Virgin Strategy1

UNIVERSITY OF SURREY FACULTY OF MANAGEMENT AND LAW School of Management

MSc Programmes Module Leader: Dr. Laura A. Costanzo

Academic Year: 2010-2011 Industry

European Airline Industry

Company

Virgin Atlantic Airways STRATEGY MODULE

COURSEWORK

Student URN 6098320

MSc Programme Management Information

Surname & First Name Hargley Ikechukwu

Systems 6142620

International Hotel

Lu Chenyao

management 6116950

International Hotel

Markan Abhilasha

management 6141001

International Business management

Zhang Mansheng

“Your airline’s either got it or it hasn’t”

Consulting Team Virgin Atlantic

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Contents Contents................................................................................................................ 3 Table of Figures..................................................................................................... 4 Introduction........................................................................................................... 4 1.1 Company Overview.......................................................................................5 2.0 The Analysis of the External of Environment..................................................6 2.1 The Macro-environment...............................................................................6 2.2 The Competitive Environment....................................................................10 2.3 Strategic Groups.........................................................................................12 The Internal Environment....................................................................................13 Swot Analysis....................................................................................................13 3.2 Resource-Based View of Virgin Atlantic.....................................................14 3.3 Value Chain Analysis..................................................................................16 4.0 Recommendation for the Future...................................................................17 4.1 Analysing the current strategy..................................................................18 4.2 Future Strategic Direction...........................................................................19 5.0 Conclusion..................................................................................................... 20 References........................................................................................................... 21 APPENDIX 1..........................................................................................................25 SWOT ANALYSIS................................................................................................25 Appendix 2...........................................................................................................29 Value chain Analysis.........................................................................................29 APPENDIX 3..........................................................................................................33

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Table of Figures Figure 11................................................................................................................7 Low Figure 22 Breadth of Product Line High ............................................................................................................................12 Figure 3................................................................................................................13 Figure 44 Virgin Atlantic SWOT analysis.............................................................14 Figure 5................................................................................................................16 Figure 6................................................................................................................17

Table 1...................................................................................................................8 Table 22.................................................................................................................9 Table 3 Resources based View3...........................................................................15 Table 44: Strategic Implications of the resources................................................16

Introduction This is an executive report on Virgin Atlantic Airways, which contains an External and internal analysis of the company’s current competitiveness and concludes with a recommendations on the future strategic direction of the company.

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1.1 Company Overview Virgin Atlantic Airways Limited (Virgin Atlantic) a part of Sir Richard Branson’s Virgin group is one of Britain’s largest airlines and Europe largest transatlantic airline. It is 51% owned by The Virgin group and 49% owned by Singapore airlines. In the first quarter of 2010, the revenue went up by 10% to £532 million (The Virgin Atlantic Press Office, 2010). Founded in 1984, and headquarter in West Sussex, near that Gatwick Airport, the company flies long haul to Europe, Africa, Caribbean, Middle East, Asia and North America. It is a privately owned company and as such does not publish its financial records. Mission Statement Virgin Atlantic’s mission statement is “to grow a profitable airline where people love to fly and where people love to work”. This mission is profit orientated, which is a vital factor in strategic decision. Virgin has had a history of maintaining its strategic positions in Britain competing intensely with British Airways.

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2.0

The Analysis of the External of Environment

By external environment, we mean factors that are beyond the control of the organization and may impact on its strategic direction, its internal processes and structure (Pearce & Robinson, 2011). The external environment consists of: 1. The macro-environment: analysed with PESTEL (an acronym for Political, Economic, Socio-cultural, Technological, Environmental and Legal factors) 2. The industry and competitors : analysed by Porters 5 forces framework with critical success factors and strategic groupings 3. The identification of opportunities and Threats from SWOT Analysis. An understanding gained from using these frameworks are useful in future strategic decision making for Virgin Atlantic. 2.1 The Macro-environment This consists of all the factors that are beyond the control of the firm and can have a meaningful effect on the firm’s strategy (Dess et al., 2010). A PESTLE analysis shows the effect of these factors in the Airline industry. We would examine this effect on Virgin Atlantic. Political Factors These are Government operating regulations within which the airlines have to work with. The Single European Sky (SES) initiative was created to serve as a regulator for Air traffic management in the European Union. The European airline deregulation has created a single market, removing restrictions from member countries and creating international competitiveness. This would mean reduced competitive advantage of national carriers like British Airways which is a good for Virgin Atlantic. However, this has also seen the rise of low-cost airlines that has increased competition for the major airline companies like Virgin Atlantic. The recent EU-US “open skies” agreement which opens up the transatlantic route allowing all European carriers to fly to US has also increased competition for Virgin Atlantic. This is because this route was exclusive to Virgin and 3 other Airlines. Economic Factors

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Economic factors are concerned with the nature and trend of the economy in which the firm operates. (Pearce & Robinson, 2011). The profits from the Airline industry is expected to fall by 40% this year as stated by IATA, this is due in-part by the rising oil price. (Bisignani, 2011). Another report suggests that revenues from UK airlines Industry fell by 19.7% in 2009 with passenger volume shrinking by 7.4% the same year (Datamonitor, 2010). Virgin Atlantic was also hit by the economic downturn of 2009, reporting an operating loss of £132m and revenues going down by 8.6% to reach £2,356.6m (The Virgin Atlantic Press Office, 2010). They however showed signs of a quick recovery a year later. Some macroeconomic indicators are shown below.

Figure 11

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Table 1

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Table 22

Socio-cultural Factors These are factors that influence the beliefs, values and culture of the society (Dess et al., 2010). In a recent survey of UK business class travellers, 74% said children was what annoyed them most about the first class travel and they are currently clamouring for 18+ only travel. Travel experts are looking at Virgin Atlantic to start offering this service. (Business Travel and shows, 2011) The population of the UK is ageing, with an increase of 1.7million of people aged 65 and over in the last 25 years. (Office for National Statistics, 2010). As these figures are expected to increase in the coming years, this would affect the generally reduce the number of travellers in airline business and also increase the cost of building aircrafts that would support over-age passengers. Technological Factors Technology is increasing expected to contribute to the success of the aviation industry. Also internet technology is changing way Airlines do business, with low-cost airlines utilizing it with a cost leadership strategy. However, last December amidst the cancellations of flights due to snow, virgin surpassed British Airways in its use of Twitter (an internet social network) to provide personalised customer service. Environmental Factors The aviation industry is one of major contributors to Carbon emissions. But the entire Airline industry under IATA is united with common goals of saving the Virgin Atlantic |

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environment. Biofuels are considered as the future way for a sustainable environment for the airline industry (IATA, 2011). Virgin Atlantic has been a major voice for a sustainable environment. In 2008, they were the first airline to test a flight run partly on Biofuel, to show that the future of Biofuels is closer than we think. From 2008 – 2009, their waste was reduced by 43% and they have a target to reduce all waste from their aircraft to 50% by next year. (Virgin Atlantic, 2010) Legal Factors All European airlines are regulated by the European Union and other bodies. The CEO of Virgin Atlantic has been appointed as the chairman of the Association of European Airlines (AEA). This would help boost the image of strong leadership at Virgin Atlantic and to show that they are law-abiding. 2.2 The Competitive Environment The “five-forces” developed by Professor Michael Porter of Harvard University would be used to analyse the competitive environment in the airline industry. They are listed below; 1. The threat of new entrants 2. The bargaining power of buyers 3. The bargaining power of suppliers 4. The threat of substitute products and services 5. The intensity of rivalry among the competitors. The threat of new entrants The initial large capital requirement needed to purchase planes is considerable high. This serves as a barrier to a newcomer, even though it may not really be a barrier for an existing airline moving to a new region. It is important for an airline to hold prime airport slots for take-off and landing at major airports especially during peak holiday periods. Existing airlines have already occupied these prime slots making it making it difficult for a new entrant to gain access. The result been the new entrant relegated to off-peak times. (Datamonitor, 2010)

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With an 8.2% Passenger traffic growth in January 2011 (IATA, 2011), and forecast expect this figures to rise this could attract new entrants, coupled with the EU regulations. However, figures from last month’s fuel price show an increase of over 50% (IATA, 2011), meaning that this would give a poor net profit margin for new comers thereby discouraging them. Generally, there’s a moderate barrier to new entrants The bargaining power of buyers The growth of online price comparison sites makes it easier for consumers’ to quickly compare prices and would readily go for the cheaper one. This means that the low –budget airlines can compete well with legacy carriers like Virgin Atlantic. This increases the power of buyers (consumers). There’s little or no switching cost for buyers and this strengthens their power. Overall, buyer power is moderate. The bargaining power of Suppliers Airline manufacturers are the major suppliers in the airline industry. Airbus and Boeing are the two manufacturers dominating the industry, especially for the large jetliner category where Virgin Atlantic belongs. The lack of substitute manufacturers increases the supplier’s power.

Also, the safety, quality and

continued maintenance of aircrafts is of utmost important, this further increases the supplier’s power. Virgin’s fleets are made up of Boeing and Airbus aircrafts. The rising price of Jet fuel is another important input. In 2009, it accounted for about 35% of virgin Atlantic’s spend (CAA, 2010). There are also a few number of suppliers, this also increases the supplier power. Generally, the bargaining power of suppliers in the airline industry is high. The threats of Substitutes Even though rail and bus travel is takes a longer time than air travel, it serves as a substitute because it’s considerably cheaper than air travel. Advancement in technology in video conferencing and other protocols are also a form of substitute reducing considerable business travels. Generally, the threat of substitute is moderate.

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The intensity of rivalry among competitors There’s intense rivalry in Europe’s airline industry and the differentiating line is beginning to blur. The industry has many large carriers including BA and Air France-KLM, this rivalry is made stronger by the presence of low-cost carriers as making the companies compete on price. Also, storage costs are the costs associated with unsold seats in a flight. This is why airliners sell slightly more seats than is available for a flight. With high storage cost, there’s high rivalry among competitors. 2.3 Strategic Groups Strategic groups are clusters of firms sharing similar strategy. Strategic grouping can be used to determine Virgin Atlantic Competitors and how they differentiate themselves. (Dess et al., 2010). The diagram below shows explains. Strategic Groups

High

Air France- KLM, Lufthansa, Alitalia, British airways, BMI, Virgin Atlantic

Virgin Atlantic

BMI baby AirBerlin Price

Ryanair

Easy Jet

Low Low High

Figure 22

Breadth of Product Line

Adopted from Dess et al, 2009 The figure shows a strategic grouping of major European airlines. We can see that virgin’s major competitors in Europe are British Airways, BMI British Midlands, AirFrance-KLM. Appendix 3 gives a fuller detail. The recently concluded merger between, British Airways and Iberia, would intensify competition for

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Virgin. Also, the “no frills” group intensifies competition for Major carriers as they compete on price.

The Internal Environment Swot Analysis The SWOT analysis is an acronym for Strength, Weakness, Opportunities and Threats. It’s a very popular tool for getting a quick snapshot of the company. It tends to create a “fit” of the company internal resources (Strength and weaknesses) and its external environment (opportunities and threats) (Pearce and Robinson 2011).

(Barney, 1991) Figure 3

Virgin Atlantic SWOT Analysis

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Figure 44 Virgin Atlantic SWOT analysis

A full description of the SWOT analysis is attached in Appendix 1.

3.2 Resource-Based View of Virgin Atlantic According to Pearce and Robinson, resources are regarded as abundant ‘asset’ for a company and the assets include ‘tangible resources’, ‘intangible resources’, and ‘organizational capabilities’. (Pearce and Robinson, 2006) Firstly, ‘tangible resources’ refers to the substance that people can touch or see, especially in financial and physical perspectives, which have a close relationship with customers. (Dess et al, 2010) Compared with tangible resource, intangible resource is more abstract than specific. It can be divided in to three main resource, ‘reputation resource’, ‘human resource’, and ‘innovation resource’ (Dess et al, 2010) In order to make good use of ‘tangible and intangible resources’, ‘organizational capabilities’ should be mentioned. (Dess et al, 2010) Therefore,

‘tangible

resource’,

‘intangible

resource’

and

‘organizational

capabilities’ are the three different types of Resource-based view. However, as the competitive resources, these should have four criteria. They should become ‘valuable’, ‘rare’ resources and they cannot be imitated and substituted. (Dess et al, 2010). The table below shows the classification of the resources of Virgin Atlantic Virgin Atlantic |

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Tangible Resources

Fleet: Boeing 747 and Airbus A340 Local office buildings Clubhouse (Lounge) Codeshare partners Limousine Service Great Leader: Richard Branson Brand name Innovative: technology Innovative check-in process Customer service.

Intangible Resources Organizational Capabilities

Table 3 Resources based View3

Resource

Valuable

Rare Yes

Difficult to imitate No

Without Substitutes No

Limousine service

Yes

Clubhouse

Yes

Yes

Yes

Yes

Codeshare Partners

Yes

Yes

No

No

Brand name

Yes

Yes

Yes

Yes

Richard

Yes

Yes

Yes

Yes

Strategic Implications Temporary competitive advantage Sustainable competitive advantage Temporary competitive advantage Sustainable competitive advantage Sustainable

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Branson Fleet

Yes

No

No

competitive advantage Competitive parity.

No

Table 44: Strategic Implications of the resources

3.3 Value Chain Analysis Value chain analysis is a strategic analysis of an organization that focuses on a serial process of value-creating activities. Virgin Atlantic had become the second largest long haul airline in the UK in only two decades because the value chain of Virgin Atlantic is very effective. Those activities are divided into two categories, primary activities and support activities. The primary activities generally involve operations, inbound and outbound logistics, marketing and sales, and service. Primary Activities

Procurement: Sustainable Procurement Policy Support Activities

Technology Development: culture of creativity and innovation Human Resource Management: great employee benefits

Adopted from

Support Activities

Figure 5

Support activities are those activities that add value by themselves or by relationships with the primary activities. They usually include technology development,

procurement,

human

resource

management

and

general

administration. A full description of the value-chain analysis is shown in Appendix 2.

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4.0 Recommendation for the Future In today’s constantly changing business environment, firms must always look for ways to gain competitive advantage over their competitors, and to sustain the advantage in the long run. Michael Porter, one of the leading authors in the area of strategy, presented three generic strategies that a firm can use to outperform rivals in the industry and achieve competitive advantage. Below is a framework for competitive advantage: Competitive Advantage Uniqueness Perceived by Customer

Low Cost

Position

Differentiation

Cost Leadership Virgin Atlantic |

Focus Figure 6

17

Industry wide

Particular Segment Only

(Dess et al., 2010)

4.1 Analysing the current strategy In an industry where most airlines offer basically the same thing; the same service,

the

same

aircraft,

Virgin

Atlantic

has

been

able

to

use

the

differentiation strategy to create competitive advantage. The differentiation strategy means that there is an obvious distinction between product from the company and the others product from the competitors, which is viewed by the customer as unique and valuable (Dess et al., 2010). As a pioneer of visible customer innovation, being first seems to have become a trademark of the Virgin Atlantic approach. The long list of firsts some of which include being the first airline to have individual TVs in all classes, to have no smoking flights, to have drive-thru check-in, to have an arrivals lounge, to allow mobile connectivity and SMS texting on board, the first to have at-seat podcasting the first to fly one of its planes using biofuels and most recently the first airline to introduce Limousines service for the upper class at both ends, the theme of their current marketing campaign, “Your airline’s either got it or it hasn’t. (Innovation Leaders, 2008) The Virgin state of art clubhouse at Heathrow has consistently won best clubhouse from numerous bodies. Virgin Atlantic has been a leader in sustained innovation in this industry. (Innovation Leaders, 2008). All these have made the company enjoy a fair amount of first-mover advantage in the industry. Also closely related to its strategy of differentiation, virgin Atlantic also uses a focus strategy. This means narrowing down the market for a particular buyer group, to a particular segment (Dess et al., 2010). Much of Virgin Atlantic differentiation strategy is targeted to the upper class passengers. In fact the £10million marketing campaign is targeted to build its upper class passengers. (Marketing week, 2010). ´Having changed the perception of business class travel with the introduction of its Upper Class service, which provided ‘first class experience at a business class Virgin Atlantic |

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price’, Virgin Atlantic soon caught the target market’s imagination. As competitors responded with similar products, Virgin Atlantic then followed up with the introduction of the Upper Class Suite in 2003. This multi award winning concept introduced a flip over chair providing a completely flat bed and a wider seat than any alternative airline. In addition, it also included an in-flight cocktail bar, on-board massage as well as personal limo services for customers´ (Innovation Leaders, 2008). And also the state of art clubhouse is only for the upper class. 4.2 Future Strategic Direction From the analyses above, we have seen that virgin Atlantic combines Differentiation strategy and focus strategy to create competitive advantage. For sustained competitive advantage, we would like to propose the following: Building on its core competencies Virgin Atlantic should maintain the current strategy of combining differentiation and focus strategy by building on its award winning core competencies which include: A. Innovation and creativity B. Excellent scheduling service C. Transatlantic long haul service. (Virgin Atlantic, 2010) By building on these core competencies, virgin Atlantic can create a sustained competitive advantage.

Strategic Alliances In his article in the Harvard Business Review, Ekekwe argued that for organizations to remain relevant in a dynamic global market there would be a need to re-strategize and go beyond its core competencies. (Ekekwe, 2011). A careful analysis of the airline industry shows that virgin Atlantics core competencies are not enough to give it the necessary scale to create a sustained competitive advantage. This is because in the recent years, the industry has been characterized by strategic alliances. The three largest are; Star Alliance, Virgin Atlantic |

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One world and sky team (Appendix 3). Its main competitors are spread among these alliances. One major benefit of these alliances is cost reduction in the value chain activities, because it gives them economy of scale. Late last year, virgin Atlantic hired the Deutsche bank to help analyse strategic options as the company is considering joining the star alliance. This is a commendable effort, as the alliance between British airways and American Airlines would thicken competition for them (The Telegraph, 2010).

5.0 Conclusion From the critical analysis of the Virgin Atlantic strategy, it is obvious that they use a differentiation and focus strategy maintaining a first-mover advantage in the industry. We believe that it is important for them to continue this way focusing more on their core competencies and at the same time consider a strategic alliance with one of the big three alliances.

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References Barney, J., 1991. Firm's resources and competitive advantage. Journal of Management, 17(1), pp.77-82. Bisignani, G., 2011. Airline International. [Online] International Air Transport Association (IATA) Available at: http://www.iata.org/pressroom/airlinesinternational/february-2011/Pages/comment.aspx [Accessed 1 March 2011].

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Business Travel and shows, 2011. PR Releases: Business Travel and shows. [Online] Available at: http://www.businesstravelshow.com/en/press/pressreleases/11-0202/BUSINESS_TRAVELLERS_CALL_FOR_KIDS_BAN.aspx?afcode=btupdate [Accessed 10 march 2011]. CAA, 2010. UK Airline Financial Tables: 2009 2010. [Online] CAA Available at: http://www.caa.co.uk/default.aspx? catid=80&pagetype=88&sglid=13&fld=2009_2010 [Accessed 4 March 2011]. Datamonitor, 2010. Airline Industry in the United Kingdom. Industry Analysis. Datamonitor, 2010. Virgin Atlantic Airways. Company Profile Dess, G., Lumpkin, G.T. & Eisner, A.B., 2010. Strategic Management: Creating Competitive Advantages. 4th ed. McGraw- Hill. Ekekwe, N., 2011. Beyond core competence: Harvard Business Review. [Online] Available at: http://blogs.hbr.org/cs/2011/02/beyond_core_competency.html [Accessed 11 March 2011]. IATA, 2011. Press room: IATA. [Online] Available at: http://www.iata.org/pressroom/pr/Pages/2011-02-28-01.aspx [Accessed 3 March 2011]. Innovation Leaders, 2008. Virgin Atlantic. [Online] Available at http://www.innovationleaders.net/va_company_profile.html [Accessed 10 March 2011]. Marketing week, 2010. Marketing News. [Online] Available at: www.marketingweek.co.uk [Accessed 7 March 2011]. Office for National Statistics, 2010. Office for National Statistics. [Online] Available at: http://www.statistics.gov.uk/cci/nugget.asp?id=949 [Accessed 25 February 2011]. Pearce, J. & Robinson, R.B., 2011. Strategic Management: Formulation, Implementation, and Control. Twelfth ed. Singapore: McGraw-Hill. The Telegraph, 2010. Sir Richard Branson begins strategic review of Virgin Atlantic. [Online] Available at: http://www.telegraph.co.uk/finance/newsbysector/transport/8111295/Sir-RichardBranson-begins-strategic-review-of-Virgin-Atlantic.html [Accessed 11 March 2011]. The Virgin Atlantic Press Office, 2010. All About Us: Virgin Atlantic. [Online] Available at: http://www.virginatlantic.com/en/gb/allaboutus/pressoffice/pressreleases/news/financialresults.jsp [Accessed 24 February 2011]. Virgin Atlantic, 2010. Awards. [Online] Available at: http://www.virginatlantic.com/en/gb/allaboutus/ourstory/awards.jsp [Accessed 11 March 2011]. Virgin Atlantic |

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Virgin Atlantic, 2010. Brief Sustainability Report 2010. [Online] Virgin Atlantic Available at: http://changeisintheair.virginatlantic.com/ [Accessed 2 March 2011].

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APPENDIX 1 SWOT ANALYSIS Strengths Strong Brand Image The virgin brand is part of the global virgin group, a worldwide recognized brand, in the words of Richards Branson, “A brand name that is known internationally for innovation, quality and a sense of fun - this is what we have always aspired to with Virgin." Virgin Atlantic brand has continued to win numerous awards, notable among them are: 1. Best Airline of the year 2010 (British Travel Awards) 2. Leading Transatlantic Airline (World Travel Awards 2010) 3. No.1 for International Airline with best inflight entertainment (Zagat Awards 2009) 4. Best Airline based in Western Europe (OAG Airline Industry Awards 2009) All these awards help to boost the brand image and so gives Virgin atlantic competitive advantage.

Strong Leader Under the romantic view of leadership, it’s the assumption that the leader is a key driver for the success for the organization (Gregory Dess, 2010). Richard Branson, the British entrepreneur is the key driver behind all the virgin brand. His sense of fun, innovation and gut, has enabled virgin to be as strong as it is now. He has been known to personally respond to disgruntled customers. while this may be seen as strength, what happens at the demise of Richard branson? Will the virgin brand sustain its edge? This are some of the limitation of this view.

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Strategic Alliance and code-share agreements The company has benefitted from a number of partnerships and code share agreements. One of them is with Singapore airline which owns 49% of Virgin Atlantic. Passengers can book and fly through either of the airline. And also virgin can also leverage on the fleet size of Singapore airlines. Virgin Atlantic recently extended its codeshare agreement with the second largest airline in Heathrow, BMI. Under this agreement, virgin Atlantic customers can book flights on virgin and fly BMI to destinations in the Middle East. Weakness Private ownership As a privately held company, virgin Atlantic is limited in its financial capacity to expand and increase market share. Most of the competitors are publicly listed companies and as such have recourse to public fund to fuel their expansion projects. Lack of scale Probably as a consequence of it been a Private company, the company lacks scale as compared with its competitors in the airline industry. For example, British Airways (BA) flies to about 169 destinations (not including its codeshare partners); Air-France KLM operates 249 destinations, while virgin Atlantic operates about 35 destinations (see Appendix 3). Also BA has a fleet size of 233, Air France-KLM has about 635, and while virgin has about 39. This lack of scale limits the company’s ability to compete well with these players. Opportunities Growth in the Airline industry The IATA in December last year predicted that the airline passenger would see an increase of 5.2% this year, however, last week’s report from IATA has this forecast increased to about 5.6%. (IATA, 2011). Furthermore, a forecast into 2014 predicts that half of the 800 million extra people who would travel by air would be in Asia. Virgin Atlantic is well positioned to capitalize on this growth with strategic alliance with Singapore airline and

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Japan’s All Nippon Airways (ANA). This would increase its market share and increase revenue.

Increase in cargo traffic Last week, the IATA predicted the global air cargo would rise by 6.1% this year (International

Air

Transport

Association

(IATA),

2011).

This

presents

an

opportunity for virgin Atlantic who last year reported that its cargo revenue was up by 36%. Also last month, the company saw a 44% increase in its cargo delivery of roses for the valentine season. (The Virgin Atlantic Press Office, 2010). Virgin Atlantic would really benefit from this as an additional source of revenue.

Threats Rising Oil Price The price of oil has gone up to a high price of $111 last month; this directly means that the jet fuel would also rise significantly. This is expected to cause a 46% drop in global airline profit from last year as the graph below depicts.

Virgin Atlantic like all other airline would be hit by this threat as it cost in jet fuel represents a significant portion of its operating expense.

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Price Reduction and Mergers European airline industry domestic market is characterized by substantial price reduction by the low-cost carriers like Ryan air and easy jet and this has seen their market share grow increasingly. Also the recent partnership and mergers going on in the industry presents a real threat to Virgin Atlantic. Mergers like Air France and KLM, also that of British Airways and Iberia. These mergers pose a real threat to the virgin’s market share, as they can benefit from each other increasing their economy of scale.

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Appendix 2 Value chain Analysis

Primary Activities Inbound In service organizations, inbound and outbound logistics always means R&D (research and development) and designs and solutions. As part of efforts to improve to improve logistics of its supply chain, Virgin Atlantic was the first airline to implement an RFID tagging technology, to track assets at its warehouse in London Heathrow airport. Virgin Atlantic and Boeing, one of its aircraft suppliers are linked by an Airplane Health Management System. This is an environmental friendly system that allows them to gather and monitor critical inflight data (Supply Chain Digital, 2008). In an industry where safety and quality is of utmost importance, this is an excellent control system. Operations Last month, Virgin Atlantic, deployed a cutting-edge solution for proactive operations management. This Aviation Decision Support solution designed by Weather Service International (WSI) provides virgin to superior global weather information and flight planning decision support (Weather Service International, 2011). Also, Virgin has been using environmental friendly operations to achieve competitive advantage; they were the first airline to start using fair-trade tea, coffee and chocolates. They have also recently ordered 15 Boeing 787 environmental aircrafts, making it the largest single order in Europe. Their aircraft seat covers are recycled to produce fashion bags.

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Outbound logistics Outbound logistics is about distributing products or service to customers or buyers (Dess et al, 2010). Teaming up with NIIT technologies, Virgin Atlantic offered the world fastest airline check –in for its upper class wing in heathrow airport. This allows the upper class passengers walk straight from the chaffeur driven limo to the clubhouse with less effort. Virgin has also upgraded its website security with latest SSL certificate security. This provides a visual reassurance for customers assuring them that their online transaction is secure by the highest standards thereby increasing buyer trust.

Marketing and sales Last year, Virgin Atlantic invested £10 million in a marketing campaign in a drive to boost its value adding benefits among its business class travellers. The theme of the campaign “Your airline’s either got it or it hasn’t”. This is a follow-up campaign strategy to their 25th anniversary in 2009 and about £80 million sales revenue has been made as a result of this campaign (Marketing week, 2010). It would use TV, cinemas and the internet as a medium for the campaign. It’s well defined customer segments are First Class passengers are predominately 35 to 45 years old male, travelling on business class offering a limousine service at both ends. Passengers in Premium Economy are split fairly evenly between travelling for business or leisure, most are middle aged male. Economy passengers are a much broader group and travelling mainly for leisure. At the same time, some less profitable ticket offices were replaced by high performing telephone reservation and sales centers. Virgin Atlantic also operates a flying club to encourage loyalty in existing customers. Service The customer service of First Class of Virgin Atlantic is superior and constantly improved to achieve competitive advantage. Virgin Atlantic offers massage, cleaning and hairdressing services for all First Class passengers. Virgin Atlantic designed the full fare of Economy Class products in 1992. This product is targeted to the passengers who are price sensitive but still have comfort requirements. It had been praised as "the best Economy Class airline" by the British travel awards (The Virgin Atlantic Press Office, 2010). Virgin Atlantic |

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Virgin

British

Atlantic

airways

Lufthansa

BMI

Air – France KLM

airways FOUNDED

1984

1974

1954

1949

1933

PARENT

Virgin

British

Deustche

British

Air

COMPANY

group

Airways plc

Lufthansa

midland

S.A

france,

airways OWNER

Sir

Richard Airways

limited UAL co- Societe

n/a

Branson’s

Aero

operatio

(51%)

Association

n

Singapore

Limited

air

france

Airlines HEAD OFFICE

(49%) West

Harmonds,

Duets,

Houston,

Atremblay -

HUBS

Sussex, UK LONDON

England LONDON

cologne Munich

Texas GUM,

france Paris

GATWICK,

GATWICK,

airport

LONDON

LONDON

many more

EWR

airport

HEATHROW N/A

HEATHROW ONEWORLD

STAR

STAR

SKY TEAM

233

ALLIANCE 722

ALLIANCE 336 112

ALLIANCE NO.

OF 39

& CLE, IAH, Charles

AIRCRAFTS DESTINATIONS

35

300

410

262

249

MANAGEMENT

Stephen

Keith

Christoph

Jeffery

Jean

Murphy

wolliams

franz (CEO)

smisak

spitella

(Chairman)

(CEO)

(CEO

Steve

Martin

Chairman

Ridgway

Broynon

)

(CEO)

de

cyrl

& (CEO chairman)

Julie (Chairman)

(CCO) Steve griffin EMPLOYEMEN

(COO) 7478

35867

105261

41061

104,720

MARCH

DECEMBER

DECEMBE

DECEMBER

OFFERED

OFFERED

OFFERED

R OFFERED

OFFERED

SERVICE CARGO

OFFERED

OFFERED

OFFERED

HANDLING AIRCRAFT

OFFERED

OFFERED

OFFERED

T FISCAL

YEAR MARCH

END SCHEDULED PASSENGERS

MAINTAINANC

OFFERED OFFERED Virgin Atlantic | 31 OFFERED

OFFERED

&

Even for those passengers who buy discount tickets, Virgin Atlantic also designed a variety of services to make the long journey becomes interesting. The distance between seats is 31 inches, wider than most of Virgin Atlantic's competitors. Passengers can order meal at any time, including traditional British snacks such as fish and chips. There are more than 20 selections of television channel with different programmes and more than 10 Nintendo games. These comprehensive services won lots of customers for the company. Support Activities Human Resource Management Virgin Atlantic is an equal opportunity employer. Among the various benefits to staff to motivate them, virgin gives each staff 7 free flights to any destination they want in a year. (Virgin Atlantic, 2006) Further more, Richard Branson, creates a sense of fun amongst the employees, this makes them work better without undue pressure. Virgin Atlantic CEO Steve ridgeway is the current of Association of European Airlines shows that the company maintains cordial relations with trade unions. Procurement Virgin Atlantic suppliers are audited based on a Sustainable Procurement Policy; this This policy sets out a range of conditions, from ensuring that no child labour is used in the manufacture of the products they buy, to reducing the environmental impact of their supply chain. So far, over £100million of Virgin’s Atlantic spends has been covered by suppliers signing up this policy. (Virgin Atlantic, 2010) Furthermore, with last month’s implementation of a global e-invoicing solution, virgin has created a win-win relationship with suppliers where virgin benefits from a tax compliant invoice receipt and suppliers benefits from enhanced service delivery. Technology Development Virgin Atlantic has a culture of that enhances creativity and innovation. Technological innovation has permeated every aspect of their business, this include the RFID tagging technology at the warehouse, an e-invoicing solutions, an airline decision support solutions, etc. Virgin Atlantic |

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APPENDIX 3 Competitor Analysis

Virgin Atlantic |

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Virgin Atlantic |

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