Case study analysis of Virgin atlantic

CASE ANAYSIS OF VIRGIN ATLANTIC AIRWAYS
Submitted by
Jasim Alam 1418
Pravel Jain 1426
Vivek Anand 1444

Contents
1 INTRODUCTION ................................................................................................................................1
2 GENERAL ENVIRONMENT..............................................................................................................2
2.1 Economic.......................................................................................................................................2
2.2 Political-Legal...............................................................................................................................2
2.3 Social factors.................................................................................................................................3
2.4 Technological factors....................................................................................................................3
3 INDUSTRY ENVIRONMENT ............................................................................................................3
3.1 Barriers to Entry (Medium to High) .............................................................................................3
3.2 Bargaining power of the suppliers (High).....................................................................................4
3.3 Bargaining power of the buyers (Medium)...................................................................................4
3.4 Competition (High).......................................................................................................................4
3.5 Availability of Substitutes (Medium) ...........................................................................................4
4 SWOT Analysis ....................................................................................................................................5
5 COMPETITOR ANALYSIS ................................................................................................................6
5.1.1 British Airways-....................................................................................................................6
5.1.2 Lufthansa- .............................................................................................................................7
5.1.3 American Airlines.................................................................................................................7
6 FINANCIAL ANALYSIS ....................................................................................................................7
7 BUSINESS STRATEGIES...................................................................................................................8
7.1 Cost Leadership ............................................................................................................................8
7.2 Differentiation...............................................................................................................................8
8 RECOMMENDATION ........................................................................................................................9

VIRGIN ATLANTIC
1 INTRODUCTION
Initiated by Sir Richard Branson, founder of the Virgin group, “Virgin Atlantic took to the air in
1984” (Virgin Atlantic History, 2013) And it reflected all the values promoted by all the products
under the ‘virgin’ umbrella: “value for money, quality, innovation, fun and a sense of competitive
challenge” (Virgin Atlantic, About us, 2013) “On 20 December 1999 Richard Branson signed an
agreement to sell a 49% stake of Virgin Atlantic to Singapore Airlines to form a unique global
partnership.” (Virgin, about us, 2013) However, Branson retained the controlling 51% stake in
the company and focused on developing it into a successful airline.
Currently, Virgin Atlantic operates in the UK out of Heathrow airport: “We've only got 3% of the
slots at Heathrow, but we have 10% of the movements and a 23% or 24% market share on the
North Atlantic."(Kinglsley-Jones, M., 2011) And it has positioned its self as the main competitor
of British Airways.
Figure 1 Competitor’s

2 | P a g e
The success of the airline industry depends on numerous uncontrollable factors influencing the
market place. These range from volatile fuel prices, economic crises, natural catastrophes to an
increase in political as well as safety regulations, just to name a few of the challenges companies
face. In an environment with such intense rivalry, it is crucial to differentiate to survive; a point
which Virgin has continuously excelled at through their marketing communication efforts. Virgin
Atlantic has managed to transform their product into an experience, allowing their brand
personality to thoroughly shine through.
2 GENERAL ENVIRONMENT
2.1 Economic
 The 9/11 attacks left a major impact that the airline industry is yet to recover from
 The prolonged recession, fluctuations in oil prices and an imminent global slowdown
are factors that are affecting the growth.
 Airlines have to cope with declining passengers, high fuel prices, competition from low-cost
airliners, labor demands and soaring operating and maintenance costs
 Deregulation keeps airline fares so low as compared to that of other countries.
 The reason for this is despite the failure of most entrants since deregulation, investors continue
to create new airlines.
 Market implications: lowered airline tickets; discounts for senior citizens; discounts for group
travelers
2.2 Political-Legal
 In January 1991, the UK opened Heathrow Airport to Virgin when it abolished the London Air
Traffic Distribution Rules in response to pressure from the industry.
 Highly regulated political environment where passengers are favored over the airlines.
 Passenger safety is paramount.
 Government intervention are necessary to protect the passengers’ interests and airline
operations’ safety measures.

3 | P a g e
2.3 Social factors
 Demand for air travel has increased significantly over the years.
 Indicating ravel preferences among the latest generation.
 The passenger profile has changed as well with there being more economically minded
passengers.
 Business class passengers, improved communication facilities have reduced the need to fly
down for meetings.
2.4 Technological factors
 Technology is also one of the four pillars under the International Airline Transport
Association’s (or IATA) strategy to address climate change.
 To survive the intense competition companies must adopt the latest technology.
 Use of advanced aircraft technology results in lower fuel consumption this improves efficiency
and the cost of airline operations.
3 INDUSTRY ENVIRONMENT
3.1 Barriers to Entry (Medium to High)
 Initial investment capital is high cannot be afforded by all.
 Existing market players have already stabilized their positions and have also created a brand
identity.
 Fuel is the largest barrier to entry for the new comers.
 According to a 2012 report in the New York Times, fuel costs account for up to 50 percent of
an airline’s expenses.
 Airlines are subject to a significant range of government regulations, and complying with all
of them can be a barrier.
 New pilots tend to prefer a career with an established company rather than a riskier startup.

4 | P a g e
3.2 Bargaining power of the suppliers (High)
 The main supplier for airlines is obviously its aircraft manufacturer.
 In Virgin Atlantic case, the main aircraft manufacturers are Boeing and Airbus.
 Fuel companies are also one of the key suppliers for airlines, since fuel is the basic necessity
for aircraft in order to operate.
 The airport itself supplies the services needed by aircrafts. IT companies such as IBM and
NCR can be classified as suppliers as they supply IT solutions.
3.3 Bargaining power of the buyers (Medium)
 Virgin Atlantic Airways is known for the quality service render to their passengers.
 The Virgin Atlantic Airways offers the cheapest airfare so that the passengers can afford.
 Passengers were used to purchase their tickets directly from the airlines company.
 At that time, bargaining power of customers was very low
 Now every airline spreads its distribution channel everywhere even overseas to keep up with
the competition this enables the airlines to cover a larger market.
3.4 Competition (High)
 American Airlines Group Inc., BRITISH AIRWAYS PLC, AIR FRANCE - KLM
 Reduced government role and protective rules have led to the increased competition among
airlines.
 Competitors in the industry have same capability in terms of interactivity of their web page.
 Already established brands
 Possess global identity hence large customer based
 Big Players having similar models
3.5 Availability of Substitutes (Medium)
 For every product or service a company offers, there is always a potential of a substitute for it.
Virgin Atlantic Airways operates completely in air transportation.

5 | P a g e
 Air transportation is utilized by people who need to travel faster and time efficiency is crucial
for them.
 If time is not a main consideration, people might choose to travel by sea or land and this saves
them a lot of money.
 The main substitutes for airline industry are trains, buses and ships.
4 SWOT Analysis
Strenghts
Comprehensive Service
Cargo
Strong brand Image
Brand loyalty
Brand awareness
Effective Communication,
campaigns, Innovation
Uniques product(differentiation)
Receive awards consistently
Weakness
Lack of Scale compared to
competitors
Fleet size
Limtited routes
Threats
Price Wars
Economic downturn
Unpredictable fuel prices
Opportunities
Expansion into Asian market
Growth of Air Industry
SWOT

6 | P a g e
5 COMPETITOR ANALYSIS
Virgin Atlantic brand is always known for its premium air rides. They operates from four UK airports, but
its main operating base is at London Heathrow. It operates some 97,000 seats per week from Heathrow,
31,000 from London Gatwick and just under 10,000 from Manchester. Virgin Atlantic Airways specifically
target the Heathrow traffic. They always enjoy business advantage due to parent company entities like
Virgin Holiday and other airlines.
The major competitors of Virgin Atlantic airways are British airways, American Airline and
Lufthansa Airways.
Figure 2London Heathrow Airport capacity share by carrier (% of seats)
5.1.1 British Airways-
 Major Player in the industry almost captured 45.6% of market in terms of birth volumes.
 BA operates 51% of all incoming and departing flights from Heathrow while Virgin takes only a
fourth position with less than 5% which is its operating port.
 BA acquires short and medium haul services named as bmi by beating Virgin Atlantic.
 VA was always a challenger to British Airlines.
45.6
5.4
3.73.5
3.1
3
2.3
2.2
31.1
Market Share(2012)
British Airways
Virgin Atlantic Airways
Lufthansa
Amerian Airlines
Aer Lingus
United Airlines
Air Canada
SAS
Other

7 | P a g e
5.1.2 Lufthansa-
 Part of the Star alliance.
 Covers more than 215 destinations while VA covers around 32 destinations.
 Serves in South America.
5.1.3 American Airlines
 Covers more than 344 destinations.
 Serves to whole American continents.
6 FINANCIAL ANALYSIS
Being a challenger in the industry against the market leader like British Airways which is 10 times bigger
than you is not an easy task. Virgin atlantics suffers two consecutive years loss. Their strategy to bring back
the company on profit path was succeed as they planned in 2014. The fiscal year 2014 results showed the
company is making profit again.
Figure 3Profit trend of consecutive three years
 In 2014 Virgin Atlantis made a profit of £14.4m, approximately an improvement of £65m.
 After the results CEO Craig Kreeger said:
“We want to be the airline most loved by our customers by always putting them at the center of
everything we do. These profitable results mark the successful conclusion of our recovery period
-102
-51
14.4
-120
-100
-80
-60
-40
-20
0
20
40
2012 2013 2014
Profit before tax and exceptional item in Million
Pounds
Profit before tax and exceptional item

8 | P a g e
and have put firm foundations in place for the future. We are confident that we have the right fleet,
network and partners in place to be more profitable than ever before by 2018.
 The joint venture with Delta airlines paved the way to trace back the profits. The joint venture
provides regular customers to VA.
 Company sold 49% stake to delta airline and focused its business on more lucrative North
American routes.
 The cumulative loss after three years was around £230m to Virgin Atlantis.
7 BUSINESS STRATEGIES
7.1 Cost Leadership
 Low cost carriers (LCCs) as well as mid-range airlines are appealing to a broad scope of consumers.
 As Virgin Atlantic does not fall into the low cost category, but pioneered unique features to
differentiate their services, they have adopted a differentiation strategy.
 LCCs follow a cost leadership strategy, Virgin Atlantic are offering the same value for product, in
this case the flight, at a lower price.
 This tends to attract a larger number of customers and allows them to sell higher volumes at lower
margins.
7.2 Differentiation
 The recent changes in passenger needs have influenced the trend and direction of the aviation
market.
 Passengers desire to be presented with the option to choose the components of their service package
individually.
 Virgin Atlantic pioneered with offering flexible, customizable service.
 Providing the passengers with choices makes them feel as though they are able to own the
experience, which increases customer satisfaction, ultimately leading to enhanced brand loyalty.
 Their upper class passengers are able to access the office area, the in-flight bar and spa area even
personalizing meal times.
 Virgin Atlantic aims at end-to-end service, on and off the plane, allowing passengers to even book
Virgin-sponsored motorcycles or limousines for their airport transfer.

9 | P a g e
8 RECOMMENDATION
The first proposal involves Virgin Atlantic becoming a public company rather than a privately owned one.
This would be recommendable, as the company needs an injection of capital to continue delivering value
to its customers. With a current fleet only 38 planes strong the company needs to grow both internally,
purchasing more planes and hiring more personnel, and externally by servicing more routes
 The second proposal suggests that Virgin merges with a South-East Asian airway. Currently
Singapore Airlines owns part of virgin Atlantic, however a full partnership would allow for the
British company to penetrate the profitable Asian market.

Case study analysis of Virgin atlantic

More Related Content

What's hot

Similar to Case study analysis of Virgin atlantic

Recently uploaded

Case study analysis of Virgin atlantic