Strategic Management of Virgin Atlantic - Case Study Example

Strategic Management Name: Tutor: Course: Date: Cover Letter Expert Management Consultants Eton Building, 1682MA, Wellington Road West Sussex, England December 4, 2014 To the CEO Virgin Atlantic Airlines The Office Business Park, Crawley, West Sussex England. Dear Sir, RE: SITUATION ANALYSIS AND RECOMMENDATION FOR NEW GOALS AND STRATEGIED FOR VIRGIN ATLANTIC I hereby present you with a report on the findings of the micro-environmental analysis of your company, Virgin Atlantic. I would like to suggest a number of new goals and strategies based on the findings from a situation analysis using SWOT analysis and Porters five forces model. I obtained that motivating your employees through provision of a better work environment and compensation not only satisfies your workers but will go a long way in enhancing their productivity and increasing the company’s market share. I believe that this report will help you and other board members in finding a balanced viewed of the company’s strategic objectives and goals and ways to grow your brand image steadily in the years to come. It is my hope that you will adopt the report. Thank you in advance. Yours Faithfully, Name: Lead Business Consultant Expert Management Consultants Table of Contents Cover Letter 2 1.0 Introduction 5 1.1 Current Situation: Virgin Airlines 5 1.2 Discussion 6 1.2.1 Situational Analysis 6 1.2.1.1 SWOT 6 1.2.1.2 Porters Five Forces 7 Porters five forces looks into the barriers of entry into the airline market, supplier power, buyer power, threat of substitutes and rivalry among competitors. It attempts to understand the position of power in a business relationship and by doing so helps to understand organizational strengths and weaknesses (Porter, 2008). Major rivals in this airline market are British Airways, Qantas, Air Berlin, Air France, Royal Dutch Airlines, JetBlue, Emirates and American Airlines. 7 Entry and Exit Barriers: The exit and entry barriers for the aviation industry are high and take huge capital to enter the sector. Airlines regulators insist on airlines fulfilling their contractual obligations. Entry barriers are formidable and relatively tough for Virgin Atlantic as newer entrants like Virgin America and JetBlue to entrench themselves. Entry of a carrier the industry marks the beginning of a race to the bottom and all out price wars. 7 Industry Rivalry: The airline industry is saturated as more carriers enter the sector to make profit. Global aviation industry is concerned with shrinking passenger pie and a race to the bottom. Cut-throat competition and fare wars have given way to consolidation (Martyn, 2000). 7 Power of Suppliers: Boeing and Airbus are key suppliers for carriers like Virgin Atlantic. There are many suppliers vying for business and presence of a few carriers. Virgin Atlantic have a distinct advantage in sourcing jet fuel which is an expensive premium product enabling the company bargain for a discount or giveaways. 7 Power of Buyers: Power of buyers is one force with maximum impact on Virgin Atlantic. Regulators are more on the side of customers rather than the airlines. Proliferation of online booking and increase in the distribution channels through removal of the intermediary layer of ticket purchases have made buyers spoilt for choice. 7 Threat of Substitutes: Virgin Atlantic faces no serious substitutes as many people in the West commonly use air transport. The increased cost of fuel has made potential passengers to opt for virtual meetings and teleconferencing. Slow tourism and budget cruises have reduced dependency on air travel. 8 1.3 Recommendations 8 1.3.1 Strategic Goal: Motivate Employees 8 1.3.2 Strategic Plan: Better working environment and compensation for employees 9 1.3.3 Tactical Actions 9 1.4 Conclusion 9 Appendices 11 Attachment 1: SWOT analysis of Virgin Atlantic 11 Attachment 2: Porters five forces-Virgin Atlantic 12 Boeing and Airbus are key suppliers for carriers like Virgin Atlantic while others are handling vendors, ground support, airlines spare-parts makers and aviation fuel companies. There are many suppliers vying for business and presence of a few carriers which makes the power of the suppliers low. It shows that airlines have an upper hand in the way they interact with suppliers. Virgin Atlantic have a distinct advantage in sourcing jet fuel which is an expensive premium product enabling the company bargain for a discount or giveaways. 12 Power of buyers is one force with maximum impact on Virgin Atlantic given that the airline industry is a buyers’ market full of intense fare wars, plethora of choices and threat of low cost carriers consuming the market share of lead rivals. Virgin Atlantic is a low cost carrier and in recent years rivals took away its passengers and imitated the business model. Regulators are more on the side of customers rather than the airlines, hence Virgin Atlantic has to defer and kowtow to the passengers otherwise it will lose out on market share. Proliferation of online booking and increase in the distribution channels through removal of the intermediary layer of ticket purchases have made buyers spoilt for choice. 12 Virgin Atlantic faces no serious substitutes as many people in the West commonly use air as their preferred means of transport. The increased cost of fuel in 2011 and economic downturn of 2013 in Australia and Greece has made potential passengers to opt for virtual meetings and teleconferencing in a bid to partner locations for business meetings and reduce the need to fly down to the customer. In recent years, there has been a desire to pare down and substituting leisure travel with cheaper options like slow tourism and budget cruises that has low dependency on air travel. 12 1.0 Introduction Virgin Atlantic is a British based Airline Company owned by Richard Branson and is headquartered in Crawley, England. The aim of writing this report is to suggest new goals and strategies for Virgin Airlines after conducting situational analysis using Porter five forces and SWOT analysis. Environmental analysis is essential for Virgin as it seeks to increase its market share in a competitive airline market (Hill & Jones, 2009). Recommendations of the various goals and strategies will help the company reposition and make strategic decisions based on tactical plans to improve its performance and brand image. The report will help in understanding the influence of competitors and levels of substitution. The first section of the report will include a preview of current position of the company including the mission statement. The second section will be a situational analysis of Virgin Airlines using both SWOT and Porters competitive five forces as management tools. This part explains the merits of using both management tools and undertakes internal environment analysis of Virgin Atlantic Airlines. The third section provides recommendations on new goals and strategies as well as the rationale and corresponding action plans. The final section is a summary of the strategies recommended in the report and an appeal to the CEO, Virgin Airlines to adopt the report. 1.1 Current Situation: Virgin Airlines Virgin Airlines connects to more than 35 global destinations. It is perceived by many customers as a market leader in value addition especially visible customer innovation such as no smoking, individual TV’s in all classes, arrivals lounge, mobile and social media connectivity on board and at-seat podcasting (Parker, 2013). Differentiation strategy using more than £10 million has built the upper class service to extol sense of fun, quality and innovation (Martyn, 2000). Global e-invoicing solutions have improved service delivery of suppliers and tax compliance for Virgin Atlantic Airlines. In developing the social business concept, the airline used social media platform like Twitter and Facebook but these tools are cannot equip a business with culture, processes and skills to enhance the brand (Oldroyd & Oldroyd, 2007). In the words of Richard Branson, the founder, ‘Complexity is your enemy’ allowing Virgin to place greater value on simplicity. Virgin Atlantic’s mission statement is simple and it is about growing a profitable airline in which people will love to work and where people will love to fly (Parker, 2013). 1.2 Discussion 1.2.1 Situational Analysis 1.2.1.1 SWOT SWOT (Strengths, Weaknesses, Opportunities and Threats) is applied to understand the internal performance of a company. It explores financial position, employee performance and motivation, infrastructural development and technology, market opportunities and operational threats (Pahl & Tichter, 2009). Strengths: Virgin Atlantic airline technology is amazing. The company has spent more than £10million in marketing segmentation strategies. Flexibility of the airlines to diversity such as children, disabled and the aged has improved customer perception. Weaknesses: The Company has limited airlines, global destinations and limited expansion to territories least susceptible to terrorist attacks. The crew does not have a sense of fun and satisfaction for the hard work done in meeting company goals. The company still lacks transparency in handling employee issues. Opportunities: The social media is a great technological platform to showcase customer service and reach. Reduction in the global prices of gasoline in 2013 is likely to increase the earnings of the airline in 2014. Threats: Purchase of Boeing and Dreamliners by competitors is likely to sway the customer base and lose some to the competition. Deregulation of the airline industry across the globe has witnessed entry of new airlines on economy budgets and discounts. Global terrorism continues to make the airline industry vulnerable and expensive. 1.2.1.2 Porters Five Forces Porters five forces looks into the barriers of entry into the airline market, supplier power, buyer power, threat of substitutes and rivalry among competitors. It attempts to understand the position of power in a business relationship and by doing so helps to understand organizational strengths and weaknesses (Porter, 2008). Major rivals in this airline market are British Airways, Qantas, Air Berlin, Air France, Royal Dutch Airlines, JetBlue, Emirates and American Airlines. Entry and Exit Barriers: The exit and entry barriers for the aviation industry are high and take huge capital to enter the sector. Airlines regulators insist on airlines fulfilling their contractual obligations. Entry barriers are formidable and relatively tough for Virgin Atlantic as newer entrants like Virgin America and JetBlue to entrench themselves. Entry of a carrier the industry marks the beginning of a race to the bottom and all out price wars. Industry Rivalry: The airline industry is saturated as more carriers enter the sector to make profit. Global aviation industry is concerned with shrinking passenger pie and a race to the bottom. Cut-throat competition and fare wars have given way to consolidation (Martyn, 2000). Power of Suppliers: Boeing and Airbus are key suppliers for carriers like Virgin Atlantic. There are many suppliers vying for business and presence of a few carriers. Virgin Atlantic have a distinct advantage in sourcing jet fuel which is an expensive premium product enabling the company bargain for a discount or giveaways. Power of Buyers: Power of buyers is one force with maximum impact on Virgin Atlantic. Regulators are more on the side of customers rather than the airlines. Proliferation of online booking and increase in the distribution channels through removal of the intermediary layer of ticket purchases have made buyers spoilt for choice. Threat of Substitutes: Virgin Atlantic faces no serious substitutes as many people in the West commonly use air transport. The increased cost of fuel has made potential passengers to opt for virtual meetings and teleconferencing. Slow tourism and budget cruises have reduced dependency on air travel. 1.3 Recommendations 1.3.1 Strategic Goal: Motivate Employees One of the simplest ways of motivating Virgin Atlantic employees is to increase their working environment and better compensation package. Rather than embark on a general plan to train and equip employees with skills on better customer service and quality, understanding the physiological and emotional needs of employees is paramount is deriving the best in terms of their productivity and competence (Pahl & Tichter, 2009). The company has focused much in satisfying upper class customers by investing more than £10 million in the last four years with little attention to employees. Although there is sense on fun in travelling and sightseeing, the crew and company staff has their personal goals to fulfill. The strategy to improve productivity through employee motivation can be auctioned all at once or piecemeal with those urgent being done immediately (Hill & Jones, 2009). To motivate employees and crew, some of the actions suggested will include; providing employees with paid holidays to some interesting destinations once in a year to reflect and unwind, providing employees with better packages and allowances, fringe benefits such as international medical insurance covers, car grants and paid schooling for their children. Entertainment allowances should also be increased to keep abreast with the global increase in the cost of living. The premise of developing these goals and strategies is that when employees are motivated, they will have a sense of fun and duty to impress and astonish potential and existing airline customers which directly translates into increased profitability and market share. 1.3.2 Strategic Plan: Better working environment and compensation for employees Improve Virgin Atlantic work environment and compensation package for employees by 15% in the next three years; allowing the actions and targets to be updated and reviewed every year extending the 3 years (Hill & Jones, 2009). 1.3.3 Tactical Actions Take stock of the current health, safety and welfare of all employees Undertake market research on the industry compensation package, allowance and benefits to employees Assess the current job categories and evaluate satisfaction in terms of remuneration and job description. Focus on understanding the needs of the various categories within the administration, ground and air crew - get a genuine position of their fears through personalized talks and field interactions. Hold town hall meetings with all employees and allow each one of them to voice their opinions and views Develop better working relations between teams and individual members by physical interactions and exchange of gifts. Offer bonuses and gift vouchers to employees and their families Provide protective clothing and treatment against emerging diseases like Ebola and Marburg Introduce incentives for best performing employees and teams Establish a team to investigate and suggest an increase in remuneration packages for all employees in every category. 1.4 Conclusion The report has provided a situational analysis on the performance of Virgin Atlantic by undertaking both SWOT and porters five forces. It has recommended for a development of a strategic goal which is to motivate employees. Virgin Atlantic has a weakness of low morale among employees despite the great fame and high brand value. The strategic goal has been to develop a team of motivated employees by adopting realistic three year plans on how to improve their work environment and better their compensation package. The actions plans suggested have a window of being reviewed and updated beyond the three year period provided (Hill & Jones, 2009). I request the CEO to adopt this report since I believe it has the ability to change the strategic direction of Virgin Atlantic by improving profitability and satisfied employees. Reference list Hill G & Jones G 2009, Strategic Management Theory: An Integrated Approach, Cengage Learning. Martyn G 2000, Dirty Tricks: British Airways' Secret War against Virgin Atlantic. New York: Virgin. Oldroyd M & Oldroyd M 2007, Marketing Environment 2007-2008, Routledge. Parker A 2013, Virgin Atlantic chief vows return to profit. Financial Times, London. Pahl N & Tichter A 2009, Swot Analysis - Idea, Methodology and a Practical Approach, BoD- Books on Demand. Porter ME 2008, Competitive Strategy: Techniques for Analyzing Industries and Competitors, Simon and Schuster. Appendices Attachment 1: SWOT analysis of Virgin Atlantic Strengths: Virgin Atlantic airline technology is amazing with aircrafts engineers continuously improving on security, customer service and status. The company has spent more than £10million in marketing segmentation strategies to build the upper class and £100 million in covering the Sustainable Procurement Policy. Flexibility of the airlines to diversity such as children, disabled and the aged has improved customer perception. Weaknesses: The Company has limited airlines and global destinations. Limited expansion to territories least susceptible to terrorist attacks has stagnated the earnings of the airlines. The crew does not have a sense of fun and satisfaction for the hard work done in meeting company goals owing to low earnings. The company still lacks transparency in handling employee issues such as pay and shareholders’ funds. Opportunities: The social media is a great technological platform to showcase customer service and reach. The use of Qube Media, Twitter and Facebook has increased the level of social business performance in airlines. Reduction in the global prices of gasoline in 2013 is likely to increase the earnings of the airline in 2014. Threats: Procurement of efficient airbuses such as the Boeing and Dreamliners by competitors is likely to sway the customer base and lose some to the competition. Deregulation of the airline industry across the globe has witnessed entry of new airlines on economy budgets and discounts. Global terrorism continues to make the airline industry vulnerable and expensive as many airlines spend a lot of money in security installations. Attachment 2: Porters five forces-Virgin Atlantic Force Description Entry and Exit Barriers The exit and entry barriers for the aviation industry are high and take huge capital to enter the sector. Airlines regulators insist on airlines fulfilling their contractual obligations to stakeholders before exiting the venture. Many rules and tight regulation means that the regulators are satisfied financial stability of the carriers and their airworthiness based on the safety aspect. Entry barriers are formidable and relatively tough for Virgin Atlantic as newer entrants like Virgin America and JetBlue to entrench themselves. Entry of a carrier the industry marks the beginning of a race to the bottom and all out price wars. Industry Rivalry The airline industry is saturated as more carriers enter the sector to make profit. In the last five years, most airlines have not managed to record consistent profits but have remained undeterred to set up shop and enter the industry. Virgin Atlantic has been affected very much by industry rivalry while global aviation industry is concerned with shrinking passenger pie and a race to the bottom. Cut-throat competition and fare wars have given way to consolidation through mega mergers in a bid to remain relevant and profitability. Power of Suppliers Boeing and Airbus are key suppliers for carriers like Virgin Atlantic while others are handling vendors, ground support, airlines spare-parts makers and aviation fuel companies. There are many suppliers vying for business and presence of a few carriers which makes the power of the suppliers low. It shows that airlines have an upper hand in the way they interact with suppliers. Virgin Atlantic have a distinct advantage in sourcing jet fuel which is an expensive premium product enabling the company bargain for a discount or giveaways. Power of Buyers Power of buyers is one force with maximum impact on Virgin Atlantic given that the airline industry is a buyers’ market full of intense fare wars, plethora of choices and threat of low cost carriers consuming the market share of lead rivals. Virgin Atlantic is a low cost carrier and in recent years rivals took away its passengers and imitated the business model. Regulators are more on the side of customers rather than the airlines, hence Virgin Atlantic has to defer and kowtow to the passengers otherwise it will lose out on market share. Proliferation of online booking and increase in the distribution channels through removal of the intermediary layer of ticket purchases have made buyers spoilt for choice. Threat of Substitutes Virgin Atlantic faces no serious substitutes as many people in the West commonly use air as their preferred means of transport. The increased cost of fuel in 2011 and economic downturn of 2013 in Australia and Greece has made potential passengers to opt for virtual meetings and teleconferencing in a bid to partner locations for business meetings and reduce the need to fly down to the customer. In recent years, there has been a desire to pare down and substituting leisure travel with cheaper options like slow tourism and budget cruises that has low dependency on air travel. Read More