Virgin Atlantic Company Business Essay Example
Businesses operate in an environment with many internal and external factors that control their existence. It is the interaction of these factors that determines whether a business thrives or fails. The internal factors are those that exist within the business itself while the external environment deals with factors outside the business (Porter, 2008). Business cannot exercise the control it has over the internal and the external environment. This paper is an analysis of one of the most profitable and successful airline companies in the world; Virgin Atlantic. Emphasis will be laid on the company’s strengths as well as their worthy competitors which have been significant contributors to the immense success that the company has enjoyed for the previous few years.
Virgin Atlantic is an airline company that was established in 1984 and is based in Sussex, Britain. The ownership is a joint venture between the Virgin Group and the Singapore Airlines. The virgin group controls a majority of the shares at 51% while the latter controls the other 49%. The company provides a number of services among which are security handling, forwarding and unaccompanied baggage handling. They also provide engineering services, line maintenance and passenger freight services. It is an airline that offers flights to about 30 destinations all over the world.
Strengths and Opportunities of Virgin Atlantic
With such brief introduction, we are first going to focus on the strengths that the company enjoys. The company has been making enough profits to ensure that even after sharing this in terms of dividends, there is still a considerable amount to be ploughed back for the development. This is one of the strengths that the company has over other companies operating in the same industry which lack the capacity to develop on the basis of their own profits. In fact, it can be said that the company’s profits are more than adequate for the development. The founders of the company had a good business profit design from the beginning so that no controversies arise over the management of the profits once they are made (Barwise & Meehan, 2010).
Another factor that has served as strength for Virgin Atlantic is that a great number of customers prefer their services to those of their competitors. It can be attributed to the good quality of services they offer as well as the fact they believe that their customers are supreme and therefore treat them as such. Customer satisfaction is one factor that every key player in an industry should not underestimate and the Virgin Company clearly understands this. This has helped in the maintenance of a healthy cash flow by ensuring that the company always has royal customers to rely on even in times of scarcity. This brand loyalty has helped them remain successful throughout their existence while other companies which lack brand loyalty have been edged out of the market.
Sufficient capital has been a factor that cannot be overlooked in the analysis of this company. The company is owned by two very powerful business empires; it means that raising the necessary capital for growth has not been a big challenge. The human resource sector has been something to count on at Virgin Atlantic. The low employee turnover can be attributed to the good satisfaction that workers derive from their work. Proper working conditions have had a big role to play in this. It also means that the employer has been satisfied with the performance of the workers. For this to happen, the workers must be competent enough to do what is expected of them and do it well. It is therefore true to say that the company can boast of a very talented workforce. Low employee turnover is also beneficial for the company because the result of employees doing the same tasks over and over again is that they become experts in their own fields. The company benefits by being sure that the services delivered to the customers are of good quality and by having a pool of qualified personnel.
Staff morale has always been a major force in any company. This is a fact that has not been lost in so far as the leadership of the company is concerned. At one time when Mr Richard Branson was awarded damages by the United Kingdom for a case of libel, he went ahead to donate the whole lot to the company workers. Other motivational strategies have been employed to boost the workers’ morale. The fruit borne out of this is that improvement in the morale has brought about an increase in the workers’ productivity for the benefit of the company (Bamber, Gittell, Kochan, & Von Nordenflycht, 2013).
Every business that has to thrive in a competitive business environment has to engage in proper planning. It gives a framework for how things are to be done and the time required for the goals to be achieved. Virgin Atlantic has perfected the art of proper planning. Competency in the process of planning has helped minimise waste of time and resources. The sustainable growth that the company has experienced is the result of painstaking planning with the future in mind. From the very onset, the founders of the company had a well written business plan that had served as a benchmark to ensure that they always remain successful. It is therefore true that competent planning has served the company well throughout its existence.
One thing that stands out in so far as Virgin Atlantic is concerned is the powerful and good leadership that has been typical of the company since its inception in 1984. One of the founders by the name Richard Branson is a man who has made his name in business by successfully running other companies even before starting Virgin Atlantic. Good reputation on the part of leaders also has a good impact on the business. Customers are always willing to entrust businesses whose leaders are people with a reputation for good performance. It is also notable to say that the company’s CEOs have been with good business acumens. This has served to ensure that corporate culture forever remains entrenched. Good leadership has been associated with improved morale of the workers which breeds success in the long term (Barwise & Meehan, 2010). Success has not just been financial but also having a good product that both the customer and the company are proud to be associated with. It has been possible to do this while ensuring that the dividends for shareholders are still earned. The key point at Virgin Atlantic is that poor leadership cannot bring success and they have always tried to circumvent this by employing good leadership. This is indeed strength on their part.
Another thing that the company can be proud of is its ability to carry out its own staff training. As a company with a good reputation for offering conducive environment for workers, there are always people who want to work for this company. However, only the best are picked and after the recruitment they undergo a vigorous training to be equipped with the necessary skills for the job. In a way, that has ensured that professionalism has remained uncompromised. Even in matters as simple as dressing, the company spends time and money to ensure that its new recruits uphold their accepted code. In fact, they are equipped with more skills than they need for a normal operation day to ensure that they can cope with emergencies. Although the training is intense, it is one of the contributing factors that the company can now boast of. The company can choose the kind of training required as opposed to situations where companies employ already trained staff without carrying their own (Bamber et al., 2013).
The values of Virgin Atlantic are well stipulated throughout the organization. It has been one of the reasons that have brought a sense of responsibility on the part of the workers. When the values and goals are clear a sense of direction is inevitable. Communication is key to this process and Virgin Atlantic has been able to improve this to their advantage. Communication is easy at Virgin Atlantic due to the elimination of the bureaucratic procedures that are typical for many companies.
The airline company under discussion has experienced prolonged periods of high productivity. Many years have passed since the company recorded a gross loss. Despite their existence in an industry dominated by other giants, they have been able to deal with the competition by maintaining their productivity. It can be said that for this company, making profit is the norm rather than the exception.
A company is open to change and maintains a state of flexibility finding it easier to survive in a fast moving world. To keep up with the pace of changing customer needs, Virgin Atlantic has embarked on market research to find out about new customer needs and has come up with the ways of satisfying them. Although it is not an easy task for a big company, their ability to do this has given them a better edge over other companies which have been resistant to change. The company’s culture has been open to change both in terms of policy and ownership (Porter, 2008). They have always ensured that they are steps ahead of their competitors in terms of improvement of their service delivery and customer care. They also offer services even before customers require them and only later customers realize their existence; this is why they are able to make the sales. It is a strategy that has kept them ahead of both the customers’ needs and the grip of their competitors.
The ability to foresee problems and coming up with measures to cope with them has enabled the company to survive tough times. In the year of 1992, when there was a financial crisis, Mr Branson had to sell Virgin Atlantic records in order to salvage Virgin Atlantic and that was exactly what he did. The ability of the leadership to make such tough choices has served the company for the better.
Having mentioned the strengths of the company, it is now important to have a look at the opportunities for the company. They provide it with a chance for improvement and give it a greater competitive advantage. The company has recently acquired new and bigger aircrafts which can carry more passengers; this translates to greater profits. It means that they will start enjoying economies of scales which had previously been a preserve of the bigger companies. Economies of scale come with a great number of advantages. This is indeed an opportunity for growth of the company. The use of aeroplanes with lower consumption capacity of fuel will reduce wastage and increase profits. This will have a positive impact on the company’s cash flow. Despite poor economic conditions, it is true to say that Virgin Atlantic is preparing itself for the future.
Another opportunity for growth is the possibility of adding new flight destinations. It means more business for the company. Depending on the state of the world economy, this can translate into long term profits for the company. Since 2011, the new flight destinations that have been added are Barbados, Tobago, Grenada and Cuba. The expansion comes at a time when there has been a global surge in the industry, which is an opportunity for the company to grow. The increase in demand by passengers will be one of the greatest contributing factors.
The year 2014 has seen the formation of a joint venture between Virgin Atlantic and Delta. It is a relationship that will help bring in synergy and further help the two companies grow at a faster rate than they had initially anticipated. In the agreement there is the creation of an expanded network through the transatlantic that will help boost competition between this company and its competitors from North America. The two airlines will share the costs and revenues according to the agreement. It will also enhance the benefits derived by customers giving the company a better name and more brand loyalty. According to the president of Virgin Atlantic, this will give rise to an era of expansion, customer opportunities and financial growth (Porter, 2008).
The company has a significantly wide network in the North Atlantic. This can be viewed as both strength and an opportunity. Being the second largest company operating on the route between United Kingdom and the United States, they can use this to increase their chances of growth in the region where they are already entrenched before even moving to new areas.
The Threats and Weaknesses of Virgin Atlantic
An analysis of the company’s competitors reveals that the three major ones are British Airways, Air France and American Airlines. These are companies that have been in the industry long before the establishment of Virgin Atlantic. They make the most significant threat for the survival of this company. The competition was accentuated by the partnership between American Airlines and British Airways. Within the principles of economies of scale, a bigger company with a bigger capital base can easily engage in a price war and force the smaller one out of business. The potential for these companies to engage in price wars with Virgin Atlantic constitutes one of the biggest threats it faces.
In comparison with other companies which are within the same industry and operating within the same route, it would be right to say that its balance sheet although impressive is undercapitalized. It therefore means that the other companies have a greater potential for growth. If this happens, they will be enjoying the benefits of large size which will give them a competitive advantage. For the year of 2013, Virgin Atlantic had a debt position of £1.6 billion after net adjustment while its equity was £39 billion. It is clear that this company is undercapitalized since the annual leases of operation were eight times higher than the rental leases. The rapid rate of burning cash is a threat that the company needs to deal with.
When Virgin Atlantic launched their first flights within the United Kingdom in April 2013, they leased a plane under the brand of “little Red” (Carter, 2013). Available data shows that the load factor of the aircraft has been very weak. As of June 2014, the load factor was only 47%. Although there has been some improvement to 50% recently, much more needs to be done. The slow growth of some of the projects that the company has engaged in such as the Little Red project is a worrying trend.
There has been a point of view among some customers that airplanes are not safe to travel. With the rise of global terrorism, there has been a decline in the number of customers seeking the services of the airline. The most recent significant case is the disappearance of a plane belonging to Malaysian Airlines. It has led to the widespread fear that terrorists may have had a hand in this. Although the mind-set has been based on unsubstantiated claims, it has affected the whole industry as well as the companies that operate in it. Virgin Atlantic has not been exempted from this effect.
Major economic issues which have been a threat to the company include the deregulation as a government policy. As the industry evolves, the prices should be set by the market forces operating independently without government control. Deregulation in the United Kingdom has kept the fair prices low in the country to the detriment of the market players. The situation is not the same for the company’s competitors in other countries where there has been no deregulation. This is likely to give the competitors undue advantage over Virgin Atlantic.
One of the biggest problems in the airline industry has been the high prices for fossil fuel on which most of the aircrafts are dependent. To make matters worse, the prices for aviation fuel have been going up with no signs of reduction in the near future. This is a challenge that has an impact especially on the insignificant players in the industry that cannot be underestimated. Then many organizations reduced the amount of fossil fuels for international airlines in an effort to curb global warming. Although Virgin Atlantic has explored the challenge and started incorporating bio fuel, this dream has not been fully achieved. It still has to bear the high prices which have led to the increase in expenses not matched to the revenue generated. The trend is not a good thing for the company.
The Strengths of Competing Companies
The companies mentioned in this paper as the greatest competitors of Virgin Atlantic are big companies with a wider capital base. Take for example the British Airways which was established in 1972 by the government of the United Kingdom. Being owned by the government, it found that raising the initial capital and sustaining growth for the first few years was not very difficult. A wider capital base also implied that they could enjoy economies of scale earlier than other companies which had to start as small business. The strength of this company is a threat to Virgin Atlantic. The company has been in the industry for more time, which means that this company has more experience in learning the market trends and predicting future occurrences (Balmer, Stuart, & Greyser, 2009).
British Airways has benefited from customer loyalty for a long time. It is considered to be the carrier of the national flag of the United Kingdom and most of the passengers from this country take national pride in using this airline. This is strength for this company which has come from nothing more than the brand name. It therefore gives it a competitive advantage over other players in the United Kingdom including Virgin Atlantic. Then the government policy of deregulation of fares has been to the advantage of this company. Due to its large number of customers, it can comfortably operate to gain more profit even at low price fairs. This is not similar to other companies in the industry (Doganis, 2002).
British Airways has flights to a greater range of destinations than almost any other carrier in the industry except Air France-KLM. They therefore have passengers to ferry throughout the year due to varying patterns of movement in various parts of the world at different times of the year. The many partnerships that the British Airways has entered into with other airlines have helped boost their scope of operation. In my assessment, this ability to enter into meaningful partnerships and sustain them gives them strength (Veldhuis, 2005).
The other major competitor is Air France-KLM. This is the largest airline company in terms of the number of passengers and revenue generation. Its biggest strength is a large number of loyal customers and a large number of destinations around the world. It confers the same benefits as those of British Airways but this time at a larger scale. Compared to Virgin Atlantic this is a bigger company with more solid equity and greater capability of surviving tough economic times. Another strength of this company is that it boasts of a great number of aeroplanes compared to other players in the industry. More flights can be made simultaneously which guarantees more revenue. The number of destinations currently stands at 225 compared to that of Virgin Atlantic which is 30.
Threats and Weaknesses of the Competing Companies
The two major competitors discussed above are not devoid of threats which can be interpreted as working to the advantage of Virgin Atlantic. First, these are very large companies which are already suffering from the diseconomies of scale. Exercising control over their operations is a major challenge for them. The case is not similar for a smaller company such as Virgin Atlantic where exercise of control can be done easily. The management of employees is also easier in the latter company. Passengers are more likely to associate with the smaller companies because of reduced congestion and because they feel that they will get more attention there. For this reason, these companies are threatened by the rise of new smaller companies.
The fact that there are so many players in the industry means that the level of competition is very high (Doganis, 2002). These companies spend a lot of money on advertising their services to ensure that they do not surrender to new entrants. The services offered by all of these companies in the industry are similar giving the customer a choice to use the services of any company. In short, it is difficult for the big companies to maintain loyal customers due to the deficient individualized attention to the customers. The big companies have a bigger record of incidents and accidents compared to the smaller ones. The more the number of accidents an airline reports, the more the likelihood that customers are going to shun its services in favour of the other airline with fewer accidents. A comparison between the numbers of accidents reported by British Airways and that of Virgin Atlantic illustrates this fact.
In conclusion, the number of strengths, opportunities, threats and weaknesses determines the success of a company. Strengths and opportunities bring about growth while the threats and weaknesses decrease the chances of survival for the company. Competition is the greatest threat for Virgin Atlantic as it has been discussed in this essay. The company also has its fair share of strengths and opportunities that have encouraged its existence since 1984. This analysis of the company is very important as a tool of planning and decision making.
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