Virgin Blue Airlines Strategic Management - Case Study Example

Running Head: STRATEGIC MANAGEMENT Strategic management Name Course Tutor Date submitted VIRGIN BLUE AIRLINE Company Description and Competitive Analysis Virgin blue is one of the major Airline Companies in Australia which began its operations in 2000. The company was founded by Richard Branson’s, a British business man and member of the Virgin group but is currently controlled by Toll Holdings. Virgin Blue initiated its flight services with about seven daily flights between Brisbane and Sydney and only two aircrafts. However, the company has registered tremendous growth where it makes flights to 23 local destinations in Australia and 8 international destinations using international carriers such as Polynesian blue and pacific Blue (Carpenter et al, 2010). Currently, Australia has three main airlines which make their operation at the Coolangatta Airport namely Virgin Blue, Qantas and Jestar (Bruce, 2005). A fourth airline, Tiger Airways, has recently made a new entry into the market. Considering emerging global and domestic economic challenges, Virgin Blue has been considered as the only Australia Airline that has triumphed over the challenges and maintained its momentum (Carpenter et al, 2010). Entry of Virgin Blue into the market occurred immediately after the down fall of Ansett which enhanced its rapid growth and it actually became the second largest domestic carrier after Qantas. Main competitors of virgin Blue are Qantas and two other international airlines; Air New Zealand, and Easy Jet. Comparison of Virgin Blue with its Competitors Market size: This will make comparison of Australian Airlines in terms of number of employees, operating profits and the numbers of aircrafts. Currently, Virgin Blue has the least number of employees; 4000 compared to Qantas’s 34’267, Easy Jet 5,674 and Air New Zealand 10, 713. Virgin Blue operates a total of 23 aircrafts which is the least number compared to its competitors. Qantas’s operates 230, Easy Jet 164 while Air New Zealand 99 aircrafts. Virgin blue’s annual operating profits are AUS$ 324.3 which comes second from Qantas AUS$ 1032. Easy Jet annual returns are AUS$ 172 while that of Air New Zealand is NZ$ 283.0 (Bruce, 2005). Passenger’s routes and numbers: By positioning itself as a world class carrier, Virgin Blue has managed to attract passengers from all sectors. It offers the cheapest flight tickets compared to its rivals. In comparison, 70% of New Zealand passengers are inbound that is, the ones who depend on flight connections and offshore distributions. It is the preferred airline for most businessmen and ‘Kiwi Traditionalists’ who consider class rather than cost as they travel. In addition, it operates all non main truck domestic routes. The market segment of Qantas resembles that of Air New Zealand although its operations are mainly concentrated in Australia. Qantas is the preferred airline by majority of the Australians but it has received much threat due to new entrants into the market. Easy Jet is the lowest cost European owned airline and does not make flights to primary airports (Virgin Blue, 2003). Virgin Blue PEST Analysis Political-legal issues: The Australian Government introduced the aviation industry regulation policy in the mid 90’s which has continually regulated competition among Australian airlines. Qantas and Air New Zealand were denied a request for a merger by the Australian Competition and Consumer Commission (ACCC) which kept Virgin Blue in its already competitive position. Better still, Australian international industry remains under check at the commonwealth level which favors domestic airlines including Virgin Blue. Economic issues: The September, 11 incident in the United States in 2001 greatly affected the trust of customers on the safety of using flights. In addition, the rising trend of increasing fuel prices has caused Virgin Blue to hike their basic flight costs which has subsequently the affected likeability of customers to use the airline. Demise of Ansett discouraged new entrants into the market implying a more favorable competitive environment for Virgin Blue. Social-Economic issues: With increasing international expansion of Virgin Blue, there is increasing need to have foreign language training for its employees. The airline has increased entertainment and security levels for its customers in addition to wide spread customer awareness for the services offered. However, there are constant cases of complaints from customers regarding lost luggage and Bad services. Technological issues: Virgin Blue introduced e-ticketing which has made it easy for flight booking. Communication within Virgin Blue has been dramatically enhanced following automation of all its systems while recent introduction of animated advertisement has attracted more customers (Hartley, 2003). Virgin Blue SWOT Analysis Strengths The Virgin Brand is familiar to 98% of British public It has incorporated innovative technologies into its systems such as games, music, movies inside the flights as well as e-ticketing. It has recruited highly qualified employees from other airlines. Richard Branson has developed a highly entrepreneurial and innovative management team. It has gained positive publicity after winning several national and international awards. It has the lowest fare costs among Australian Airlines which makes it attractive to customers. Weaknesses It has poor flight efficiency such as flight delays. Limited travel routes. Routes to Toronto, Chicago and Cape were cut after September, 11 tragedy. Richard Branson is the only CEO heading a group of many companies. It experiences a drop in travel demand to and from America due to its reliance on Trans Atlantic traffic. Opportunities Web site services need to be improved in future in order to improve e-commerce and web navigation. Management needs to generate new routes. Internet connections for in flights. On-line marketing strategies, branding and advertising. Threats The company is under the threat of recession. There are potential future risk aversions and order cancellations due to the September 11th incident. Competition from other airlines such as Qantas and Air New Zealand. Brand dilution of Virgin which might cause confusion to customers concerning specific products. Fluctuating fuel prices. Virgin Blue (2003) Summary of the financial data Virgin Blue aspires to the market leader in low-cost flying while still remaining profitable. Sales wise and operationally, this means the airline needs to increase its revenues and/or lower overheads. An analysis can be done using parameters like: passenger load factor (PLF), revenue passenger kilometers (RPK) and available seat kilometers (ASK) to check on utilized passenger carrying capacity, passenger volume and actual carrying capacity, respectively. PLF has dropped from 79.5% to 78.7% over the period under review, with Brisbane – Gladstone route scoring the lowest at 53.4% against 84.6% on Gold Coast – Sydney route. Virgin Blue should work towards maintaining her PLF, above the industry average. While a high PLF alone may not be an accurate measure of profitability since an airline can achieve 100% PLF at very low ticket prices, it would be a good tool if the prices would be maintained at optimum levels. A high PLF will lower average fixed costs since most, if not all seats will be occupied in every flight. For the same period, while the airlines capacity (ASK) grew by 8.2%, the industry volume (RPK) only grew by a disproportionate 7%. This means if Virgin Blue increased its marketing (assuming it has available seats), it stands a chance to uptake the untapped 0.8% of ready market, thus growing her revenues. Lastly, the airline should assess the feasibility of flying Adelaide - Gold Coast, Adelaide – Canberra and Darwin – Perth routes each of which has registered over 10% drop in flights activity during the period under review. Dominating the routes and/or taking up the lost business may grow the airline’s revenues in the long run. Mission Statement Virgin Blue Airways widely understand the overall objectives but outlining what it want to achieve both in short and long term. The mission statement of Virgin Blue underpins the organization strategies whereby all employees are expected to consider while making decision that concerns the airline. Wehrich & Koontz (2005) asserts that, Virgin Blue mission statement has been divided into three so as to ensure that employees are at ease adhering to their assigned duties towards achieving the mission. Virgin blue mission statements are; To grow to be the most profitable airline in the world To ensure that Virgin Blue is the place people love to fly To ensure Virgin Blue is the place where people love to work from The division of this Virgin Blue mission statement creates a huge influence in the company’s management. These mission statements ensure that both employees and customers are engaged in ensuring that the company achieves its success and its designed short and long term objectives. The airline mission statement gives the indication that Virgin Blue believes in making a difference. This can be observed in describing what Virgin stand for which is value for its cash, innovation, quality, sense of a global competitive challenges and fun for both customers and employees (Wehrich & Koontz, 2005). Value Statement Virgin Blue Airlines has to describe a value statement which will ensure that all set objectives, strategies and goals are accomplished in future. Virgin Atlantic, (2011) maintains that, with increased competition in the airline sector, the company needs to develop a strong value statement whereby both short and long term goals are met, not only by way of selling services and goods but through quality improvement as well as becoming more customer focused. Clearly, the company needs to realize that passion and creativity are of great relevance to Virgin Blue value statement. Creativity should be viewed as the power or the ability to invent whereas passion should be viewed as intense or driving conviction or driving. It is from this that the following value statement would fit Virgin blue (Virgin Atlantic, 2011). Passion* Integrity* Results Passion This passion should be dedicated to community by way of delivering exceptional flight services. By this, Virgin will respond to both expectations and needs of their community and customers. Creativity and innovation is used to improve services to enhance customer experience with the company (Virgin Atlantic, (2011).). Integrity Here in Virgin Blue, we believe in honesty and professionalism in our working relationship. Therefore, the company thrives for fairness and equity in decision making and in employees’ relations. The company holds itself accountable to the highest performance and ethical standards (Virgin Atlantic, 2011). Results Virgin Blue management is committed to work closely with our employees and community. We highly value our culture of building strong partnership within our organization and that of participation (Virgin Atlantic, 2011). We respect individuals’ differences since we view them as strengths towards attaining expected results. We learn from these differences through inspiring and sharing with one another towards achieving outlined goals and objectives. Strategic Objectives for Virgin Blue in the Next Three to Five years For Virgin Blue, strategic objective should be viewed as important element in the articulation of a shared vision as well as in building partnership which are considered to be necessary in making the company work together on common goals. In outlining the key strategic objectives that are needed by virgin Blue, it is important to identify organizational needs that are commonly shared by various stakeholders groups (Virgin, 2008). There is need for Virgin Blue to develop competitive strategic objectives that are intended to be achieved in the next three to five years. These objectives should be designed in a manner that will create a competitive advantage both in domestic and international airlines markets (Virgin, 2008). The following strategic objectives are important in ensuring that Virgin blue goal and vision are meant in the next three to five years; Ensuring that the airline is flag ship and offer low cost services as the same time maintaining increased profitability in the long term future Develop and highly maintains a flexible Virgin Blue strategy able to be adapted quickly with current ever changing circumstance with main focus on a long term and lean resources based on outlines competitive strategy To position the company to be the market leader in low cost corporate carrier so as to ensure that it attract both customers who consider themselves to be back packers and business travelers. The above objective will only be achieved in the next three to five years by carry out a comprehensive situation analysis of both its internal and external environment. Further, good objective are achieved by way of analyzing economic power, political influence as well as understanding various stakeholders (Virgin, 2008). Key Strategy for Virgin Blue in the Next Three to Five years Having described the above strategic objectives for Virgin Blue, it is important to develop key strategy for the next three to five years. Becoming a world market leader in low cost fare flights call for Virgin Blue improvements and expansion of its strategies to fit into international standards. The company need to research on finding what other competitors formula on how they eliminate cost such as flight meals. Cost cutting can be through limiting the number of airports being serviced and operated by one type of aircraft (Homburg et al, 2007). The following are two strategies that should be adapted by virgin blue in achieving its strategic objectives; Commitment to safety and quality maintenance; Virgin Blue remains committed to safety which is its primary focus both for the company and its management. It should maintain it clean record of not having a single incident involving customer injury (Homburg et al, 2007). Internet booking; the company online booking should allow its customer’s access its host reservation by allowing advance pay. The website should be marketed via radio, television and newspapers so as to promote drastic booking done online (Homburg et al, 2007). References Bruce, H. (2005). "Retaining the Competitive Edge." Australian Human Resources Institute. Retrieved on 25th October 2011 from http://www.ahri.com.au. Carpenter, M., Sanders, W., Rice, J., Martin, N. (2010). Strategic Management: A Dynamic Perspective. Concepts and Cases. Frenchs Forest Australia: Pearson Education. Hartley, R.F. (2003). ‘Southwest Airlines finds success with a strategic niche that seems unassailable’. Chapter 17 in R.F. Hartley, Management Mistakes and Successes. 7th edition.New Work: Wiley, pp. 234-248. Homburg, C. Theissen, A. Knigge, A. (2007). Value Based Management Concepts: Suitable Tools For Airline Management? An Empirical Study. P17. Lufthansa Consulting.Retrieved on 13 August 2007 from http://www.lhconsulting.com.cn/fileadmin/downloads/studies/VBM_Concepts_for_Airlines.pdf. Virgin Atlantic, (2011). Our story. Retrieved from http://www.virgin atlantic.com/en/gb/allaboutus/missionstatement/index.jsp Virgin Blue. ( 2003). "Prospectus” Retrieved on 25th October 2011 from http://www.virginblue.com.au/pdfs/investors/ shareoffer/Virgin_Blue_Prospectus_17nov03.pdf. Virgin. (2008). Virgin Blue Mission Statement. Retrieved on 15th April 2009 from the Virgin Blue Annual Report 2008 p.4. http://cpuaustd.mobular.net/cpuaustd/131/11/118//print/VBA_AR08.pdf Wehrich H, Koontz H. (2005). 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