Sunday, May 11, 2014

Internal and the External environment Analysis of Virgin Airlines

Executive Summary

The purpose of this document is to provide an analysis of the internal and the external environment of Virgin Airlines. The report begins with a brief introduction of the corporate history. It then utilizes the value chain framework to analyze the internal environment. The porter five forces model is then used to analyze the external environment. The report ends with a brief conclusion of the all the involved and mentioned factors.

Introduction

Virgin Airlines is a subsidiary and a strategic business unit of United Kingdom’s largest private company (Virgin Group). It was founded by Sir Richard Branson. The group has presence in various business verticals. This report focuses particularly on the Airline industry. This particular group holds 32% of the domestic share in the Australian market. The organization has the headquarters in Queensland Australia. It operates in more than 20 Australian cities and has more than 60 operative Boeing Aircrafts.

Internal Analysis

Identification of Core Competencies
Core competencies are a bunch of technologies and the skills which allows an organization to pass on the benefits to the end customer.
·         Virgin Airlines enjoys a strong brand reputation, there are many customers across UK where people admire Virgin as their most admire brand.
·         The organization makes it a point to promote and advertise the company’s recent developments and activities in the best possible and unique manner.
·         The employees enjoy a great degree of empowerment, this allows them to be proactive and serve the customers according to the specific need of the hour.
·         The company enjoys the benefits of a simple corporate structure, the management style and success and value of it respective resources.
·         Virgin Airlines provides enough value to its customers by offering them dynamic features like web check in and in flight meals.
·         The application of low cost strategy by the organization is phenomenal. They offer the lowest air fares and thus are able to attract a large group of price sensitive customers.
·         They offer point to point service, which helps them to reduce the costs of providing additional services like luggage transfer etc.
·         The operational costs are really low which allows the price offered to the end customer. The organization uses a single type of aircraft (Boeing 737), this enables them to reduce training costs and also on maintenance and spare parts which can be purchased in bulk and thus lower price for purchasing the same spare part in bulk.
·         They also concentrate highly on retaining their existing personnel by constantly rewarding them and improving their efficiency by motivating them regularly.
·         Virgin’s management is committed in employing and training of their pilots, flight attendants and maintenance personnel. They all maintain the aircrafts in accordance with top international airline industry standards( Kotler 2000).

External Analysis

Competitive Rivalry
The nature of this industry is such that it requires and demands huge amounts of capital investment in the operating activities. “The firm orders are valued at $420 million and the potential value is $840 million if covered all options are converted” (Miller, 2005, p.24). These types of huge figures are attached to every service brought to market; competitive forces of this industry are extreme.
Barriers to entry and exit
Since there are huge costs involved in setting up and the degree of risks involved is also heavy, the potential entry of new competition is not much of a threat.
Supplier Power
Since the group offers great regional coverage in the Australian regions, it enjoys leverage over the competition. This also allows for getting the best possible rates for contracts.
Buyer Power
The customers did not enjoy a lot of alternatives and options traditionally. Today, they can choose with best in class service quality if they are prepared to shell out the cost for the same. In contrast, they can also choose a low fare option which is being offered by a group like Virgin Airlines (Ragins 2003).
Threat of Substitutes
The low operational costs is the main key for Virgin Airlines, there are thin margins. Thus, any kind of inconsistency in the cost structure can create unbearable losses.
Differentiation Strategy
The airline was the first to offer multi channel satellite services to their respective customers. They continuously update their offerings and packages to suit the dynamic needs of their customers in the present era of technology driven technology (Prahalad 1990).

Conclusion

It is quite evident from the above sections that the Virgin Airlines has adopted two generic strategies namely Low cost and differentiation. Some experts in the field of management are of the opinion that an organization must stick to one of the generic strategies to get the best efficiency level out of their respective business. For example- Porter (1980) says if a firm fails to make choice between differentiation and cost leadership basically means that it is stuck in the middle and it will lead to poor financial performance. However, Virgin Airlines has proved that this theory is today changed and is more contingent upon the requirements of the market and the available opportunities.

References

Kotler, P. Scheer, L. Kumar, N. (2000). From market driven to market driving. European management Journal. Vol, 18. no, 2. pp, 129-142.
Miller, D. (1992), The generic strategy trap, Journal of Business Strategy, Vol. 13, No. 1 p. 37-42.
Porter, M. E. (1980), Competitive Strategy: Techniques for Analyzing Industries and Competitors, The Free Press, New York.
Prahalad, C.,  Hamel, G., (1990). Core Competence of the Corporation, Harvard business review, Available [Online] at: http://harvardbusinessonline.hbsp.harvard.edu/b02/en/common/item_detail.jhtml?id=90311 [Accessed 14 Mar 2012].
Ragins, E. J., & Greco, A. J. (2003). Customer relationship management and e-business: More than a software solution. Review of Business, Vol.24 (1), p. 25 -29.



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