Tourism Enterprise - Report Example

Tourism Enterprise Name Institution Date ENTERPRISE PROFILE Virgin Australia is based in Brisbane, Australia. It is used by many tourists getting into and out of Australia, and is also popular for local travel. Its history dates back 13 years to 2000 when it was established as Virgin Blue, then fully under the ownership of the Virgin Group. It was rebranded in 2011, under John Borghetti, the then Chief Executive. The airline is presently a full-service carrier that targets both corporate travelers and mostly leisure travelers at low cost. In this way, top executives and tourists find it a suitable mode of travel. Virgin Australia has since its launch managed to create the reputation of a modern full-service airline that offers exemplary customer service that others can imitate (CAPA Center for Aviation 2013). . According to Farabi (2013), the company employs over 9,000 people in New Zealand, the United States of America and Australia. It has established an alliance with Delta Airlines, PJSC, Singapore airlines and Air New Zealand as a way of coping with competition. It owns a modern fleet of aeroplanes that fly to domestic regional destinations and major international routes such as pacific island, Trans-Pacific, South East Asian and Abu Dhabi. The airline’s airfare products and variety is suitable for all government, tourist, corporate and regional needs. Its long-haul division has Boeing 777-300ER flights to Los Angeles and Abu Dhabi. There is also an international subsidiary named Pacific Blue which operates flights to the South Pacific, New Zealand and Indonesia. Yet another subsidiary named Virgin Samoa, co-owned with the government of Samoa operates more flights from the Australian east coast to Samoa. Virgin Australia acknowledges its dependence on the tourism industry and its role in transporting visitors in, out and within the country. In December 2012, the company entered into a three-year Memorandum of Understanding with Tourism Australia, the government body in charge of managing tourism. The deal worth $12 million has been the guiding framework for the company’s investment in marketing. Virgin Australia and Tourism Australia have in this regard identified Germany, the United Kingdom, Asia, the United States and New Zealand as the priority target markets as from 2013. The investment is supported further by alliance partners, travel industry partners and tourism promotion agencies (Virgin Australia 2013). Although currently not operating profitably, the company has established measures to reverse its decline in performance with time. For instance, for the year ending June 30 2013, it raised revenue and other incomes of $4,020.4 million. This was in spite of hardships in the business environment. As the result of a recovery strategy that was adopted in 2011, there was an improvement. There was a decrease in operating expenses by $105.1 million and a rise in net operating expenses of $272.0 million, raising it from $3,852.6 million to $4,124.6 million. The net loss of the company after tax was $98.1 million, and this was a significant drop from the previous year when there was a reported profit of $22.8 million (Virgin Australia 2013). OPPORTUNITIES a). Positive Development in Tourism Markets Positive developments in the tourism industry imply a growth in business for airlines. Opportunity lies in more potential in the Asia-pacific region. According to Belobaba et al. (2009), there is a shift in air traffic to Asia, especially India and China. Tourists from the Far East are increasing in number, as living standards are rising in emerging economies. The Asia-pacific region might therefore become the largest market hence a great opportunity for Virgin Australia’s growth. There are also attempts at consolidating the open skies agreement between Australia and the US. This is likely to create competition and growth as it will open up one of the most protected and potentially profitable routes for the airline. Entry into such alliances has the ability to produce advantages such as efficiency and cost benefits, opportunities for greater frequent flier programmes, an expansion in the airline’s flight network and increase in the frequency of flights. There is a lot of opportunity in low cost flights at international level. The company should therefore pursue increasing the number of flights through Asia, especially while the acquisition of more economical aircraft remains a goal. This will increase its profitability. b). Globalization of Tourism The Australian domestic market, together with the US, UK, Japan and Germany are likely to continue being major sources of visitors to various parts of Australia. Air travel therefore remains a major component of tourism in the immediate future. There is the possibility of steady growth of the tourism industries in Scandinavia, Canada, Italy and France. The growth of New Zealand as a market depends on the ability of both the airline and authorities to attract travelers. There is expansion into the Asian markets due to the region’s geographic proximity and large population. Forecasts relating to growth in visitor numbers from the markets are limited. For this reason, it will be a long time before flows from Asia will be able to overtake those from the larger Europe, UK and North America (Vedder 2008). This is an important opportunity because it directs the company towards the countries where more flights are to be expected. If the company fully engages in tourism promotion in such places, there is therefore the likelihood of increasing revenues and therefore profits. The company’s strategy should seek to exploit the opportunities offered by these regions fully, through engaging in more tourism and other targeted forms of promotion. c). The Company’s Ability to Adapt to Changing Needs There is need for the company to always seek an upgrade of its infrastructure. This is because of constant changes, both in the number of people who require to use facilities, and the techniques that are applied in achieving the accomplishment of given tasks. According to Farabi (2013), the trans-pacific air route is highly lucrative and offers a great opportunity for Virgin Australia. The open-skies agreement with the US can raise tourist and other passenger flows within the route and therefore raise the level of competition in the region. This is an opportunity if the airline will create alliances or even merge with stronger signatories of the agreement so that it can be able to diversify and therefore reduce its dependence on passengers travelling within, in and out of Australia. The company should set aside considerable amounts of finances for capital reinvestment, considering that it is lucky to have impressive revenue flows. There is hope for increased profitability. There should also be more funds set aside for training activities so as to ensure that the employees are up to date on new procedures and the nest ways of doing their jobs, so as to create a highly competitive business. d). Economic Growth in Asia There is a general growth within the area of independent travel for the sake of experience. Better living standards in Asia imply that the region will produce more tourists. There is also greater environmental and social awareness plus a trend towards visits that are focused on high service and product standards. There is a considerable expansion in airlines, in addition to cruise ship travel, and also growth in the numbers of people travelling from Korea, India and China. There is an increase in the number of visitors from outside even though domestic tourists have declined in number. China is specifically among the fastest growing due to its fast expanding middle class and great economic growth. However, it currently has a small share of the visitors travelling to Australia (Hierling 2007). The company will need to rethink its strategy as Australia will not really be a mass market destination for visitors from Asia. It should for instance seek to reach high-end tourist segments and steps gradually taken to appeal to and understand such segments. There should be a clear outlining of the service standards that will be acceptable to them and the best ways through which they can be reached. e). Rising Demand for Low-Cost Travel There is an increase in the number of people opting for cheaper and more efficient modes of travel, and especially more acceptance of low cost carriers operating from Asia into Australia, and this ensures that they are available within Australia for local travel (Business Monitor International 2013). This is a great opportunity because unlike in the past when tourism was associated with expensive travel, Virgin Australia now has the opportunity to further boost the number of its travels in the area that it is most interested, and that is low-cost travel. Even if it does not fully manage to have cheap flights abroad, the popularity of such travel implies that more visitors will be available to be transported inland. As part of the company’s strategy therefore, there should be an increase in the number of aircraft travelling to the most popular market areas. The capacity of local low-cost travel aircraft should also be increased or be made much easier. There is a rise in the use of the internet for planning and booking travel. This should be optimized by focusing more on ways through which internet platforms of the airline can be improved further so that Virgin Australia can be the airline of choice. THREATS a). Changing Industry Standards There is a tightening in the capacity of airports. With further development of the industry, there is the likelihood of a shortage in the capacity of existing infrastructure to handle them. Expansion in the industry as a whole is likely to set a limit to the number of aircraft that can fly out and into the country in the near future. Insecurity is also a major threat. Security has grown into a major cause of concern, especially for the airline industry which is relatively more vulnerable. Every airline has to relook at the issue time and again so as to avoid any lapses (Vedder 2008). In addition, there is a greater monitoring of environmental standards. While this is not a very great challenge for the airline considering its strategies ensuring that planes are environmentally friendly, the future will require that regulations are strict especially in relation to the emission of greenhouse gases. Such issues are significant because they determine the amount of resources that the airline has to devote to its operations. The corporate strategy should address all the costs while coming up with strategic human resource policies that will ensure a constant supply of necessary staff. b). Competition There is an increase in competition from other airlines. This poses a threat because failure to adjust and be ready for it might lead to lesser competitiveness and therefore performance. For instance, as from 2007, there was the launch of Tiger Airlines flights to Rockhampton and Gold Coast from Melbourne, and this set the stage for more competition especially when it started operating on all of its 12 set routes. Virgin Australia has so far been able to utilize the opportunities provided by the creation of an open-skies agreement with the US to expand its network of routes but more will definitely need to be done, especially in the international routes (Hierling 2007). Competitors and alternative means of transport threaten the airline because any slight lack of competitiveness on Virgin Australia’s part will mean less customers, poor performance and lower profitability. Virgin Australia should increase its market intelligence so that it understands what competitors are doing. It should also seek to be a step ahead of them when it comes to development of products to satisfy identified needs of the markets. This is in addition to increasing the focus on customer satisfaction as an objective, as this is the main source of competitiveness. c). Unpredictability in Australia’s Major Markets Challenges are expected especially in the American and European markets due to the economic challenges facing them. The company’s strategy in reaching passengers from these areas will need to be targeted well so that it obtains the maximum possible reach and be the most attractive in these, considering possible competition from the national carriers. It will be necessary to pursue collaborative activities which will expand the market share in long-haul flights. Japan poses a challenge to tourist travels to Australia. The Australian currency has a relatively higher value than the Japanese Yen. There is also a reduced amount of direct access to Australia by air, in addition to various structural aspects within the Japanese market. These factors offer a major threat with regard to the whole tourism industry. However, the market still constitutes over 10% of the total number of international holiday tourists with forecasts indicating the situation remaining the same for long (Hierling 2007). The company will need to look for a way of tackling the challenge, especially by investing continuously in this market. It should establish a closer relationship with tourist bodies in the region and come up with joint ways of reinforcing its position and therefore access. d). Unfriendly Business Taxation and Labour Regulations Corporate taxation, especially for investors who come from outside Australia is considerably high. The possibility that such terms can be lowered in future is minimal as it is one way of enhancing local entrepreneurship and generating revenues for use in improving the welfare of its citizens. However, in the airline industry where expansion involves acquisition, Virgin Australia has to be conscious of this and should focus on acquiring Australian-owned facilities so as to maximize on the benefits of doing business at home (Vedder 2008). Changes in labour laws might make it a more costly and complicated procedure to hire and fire workers. This has a considerable effect on the operations of the company, because it determines how the employee retention and recruitment procedures will be done. Possible industrial action conducted by the firm’s unionisable employees can have an adverse effect on performance because of possible disruptions, which are usually highly expensive, effect on morale which lowers productivity and an additional cost arising from possible increments on remuneration as part of settlement of labour disputes (Kusluvan 2003). Corporate strategy should emphasize compliance to business operational laws and be focused mostly on employee welfare as a means of achieving competitiveness. e). Exposure to Changes in Technology and Fuel Prices The airline industry is highly dependent on fuel, and this usually makes up most of the losses incurred in case of sudden changes. Fuel prices are a major determinant of operating costs, and when these go up, profitability is interfered with. The stability of communications and other kinds of technologies can also affect predictability. This is because on the high dependence on them and the fact that they are prone to fault, even though highly reliable (Belobaba et al. 2009). Technology is always changing, and there are instances where the authorities that implement the changes transfer the cost of installation to the users, namely the airlines. There may therefore for instance be rises in transit, airport, landing fees and the cost of maintaining security (Vedder 2008). In dealing with this challenge, the company will need to set aside financial reserves to deal with unexpected changes in operational costs. Investing more in fuel efficient aircraft is already a priority for Virgin Australia. In addition, having strategic partnerships with suppliers that will ensure there are no sudden changes will be helpful. A greater emphasis on it will however only serve to raise its level of competitiveness and therefore profitability in future. SYNOPSIS Virgin Australia is a reasonably competitive firm which is also actively involved in tourism promotion. The company operates flights to many of Australia’s main source countries for tourists, and has joined strategic alliances as a way of maximizing the benefits that come with being part of the industry. It also participates in a number of tourist marketing strategies in association with Tourism Australia, as part of its contribution to increasing the flow of tourists to the country. In spite of measures that ensure that it is a modern, environmentally friendly and socially responsible business, the airline’s performance in terms of profitability is however currently not impressive, and this calls for an improvement in strategy. The main source of opportunity for the business is an expansion in emerging economies as sources of tourists. The existing open-skies agreement with the United States also opens up the market for greater performance. The company therefore needs to focus on strengthening its strategic partnerships further and increase its penetration of emerging markets. Increased globalization of the tourism industry also ensures that there are unlimited possibilities when it comes to access to markets. The company should in this perspective increase its promotional activities in potential markets. Continuous investment in infrastructure exposes the company to a lot of benefits. The company should therefore allocate more finances to expansion and development, as prospects of business remain high. Developments in Asia have made it a high potential area, and in order to be competitive, the company needs to adjust its approach, so that it captures the upper segment of the market which is often forgotten. Low-cost travel faces the prospect of further growth but considering that many airlines are getting into this segment, Virgin Australia will need to work on its competitiveness. Airlines in general face more competition. This is because every competitor is trying to best fit into the market, including through adopting more efficient and low cost approaches. There is also competition from other modes of travel. Virgin Australia will need to enhance its competitive strategy to ensure that it stays ahead of the rest. Lack of predictability in the major markets is a great threat. However, this can be overcome if the company enters into strategic partnerships with authorities in those countries, so that it can have the advantage of information. The business and labor climates may in some instances be unfriendly hence a threat. However, this can be overcome through focusing on local suppliers and ensuring maximum employee involvement so as to avoid conflicts. Lastly, the business is highly exposed to uncertainties with regard to technological changes and changes in fuel prices. Airlines are highly dependent on technological devices, and this has cost implications due to their constant need for upgrades. Authorities at times also increase fees to cater for changes. Fuel prices are on their part not stable. The company therefore needs to always invest in contingencies and fuel efficiency. This will ensure that competitiveness is not shaken by sudden changes. Bibliography Belobaba, P, Odoni, A and Barnhart, C (2009), The Global Airline Industry. John Wiley & Sons: Chichester Business Monitor International Ltd (2013). Australia Tourism Report - Q4 2012. Business Monitor international: London CAPA Center for Aviation 2013, Virgin Australia, retrieved on 7 October 2013 from Farabi, Y (2013), Analysis of Marketing Environment of Virgin Australia, GRIN Verlag: Munich Hierling, M (2007), The Australian Airline Industry and the Case of OzJet – A Strategic Analysis Report, GRIN Verlag: Munich Kusluvan, S (2003), Managing Employee Attitudes and Behaviors in the Tourism and Hospitality Industry, Nova Science Publishers: New York Vedder, H (2008), Strategic Alliances in the Aviation Industry, GRIN Verlag: Munich Virgin Australia (2013), Annual Report 2013, Virgin Australia group: Brisbane Read More