Analysis of Virgin Atlantic Airways

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Strategic Purpose

Virgin Atlantic Airways Limited’s strategic purpose is to change the business world to a better place. To facilitate this objective, it aims to be the best airline globally. It has enhanced this by satisfying customer purchasing experience, acquiring new clients, and maintaining customers (Al Amin and Maina, 2020). To meet its strategic purpose in changing the airline business, the firm has a mixed fleet of Boeings and airbus to meet different customer markets in different nations such as the Middle East, Africa, the Caribbean, and North America, with its headquarters in Manchester and London (Ahmad and Al Ansaari, 2021). The section will use the firm’s mission, vision, values, objectives, and the shareholder’s value to elaborate on Virgin Atlantic Airways Limited’s strategic purpose.

The Company’s mission statement is to create a profitable airline that people love to fly and where people love to work. The mission statement focuses on three core aspects profitability, employees, and customers (Market Line, 2021). The profitability aspect allows the firm to have a cooperate objective in acquiring success through enlarging its market share, growth, cash flow, and profitability. The firm aims at customer satisfaction, providing quality services, and having better industrial relations on the customer’s aspect (Law and Breznik, 2018). The firm strives to ensure this through its customer service. For instance, the firm’s website has a dedicated page for customer services that provide flight disruption policy, conditions of carriage, and customer charter (Paterson and Walters, 2021). Lastly, the mission statement values its employees by ensuring that it is an environment that they love to work in. To facilitate this, the airline provides benefit packages such as income protection, life assurance, nudge financial education, travel-to-work loans, and critical illness insurance (van den Burg, 2019). It also offers a competitive basic salary on the different job groups.

Virgin Atlantic Airways’ vision statement is to embrace the human spirit and let it fly. To acquire this, the firm has created innovative products and services. For instance, it contains services such as the economy delight, inflight entertainment, retailed therapy, delta network map, NY-LON lounge bar, inflight connectivity, economy class, premium class, and the upper class (De Boer, 2018). These services target different consumer markets enabling the firm to embrace the different human spirits. For instance, inflight entertainment allows the customer to play games, have music, or watch movies during the flight. In addition, it has over 35 destinations globally on direct flights.

Virgin Atlantic Airways Limited values focus on the human spirit and the philosophy of adventurous spirit, optimism, and inclusiveness. The inclusiveness values allow the firm to strive for fair treatment of each customer irrespective of their status, gender, ethnic and cultural background (Graf-Vlachy, 2021). The value of adventurous spirit, the firm understands that providing the customers with the best services enables the customers to spend more on the future.

Virgin Atlantic Airways is committed to increasing its shareholder’s values. It has ensured that society and customers acquire a high level of satisfaction through integrating its pricing to be affordable. It is committed to the community by ensuring that its operations do not have carbon emissions that alter the climate (Cui and Li, 2021). In addition, the firm ensures that it complies with the government’s rules and regulations to minimize interference, such as complying with customers’ safety and paying taxes. Lastly, it ensures it maximizes its shareholder’s wealth maximizing profitability (Boniecki and Marciszewska, 2021). For instance, it acquired a joint venture with delta airlines to exploit the American market.

5 Forces

The airline industry contains more than 2000 airlines with approximately 3700 airports and 23,000 aircraft globally. The annual growth of the industry is 5% annually (Henderson, 2020). The industry provides express courier, aircraft maintenance, cargo handling, scheduled passenger services, cabin maintenance, avionic workshop, leisure travel, engineering services, line maintenance, and inflight entertainment (Ivaldi and Toru-Delibaşı, 2018). The section will use the porter’s 5 forces model to analyse the industry.

The threat of new entrants in the industry is relatively high, creating entry and exit barriers. Firstly, the airline industry has strict regulations and rules that make it challenging for any firm that wants to enter the market. New entrants are required to meet the standards of the industry when it comes to financial stability, airworthiness, and safety (Porter and Kramer, 2006). Secondly, entrants require huge capital to enter the market. For instance, one Boeing is approximately $120 million; an Airbus is approximate $101 million, and a land of more than 1250 acres (Li and Cui, 2018). The high cost makes it impossible for new firms to enter the market. In addition, once an airline enters the industry, it is bound by the regulations making it difficult to exit the market (Olaganathan, 2021). It needs to compete with the obligation stated in the contract. For these reasons, Virgin Atlantic Airways does not face a challenging external environment since it is difficult for new firms to enter the market and establish themselves.

Secondly, the bargaining power of suppliers is high, and it is associated with fuel, aircraft, and labour. The aircraft suppliers are dominated by Boeing and Airbus, which raises a concern as they can exert a competitive force by lowering the quality of the aircraft or raising the prices (Lykotrafiti, 2019). Other suppliers include the Jet A1 fuel suppliers, spare parts supplies, and caters, who have enhanced the erosion of profitably and intense competition in the industry (Almussa and Almaktoom, 2021). Labour also exerts pressure on the competitive force since the industry requires highly skilled employees such as pilots and engineers. The airline industry has union labor that bargains on behalf of the employees, taking away a significant firm revenue ratio.

The Bargaining power of buyers in the industry mainly lies in the customers as they can demand higher quality, bid down prices, and play competitors against each other at the expense of the company’s profitability. The buyers’ bargaining power can affect the firm’s competitive position in the industry (Porter, 2008). The airlines provide different packages to different consumers. For instance, the first-class passenger is a strategic decision to raise the prices while providing convenient and high-quality services. In contrast, the business class attracts travellers who are price sensitive by providing lower prices and providing them with frequent flights (Graulich, Piraino, and Masaro, 2021). The buyer’s bargaining power has influenced Virgin Atlantic Airways to have different variations of prices, especially on the online booking system where it has many options for its customers.

The airline industry has several threats of substitutes for existing products. Substitutes of air travel include buses, cars, and trains. However, these substitutes pose a significant threat as they depend on the consumer’s time, convenience, personal preference for traveling, and money. In addition, after the COVID 19, customers traveling for business purposes have switched to virtual meetings and telecommunication (Albers and Rundshagen, 2020). The Covid period only the leisure travellers used the airline’s means, which poses a threat to Virgin Atlantic Airways.

Lastly, the airline industry faces a threat of rivalry among competitors. Competition in the industry is volatile, especially if a number of airlines sacrifice their profitability for the sake of expansion. Many airlines have been amalgamating and joining their ventures to tap a larger market share. The industry is filled with more than 5000 airlines that are in search of attaining profits (Karaağaoğlu and Çiçek, 2019). Thou most airlines do not make profits on a consistent basis, they still pose competition in the industry, and it does not refrain other competitors from joining the market. The buyers drive the rivalry since they tend to go for a low cost (Madsen, 2022). It makes competitors lower their prices with the aim of acquiring a bigger market share. Hence, Virgin Atlantic Airways faces a major threat of rivalry from its competitors.

Based on this analysis, the strong competitive force is the bargaining power of suppliers, while the weak is the threat of new entrants. The suppliers carry the biggest bargaining power since most of them are oligopolies, such as the jet A1 fuel, the Boeing and airbus suppliers, and the skilled labor (Dennis and Pitfield, 2018). These suppliers tend to control the profitability as an increase of any of the products will increase the cost, which lowers the profits. The threat of new entrants is the weakest competitive force since it is difficult for companies to enter the market due to high capital and tough regulations (Goold and Campbell, 1998). In addition, the analysis shows that there is no consistent long-run profitability since traveling is dependent on climate and events. For instance, during winter, most airlines experience losses. However, profitable players are well-positioned since they take advantage of lowering their prices, advertising their services, expanding their operations, and having bargaining power with the suppliers (Maertens, 2018). Lastly, Virgin Atlantic Airways can influence the pricing of the industry structure, making it have a bargaining power towards the buyers. The firm can provide discounts to buyers who book flights months before traveling. The discounts will influence the firm to acquire revenues during the off-season periods.

VRIO Framework

VRIO framework will be used to analyze Virgin Atlantic Airways’ competitive advantage. VRIO framework is an internal strategic tool used by firms in categorizing resources based on valuable, rare, inimitable, and organized traits (Kim, 2005). VRIO is the best fit for the analysis since it will help analyze Virgin Atlantic Airways’ resources in great detail. It includes analysing the firm’s financial details, the financial performance of the firm, and the efficiency of quality. It also best fits this study as it will help exploit the advantages of the company’s position through strategic planning and managing control system (Malnight, Buche, and Dhanaraj, 2019). It will also facilitate a systematic analysis of the intangible assets, tangible resources, and capabilities of the firm’s value chain which will assist in identifying competence to formulate strategies. Moreover, it will reveal the competence and resources of the firm and how they can be managed.

Based on Virgin Atlantic Airways’ operations, employees are considered a valuable resource of the firm. It hires skilled workforce that is highly trained, leading to more productivity output in the firm. They are loyal, and their retention rates are high, which means that the employees provide great value to the firm. Since employees are highly skilled, they are a rare resource which is not a trait with other employees in other firms (Goold and Campbell, 1987). The firm ensures that the working environment is favourable and highly compensated to avoid them leaving. It is not difficult for other firms to imitate Virgin Atlantic Airways employees. It is because what other airlines need to do is hire skilled employees and train them, offer better compensation, create a conducive working environment, create growth opportunities, and offer benefits (Shengnan and Nedelea, 2019). However, Virgin Atlantic Airways cannot exploit employees to acquire more profits. It is against human rights to exploit employees, such as coercion or deducting their salary.

In addition, the brand name of Virgin Atlantic Airways creates a competitive advantage. Firstly, the brand name is valuable since it depicts the services it stands for in the market. It conveys the firm’s goals, values, and business ethics. The brand name builds and maintains consumers’ trust since it establishes a strong reputation for the firm (Teece, 2018). Also, the brand name is rare as it has already created a perception that it provides an adventurous spirit when travelling. Consumers also identify with the brand name with customer satisfaction, providing quality services, and creating value on the client’s money, which is rare. However, the brand name is inimitable. This is because the firm has patented the brand name. It makes it illegal for another firm to use the same brand name (Barney, 1991). Lastly, the brand name can be exploited by the organization. The brand name has a strong reputation globally, which generated interest, and the firm can use marketing strategies to attract new customers and strengthen the business operations. A powerful brand attracts more revenue, and the firm can use this as a competitive advantage.

Furthermore, Virgin Atlantic Airways can create a competitive advantage using the cargo revenues. Firstly, the cargo revenues are valuable to the firm. Based on its financial statement; it acquired an income of $319 million from the cargo, which is approximately 49% of the total revenue (Albers and Rundshagen, 2020). Secondly, cargo options are rare within the airline industry. The company has increased its capacity and can now ship cargo on rotation up to 33 times a week due to the increased global supply chain (Jory et al., 2019). It’s rare for other airlines to have such high cargo operations. The cargo operation is also not inimitable. The cargo operations in Virgin Atlantic Airways are high because of its automated technology that has improved efficiency, and it has flexible booking policies for any shipment (Pascual and Cain, 2021). Lastly, the firm can take advantage of the cargo operation by tapping other markets, which will create a competitive advantage.

Table 1: VRIO framework

Resources/Capabilities V R I O Result
Brand Name YES YES NO YES Sustainable Competitive Advantage
Cargo operations YES YES NO YES Strong competitive advantage
Employees YES YES YES NO Sustainable competitive advantage

Based on the VRIO framework, Virgin Atlantic Airways has a strategic competitive advantage over its resources. The firm can invest more in its brand name by engaging more with its customers (Johnson et al., 2020). The brand name is already established, and marketing will expose it to potential audience. Brands with a strong reputation offer 31% high shareholder returns and can help the firm grow to more than three times its competitors. Hence, the firm should consider its brand name as a competitive advantage (Scheiwiller and Zizka, 2021). Also, the cargo operations can create a strong competitive advantage if it focuses more on these operations. Lastly, Employees can influence the company’s strategy since they are highly skilled, and the firm can use its capabilities to generate more income.

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