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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