Virgin Australia Companys Current Situation - Case Study Example

Management Report: Virgin Australia Name Professor Institution Course Date Management Report: Virgin Australia Table of Contents Management Report: Virgin Australia 2 Table of Contents 2 1.0 Introduction 4 2.0 Company’s current situation 5 3.0 New Goals and News strategies 6 4.0 Strategic goals 6 4.1 Increase Virgin’s Profits 6 4.2 Cut costs 7 4.3 Reevaluation company usage of assets 8 5.0 Strategies 8 5.1 Strategy plan: improve ancillary revenues 8 5.1.1 Tactical actions 8 5.2 Strategy plan: selling of fleets, delay buying fleets and reduced aircraft usage 9 5.2.1 Tactical actions 9 5.3 Strategic plan: Create extra airport terminal and sell share to other airline companies 9 5.3.1 Tactical actions 9 6.0 Conclusion 10 7.0 References 10 8.0 Situational Analysis 12 8.1 SWOT analysis 12 8.1.1 Strengths 12 8.1.2 Weakness 13 8.1.3 Opportunities 13 8.1.4 Threats 14 9.0 Porter’s Five Forces 14 9.1 Threat of new entrants 14 9.2 Threats of substitutes 14 9.3 Bargaining Power of buyers 15 9.4 Supplier bargaining power 15 9.5 Competitive Rivalry 15 1.0 Introduction With the increase of business and leisure activities has seen the growth of Virgin Atlantic Airline considerably 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. IBISWorld (2014) asserts that despite management fighting spirit to sustain change, Virgin Australia has been faced with concerns of slow economic recovery and high fuel price making them to rethink their goals and strategies quite often. Therefore this report will assess the company position audit through SWOT Analysis and Porters competitive five-force Analysis. This will lead to new goals and new strategies the company needs to pursue. SWOT Analysis will cover strengths including strength of the brand, promotion of tourism in Australia, reward program, safety and performance, motivated workforce and low prices. Of weakness front, this report will look at poor menu and lack of IT support system. Opportunities that will be discussed comprise of increase in disposable income and partnerships. Threats in this report include domestic and international competition and rising cost of fuel. New goals to be recommended are to increase profits, reevaluation company usage of assets and, decrease operation costs. These can be achieved through implementation of strategies such as enhance ancillary revenues, increasing number of terminals at the Brisbane airport and reducing number of suspending operations in unsuccessful routes. 2.0 Company’s current situation According to Virgin Australia website (2014) Virgin Australia Airlines Company is Australian airline which was established in 2000 bearing the name Virgin Blue Airlines. In the initially years it served only a single route but has grown and currently serve 2 domestic destinations including Brisbane, Sydney, Melbourne, Gold Coast, Perth and Adelaide among others. After a long period of time serving as a low-cost airline, Virgin enhanced its provisions to be a “New World Carrier” (Virgin Australia 2014). This a new business model that provides the clients with the choice of buying an air ticket with discount approach or just paying an extra to get better service which matches those of full-service airlines. The approach has enabled it to effectively compete with Qantas in business class market. The current situation is that Virgin is still overshadowed by Qantas which is the largest airline by market share (Dickinson 2009, p.27). Qantas has even gone ahead to partner with Jetstar in low-cost segment where Virgin serves. Another situation which has affected Virgin is that its fierce competitor Qantas receives political patronage from the government (Ford 2004, p.141). Hence there has been high need to strategize to create competitive advantage in the market. Virgin Australia (2014) clams that since 2011, the company has branded, dropped the Blue in its name and acquired new fleets of aircrafts including Airbus A330. Similarly, Virgin Australia bought 60% stake of Tiger Australia in 2012 and acquired Skywest Airlines in 2013 (Virgin Australia 2014). Everything was done in line with the company mission statement which states that the Virgin is in business “to develop a profitable airline in which staff love to work and consumers love to fly”. 3.0 New Goals and News strategies Virgin has faced in tough time as a result of economic difficulties, high cost of operation and high cost of fuel (IBISWorld 2014). All through the previous decade, Australian domestic airline sector has been attributed by rather low profit margins, flat growth, stiff competition and financial pressure. Particularly, the industry was affected by economic global crisis of 2008 which reduced disposable income thus reducing cost of travelling (Namukasa, 2013, p.523). In reaction to weakening demand in 2008, market players reduced cost of traveling. Therefore, these goals and strategies are the possible solutions recommended for improving the state of Virgin Australia to be able to compete with Qantas Airlines. 4.0 Strategic goals 4.1 Increase Virgin’s Profits Financial status of Virgin Australia has been on the rise 2001. According to IBISWorld (2014) In 2007, the airline company posted a profit of A$2169.1 million from A$2013.6 it registered in 2006. However, due to global economic crisis affected the company a great since the demand for travel reduced, hence profits reduced (IBISWorld 2014). Since then, Virgin profits have been fluctuating. According to Virgin Australia (2014) report, in 2009, the company posted a financial loss of A$160m. Also in 2014, its is estimated that the company has made a pre-tax loss of $211.8 million in which the CEO John Borghetti described as the most difficult in the company history. The recent losses are attributed to challenging operating atmosphere (IBISWorld 2014). Therefore, enhance ancillary revenues remains on of the ways the company can increase its overall profits. Virgin Australia management must explore ancillary revenues through use of some unique and also creative strategies. While at it the company must focus also at the major methods of generating money. Increase of profits to virgin is a sign that it will survive for along time and even expand its services. Profits create income for employees and even motivate them to work harder for better payment (Kumar 2014). On the other hand, companies like Virgin have other shareholders who have invested in shares; hence if the company is not performing well, there confidence is weakened. Lastly, increased profits will enable company to improve its services in every class hence positive experience from customers (Kumar 2014). 4.2 Cut costs It is always in the best interest of the management to cut operations to enable a company to make more profits. According to Creedy (2014) Virgin Australia CEO has stated they will move to cut costs of operations by $1 billion in the next three years after following losses incurred in 2014. Cutting costs means increasing efficiency in terms of financial resources and investing in worthy courses (Donna 2005). In the past Virgin has made loses in unsuccessful domestic routes (IBISWorld 2014). Such routes incur large operation costs inform of fuel costs, wages for employees and fleet branding. If those routes are not promising, the management ought to do away with them. However, if an instance that the routes are making loses but have potential to improve in future, the company can continue but using some strategies which will be discussed under the subtopic “strategies”. 4.3 Reevaluation company usage of assets Assets form the platform upon which employees can work and consumers can be served (Uggla 2014, p.2). At an airline company’s perspective, assets include aircraft, airport, fire engines, computers, IT systems etc. how the company uses these assets determines its performance (Starkie 2009). It is known the company has not performed well in the recent years and even latest 2014; hence there is need for reevaluation company usage of assets. Particularly, what need to be revaluated are the aircrafts and airports. This goal is important for the company because it will enable it to increase efficiency it terms of customer services. Reevaluation of assets will make the company to increase efficiency and number of customer they serve (Ford 2004). Additionally, assets which are not profitable will be discarded to reduce the extra cost they incurred. 5.0 Strategies 5.1 Strategy plan: improve ancillary revenues 5.1.1 Tactical actions The company should come up with checked in baggage fees, where they charged passengers for the seats with additional legroom on the long haul aircraft. A cashless cabin should be introduced where customers were compelled to use debit or credit cards to purchase meals in the flights. Create a reward program for companies (companies which members use Virgin Australia more frequent get special discount or package). Sign partnership with other airlines to allow it to market its products i.e. to allow virgin to its broadcast Virgin’s Live TV on the Emirates Airlines aircrafts 5.2 Strategy plan: selling of fleets, delay buying fleets and reduced aircraft usage 5.2.1 Tactical actions To cut cost of operation JetBlue outline needs to sell its old aircrafts such as Boeing 737-700 and Embraer E-170LR. Delay the buying or leasing of new proposed fleets consisting Boeing 737-800 and Boeing 737 MAX 8 and allow company profits tom improve first. Suspend services unprofitable cities as well ones that had been proposed but look less potential 5.3 Strategic plan: Create extra airport terminal and sell share to other airline companies 5.3.1 Tactical actions Create an extra new terminal at Melbourne Airport with an aim of improving its departure and arrival time averages at airport which was considered the busiest in the Australia. Sell some shares to Pacific Blue Airlines airline from New Zealand which will result to two things; increased of revenues and booking of Virgin Australia flights using on Pacific Blue Airlines from New Zealand. Reducing fuel consumption through decreasing number of times the company is using its aircrafts from 13 to12.5 hours a day. 6.0 Conclusion From the research, it is evident that Virgin Australia and other companies facing many challenges each and every single day of their operations. Fuel prices are increasing, competition is growing and operational cost are getting high. Such factors send a strong message to managers using the old management ways is not going to help them solve new challenges; hence they the new goals and strategies recommended has the potential to help Virgin Australia get extra revenues and also gain market advantage. 7.0 References Dickinson,P 2009, Seizing the advantage (Virgin Atlantic strategy), Strategic Direction, Vol. 25 No.4, pp. 23-45 Donna, C 2005, Cost Reduction Essential to Competition: A Global Look at Costs Gives the Big Picture and a Big Advantage, Industry Week Ford, R.C 2004, David Neeleman, CEO of JetBlue Airways, on people + strategy = growth, Academy of Management Executive, Vol.18, No.2, pp.139-43 IBISWorld 2014, IBISWorld Industry Report I4902: Domestic Airlines in Australia, Viewed on 4th December 2014 from http://clients1.ibisworld.com.au.ezproxy.lib.uts.edu.au/reports/au/industry/default.aspx?entid=472 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 Starkie, D 2009, The Airport Industry in a Competitive Environment: A United Kingdom Perspective, international Transport forum, pp.5-22, Viewed on 4th December 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 Australia 2014, Virgin Australia Official Website, Viewed on 4th December 2014 from http://www.virginaustralia.com/ Creedy, S 2014, Virgin Australia to cut costs as loss trebles to $356 million, The Australian Kumar, B 2014, 6 Roles and Importance of Profit in Business – Explained! Viewed on 4th December 2014 from http://www.preservearticles.com/2013082933387/6-roles-and-importance-of-profit-in-business-explained.html 8.0 Situational Analysis 8.1 SWOT analysis Virgin Australia 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 Australia 2014). This involves the company’s strategic objectives and goals which can be associated with its competency. According to Dickinson (2009, p.33) Virgin Australia Airline’s management team has an unquenchable passion to increase the efficiency of its operations. Hence, to completely recognize the Strategic Audit of Virgin Australia Airline Company, SWOT analysis is analyzed. 8.1.1 Strengths Virgin Australia is a strong brand in Australia and is ranked as the second largest airline in that country (IBISWorld 2014). The company has acquired fuel-efficient and environmental-friendly Virgin Australia has motivated, qualified and able human resource which is committed to higher performance (Virgin Australia 2014). This achievement is aligned to company mission. The company has participated promotion of tourism in Australia. This has attracted many customers to services offered by Virgin Australia. The company has a customer loyalty called Velocity frequent flyer which has been used to attract business class travelers since 2005 (Virgin Australia 2014). The company holds a strong market position with a market share of 31 percent. 8.1.2 Weakness Virgin has been accused of providing poor menu in its economy class. On customer review on its website, the company only got just one star rating on drinks and foods offered to passengers (IBISWorld 2014). The food variety is also limited. The company has no effective back of its IT system and services. In 2012, the check-ins and reservation broke down compelling the employees and customers to apply the manual system (IBISWorld 2014). 8.1.3 Opportunities According to IBISWorld (2014) improving disposable income in Australia provides opportunity for Virgin Australia to expand its services. Creating more partnerships can create an avenue for Virgin to outdo Jet star in the domestic market. 8.1.4 Threats The fluctuating fuel cost is a big threat to making it hard to make the projected profits. The jet fuel has risen further 10 % to more than USD 130 per barrel (Virgin Australia 2014). Strong competition from Jetstar Airlines in the low-cost market segment is threatening Virgin goal of making profits. 9.0 Porter’s Five Forces Porter's five forces are used here to evaluate frameworks for business strategy as used by other airline industry players to establish the competitive intensity and attractiveness of that market. 9.1 Threat of new entrants The threat of new entrants is low because of regulation of the Australian airline industry (IBISWorld 2014) It reduces external competition and companies with good strategy have the advantage to increase their profits. Threat to new supplier entry is low because of already established names mainly Boeing and Airbus. B2C high B2B low 9.2 Threats of substitutes The level of threat to substitute is very high due to the fact the industry depends of disposable income. The substitute for virgin Australia airlines are road and railway transport i.e. vehicles and train (IBISWorld 2014). B2C high B2B low 9.3 Bargaining Power of buyers Buyers have a high bargaining power because of presence of several airlines including Eastern Airways, EasyJet, Continental Airlines, Emirates and Singapore airlines (IBISWorld 2014). Virgin Australia have invested heavily on a low cost carriers demand for high quality service and less loyalty Bargaining power of b2b is very low because of alternative or substitute B2C high B2B low 9.4 Supplier bargaining power Few suppliers mostly Boeing and Airbus, hence high supplier bargaining power (Dickinson 2009) fuel suppliers have low power because they are many B2C high B2B low 9.5 Competitive Rivalry The level of competition is very high considering there are many players in the market (Dickinson 2009). The situation affects the financial performance of Virgin Australia. the competition is based on price, level of service and product branding The lifecycle of competition is at stage three both domestically and internationally and with less product differentiation. B2C Medium B2B high Read More