It has won business and customer awards from around the world. Virgin Atlantic stands at the second largest international airline to come under the British Long Haul category. Virgin Atlantic holds a United Kingdom Civil Aviation Authority Type A Operating License, which permits it to carry passengers, cargo, and mail on aircraft with 20 or more seats. It is based out of Crawley, England. Virgin Atlantic operates a fleet of 38 aircrafts: 13 Boeing 747s and 25 Airbus A340, with a pending 6 orders of Airbus A380, and 23 orders of Boeing 787 to be delivered in 2013 and 2011 respectively. Over 9000 people are employed by the company. Virgin Atlantic has been known for it’s dfferent slogans, as shown. in the past: “Mine’s bugger than yours,” “4 Engines 4 Long haul,” “Avoid the Q,” “Keep Discovering – Until You Find The Best,” “No way BA/AA.” Virgin Atlantic not only provides the product and service, but adds its own style, and personality to it, which most corporations lack.
Geographical market
The airline industry is classified into four categories by the Department of Transportation (DOT): International – Plans require 130 or more seats, and usually travel without many limitations destination-wise, and have an annual revenue of one billion or more American Dollars.
National – Airlines with capacities of about 100 – 150 people, with an annual revenue between $100 million and $1 billion;
Regional – Largely only used for short haul flights, these usually constitute of a total revenue less that $100 million;
Cargo – Airlines that primarily deal with transportation of goods, rather than passengers.
PEST Analysis
Political Factors
State owned airlines are particularly affected by these factors. Parts of their business has to be done with consideration regarding routes, free seating for ministers, etc. Private airlines do this as/when it is convenient, and would not go out on a limb. Archaic laws apply on State owned airlines regarding labour regulations, retirement age, etc. which decreases management options due to the strength of the Union, and the controlling of the government. This affects the quality of the service delivery & therefore these airlines have to think of innovative service marketing ideas which overcome their problems, while keeping them in the running against private airlines.
Economic Factors
Business cycles control a large part of the industry. At peaking phases people indulge themselves in travel and fares can be increased. However at economic recession, air travel is considered a luxury, and use of it is often decreased considerably, which leads to minimising business for the airlines, and lower rates.
The terrorist attacks known by their date, September 11, led to a global recession, with the depression of the consumers. The loss of income for airlines led to higher operational costs due to lower demand and higher insurance costs, which increased after the terrorist attacks. This left the industry with little choice but to lay off employees, which increases unemployment, decreases consumer spending, thus decreasing their sales. Even the SARS outbreak in the Far East was a major cause for slump in the airline industry.
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Social Factors
The changing travel habits of people have very wide implications for the airline industry. In UK, there are varied income groups, with varied ethnicities. The airlines have to recognize these individuals and should serve them accordingly. The destination, kind of food etc all has to be chosen carefully in accordance with the tastes of their major clientele, while keeping the variety in mind.
Another good example would be the case of South West Airlines which occupies a solid position in the minds of the US air travelers as a reliable and convenient, fun, low fare, and no frills airline. The major element of its success was the augmented marketing mix which it used very effectively. What South West did was it made the environment inside the plane very consumer friendly. The crew neither has any uniform nor does it serve any lavish foods, which indirectly reduces the costs and makes the consumers feel comfortable.
Technological Factors
Internet alone has drastically changed the airline industry. Air Sahara has introduced a service through the internet, wherein the unoccupied seats are auctioned one week prior to the departure, as an example.
Also, most airlines provide many internet based services to its customer such as online ticket booking, updated flight information & handling of customer complaints
THE COMPETITION
As an independent airline, Virgin Atlantic successfully competes on all of its routes with most of the industry’s major national carriers. These include British Airways, bmi british midland, American Airlines, Continental, Delta and United on transatlantic routes; BA and SAA to South Africa; BA, ANA, Cathay Pacific and JAL to the Far East; BA to Delhi.
THE COMPETITORS SALES AND PROFIT TRENDS
The airlines industry is very competitive, although the barriers of entry for new airlines are lower in a market with a lack of government regulation. A deregulated market occurs when a government does not dictate airfares, route networks, and other operational requirements for airlines. Deregulation has produced far greater competition and because of this, average fares tend to drop 20% or more. [4] The competition, combined with the freedom of pricing, limit a new airline from competing at it’s stage, but also acts as a major constraint on profitability for established carriers, which tend to have a higher cost base.
TABLE 1: Top 25 Global Airlines Revenue 2006
Airline Lists
2006 Revenues (Million US)
%
Air France KLM
28,945.00
10.28
Lufthansa
24,903.70
8.85
AMR Corporation
22,563.00
8.02
Japan Airlines System Corporation
18,905.40
6.72
UAL Corporation
17,882.00
6.35
Delta Air Lines, Inc.
17,171.00
6.10
Continental AG
13,128.00
4.66
Northwest Airlines Corporation
12,568.00
4.47
All Nippon Airways Co., Ltd.
11,765.80
4.18
US Airways Group, Inc.
11,557.00
4.11
British Airways Plc
10,654.60
3.79
Qantas Airways
10,272.20
3.65
Singapore Airlines Limited
9,119.30
3.24
Southwest Airlines Co.
9,086.00
3.23
Air Canada Inc
8,934.40
3.17
Korean Air Lines Co., Ltd.
8,328.60
2.96
SAS Group
8,236.90
2.93
Cathay Pacific Airways Limited
7,823.80
2.78
Emirates Group
7,423.20
2.64
Iberia
6,473.80
2.30
Alitalia-Linee Aeree Italiane S.p.A.
5,927.50
2.11
Virgin Group
3,518.10
1.25
TAM S.A.
2,515.50
0.89
Air India
2,060.80
0.73
ExpressJet Holdings, Inc.
1,679.60
0.60
Total
281,443.20
100.00
Source : Datamonitor (www.computerwire.com)
MARKET SHARE:
The Company’s Market Share:
Year
Total passengers carried
Total cumulative
1984
124,711
124,711
1985
245,404
370,115
1986
289,060
659,175
1987
464,196
1,123,371
1988
626,319
1,749,690
1989
619,506
2,369,196
1990
837,136
3,206,332
1991
1,044,760
4,251,092
1992
1,239,011
5,490,103
1993
1,398,834
6,888,937
1994
1,679,403
8,568,340
1995
2,029,624
10,597,964
1996
2,293,802
12,891,766
1997
2,806,538
15,698,304
1998
3,201,795
18,900,099
1999
3,622,402
22,522,501
2000
4,280,513
26,803,014
2001
4,105,115
30,908,129
2002
3,808,687
34,720,689
2003
3,850,578
38,571,267
Source: http://www.virgin-atlantic.com/en/gb/allaboutus/ourstory/forstudents.jsp
Target Markets:
Virgin Atlantic offers very individualized services to their customers, due to their belief in the importance of individuals. Virgin Atlantic has targeted upper class customers who are primarily business passengers traveling on transatlantic routes. Virgin Atlantic realized the opportunity to gain a considerable market share through effective marketing of their “quality, fun, innovative, honest, and caring” airline.
Business travels are often those who travel several times through a year, and often tend to purchase upgraded services, which is beneficial for the airline. On the other hand, leisure travelers are less likely to purchase these premium services as they are usually price sensitive. In times of economic uncertainty or sharp decline in consumer confidence it is expected for the amount of leisure travelers to decline.
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The Company’s Sales and Profit Trends:
Y/E April 2003 2004 2005 2006 2007
TURNOVER £1401m £1272m £1630m £1912m £2140m
PROFIT £15.7m £20.9m £20.1m £41.6m £46.8m
SWOT Analysis
Strengths
Weaknesses
-Brand image
-Increased traffic
-Financial strength
-Declining market share in key markets
-Lack of scale
Opportunities
Threats
-Expanding passenger traffic in Asia
-Increase in trans-pacific cargo
-Partnership with ANA
-Cargo price-fixing investigation
-Rising aviation fuel prices
-Terrorist attacks and scares deter passengers
from flying
Source: Virgin Atlantic Datamonitor
Strengths
Strong brand image
Virgin Atlantic is a part of Richard Branson’s Virgin Group, which has strong brand image, and is known across most of the world.
Increased passenger and cargo traffic
Virgin Atlantic recorded higher passenger and cargo traffic in 2006, as compared to
2005. The number of passengers carried by the company rose by 3.7% to 4.5 million.
The quantity of cargo and mail carried increased by 9.1% to 163,165 tons.
Strong financial position
The company has witnessed strong revenue growth in fiscal 2006. It recorded revenues of £1,912 million in fiscal 2006, an increase of 17.3% from 2005. The operating profit of the company was £41.6 million during fiscal year 2006 as compared to £20.1 million in 2005. Moreover, the operating margin of the company also increased from 1.2% in 2005 to 2.2% in 2006.
Privately Owned
Virgin Atlantic is privately owned; therefore, decisions can made quickly.
Weaknesses
Declining market share in key markets
Despite strong brand image and improved financial performance, Virgin Atlantic’s market share has declined in most of its markets in 2006. Its market share in New York, East Coast, Caribbean, India and China has declined from 25%, 21%, 59%, 23% and 22% in 2005 to 24%, 17%, 57%, 18% and 8%, respectively, in 2006.
Lack of scale
The company operates 27 destinations whereas, its top competitors British Airways and
Thai Airways International operates 148 and 600 destinations worldwide.
Opportunities
Expanding passenger traffic in Asia Pacific
Driven by increased economic activity in emerging Asian countries such as
China and India, demand for air travel to the Asia Pacific is rising. Virgin Atlantic already has significant presence in this region and is well positioned to benefit from increasing air travel to Asia.
Increase in trans-pacific cargo
The outlook for trans-pacific cargo market is positive. During 2006-2009, the market is expected to increase by an average of 7%, an increase from a 4.3% average annual growth recorded during 1999-2004. Because Virgin Atlantic operates Virgin Cargo, a worldwide air cargo business, this will allow opportunity for the company to further strengthen its market position in cargo.
Partnership with ANA
In September 2006, Virgin Atlantic announced that it has teamed up with one of the world’s ten largest airlines, All Nippon Airways (ANA), which allows Virgin Atlantic passengers to fly to Japan on ANA’s domestic services. This new arrangement with ANA would enable the company to offer better service to its customers.
Threats
Cargo price-fixing investigation
The US Justice Department and the executive body of the European Union have launched an investigation into allegations of price-fixing in the air cargo industry in February 2006 and one of the company’s investigated was Virgin Atlantic. If the company is found to have participated in price-fixing, it may have to pay a significant fine and investor confidence could also be impacted.
Rising aviation fuel prices
Due to the rising oil prices globally, the prices of aviation fuel have increased substantially. This could impact Virgin Atlantic’s margins as it is mostly reliant on air freight business.
Terrorist attacks and scares can deter passengers from flying
When terrorist attacks occur, it places fear in potential customers, and can deter individuals from flying.
SEGMENTATION
Virgin Atlantic has two primary segments: Upper Class, and Economy class, with Economy Class segmented further to Premium Class, and Regular Economy, consisting of regular economy fare and coach fares. The premium class includes a separate economy cabin for full fares and option to pay extra for chauffeur driven cars and clubhouse lounges. The Upper Class is generally comprised of males between 35 to 45 years of age and that earn more than $75,000 a year. The Premium Economy is used evenly by business and leisure travelers, usually around 40 years of age.
Marketing mix:
Product
For an airline, a marketing mix must be developed keeping both in-flight services, and ground services in mind, while also considering it as a tangible product, as well as a service.
On the ground, transportation to and from the airport, online bookings, and check in services as well as duty free shopping, and parking options.
In-flight services are most customers’ primary focus. Staff training becomes essential here, to allow customers to feel approached as they would appreciate, in order to to form customer loyalty and satisfaction.
Price
Most airlines use competitive pricing for both economy and business travellers. The ticket fare is divided like so:
Basic fares; subject to availability, class and destination.
Insurance; standardised.
Inland Aviation Travel Tax (IATT); depending on the country intended to travel to.
Passenger Service Fee (PSF); standardised.
Also airlines use seasonal pricing. Tickets are usually more expensive when purchased during peak seasons such as holidays.
Promotion
In the UK advertising consists primarily of TV, press, magazines, outdoor posters and taxi sides, all featuring our distinctive logo. Advertising allows awareness to be raised of current products, their improvements, and new products, as well as appeal to consumers personally. Postal service allows more direct advertising to target markets and consumers, while informing known customers of improvements.
During traditionally low seasons, tactical promotions and price advertising are also used to maximise aircraft capacity.
Virgin Atlantic operates a frequent flyer programme, flying club to encourage loyalty in existing flyers.
Virgin also markets to travel agents, who are the primary distributors of their airline seats. Along with the usual advertisements, the sales team offers various trade incentives, familiarization trips, and educational/social event deals.
Conclusion:
Marketing is, very evidently, the Virgin Antlantic’s key strength. However, the airlines limitations in destinations, is restraining their growth increase. Richard Branson, himself suggested that Virgin Atlantic will be able to reach market-leader reputation if expand from the trans-Atlantic routes, to across the world, while keeping its service, which acts as its key difference between them, and the rest.
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