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Virgin Atlantic business model

A-Level: Business Studies

Title:  Virgin Atlantic business model
Description  Virgin Atlantic business model
Word Count:  3800


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Stakeholders
Employees
Nowadays, round 9000 employees are now working for Virgin Atlantic worldwide. According to the mission statement, they claimed that Virgin Atlantic is an organization where people love to work. Richard Branson said that “The people who make up Virgin Atlantic make Virgin Atlantic”. Also, from the website, “Virgin Atlantic is a company that will not exist without energy, the wit and the wisdom of their people.” It indicated that they have a great respect on their staff, they treated their employee as the single important part and seen them as part of their assets.

Virgin Atlantic provides appreciate training for their stuff, make sure they are professional, dedicated and enthusiastic. For example: Engineering Technical Training, Customer Service Training, Facilities Training and Cabin safety Training. The company believed that everyone within the company plays an important role in delivering the Virgin brand. All the stuff that they hired are with high standard and are experienced since it can help the airline deserve a high reputation and become the top airline among the industry.

Virgin Atlantic offers the newest training facilities “The Base” to in order to provide the best training to their staffs. All personnel from pilots to steward also have a chance to attend this. On the other hand, in order to motivate their employee, the offer great benefit for them. For instance, seven free flights per year to various choice of destination are offered by the company as rewards since they claimed that “We like to look after our people as well as our passengers.” Then again, anyone who works for Virgin Atlantic are free the express their opinion and rise out their question since this is part of their culture. It shows that the organization really cares about their employee.

Customer
As I mention before, one of the mission statement is where people love to fly. Richard Branson always have innovated idea to attract new and retain existing customers. The reason behind is because he knew that Virgin Atlantic had already operated near 25 years, and there must be many loyalty customers to enlarge his business scale.

No matter the guest is flying with Economy class or upper class i.e. first class, Virgin Atlantic can fulfill your different kinds of needs, and people may think for the long haul flight it must be very uncomfortable. However, Virgin Atlantic did consider this point, so they decide premium economy class, i.e. Business Class or Mid Class in other airline. This can allow customer have personal seatback entertainment, extra legroom, exclusive meals etc. In order to rewards their guest, they try their best to offer better as they can. They even win the “Best premium Economy” every year since 2004.

Furthermore, Virgin Atlantic has different kind of offer and promotion to keep their sources of customer. Mile Plus Money and the Flying Club are two examples. Flying club is a seriously rewarding membership, this membership program have divided their benefit level into three types of cards which are Flying Club Red, Flying Club Silver and Flying Club Gold. Each level of member can receive reward form Virgin Atlantic.

Partner – Singapore Airlines
On Nov 2006, Virgin Atlantic expanded their market scale by signing a codeshare agreement with Singapore Airlines. Singapore Airline is well-known because of its excellent quality customer service. Nowadays, it become the one of the global leading airlines and consists of 90 aircrafts flying over 90 cities with almost 40 countries. In joined Star Alliance since April 2000. “Singapore Girl” is the symbolical icon of quality customer care and service, meanwhile, it gained many awards from the industry. It won 19 awards out of 20 years in Conde Nast Traveller’s “Best International Airline” award.

Since these two airlines codeshare the agreement, for that reason passenger from Singapore Airlines can fly to Los Angeles, San Francisco or Dubai and transit in London with Virgin Atlantic flight started from December 2006. At almost one year after that, Virgin Atlantics’ customer can benefit from the service that provide by Singapore Airline travel between London and Sydney via Singapore.

Crisis
Virgin airline is currently facing a challenge that leads significant decrease in profit. Such challenge is considered as an outcome due to the unfavorable economical environment and increase in competition. External impacts have forced Virgin to operation at high cost but in lower selling price. Without any positive strategies to overcome the challenge Virgin is expected to lose its well maintained market position, market share, and possibility lead to the shutdown of business.

External impacts

Economic Crisis
Base on the news “Virgin challenges BA by cutting business fares”, from TimesOnline, consumer were reducing the travel budget or even not willing to spend much money on travel during the financial crisis. In order to survive, Virgin Atlantic’s main competitor - British Airways announced that they were going to reduce the flight fare so as to fill in all the seats. This action made Virgin Atlantic entering the market as well, when the price war began Virgin wish more travelers are encouraged to book tickets and upgrade the seats by the reduction.

Competition: BA merge with AA
According to Richard Branson: “No way BA/AA” from The Deal.com, the merge of British Airways and American Airline will form a large size competitor. This merger will allow the two airlines to sell the tickets with a cheaper price. They also can expand their market share and increase the number of customer at the meantime by sharing the same flight. However, on the other hand, Virgin Atlantic will take risk by losing their customer and give their pressure to lower their air fare.

Base on the theory of Economic Scale, The merged company will benefit from the economy of scale, which refers to advantages of large size company due to its superior financial resource, bulk purchase discount, increase in internal knowledge and experience, and higher risk bearing ability. It indicated that they will have the ability to lower their price and provide superior service quality. For example: The cost per each guest is $ 100 of Virgin Atlantic, on the other hand, BA and AA only need $80. Therefore, Virgin Atlantic need to sale tickets with a higher price than BA and AA if both of them want to have 10% profit. Conversely, BA and AA will gain the advantages of increasing the number of aircraft. Meanwhile, the access point of each airline will enhance as well. In addition, it allows the flight schedule be more flexible and frequency and they can share the experience and technology as well. If British Airways and American Airlines really can merge together, it would be a negative impact towards Virgin Atlantic.

Raising fuel price
According to the news, “Virgin Atlantic boss Branson warns of more consolidation in airline industry” from eTurbonews, due to the raising fuel price, many airlines need to suffer from the huge among of cost increase. They either need to raise the price to cover their extra cost or keep the same ticket price but to earn a lower margin. However, either ways of dealing with the problem will not benefit both airline and customers. As a result, this movement might be a threat towards Virgin Atlantic.

On the other hand, Richard Branson said that since the oil price is rising, the fuel bill of Virgin Atlantic rose from 250 million pounds to around a billion pounds in 2008. Therefore, Virgin Atlantic needs to shift part of the cost to their passengers, it would be a negative impact towards Virgin Atlantic as well.

Internal changes
Biofuel
Richard Branson noticed that fuel oil that used by aircraft will be harmful to the environment. In order to reduce the pollution, Virgin Atlantic launched their first biofuel blend flight from London to Amsterdam with no passengers on. Although it was just a short flight, but it became the first airline fly from one destination to another with 20% biofuel and 8o% kerosene. Virgin Atlantic immediately becomes a leader of using biofuel within the industry. It also can consider a huge change within the airline industry as well. Meanwhile, Richard Branson is looking forward to see a significant contribution to the next generation. An example would be using algae or waste biomass such as woodchip instead of the existing fuel. Since there are advantages of using biofuel, it can benefit to both society and economic growth. With the whole world are developing rapidly, people need a plane fly from one place to another. Hence, airline industry plays an important role to deliver service to the consumer in order to run the business continually and minimize the harmfulness to the environment.

A380 aircraft
Nowadays, Virgin Atlantic provided service with three different kinds of fleets currently, they had nine fleets of Airbus A340-300, 7 fleets of Airbus A340-600 and 13 fleets of Boeing 747-400 which allow to carry 452 – 525 passengers in Economy Class. On the other hand, in order to enlarge the capacity of the aircraft and provide excellent travel experience to their customers. According to the news “Virgin Atlantic defers order for A380 aircraft” from Earth Times, Virgin Atlantic had already confirmed their order of six Airbus A380 which can carry up to 853 passengers in the third class configuration. However, in 2006, due to the problem of A380 the company announced they needed to postpone their order of the first A380 Aircraft for four years from 2009 to 2013.

Downsizing
During the economic downturn, every industry is trying to use different ways to maintain their cost and generate profit if possible. According to the news “Virgin Atlantic eyes 600 job cuts” and “Virgin Atlantic to cut 600 jobs to ‘remain strong’ ” from BBC News and TimesOnline, Virgin Atlantic chief executive Steve Ridgway claimed "No airline is immune from the recession." It shows that the company planned to lay off 600 redundancies within the entire organization in order to restructure the business and keep its competitiveness during the recession.

Identification and analysis
CSR
Richard Branson did so well to make Virgin Atlantic to be the most successful airline within the aviation industry. Being one of the largest airlines within the industry, the company should be much focus on their revenue instead of the society. However, Richard Branson lead Virgin Atlantic to carry out Corporate Social Responsibility (CSR) – Richard Branson is highly concern about environmental issue and charity job. He did quite a lot to protect the environment.

Virgin Atlantic has a sustainability challenge, it aims to reduce the impacts that aviation industry have given towards environment. Richard Branson even invested $ 3 billion to fight against global warming and did a series of thing such as the carbon offsetting scheme. It indicated that Virgin Atlantic not only focuses on gaining money from the public but also care about the surrounding. In addition, Virgin Atlantic noticed that they should do something in order to make the next generation live better. Therefore, as I mention before about biofuel, Richard Branson worked so hard to be recognized by the public. On the other hand, they also suggest there are many ways that normal people also can give a hand to protect the environment.
Employee
Virgin Atlantic understands if they treat their employee well, their employee will use the same way to treat their customers. Company treats their employee as their assets, offer various benefit to them, these all make their employee are happy to work and be loyalty to the company. Therefore, it can ensure employee can deliver the best service to their consumer. In addition, if customers are satisfy with the service, I believe they are more than happy to choose Virgin Atlantic as their airline for the next travel. Furthermore, it can increase the number of loyal customers. As a result, it becomes a win-win situation add value for Virgin Atlantic.

Critical evaluation
Codesharing Agreement
Codeshare agreement can gain a significant benefit to both Virgin Atlantic and Singapore Airlines. I believed that it can allow both airlines to expand their market share since they share the same flight to access more destinations. In another way, they can reduce the cost that used on fuel and make the flight schedule more flexible and frequent. Furthermore, they can give the advantages to their customers as well, because they can have greater flexibility to book the flight ticket from both companies. In a way, it allows Virgin Atlantic to become more successful as Singapore Airlines won many awards on their excellent services.

Defer the delivery date of A380
There are two reasons of deferring A380. Firstly, if the purchasing price is increasing, it will put pressure on the financial of Virgin Atlantic since the operating cost will be much higher. In another word, the plan of buying A380 is to provide more seats and service to their customers. However, by signing the codeshare agreement, Virgin Atlantic is able to share the same flight and fly to more destinations. On the other hand, their partner Singapore airlines also bought A380, by sharing the same flight it allow Virgin Atlantic can gain more experience on A380 before they have their own first A380 aircraft.

Biofuel
For the Biofuel that first used by Virgin Atlantic, it definitely build a positive image in people’s mind. As everyone knows, nowadays many green organizations and people highly concern about the environment. By using biofuel not only become a milestone for Virgin Atlantic but also raise the importance of protecting the environment towards public.

Reduce the number of staff
By planning to lay off 600 employees because of the economic recession, in my opinion, there might have pros and cons towards Virgin Atlantic. The company can lower their labor cost and widening the span of control which mean it can ensure those remaining workforce must be skillful and employee can work more efficiency. On the other hand, it might damage the positive image of CSR since if the company really laying off their employee, many people will lose their job.

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