of disposable income and the fuel prices to increase its profits. The cost of oil is anticipated to keep on its rising trend in the subsequent five years. Even though, oil demand is reducing in the developed countries, the fast growth in the demand globally, accompanied with the limited supply, is the dynamic market which will inevitably increase prices (CCA 2013). Increased prices of oil will make airfares and cost high in the industry. The high airfare might make customer to change their preferences on other modes of transport such as road and rail. This could largely affect Virgin Atlantic’s domestic planes. 3.2 Competition The UK airline sector has become very competitive lately due to increase in number of both and international airlines such as Eastern Airways, EasyJet, Continental Airlines, Emirates and Singapore airlines (Osborne 2009). Even though this industry has a lower deregulation, it has created great competition dropping the average fares by 20%. The increased competition and some extent of deregulation means, new entrants has freedom of pricing freedom and even frequently take the share of market with highly decreased rates. This has been attributed as a key constraint on success for most established airlines which normally have a high cost base. Branson (2006) contend that the competition in this industry has also been with fierce rivalry between Virgin Atlantic and British Airways from the time their inceptions. It was fueled with the fact that British Airways was the only long-haul airline in the UK serving routes in the Caribbean, North America and the Far East from late 1980s (Branson 2006). Virgin Atlantic improved its performance and ventured long-haul and had 4.6 million customers in 2006, making it the second UK long-haul airline (Branson 2006). Due the purchase of Tiger by the Virgin Atlantic, the competitive platform of the UK domestic Airline industry is anticipated to become a duopoly in nature, with Virgin and British Airways predicted to maintain the sector market share and presence in the next five to ten years. This can attributed to the reality to that these two airlines have stronger financial support from the government and expertise to sustain long term businesses (Department for Transport 2013). With disposable income increasing Asian and Middle East, Virgin Atlantic must expand in the east and sustain competition in terms of performance. 3.3 Price fixing In 2006, a hint from the Virgin Atlantic made competition authorities in the UK and UK to investigate purported price-fixing between British Airways and Virgin Atlantic over customer fuel surcharges. In 2007, Office of Fair Trading of UK and Department of Justice of US fined British Airways £280 million for the conduct while the Virgin was not fined for the same. However, such cases can stain the brand image of Virgin Atlantic as dishonest service provider. 3.4 Environment conservation Air travel has always been regarded as one of the environment polluters. Air travel pollutes environment by discharging greenhouse gases like Carbon II oxide, Nitrogen II oxide and Sulphur II oxide into the atmosphere (Branson 2006). In 2006, Virgin was criticized for lack of proper initiative to mitigate climate change. In the same year one of the company signed a deal with the Volvo Company to offer transport with environment-friendly cars for upper-class customers to Gatwick, Manchester and Heathrow airports (Branson 2006). This make virgin one of the companies in the forefront fight for environmental conservation. Virgin provided a free Boeing 747 transport during a test of bio-fuel in 2008. Dickinson (2009, p.27) claims that The CEO Richard Branson has offered to pay $25 million reward to anybody who will invent a viable initiative for Virgin Atlantic which can reduce carbon II oxide from the air. Reducing pollution will position the company as an environmental friendly company committed to human social welfare. 4.0 Critically evaluate the different approaches to achieving a marketing orientation From the issues identified in the strategic audit, it can be argued that all zero down to brand and image management. Poor branding in the competitive management will definitely lead to loss of customers (Kapfere 2012). Similarly participating in dirty tricks such as price fixing can lead can deteriorate the image of the company. In that manner, branding can play an important role in Virgin Atlantic marketing orientation and customer value provision. Branding is defined as creation, maintenance, and improvement and safeguarding of the brand (Kapferer 2012). This concept of marketing deals with researching the needs of customers which reflect their social and personal identity based on good reputation. Based on such argument, Virgin Atlantic must build brand that is different the competitors. 4.1 Concept of branding and its importance to Virgin Atlantic Virgin Atlantic forms a division of the broadly recognized Virgin Group owned by Richard Branson has become a stronger brand image over the years (Branson 2006). Virgin Atlantic airline has improved their brand management, a situation which is steered by Sir Richard Branson. This is a significant strategy for Virgin Atlantic since it signifies an assurance to the clients concerning the company product provision. Dickinson (2009, p.31) claims that through its brand that is considered to indicate that Virgin Atlantic in each business the company ventures in, builds the sensation that it aims at being the best in the industry in terms of service delivery. Satisfaction of the customer influences brand value since if the clients are contented they build brand loyalty that turns to improved revenue. Sir Richard Branson’s philosophy in business is built on innovation, quality, price, reputation and image (Branson 2006). Due to outstanding brand and operations, Virgin Atlantic Company has won numerous prizes due to great services in the long overhaul segment. Some of the awards comprise of Best Long-Haul Company in 2009, Leading Transatlantic airline, World best travel Awards of 2009 and the hitwise top ten prize (Virgin Atlantic 2014). Experts claims that branding has been traditional understood to mean name of the business, logo, symbol and image which differentiates business from its competitors. The arts have been used to create the position of the business in the mind of the clients and differentiate one product from the other (Uggla 2014, p.1). Traditional form of branding is based on communication with customer on culture and orientation of the company. Virgin has been changing such form of branding over the years. The first planes from Virgin Atlantic had a design of "Eurowhite" with the red stripe moving to the centre (Virgin Atlantic 2014). Its engine was metallic silver with the red tail. During the really years the company had a white logo showing Virgin. The colors were later replaced with red and grey. According to the Virgin Atlantic (2014) in 2006, the company launched a fresh design having silver fuselage with red and purple tail fin and a Virgin logo. Today, there is also an optimist form of branding which is used to arouse emotions, love, aspirations and passion of the customers. Ferrell & Hartline (2011) postulate that some companies use legends, icons and technology to improve their branding in the contemporary business so as to increase consumer value perception and provision. In Virgin Atlantic perspective, the company has been using and icon and technology to improve its brand and image. The company has been using one its owners and a respected business man, Sir Richard Branson to market and improve the brand image (Dickinson 2009, p.29). As mentioned early, the company has invested heavily on technology to improve its product and even marketing. Technological aspect that has provided value to customers comprise of entertainment offering for all passengers and internet access through Wi-Fi. 5.0 Recommendations The study has found out Virgin has some good ideas with regards to branding. However, some of these ideas cannot be understood by every, therefore the paper offers some recommendations the company can use to improve its brand and image. Virgin Atlantic must understand that complicated logos, strange colors have less effect on their image. As such, the company must use simplified branding to make its customers understand. Virgin should learn to use an optimistic view form of branding than the traditional one. In the current business setting, customers prefer emotional touch compared to rather than what they see. Using Sir Richard Branson as the brand ambassador to market the products is more convincing than using colors. Also the management should understand that the current travelers are fond of technology because they use it to access information concerning business and socialization. Virgin Atlantic must increase its market in Asian and Middle with increased levels of the Middle Class. Qatar, China and Taiwan are some countries where the middle class population has gone up hence increased disposable income. 6.0 Conclusion The discussion in this paper features the assessment of the Virgin Atlantic Company and the UK Airline industry, and the strategic audit to this company including implication and strategic changes. Virgin Atlantic is operating in an ever-changing external environment that needs constant review of those strategies. This ever-changing environment provides concerns to PESTLE factors based on the analysis above. As critically assessed, different strategic alternatives exist for Virgin Atlantic. To sustain change in the airline industry, the provided recommendations are appropriate and ought to be implemented so as to increase share market both locally and internationally. Change in the strategies will make Virgin Atlantic become one of the successful airlines in future. 7.0 Appendices 7.1 Strategic Audit Virgin Atlantic Airline’s capability to continue staying as one of the stronger brands in Airline industry can be attributed to its competence and quality status which comes from internal environment (Virgin Atlantic 2014). This involves the company’s strategic objectives and goals which can be associated with its competency. According to Dickinson (2009, p.33) Virgin Atlantic Airline’s management team has an unquenchable passion to increase the efficiency of its operations. Hence, to completely recognize the Strategic Audit of Virgin Atlantic Airline Company, PESTLE analysis, Porter’s five forces, Boston matrix, SWOT analysis, 7 Ps of marketing and a figure of sales report is analyzed. Figure 1: PESTLE Analysis Details Implications Priorities High low Political -In the recent past, political environment of the UK airline industry has been shaped by the development of liberalization in this industry and political stability main from the Middle East as result of terrorist attack. - An “Open Skies” policy set by the US in agreement with the European Union has resulted to more liberal global markets and has enabled increase in the competition (Dickinson 2009, p.36). -This made virgin and other companies to increase security and be on alert - The agreement allowed carrying passenger from EU member states to the United States with less restriction. Virgin Atlantic has exploited the opportunity to increase its profit and market share Yes Economic -The increasing prices of crude oil. - After the 2008 global crisis economy has been steadily improving. The situation added more pressure on the Virgin Atlantic to increase the budget in their operation (Dickinson 2009, p.24) - The situation has increased disposable income making more people to use air travels. yes Social - Global economic crisis of 2008 heavily affected people disposable income because of lay-offs and salary decrease in some instances. - The demand also fallen since Australian tourists put on hold traveling plans, with customer confidence declining. In reaction to weakening demand in 2008, market players reduced cost of traveling. yes Technological -With the advancement in technology within the Airline industry, Virgin Atlantic has implemented the latest technologies to target and serve its customers (Virgin Atlantic 2014). - management of Virgin Atlantic uses its online services to handle queries and make reservations (Virgin Atlantic 2014) - The company has adopted technology to manage traffic flow around terminal area (include Departure Manager System and Arrivals Management System. Legal -The UK airline industry has been more and more regulated. - The government has set up various bodies to manage the airline industry such as Civil Aviation Safety Authority. Domestic airline companies like Virgin Atlantic are not allowed to acquire authorization from Foreign Investment Review Board so as to conduct operations in the UK. - Civil Aviation Safety Authority is just one of them that decides who operates in the industry and air laws in terms of competition and environmental conservation (Department for Transport 2013). yes Figure 2: SWOT Analysis Strengths weaknesses 1. Strong brand in the UK and worldwide 2. Modern fleets which are fuel-efficient and environmental-friendly 3. Qualified and able human resources 4. Large customer base of 5.4 million 1. Falling market share: its share of market in Caribbean, New York, China and India has declined from 59%, 21%, 22% and 23 in 2005 to 57%, 24%, 8% and 18% in 2006. The organization serves only 27 routes 2. inadequate financial resources Opportunities Threats 1. Improving disposable income in Asian emerging markets like China, Taiwan, India and Singapore. 2. Trans-pacific cargo marketplace which looks positive 3. Partnership with Companies in the middle east 1. Rising cost of fuel 2. Cargo price fixing 3. Security and terrorism Figure 3: Boston Matrix High Low High market share low Key Cargo is ranked as the product with largest market share among other company products. In fact Atlantic cargo segment is ranked number two in the UK after British Airways. As such it is categorized as the star. Economy class is regarded as a dog because it has the lowest market share and hardly makes enough cash to run the businesses Premium economy is categorized as cash cow due to the fact that it has a high market share and also generates sufficient money to sustain the business. Upper class is categorized as problem child because it operates within a higher market growth, yet it has a low share of the market. It has the capability of turning stars if proper strategy is used so as to improve the market share. Figure 4: Porter’s five forces Figure five: 7Ps of marketing Particular Descriptions Implications Product The company products include cargo, upper class, premium economy and economy The company differentiates it products from other competitors to give it a competitive advantage. For instant instead of naming using business class name, the company uses upper class. price The prices of Virgin Atlantic products, i.e. cargo, cabin classes such as upper class, economy and economy premium are competitive. - The company differentiates prices depending on the classes and also from its competitors. -The company use both economy and premium Differentiation helps attract customers and retain the existing ones. Promotion -The company operates a flier program where customers redeem points. -the company use also use well known newspapers and magazine, its websites, its TV programs to market its businesses. The company have also used various slogans over the years such as “Still Red Hot For 25 Years” -This promotion aim at achieving customer loyalty -Such promotions are intended to reach a wide area and bigger population. Place Virgin Atlantic operates in some well know airports including Manchester, Gatwick and London Heathrow in the UK. The company also use Glasgow airport in Scotland occasional. The company also has its websites to make reservations for passengers who have busy schedules. These airports are placed in strategic places serving a large population of people in the wide Manchester, London and Glasgow. Physical evidence The company has various ways to show that it that it actually performs quality service. Some of these are online reservation statement and normal ticketing Ticketing and Online reservation are physical evidences that transaction took place, and should a customer raise a concern, the management has the back up evidence. people One of the resources and capability Virgin is relaying on for success is its qualified staff. The company has effective employment procedure and policy which recommended for the best candidates in the market. Qualified and experience workers have steered the company second place in the cargo ranking and seventh in passengers category. The CEO Craig Kreeger and chairman, Stephen Murphy is well known for the skills and ability to deliver. process Virgin has adopted the use technology to make bookings. This has replaced manual ticketing processing The technological process reduces ticket processing time. It also reduces help store details of the customers. 8.0 References Baker, M 2010, The Strategic Marketing Plan Audit: a detailed top management review of every aspect of your company’s marketing strategy, Axminster, Devon, Campridge Strategy Publ Branson, R 2006, Losing my Virginity – The Autobiography (2nd reprint ed.), London, Virgin Books Bamber, G.J, Gittell, J.H, Kochan, T & von Nordenflytch, A 2009, Up in the Air: How Airlines Can Improve Performance by Engaging their Employees, Ithaca, Cornell University Press Branwell J 2010, Virgin Atlantic flies high with new brand livery and identity, Marketing Week (London). Butler, M 2006, Case Study: Virgin Atlantic Airways Tracks High Value Parts, rfid journal CAPA Centre for Aviation (CCA) 2013, Virgin Atlantic Airways' track record of losses: partnerships should help. Cost cutting would, viewed on 4th August 2014 from http://centreforaviation.com/analysis/virgin-atlantic-airways-track-record-of-losses-partnerships-should-help-cost-cutting-would-129215 Dickinson,P 2009, Seizing the advantage (Virgin Atlantic strategy), Strategic Direction, Vol. 25 No.4, pp. 23-45 Department for Transport 2013, UK Aviation Forecasts, viewed on 4th August 2014 from https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/223839/aviation-forecasts.pdf Ferrell, O & Hartline, M 2011, ‘Marketing strategy’, Mason, OH, South-Western Cengage Learning Hutt, M. & Speh, T., 2010, ‘ Business marketing management’, B2B. Mason, OH: South- Western Cengage Learning Kapferer, J.N 2012, Strategic Brand Management, 5th ed., Kogan Page, London Kotler, P& Keller, K 2006, Marketing and Management, Pearson Prentice Hall, Upper Saddle River, NJ, USA Namukasa, J 2013, The influence of airline service quality on passenger satisfaction and loyalty: The case of Uganda airline industry, The TQM Journal, Vol. 25 No.5, pp.520 – 532 Osborne, A 2009, Virgin boss caught up in BA price fixing case, The Daily Telegraph Solis, B 2011, Engage!: The Complete Guide for Brands and Businesses to Build, Cultivate, and Measure Success in the New Web, John Wiley & Sons, Inc. pp.201-202 Starkie, D 2009, The Airport Industry in a Competitive Environment: A United Kingdom Perspective, international Transport forum, pp.5-22, viewed on 4th August 2014 from http://www.internationaltransportforum.org/jtrc/discussionpapers/DP200815.pdf Uggla, H 2014, Make or buy the brand: strategic direction of brand management, Strategic Direction, Vol. 30, No.3, pp.1 – 3 Virgin Atlantic 2014, Official Website Virgin Atlantic Airline, viewed on 4th August 2014 from http://www.virgin-atlantic.com/us/en.html Wall, R 2013, Virgin Atlantic Delays Buying Airbus A380, Monitors Boeing 787, Bloomberg Young, S 2014, Virgin Atlantic plots course for return to profit this year, Reuters Young, S 2014, Virgin Atlantic plots course for return to profit this year, Reuters 9.0 sales performance Appendix 1: Pretax profit, Revenues and operating Profit Appendix 2: Graph showing pretax profit, Revenues and operating Profit Read More