The importance of Tourism and hospitality industry can never be over-emphasized in the development and growth of many nations in the world. As a result of the advancement in technology and globalisation, tourism and hospitality industry serve as a vital driver of job creation as well as being the main source of income for many developed and the less developed countries. Due to the pivotal role of this industry in the creation of wealth for nations, several companies as well as international organisations devise efficient and cost effective operational management methods in order to maximise their profits.
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A key industry that propel tourism and enables tourism and hospitality industry to its present global height is the aviation industry, which not only transport people from one place to the other, but ensures that places that were deemed unreachable can be discovered, thereby creating wealth for organisations as well as enhancing the geographical prominence of countries in the league of nations. Virgin Atlantic, the second largest commercial airline in the United Kingdom play an active role in the tourism and hospitality business by ensuring that it provide cost effective and innovative services to its various clients.
As a result of keen competition in the aviation industry, Virgin Atlantic is renowned to be one of the pioneers of in-flight entertainment as well introducing a premium economy class services for its customers that can not afford to travel on an upper class but still wants to benefit and enjoy some of the privileges of the upper class clients.
The global economic recession as well as the harsh business climate has made it imperative for companies to re-evaluate their business models and device strategies to cope with the ever changing macro and micro environmental factors that affect the company. These are made possible by the analysis of the company’s Strength, Weakness, Opportunities and Threat (SWOT) it faces while operating in relation to their competitors.
Despite the advancement in technology, the three core functions of any organisation i.e. marketing, product and service development, and operation are well guided in order satisfy the ever increasing customer demands. To do these, most organisations align their operation management strategies to the changes in the external and internal forces that affect their operational model. Kim and Olsen (1993) corroborated this by advocating that a balanced approach must be used to monitor the events that occur in the external domain and assessing the potential impact on business and unit level operations.
Organisations must focus on their strengths in order to deal with the wide range of external factors in creating opportunities for themselves. On these basis, the identification of the external and internal operational management methods are clearly identified as a tool in increasing productivity ,customer satisfaction as well as promoting their products to their target audience.
STATEMENT OF THE RESEARCH PROBLEM
In every research, there are various problems that are identifiable, but for the purpose of this research, the following questions need investigation. What operational method can organisation adopt? What is the significance of operational management to an organisation? Should organisations in the hospitality industry adopt similar or different operational management?
OBJECTIVES OF THE STUDY
The objective of this research can be summarised as follow;
1. To analyse the operation management of Virgin Atlantic in relation to tourism and hospitality.
2. Establish the impact of internal and external factors that affects Virgin Atlantic operations.
3. How company formulate and adopt strategy.
4. Identifying the strengths and weakness of Virgin Atlantic
5. How the company measures service quality and improvement.
6. To established the best operational management methods for productivity and promotion.
SIGNIFICANCE OF THE STUDY
The study is of great importance because it underlines the understanding of the operation management of Virgin Atlantic which is one of the pioneers in innovation in the tourism and aviation industry. The research highlights the various approaches used by Virgin Atlantic in their daily operations and how it has been able to remain a viable and competitive company
LIMITATION OF THE STUDY
Due to time constraint, it was not possible to do a comparative study of the operation management of Virgin Atlantic in relation to other organisations in the aviation industry in relation to hospitality management.
HISTORICAL BACKGROUND OF VIRGIN ATLANTIC
Summary
Virgin Atlantic is the second largest commercial airline in the United Kingdom that starts operation in 1984.It is headquartered in Crawley near Gatwick airport and owned by Sir Richard Branson (51%) and Singapore Airlines (49%).The airline operates between the United Kingdom and North America, the Caribbean, Africa, the Middle East, Asia, and Australia from its bases at Gatwick Airport and London Heathrow Airport, using a mixed fleet of Airbus and Boeing wide-bodied jets (web 1). Almost uniquely among major airlines, it operates no short-haul services whatsoever, with its shortest route being from London to Accra (web 2).It offers three classes of travel: Upper, Premium Economy and Economy classes which all bears the hallmark of Virgin’s award winning inflight entertainment and based on airlines aims of provision of innovative service at excellent value for money for all classes of air travellers (web 3).
Birth and Formation
Virgin Atlantic was conceived as result of an idea from Randolph Fields who wanted to be operating flights from London to the Falklands islands after the Falkland war. But due to Logistic and operational cost, the Falklands operation was aborted and an alternative arrangement to have flights operating from London to the United States was agreed upon.
Randolph Fields proposed his idea of flights operations to Richard Branson at a party in Central and he agreed to be a partner in the flight business with 25% stake going to Randolph Fields and 75% to Richard Branson (Web 4). Like all Richard Branson businesses, he approaches the partnership as a venture that must succeed within a year or he exits the partnership. The airline was an instant hit in its first year and it was able to lease more planes in the second and subsequent years. Richard Branson eventually bought out Randolph Fields stake in the business in 1997 after disagreement over operations of the airline.
After its maiden flight to Newark in the United States on its leased Boeing 747 in 1984, the airline had acquired more aeroplanes to cover different routes and destinations ranging from Tokyo, Boston, Los Angeles, Rolando etc. Despite the apparent success and popularity of the airline, the company faced financial problems in the 1990’s due to the recession, the Gulf War and the subsequent collapse of International Leisure Group (ILG), there was need to save Virgin Atlantic from collapse and involves the abolition of the Traffic Distribution Rules (TDRs) which was meant to create equal distribution air traffic between Heathrow and Gatwick airports in order assist Gatwick airport to make profit.
The TDRs rule stated that airlines that do not operate international flights from Heathrow airport prior to 1977 would not be permitted operations there, but will instead be using Gatwick airport. The abolition of the rule made it possible for airlines to commence operational flights from Heathrow. This subsequently paved way for Virgin Atlantic to begin operations at Heathrow airport despite opposition from British airways who was the largest operator then. As a result of this move, Virgin Atlantic was able to increase its long-haul flights and survived the recession in the economy.
In order to consolidates its position and expand its flight operations, Virgin Group the parent company of Virgin Atlantic, sold 49% stake of the airline to Singapore airlines in year 2000, while Richard Branson retains 51% stake of the airline. This increased the value of the airline £1.25 billion thereby making it one of the biggest private operated airline in world (Web 5).
Rivalry with Competitors
The movement of Virgin Atlantic operations to Heathrow signal a rivalry between the airline and British Airways. Amongst the rivalry between both airlines was the famous libel fine of £500,000 and £110,000 in 1993,that was awarded out of court to Richard Branson and Virgin Atlantic as well as £3million court charge against British Airways for its “dirty tricks” campaign on Richard Branson and his airline (Web 6).Subsequently in June 2006, and British Airways was fined £271 million as a result of a tip-off from Virgin Atlantic after investigation by the US and the British office of fair trading for alleged price-fixing between both airlines (Web 7) .
Agreement and Co-operation with Other Airlines
Despite Virgin Atlantic fierce rivalry with British Airways, the airline do partners and codeshare agreements with other airline in the world namely; South Africa Airways, Air China, Cyprus Airways, Flybe, Gulf Air, Scandinavian Airlines, US Airways, Malaysian Airways etc. in order to spread its reach across the world (Web 8)(Web 9).
Service and Innovation
Virgin Atlantic has been a pioneer in services and innovation in the aviation industry through its introduction various services and technology that are used to distinguish itself from other airlines in the in Industry. It operates three-classes (Economy, Premium Economy and Upper Class) of travel in order to cater for the needs of its passengers. The Economy class is the standard class and it provide among other facilities such as free meals, drinks and lumbar support for its passengers. The Premium Economy class provide clients with a wider seat having more leg room, priority boarding as well as separate check in area from the economy class passengers (Web 10).
The Upper Class provide the passengers with first class services ranging from larger menu and in-flight bar. It is also equipped with the biggest fully fitted flatbed compared to any other airline business class services. Virgin Atlantic airplanes also are equipped with the state of the art In- flight entertainment system, that provide entertainment to all its passengers in order to ensure that they have a memorable time while flying the airline and maintain their loyalty them.
CHAPTER TWO
LITERATURE REVIEW
The aim of any service business organization is to create goods and services that are of high quality, quantity and cost efficient in order to satisfy the consumers’ needs. This can be achieved by ensuring that detailed attention is devoted in the planning and control of day today running of the business, design of products and creating a competent processes for employees to work. Operation management covers all these essential functions from the top level management to the immediate control of operations in the business.
Operations management according to Nigel Slack et al. (2010) is defined as the activity of managing the resources which produce and deliver products and services. This system of management relates to the function of any organization responsible for the design, planning and control of resources for the provision of goods and services (David R.B and Paul L.F, 2010).
Operation Management Model
Source: Operations Management, 6th edition, Nigel Slack et al (2010, p.25)
The Evolution of Operation Managements
The history of Operations management can be traced to different projects in the development of human history from the construction of Egyptian pyramid to the building of the Great Wall of China and the industrial revolution that began in England in the 18th century. Before the industrial revolution, production of goods and services are made through custom made products. But as machines were invented, there was an increase in the factory system thereby leading to the specialization of labour as proclaimed by Adam Smith in 1776 in ‘The Wealth of Nations’ which emphasize the benefit of breaking down production activities to smaller parts and assigned to individual worker through the manufacturing process. This ensures an increase in the production of goods and services through specialization as opposed to the cottage system of manufacturing for individual needs of the consumer.
By the mid 19 century, most cottage industries were being replaced by factories which expanded to urban workforce with effective communication thereby paving way for the great output explosion of the 20 century (David R.B and Paul L.F, 2010).
A number of techniques were later introduced during this period among which is the scientific management principle developed by Frederick Winslow Taylor (1856-1915) (Taylor, 1911), that was used for the creation factory Ford Rouge plant in which mechanized assembly lines, specialized labour,mass production and interchangeable parts were featured. But with the major studies in the relationship between output production and human motivation by Maslow (1943) and Herzberg (1966), the essence of developing a social as well as a technical system for manufacture processes.
The growth in the Asian economic coupled with new manufacturing processes such as Just-in-Time (JIT) principle and Lean Operations in the 1960’s brings a different perspective to quality and design management thereby making businesses to improve on their product delivery. Wickham. S (1985) and Terry (1985) also emphasized this in their studies by recognizing that the view that techniques and systems are not the most important part of operation management but taking a more balanced strategic view of management operations. As a result business competitiveness depends not only on low level, limited impact system of operation but on a broader management operational view (David R.B and Paul L.F, 2010).
CHAPTER 3
MACRO AND MICRO ANALYSIS OF VIRGIN ATLANTIC
The operation of every business is affected by several internal and external factors which determine the growth and survival of a business organisation. These factors can analysed by looking at the environment in which a business operates otherwise called Environmental Scanning or Macro environment. Macro environment refers to the clients, markets, industries and competitors which an organization interact with during their business operations. These factors are outside the control of an organisation and indirectly affect its activities.
Kroon (1995) defined environmental scanning as ‘the study and interpretation of the political, economic, social and technological events and trends which influence a business, an industry or even a total market’. Based on this definition, Macro environment can be analysed by six factors or segmentation called PESTEL which is Political.Economical, Social, Technological and Environmental and Legal factors. These are in constant change and organizations must define strategies to meet up with the changes. Holloway (2004) stated that macro business environment is subject to continuous changes and in order for the business to survive, it must learn to adapt to these changes.
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The Political and Legal factors such as government policies and legislations affect the mode of operation of every business. This factor can encompass political stability and favourable legislations such as tax concessions which encourage and promote the operation of business. Since Virgin Atlantic operate flights to different countries from the United Kingdom, the political environment in which it operates play a long way in the determining its success. The political decision of abolishing the Traffic Distribution Rules enables the airline to expand its operation flights and increase revenue for the company. Furthermore, countries of high political instability in Africa and Asia have a negative impact on the airline because the tourism potential reduces as a result of less people flying to these countries.
The Economic factors are significant in determining the operation management of Virgin Atlantic in the hospitality industry. The factors such as inflation rate, recession, spending power, deflation determine the role of Virgin Atlantic in the hospitality industry. The recent recession as well as the euro zone crisis has deeply affected the tourism and hospitality industry with less people travelling on holidays due to job cuts and ,high inflation rate and redundancies have lead a reduction of flights of Virgin Atlantic thereby affecting its profit.
Furthermore, deregulation of the airline industry has created an avenue for Virgin Atlantic to reduce to reduce airline fares. Although financially distressed airlines have cut fares to boost operational profit, Virgin Atlantic operates different incentives for their customers such as discount for senior citizens in the society as well as group travellers in order to stay ahead of their competitors.
Social and Environmental factors play a great role in the tourism and hospitality industries because the society demands the services that are rendered by the airline industry. Virgin Atlantic strive in is staff recruitment to employ people that care about the customers and provide their best for the customers by bringing their individual personalities to work while having fun at the same time (Virginatlantic.com, 2011).Consequently, as part of its corporate social responsibilities, Virgin Atlantic allows trained pets that accompanied disable people on its flights as well as providing assistance to unaccompanied children to travel. It also offers its customers complementary limousine pick up and provide in-flight beauty treatment for its business economy passengers.
The commitment of Virgin Atlantic to reduce its environmental impacts of its operations was highly lauded by the government for introducing biofuel in to some of its aircrafts in order to reduce emissions to the environment. It has also introduces recycling programme on board of all its aircraft as well company’s office in order to reduce the amount of waste generated and become a conscious and cost effective organisation(Virginatlantic.com,2011).
Technological factors are important in the provision of highly effective and accident free operation in the hospitality industry. Virgin Atlantic Airways believes in the role of technology in improving services and ensuring that safety of its staffs and passengers. It has been able to accomplish this by ensuring that it acquires new technological advanced aircrafts in order to improve the operation management and safety of the airline. Since flying is an highly dangerous operation if effective checks are not carried on airplanes, Virgin Atlantic have engineers that are highly trained have been researching to improve safety and security of airlines. They also introduce technologies in-flight entertainment to entertain the passengers while waiting for arrival as well while travelling on their flights.
MICRO ANALYSIS
The micro analysis factors influence the operation of any business organisation. These factors directly affect the operation of an organization and can change in order to align with organisation vision and goals. The micro economic factors that affect the operations of Virgin Atlantic in the hospitality business are; Customers, Suppliers, Employees, Competitors and Shareholders.
The customers are the main contributor to the survival of any business because they contribute to the revenue in which the business operation is being run. Virgin Atlantic take utmost care in providing a second to known service for its numerous customers, based on the original philosophy of Richard Branson, which is “to offer the best possible service to its clients while delivering the best possible value. People also regard Virgin Atlantic as a distinctive, fun-loving and highly innovative brand and one that is admired for its friendliness, intelligence and integrity” (Virginatlantic.com, 2011).
It also try to retain the patronage of all its customers by operating frequent flyer incentives such as the flying club where points accumulated from previous flights can be redeem later for free flights in the company. The introduction of in-flights entertainments on all is flights is also a ploy to make flying experience with Virgin Atlantic a memorable one.
The Virgin Atlantic employees are the assets of the organisation that project the values and culture of the organisation to the outside world. As a result of their importance to the goals and vision of Virgin Atlantic, serious emphases are placed in the recruitment of staffs that care about customers and bring their individual personalities to work in the company. It provide perks for its customers in form of staffs flight discount, excellent retirement benefit as well as good health care entitlement while working for the company.
The main suppliers to Virgin Atlantic airlines are Airbus and Boeing; aircraft manufacturers. They play a significant role in the operation of the airline by providing reliable and state of the arts airplanes the company. There are other companies that contribute to the successful operation of the airline such as Fuel companies that supply fuel for the operation of the airplanes, airports staffs that management the successful taking off and landing of the airplanes ,IT companies such as Del,IBM,CSC etc,that provide the hardware and software for the administrative activities of the company. Virgin Atlantic must work harmoniously with all these companies in order to have successful operation management.
Since the airline industry is a highly competitive industry different airline devise methods and promotions to lure customers to their airlines. The core competitor of Virgin Atlantic in the United Kingdom is British Airways. There have been several legal as well industrial disputes between both airlines in order to entice customers from each other. Since the reduction in government influence on the aviation industry in the United Kingdom, there have been intense completions between airlines to provide services that are better than its rivals. The core services provided by Virgin Atlantic which differentiate it from competitors are innovative technologies as well cheap and affordable flight tickets in relation to its rivals.
The shareholders of any business organisation are the ones that provide the capital for the operation of the business. As a result of this fact, their interest in ensuring that the business runs successfully in order to generate profit is very important. Virgin Atlantic is owned by Richard Branson (51%) and Singapore Airlines (49%) which form a global partnership and increase their operation capital for effective operation and to remain completive in the airline industry.
SWOT ANALYSIS
All businesses must assess and evaluate their positions in terms of where they are at the present and where want to be in future. In order to do this, the SWOT Analysis is carried out whish focus on the company’s Strengths, Weaknesses, Opportunities as well as Threat it faces in relation to its operation and survival.
Strengths
The strengths of any organisation are toe positive advantages that it possess in relation to other organisations. The strengths of Virgin Atlantic are;
Innovative and comprehensive services: Virgin Atlantic has innovative and comprehensive customer services which are designed to meet the ever increasing needs of their customers. The company’s passenger services unit arranges check-in facilities, baggage handling, meal catering, and in-flight entertainment. It also provide work in association with special assistance department unit to provide customers with special travel needs such as mobility aids, special meals, health camps at departures and arrivals (Datamonitor, 2011).
Association with Singapore Airline: Virgin Atlantic association with Singapore airlines has been highly beneficial to the customers of both airlines which enable them to book their flights through both companies. This association also enables virgin Atlantic to tap into the highly lucrative Asian countries thereby increasing revenue for the company as well as better services for the staffs and customers.
Weakness
Small Size: The apparent small size of Virgin Atlantic in relation to other big players in the aviation industry makes it difficult to compete fairly in the aviation industry. British Airways and Air France operates flights to about 300 and 244 destinations in the world in comparison to Virgin Atlantic that operates to just 30 destinations in the world. Virgin Atlantic also 38 aircrafts compared to the British airways and Air France with 238 and 558 respectively which also limit their competitiveness.
Price Fixing Allegations: The Office for fair Trading (OFT) found Virgin Atlantic and Cathay Pacific guilty of price fixing allegations after a three-year investigation. They were fixing the price for flights between London to Hong Kong route and were likely to face a severe penalty of about £250 million. Allegations of this type of nature can severely dent brand image and make customers to lose faith in the company for providing competitive price for its services.
Opportunities
Increase in the Global Freight sector: The International Air Transport Association (IATA) forecasted that aviation will handle 38 million tonnes of air cargo in 2014, up 12.5 million tonnes from the 26 million tonnes carried in 2009. International freight volumes are expected to grow at a CAGR of 8.2% over the forecast period (Data monitor, 2011).As a result of this promising forecast from IATA, which most of the activities occurring in the Asia pacific routes, Virgin Atlantic will benefit significantly through its association with Singapore Airline.
Positive outlook of the Airline market: As a result of the Olympics coming up in the United Kingdom next year, Virgin Atlantic will benefit immensely in the transportation of tourist as well as other participant to the United Kingdom for the games. This will increase the revenue for the company as a result of the prominent position it plays in the United Kingdom aviation industry.
Threats
Price Discounting from Competitors: The ever increasing discount pricing in the domestic market by close competitors a such as BMI, Ryan Air, British Airways, Air France etc., has made it increasingly difficult made for Virgin Atlantic to have stable pricing structure thereby making it extremely difficult for the domestic operations to be profitable. Consequently, the increase in the size of airlines route system have significantly increase the competition between airlines thereby affecting the profitability as well as impacting on their operation’s.
Natural Disaster: The Volcanic eruption of Mount Eyjafjallajökul in 2010, created a huge dent in the operation of Virgin Atlantic. The ash from the volcanic eruption disrupts air travel operations across Europe, with flight being grounded several European countries such as United Kingdom, Germany, France, Denmark and other Scandinavian countries. It was estimated that airlines during this period lost hundreds of millions of pounds due to flights cancellation caused by the volcanic ash. This situation severely affected the operation management of Virgin Atlantic profit.
European Union (EU) Regulation: In 2005, an EU regulation came into effect for compensating passengers with valid ticket but which were denied boarding an airplane irrespective of the situation. This law also imposes fixed compensation to passengers for cancelled flights except if the airline can prove that such cancellation is caused by extraordinary circumstances, such as weather, air-traffic control delays or safety issues (Datamonitor, 2011).Subsequently, this law makes it to the prerogative of the airlines to provide meals, drinks, and accommodation as well as telephone calls for customers if delayed overnight. The overall expenses created by this law made impacted on the operational profitability of airlines in which Virgin Atlantic were one of the casualties.
Jet Fuel Cost: Since the airline operation depend on the jet fuel, the instability the fuel prices has significantly affected the operations of Virgin Atlantic. The volatile price of jet fuel exacerbated by the political uprising in the Middle East has impacted on the profitability of margin of Virgin Atlantic in its operations as result of high cost of buying the fuel for the aircrafts.
CHAPTER FOUR
CURRENTAND FUTURE OBJECTIVE OF THE ORGANISATION
After the SWOT analyses of Virgin Atlantic, it is imperative to take a deeper look into the current objective of the company in relation to its future plans. The current objective of any organization must align with its vision which is reflected in the organisation’s mission statement. The mission statement of Virgin Atlantic is “To grow a profitable airline, that people love to fly and where people love to work” (Virginatlantic.com, 2012).
As result of this statement, the operation management of the organisation was designed to cater for the needs of its customers by providing the best service while delivering it in the best possible values. It also ensures that its workers not only work for the organisation but derive enormous pride, fun and sense of well-being in the course of their services to the clients.
Furthermore, in-line with socially and corporate responsibility of Virgin Atlantic, introduced a wide range of environmental initiative that are meant to reduce the amount of waste generated in the company. These initiatives involves the recycling of all waste such as plastic glasses, vending cups, papers aluminum cans which are collected and recycled in order to raise money for the various charity organisations the company supports.
Virgin Atlantic is also a trail blazer in the technological innovation by volunteering one of its Boeings 747 for the test of bio-fuels in operating airlines with the hope of reducing the dependency of airlines on jet fuel. As a result of the initiative, the company intends to use biofuels composed of algae as a part supplement to the jet fuel in its flight operations (Airline in first biofuel flight, 2008).
The future objective of Virgin Atlantic is to seek ways in order to be competitive in the United Kingdom aviation after the tie-up agreement between British Airways and American Airlines (Sir Richard Branson begins strategic review of Virgin Atlantic, 2011).As a result of this, the company appointed Goldman Sachs to advise them about the potential approach from Air France-KLM and Delta Air Lines in order to re-align its business for future challenges (Virgin Atlantic Airways, 2011).
CHAPTER 5
MARKETING AND COMMUNICATION OBJECTIVES AND STRATEGIES
According to Baines et.al (2008), marketing strategy serves as the basic plan and template in which an organisation commences its operations in order to achieve its goals. The essence of marketing and communication objectives of any organisation enables it to differentiate its products and services from other related organisations. Marketing and communication strategy enables Virgin Atlantic to analyse its opportunities and target customers which it believe are relevant to short and long term goals as well as the objectives of the organisation. These strategies are achieved through various marketing mix i.e. the price, product, place and promotion which are used to communic
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