Virgin Airlines' Failure in Different Countries - Assignment Example

?International Business Table of Contents Executive Summary 3 Introduction 4 Question 5 Question 2 8 Question 3 10 Question 4 12 Conclusion 14 References 15 Appendix 17 Executive Summary The study reflects about the Virgin Airlines success and failure in different countries. Virgin Blue a low fare carrier had achieved immense success in Australia because of its strategic planning and experiences. Richard Branson had a goal to provide people of Europe with a low fare flights through Virgin Express. It failed in the region because of the lack of research by Branson. The failure of Virgin Express was due to a lack of environmental study of the country and the competition. Richard Branson subsequently desired to repeat the success of Virgin Blue in the United States by the new venture Virgin USA. This will be possible by taking a corrective strategic management and marketing analysis. The objective of the study is to evaluate the factors on which the success of the aviation industry depends upon when starting a new venture in a different location. The study reveals the importance of research, strategic management and environmental analysis for the success of Virgin Airlines. Introduction Virgin Blue airline under the guidance of Sir Richard Branson was launched in the year 2000. The motive of the airline was to provide a low fare carrier to the people of Australia. The Virgin Blue airline demonstrated the success story in the airline industry in the short run. Virgin Blue occupied nearly 30% of the market share of Australia through its low price strategy. In this case study, the success and the failure of the Virgin brand is depicted. The case reflects that Branson did not get success in the low cost airlines in the initial years. The airlines before Virgin Blue and Virgin Express did not succeed in the European market and was unable to compete with its rival Ryanair and Easyjet. The company was in the exploratory process to merge with the SN Brussels to recover its status, but failed after the 9/11 attack. Furthermore, the venture by Branson to provide air liner facility to the tour operator in the name of Virgin Sun failed to succeed. The Virgin Sun airline was sold to the Firstchoice because of its failure in the market (Daas, 2004). Cynics one of the observant analysed that the success of Virgin Blue was because of the lack of competition in the Australian market. The downfall of the other airline created a scope for the Virgin Blue and gave it an easy entry. According to Branson, the success of Virgin Blue was because of the strong management, strategy and the financial planning by the management. The objective of the case is to analyse the failure of the Virgin Express in the European market. It is important to analyse the local market before the implementation of the airline expansion strategy in a new country or region. The reason for the mergers by Virgin Express and the success of Virgin Blue are evaluated in the case. Question 1 The Virgin Express started its operations in the year 1996. The airline was formed by Virgin Group when it bought the Euro Belgian Airlines and renamed it as Virgin Express. The aim of the airline was to produce a low cost carrier for the people of Europe. The company had to face severe competition from the rival airlines such as Ryanair and Easyjet. These two airlines were well established in the European market because of their strategic and marketing implementations. The airlines offered a very cheap rate foe the tickets. The tickets were sold at lower prices to the people on the basis of first come first serve. This strategy encouraged people to buy the tickets much earlier. This created the demand for the airline of Ryanair and Easyjet. Moreover, the flexibility provided in the pricing strategy was attracting more customers. These strategies made the airlines to flourish and on the other hand the new airline Virgin Express was unable to meet these requirements in the European market and hence failed. The airline was then sold to SN Brussels Airlines in the year 2006 (Daas, 2004). The reason for the failure of Virgin Express was the lack of research by the company about the local environment with regard to the political, economic and social factors. The company should have used the analytical tool before the implementation of policies. Moreover, one of the major problems faced by Virgin Express was that it took Belgian carrier as the basis of the airline. The reason was that Belgium had one of the topmost social charges and thus had to face the toughest law related to labour in Europe. Another reason was the appointment of Mesa’s Jonathan Ornstein who followed the America ways in the strategizing the airlines in Europe (Mesa Air Group, 2002). The government influence towards the Virgin Express was strong because of the sentimental aspects of the people against a Belgian based carrier. On the other hand, some of the policies of the European country were supporting the concept of the low cost airlines, which would make the airline industry by following the PEST analysis. Political Factors The policy or the law implemented to liberalise and deregulate the airline market helped the European carriers to offer routes between any points of the European Union. The deregulation of this policy made the airline industry free from many strict restrictions. This made the airline market become very competitive for the industries. The efficiency of the airline industry could be focused by reducing the price of the tickets, using proper air networks and offering better price flexibility to gain efficiency. The legal policy implemented by the Europe countries such as the Single European Aviation Act created opportunity in the market for the airline (Morrell, 1998). The policy would encourage tourism as it removed various geographical restrictions. The removal of the traffic management and the closure of airspace due to the war created efficient environment for the success of the airlines such as Virgin Express. The Act created market opportunity, expansion and promoted stability in the business environment. The Open Skies Agreement allowed free access of the aircrafts in the Europe Union. This Act assisted in increasing the number of international aviation. This agreement along with the Single European Aviation assisted in improving the efficiency in the flight routing and enabled efficient use of airspace. The Virgin Express could have been successful as the policy implemented by the Air miles Scheme was considered as a non-taxable perk by the government. This would help in the airlines to compete on fairgrounds (Express.Co.UK., 2008). Economic Factors The economic factor would assist in improving the profitability of the airline industry. The economic slowdown affects the behaviour of the passengers; they tend to buy tickets with lower cost without giving much importance to service. This is mainly favourable in cases of the short routes where passengers give more importance to lower prices of the tickets. The cost of obtaining a pilot and getting a better trained staff at a reasonable cost was becoming a problem for the Virgin Express. According to the Single Market Policy, the airline in European Union can recruit their crew members from any region but for the country such as Belgium, this law was not supported by the government. The country has no law for the remuneration for the staff which creates an opportunity for the negotiation of the wages. This would help in increasing the efficiency with regard to cost as well as by negotiation on providence of a fair wage without increasing the cost. The airline is getting the benefit for the recession such as by getting weaker dollar, lower interest rates and low cost in relation to airports. These benefits would help the company in keeping the price of the ticket low and make the people avail low cost flights. This would facilitate in increasing the demand and making the airline profitable along with augmenting its sustainability (Dobruszkes, 2006; Bamber & et. al., 2007). Social Factors The changes in the demographics influence the airline industry. The increase in traveling and number of short trips has helped in increasing the demand for the airlines in Europe. The people prefer short trips with the lower fare available to enjoy their vacation without much of expenses. Moreover, the increase in the tourism due to the promotion of the cultural history of the country has helped in increasing the trips in Europe and so the demand for the flights has also augmented. The senior citizens of the country are taking interest in holiday making and thus prefer low cost airlines to meet their requirements. This aids in increasing the demand for the airlines with low cost, quality, comfort and easy available transportation. Also, with the increase in the educational level in the stream of art and culture, the tourism for vising the historical areas is increasing and so is the demand for airlines. The gender and the age influence the spirituality of the people and hence increase their interest into touring. This increases the demand for the airline industry and its profitability (Dennis, 2004). Technological Factors The new advanced technologies could help the airlines to sustain in the European market. The introduction of online facilities to get the information regarding the tickets availability and the prices affect the sale of the tickets. This technology helps in reducing the cost involved in the for the tickets agents. This further facilitates in reducing the cost of the airline and hence aiding to maintain low cost with quality. Europe offers much technological advancements such as the restructuring of the models along with facilitating IT technological support to make the airline industry competitive. All these factors could have helped Virgin Express to retain its business in Europe with profit (Smyth & Pearce, 2006). Question 2 The success of a business depends on the research done by the team before implementing the business in a country. The proper understanding of the market, its political situation and the number of competitor available in the market affect the business planning, its long-term success and sustainability. Knowledge management is an essential aspect for the airline business to survive in a country. The knowledge about local market can be gained by through the proper study of the market by online research, information from other relevant sources and market research. Knowledge management replicates towards getting proper information using all the available resources which helps the business to set up efficiently (Foon & Eurn, n.d.). The local market knowledge is an important aspect as it assists in analysing the areas of development and the requirement of the people. Through the proper scanning and analysis of the market and the environment the business, it will be able to understand the market needs and will be able to serve the opportunity available. These information and knowledge help in taking steps to improve the process and resources for better profit. The innovation of the product and the need can be met through the research. The business gets an added advantage as they are in a position to understand the needs of the people along with fulfilling them. The knowledge about the local market can help the business in delivering the service in a customised manner for the people. Knowledge management strategy aids in gathering information about the culture of the country and understanding the sentiments of the people (James, 2004). The hierarchy of the knowledge management for the local market is depicted through the pictorial representation (see appendix). It illustrates the steps involved in the knowledge management. The first is to get the data from the market, provide information and then gain knowledge to attain wisdom in the business (Fainberg, 2006). Gaining information from the local market through the research and analysis would assist a business in understanding the growing and changing needs of the customer in the local market. This would help the business to implement a proper marketing and business strategy for the success of the business. The information gathered assists in strategising the business plan and efficiently creating value for the business. The information helps the business in segmenting the market, focusing on the target customer and efficiently marketing the product or service in the country. This analysis and the research would enable the business to adopt a pricing strategy, which would be effective and efficient to provide value to the target customers. This would encourage people to avail the service of the business and become a loyal customer for the organisation. The customer loyalty would be effective to provide and increase brand loyalty and increase the reputation and profitability. The loyalty would help in increasing the profit and maximise the budget for the better service deliverance to the customer in the future. For instance, the failure of Virgin Express was because of a lack of knowledge about the local market. The sentiments of the people of the country were not known by Virgin Express airlines and hence it suffered loss. On the other hand, the Easyjet and Ryanair knew the market and hence had better service deliverance by implementing proper marketing and management strategy (Shaw, 2007). Furthermore, the analysis of the local market allows the business to evaluate the external and the internal environment of the region. The environment knowledge of the local market is of great relevance for the business. The PEST analysis is an important tool for analysing the market condition of the country. Moreover, the SWOT analysis would also help in understanding the strengths, weaknesses and opportunities for the success of the business. The knowledge and the information derived would help in eradicating the threats and implementing the best possible strategy. The analysis would help the business in understanding its capabilities and resources to increase the level of productivity and service deliverance. These attributes would aid the organisation to increase its demand and sustain in the local market. The importance of the knowledge of the local market is that it would encourage the organisation to be proactive in making decision. The strategic planning process of the management changes in accordance with the market requirements and sentiments especially in the service oriented organisation such as Virgin. The decision of recruitment of the local people can also be analysed through the knowledge as to whether the people are ready for the alliance with the business. The local market information and knowledge help the business in easy evaluation and implementation of the control. With the knowledge of the market, the organisation gets aware of the competition and takes steps to overcome the competition by strategising plans to increase the company’s efficiency in the market. The needs of the customers will be known by the business along with their expectation which would help the business to flourish. The use of Porter’s five models would also facilitate the business to understand the bargaining power of the buyers and the suppliers, threats and substitutes available in the market (UC Santa Cruz, 2013). The knowledge about the business comes from experience. Experience helps in deliverance of quality decision for the development of the business. The behaviour towards the business and people are the other vital aspects for the success of the business. This helps in providing better service to the customer along with reducing cost. The reduction in the cost encourages the rise in productivity. The curve formed from the experience of the business and the management is known as the experience curve. The operational experience is an effective tool used by the management to resolve the risk and the problems faced. The quality of the service and the timely deliverance of the service are the key factors which are solved by the operational experience. The operational experience helps in providing efficiency and increasing the level of relationship with the customers for the better performance of the organisation. For instance, the experience of Richard Branson subsequently helped the business to flourish and make proper coordination along with research before the implementation of airlines expansion strategy to emerge as a successful story (Shaw, 2007). Question 3 The failure of Virgin Express allowed Richard Branson to make a strategic decision regarding the merger of the airlines. In October 2004, Virgin Express decided to join with SN Brussels Airline. In March 2007, the two aviation companies pronounced their merger with mutual understanding to derive more benefits (Brussels Airlines, 2013). The reason for the merger was that Brussels Airlines had an experience in the aviation industry for nearly 80 years. The merger was made with the strategic decision that both the entities would fly with their own brand names. The expectation of the merger was to have a mutual benefit to optimise the network, service and profitability. The analysts were of the opinion that the merger would be beneficial for both as it would make them competitive in the aviation industry in respect of employees and finances required. The benefits derived by the merger would be effective for both (Lundgren Aerospace, 2004). The merger would help them in increasing efficiency in routing the airlines and covering larger areas. This would help in reducing duplicity in the routes. This would help in reducing cost and increasing efficiency. In few countries, the benefits derived from the airport facility were provided to the Brussels Airlines thus these benefits could now be availed by the other airlines. There would be availability of network consolidation and benefits from airport authority, which would increase the competitiveness and efficiency for the customer. This would be beneficial for both the customers and the airlines profit and sustainability. Moreover, the merger would help the companies to efficiently use the infrastructure and reduce the reluctant variable costs which were being incurred by the airline industry. Also, the proper allocation of the pilot and the cabin crew member was of an advantage as the training cost would be reduced and the efficiency would help the aviation industry to get a competitive edge (Lundgren Aerospace, 2004). Another major benefit is fleet rationalisation which is achieved through merger. This can be attained through the lower maintenance cost for the flights, training cost and cost of conversion by leveraging and decreasing the number of airways. This would help in gaining profit and reach new heights which were not possible before the merger. The airlines SN Brussels and Virgin Express being in the aviation industry for a long period have an added advantage as they have the experience of the market. The experience helped in increasing the efficiency of the airlines in terms of quality and cost efficiency for the customers (Dobruszkes, 2004; Simairline.Net, 2007). The infrastructure cost and the associated cost related to the airline industry would reduce by a certain extent because of the merger. The experience of the airlines and efficiency with regard to the operations and the ability to reduce wastage would facilitate the airlines to gain profit. The added advantages that the airline derives from the merger will help them in sustaining the low cost fares for the customers and strengthening its position in the market as compared to others. This would also help in increasing the customer loyalty for the quality service. The merger would benefit the SN Airholding by meeting the growing needs of the market and providing flexible services with low cost fares to the people. The merger will help in gaining more market share and taking the advantage of the past experiences to meet the future obligations. The other key benefit for the company will be to give a strong competition to the competitors such as Easyjet. The financial stability would increase from the merger and the revenue generation would develop as well, as the customers get better quality with utmost efficiency. The motive of providing low fare flight would be sustainable which would meet the customer requirements. There will be more flexibility in the service provided, pricing strategy of the tickets would change and availability of the flights and the tickets as per the demand could be met. The main objective of the merger the sustainability would increase for the long-term. Better scheduling of flights, more flights and increase in the number of the connectivity because of the policies will help in increasing the demand. The customers will get many facilities and amenities because of the mergers. The focus of SN Brussels in the niche market could be met as well as making accessible low cost tickets for the customers would be possible (Hansson & et. al., 2001). Thus, it can be stated that the merger of Virgin Express and SN Brussels would create a lot of advantages in the market. The flexibility in the prices, timely arrival and departure of the airline would increase with the rise in customer satisfaction. Moreover, the on board facility, choices for seats would increase and the privilege for extra benefits could rise as well. The merger could provide more value added services to the loyal customers and make them repeat their trips. Also, the amalgamation of the assets and the investments might help the airlines to meet the global objectives perceived by them (Lundgren Aerospace, 2004). Question 4 Richard Branson achieved success in Australia by the launch Virgin Blue, the low cost carrier. Virgin Blue has nearly 2800 people and has occupied 30% of the Australian market within a short span of time. Virgin Blue achieved success because of the proper research done and through the experiences of Branson in the past. To achieve the same level of success for Virgin USA, Branson needs to take and plan strategies for managing the market, understanding the needs of the customers and the existing competition in the market. The factors which made Virgin Blue successful were the use of analytical tools before the implementation of the airline plan. Branson used the PEST analysis to determine the environment of Australia to get proper understanding of the requirements and the political factors that could support its existence in Australia. In the same way, the PEST analysis needs to be done in the USA market to understand the factors which could influence the existence of Virgin USA. The requirements and the needs of the customers are to be determined and accordingly the strategies might be framed. The social factors and the mind-set of the people ought to be determined before taking into consideration any business aspects. The success of the airline in a country depends on the critical analysis of several important factors to get the competitive edge over the others. For Virgin USA to get the success in the nation, there has to be mixture of prudent strategic decisions based on several aspects. The first analysis to be done by Richard Branson is to set its management platform and take advantage of the brand name Virgin (Daas, 2004). An important aspect in the successful implementation of Virgin USA is to attract the customers and make them aware of the strategic advantages provided to them. Branson needs to make the customers aware of the facilities provided to them such as the price offered, the level of innovation, comfort and the reputation they have in Australia because of its service deliverance. These factors will help in attracting the customers and making them loyal towards the organisation. The use of promotional mix by Virgin over others will help in attracting customers and thereby making it successful. The additional benefit provided by Virgin such as snacks, better quality food and other amenities will attract customers. Providing discounts and offers to the loyal customers of Virgin USA might attract more people in order to avail services. Another aspect to be focussed upon is the staff and the pilot selection in Virgin USA. The qualified and well trained crew members with efficient and highly skilled air hostess would give the airline a competitive edge over others. Providence of online facilities and flexible pricing strategies might become a key reason for the success of the airline. The efficient management of the airlines is another aspect which might attract the customers towards Virgin. Moreover, being customer oriented in its service is another factor that might help in ascertaining the success (Shaw, 2007). The major aspect for the success of any organisation depends on the management of finances. Virgin Blue achieved its desired level of success by maintaining popper finances and strategic alliances when required. This helped the airline to gain decisive market and revenue which made it successful and facilitated it to manage the organisation and the structure. One of the prominent reasons for the success of Virgin Blue was that it had a low operating cost with low fares than any other airlines. A proper management structure with transparency in operations and a focus on following ethics are the key factors for Virgin USA to consider in order attaining similar level of success. Evaluating the need for change and taking prompt decision based on the analysis by the management might help the airline to attain success. Additionally, better management will lead to superior quality of services and hence ensuring profit with sustainability. The various laws implemented such as the Open Skies agreement might be beneficial for the management and customers as the routing could be easily done. The low cost in the fares and the different strategy implemented might help Virgin USA to get a competitive edge over others and derive success in the long run (Shaw, 2007). Conclusion An in-depth knowledge about the aviation industry and the key strategies that are useful for the success and failure of a leading airline company has been determined. It is observed that the failure of Virgin Express was due to the lack of knowledge and understanding of the current situation of the country. On the other hand, the success of Virgin Blue was due to the strategic and analytical tools used before the implementation of the business. Therefore, the importance of management strategies for the successful implementation of the business plan as well as to attract the customers for the long-term sustainability of the airlines has been acknowledged. Marketing and management strategies play a decisive role to ensure long-term success in the aviation industry. Consequently, it can be affirmed that the success of Virgin Blue was due to the strategic implementation of the policies by Branson at the right time. A key focus on varying requirements of the market facilitated Virgin Blue to attain desired prominence in Australia, which needs to be replicated in the United States market as well. References Bamber, Gregory J. & et. al. “Low-Cost Airlines' Product and Labour Market Strategic Choices: Australian Perspectives,” Griffith University, 2007, pp. 1-7. Brussels Airlines, 2013. History. Company. [Online] Available at: http://company.brusselsairlines.com/en_be/corp/our-company/history.aspx [Accessed December 08, 2013]. Daas, G.D., 2004. Airline Profile. Avia Magazine. [Online] Available at: http://www.aviamagazine.com/factsheets/airlineprofile/virgin/ [Accessed December 08, 2013]. Dennis, Nigel P.S. “Can The European Low-Cost Airline Boom Continue? Implications For Regional Airports,” University Of Westminster, 2004, pp. 1-28. Dobruszkes, Frederic. “An Analysis Of European Low-Cost Airlines And Their Networks.,” Journal Of Transport Geography, 14, 2006, pp.249–264. Express.Co.UK., 2008. Virgin shuns 'Open Skies'. City and Business. [Online] Available at: http://www.express.co.uk/finance/city/36908/Virgin-shuns-Open-Skies [Accessed December 08, 2013]. Foon, Rain Loo Swee & Eurn, Lum Soo. “Application Of Knowledge Management In The Malaysian Airline Industry: A Critical Review,” SEGI University, No Date, pp. 12-24. Fainberg, Alexandre D. “Knowledge Management In The Aviation Industry,” Royal Aeronautical Society Student Lecture, 2006, pp. 2-12. Hansson, Tom & et.al. “Airline Merger Integration,” Media, 2006, pp. 1-16. James, Paul. “Strategic Management Meets Knowledge Management: A Literature Review And Theoretical Framework,” Actkm Research Forum, 2004, pp. 1-20. Lundgren Aerospace, 2004. Virgin Express SN Brussels Sign LOI to Merge. Aviation Forums. [Online] Available at: http://www.airliners.net/aviation-forums/general_aviation/print.main?id=1461205 [Accessed December 08, 2013]. Morrell, Peter. “Air Transport liberalization In Europe: The Progress So Far,” Journal of Air Transportation World Wide 3, No. 1, 1998, pp. 1-20. Mesa Air Group, 2002. Biography. Jonathan G. Ornstein. [Online] Available at: http://phx.corporate-ir.net/phoenix.zhtml?c=78947&p=irol-govBio&ID=136195 [Accessed December 08, 2013]. Smyth, Mark & Pearce, Brian. “Airline Cost Performance,” An Analysis Of The Cost Base Of Leading Network Airlines Versus No-Frills, Low-Cost Airlines, 2006, pp. 1-48. Simairline.Net. “Final Days for Virgin Express,” Latitude, 2007, pp. 2-12. Shaw, S., 2007. Airline Marketing and Management. USA: Ashgate Publishing. UC Santa Cruz, 2013. What’s Happening? Airline Industry Analysis. [Online] Available at: https://www.google.co.in/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&cad=rja&ved=0CDIQFjAB&url=http%3A%2F%2Fclasses.soe.ucsc.edu%2Fism158%2FWinter03%2Fistcch04.ppt&ei=zDKkUsr4HYWMrQemr4G4Aw&usg=AFQjCNHLcR_ICqaeLRk3FjH531o6khyriQ&sig2=hVpV9hMGdDQ7aXZvgHVlFg&bvm=bv.57752919,d.bmk [Accessed December 08, 2013]. Appendix Source: (Fainberg, 2006) The diagram represents the knowledge hierarchy which is an important part of knowledge management. Read More

 

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