Virgin Atlantic Airways Dilemma

Virgin Atlantic Airways Dilemma

B835 - TMA01

Contents:

Summary.............................................................................................................3

Introduction........................................................................................................3

Merging or staying independent? .......................................................................4

PESTLE - Airline industry ...............................................................................4 - 7

The attractiveness of the airline industry ...........................................................8

Consultation's recommendation and evaluation.................................................9

The alternative proposal....................................................................................10

References..................................................................................................11 - 13

Summary:

This report will examine the current strategic challenges that Virgin Atlantic Airways (VAA) and the airline industry face. The analysis of the external factors will illustrate their influence and how it can affect the VAA future performance. The report also evaluates the benefits and the risks of the proposed recommendation by management consultancy or other alternative options. At the end of the report, you will see the offered recommendation for what Virgin Atlantic should do to sustain itself in the long term future.

Introduction:

Since the VAA conception in 1984, VAA has become a leader in innovation, a strong competitor and a profitable airline for the past 25 years. Perhaps, it doesn't come as a surprise that the founder of international carrier, Richard Branson, would become the only CEO who would be asked for autographs. It is a fact that the 96% of people asked are aware of VAA and 95% of people know who Richard Branson is and the image that he represents. VAA has hub airports: London Gatwick, London Heathrow and Manchester and Richard Branson owns 51% of its own business and sold the remaining 49% to Singapore Airlines for £600m as a cash to be used for the business. Their top notch service includes an in-flight entertainment through to being picked up by a chauffeur in a limousine to fully experiencing their Clubhouses in different parts of the world.

Merging or staying independent?

After a succession of stories of Virgin beating off its rivals, well most of the time, nowadays the VAA faces a dilemma of strategic decisions of the sustainability of their own independency or joining a merger with another business partner/alliance. Their own autonomy has diminished the opportunities to buy more landing and takeoff slots at Heathrow over 3%. The International Airlines Group (IAG), which consists of their main competitor British Airways (BA) and BA's partner Iberia, has won the bid over a losing subsidiary BMI, for £175m helping them to raise their own 45% slots to 53%.

The BAA currently runs at its 99.2% peak capacity and the VAA would have to wait for other airlines to give up their slots. In such uncertain times, merging an alliance group or finding a business partner would secure them their competitive advantage and connect their travellers to other destinations.

The question remains though. Who should the VAA partner with? They have grown into a profitable airline for past 25 years as stated in their mission. Could their growth stop in coming years due to decline in travel of business customers in a substitute of videoconferencing and highly developed software programmes which saves lots of money for businesses? Where do their usual customers need to be connected to? The air transportation is utilised by people who need to travel faster and time efficiency is crucial to them. What other European hub airports would be able to accommodate the big and long Boeing 747s? What privileges would they lose by joining an airline group? Should the VAA promote its identity independently due to their core strengths of marketing strategy, outstanding service and simply knowing what the customer wants? If merging, should the VAA go European (Sky Team) or Arabian (Etihad)?

PESTLE Analysis of the VAA and Aviation industry

PESTLE framework analyses the external forces that impact a company's ability.

Political

The Airbus, which after receiving firm orders worth £23.1bn at the Paris Air Show, is to create 600 jobs in the UK. The Airbus and Rolls Royce have pledged the government to finance and invest in intellectual infrastructure and support research and technology so that we have a main basis to work in the UK in the long term. The government's swift response and their financial back up are therefore very important factors as they can cause time delays or unwanted expenses to the airlines.

The BAA underlines the need for an expansion. At the current capacity, Britain falls behind continental Europe in providing daily connections to key emerging markets in China and South East Asia. The new hub airport (£50bn) would take decades to build and during this time we would be handing over, on a plate, the UK's historic trade advantages to our European competitors (France, Germany) - the spokesman for BAA has said. The government currently considers the alternative options of high speed rail links between London Heathrow and London Gatwick to so called 'Heathwick' and considering the option of buying some of the RAF properties with the runway for commercial purposes.

Although, the third runway would be an ideal solution to ease the airport traffic, the strong culture and voice of people living in the surroundings of Heathrow has been heard by the government and the third runway project was put on hold.

Further, OPEC says that the EU's embargo on oil ban in Iran, over its nuclear program, will add more pressure on oil prices. When considering that fuel costs count as a third of operational expenses, airlines would result