Impact of Globalization in the Aviation Industry - Essay Example

Discussion on the Impact of Globalization in the Aviation Industry and a detailed outline of the Virgin Atlantic’s Market Entry Strategy into India Highlighting the Competitive Advantages Achieved Introduction History of Virgin Atlantic Virgin Atlantic Airways is a private international airline that happens to be based in the UK. The airline was first started in 1982 and now currently flies to over 20 different destinations all over Africa, Asia and North America. Its share ownership is divided between two parties with the virgin group holding about 51% of the company’s total share value and Singapore airlines holding the remaining 49%. This ownership share came into being when Singapore Airlines was sold the 49% ownership of the company by Sir Richard Branson at the cost of 600.25 million British pounds. The deal saw Singapore airlines inject into the company capital worth 49 million pounds and virgin Atlantic investing capital to the amount of 51 million. These capital investments brought Virgin Atlantic’s total equity investment value to the tune of 1.225 billion pounds. Over the years, the company has become more suitably placed to be able to effectively compete with other well established International airlines such as the British Airways which happens to be the UK’s leading and biggest airline at the moment (Virgin Atlantic 2012). Virgin Airways is a part of the Virgin Group Conglomerate that is owned by Sir Richard Branson. The Airways is currently regarded as a market leader in the aviation industry with its dedication to researching and implementing new innovations that have the innate potential of immensely improving the customer experience of all persons who use Virgin for their transportation. This is in line with the Virgin Group’s policy of giving the prefix Virgin to its various businesses to indicate that the business is exceptionally daring, innovative and daring. As a result of the Virgin group’s overall success, there are many businesses outside the Virgin Group that have recently been showing immense interest in their joining the group via the establishment of joint ventures. With the constant stream of innovations and a myriad of successful marketing strategies, the Richard Branson led virgin group conglomerate has grown in value to an excess of $3.5 billion and is one of the world’s most well recognized and powerful brands (Virgin Atlantic 2012). The airline has come from humble beginnings since it launched its first flight flying from London all the way to New York on June 22, 1984. After this maiden voyage, the airline quickly expanded its operations to include flight services to other areas and regions such as Miami (1986), Tokyo (1989), Boston (1987), Los Angeles (1990) AND Orlando (1988). One of the major obstacles that the company has ever encountered was its inability to receive permission to be able to have its planes flying out of Britain’s busiest airport, the London Heathrow airport. In 1991, the company was finally able to obtain permission to fly its planes from Heathrow Airport. In the year 1994, Virgin Atlantic managed to add San Francisco and Hong Kong to its growing list of new flight destinations. This move necessitated that the company expand its current fleet of airplanes so as to be able to adequately service all these new destinations. In the period ranging between the years 2000 and 2001, its route expansion grew to feature Delhi and Las Vegas. The Impact of Globalization in the Aviation Industry Globalization can be seen to be having a rather profound impact in the aviation industry. This includes the explicit and implicit international coordination between various governments on policy matters in regards to the environment, security and safety. Globalization has also seen a shift in the way the production of airplanes is conducted with various aero-engine parts being produced and assembled in different countries. Globalization has also caused for there to be a myriad of various mergers, strategic alliances, and acquisitions between some of the largest carriers all in an effort for them to be able to remain afloat in the hugely competitive airline industry market while keeping in line with the ever changing government policies and regulations. It is often argued that this combination of various network restructurings and strategic alliances actually the most potent impact of the globalization process as seen in the airline industry. Various pricing control measures deregulations have had the effect of exposing the hitherto shielded airline industry to the general effects of free-market forces. This has permitted the various carriers to be able to leaver and enter into any market at their own free will. The thrust for the introduction of a competitive market place has been most pronounced in the European Union and the United States markets. It is clearly seen that such policies do not in any way encourage any individual restraint on the effective usage of available environmental resources on the part of the various individual airlines and this has the negative effect of increasing the overall general pollution levels emitted by the aviation industry. Globalization inevitably means that there will be a higher demand for the eventual movement of both people and goods between various countries. The effect of this in the largely commercial aviation transportation industry will be to actually bring forth additional supply, which can then be turned into increased profitability on the part of the airlines. Increased globalization has the effect of increasing international trade which eventually increases the average global income. When the average global income is increased, there is the general effect of increased tourist travel and the eventual shipment of higher value goods such as various exotics. The airline industry is seen to be reaping major benefits from this as its sales volumes are pushed to new highs. Globalization also entails an aspect of greater factor mobility which has resulted in the consecutive increase of both permanent and temporary migration of people. Over longer distances, the international air transport industry is found to be the cheapest mode for this transportation. It can thus be seen that the airline industry is playing a vital role in sustaining the global transference of labor and skill and new technological advancements between various different countries. The Strategic Entry of Virgin Atlantic into the Indian Market With Virgin Atlantic’s rapid expansion, as it is atypical of most major international companies, it was able to quickly set up various administrative centers in different countries including Japan, USA, the Caribbean Islands, as well as Africa (Grant 2000). The main factors that were seen to drive Virgin Atlantic to venture into the Indian market were not only profit motivation, but also the country’s market attractiveness. Virgin Atlantic had observed that the Delhi to London flight was only made twice a week, and it correctly projected that this would eventually increase drastically to the rate of about three daily flights from Delhi to London. India also had the attractiveness of being a young globalized country whose government policies happened to not be too rigid (Grant 2000). Having considered these two major factors, Virgin Atlantic signed and entered into a joint 5 year venture with Air India on December 1999. They implemented a code-sharing arrangement that was structured to mete out how they would share the A-I quotas. Virgin Atlantic’s major most competitor in the Indian market happens to be British Airways (Grant 2000). Various Challenges and that Faced Virgin Atlantic’s Entry into the Indian Market and the Subsequent Market Entry Strategies that were used Legal and Political Problems There are several Politico-legal Problems that faced Virgin Atlantic in its attempt to successfully enter into the Indian market. Some of these include restrictions in the code-sharing agreement with Air-India that happened to restrict Virgin Atlantic from expanding to other potential bases other than Delhi. This was seen to severely hamper Virgin’s subsequent strategic expansion into other areas within the sub-continent. Air-India has previously signed an agreement with British airways that granted British Airways 16 return journeys. Virgin Atlantic was only granted 2 flights from India. Virgin Atlantic was seen to effectively lobby as it tried to obtain a license that would allow it to initiate its spread from Delhi into Bombay and start using Bombay as a potential second base (India Infoline Limited 2010). Uneven Competitive Environment When Virgin Atlantic first made its attempt to enter into the competitive Indian market, it had envisioned that it would be on a mostly level platform. However, this was not to be the case as Virgin Atlantic was confined to only two flights which was less than its major competitor British Airways, which was given 3 more flights. Despite these limitations, Virgin Atlantic has managed to maintain a spirit that is seen to be both healthy and attacking and is seen to be still running successfully almost a decade and is offering stiff competition to other airlines such as Air Sahara, Jet Airways and Virgin Atlantic (India Infoline Limited 2010). Cultural and Economic Challenges and the Market Entry Strategy that was employed Virgin Atlantic was faced with dynamic cultural factors as the Indian culture is seen to be drastically different from the western culture and approach. The differences in the two culture can be seen from the food recipes that are used to produce the on board food, the pricing choices as well as the lifestyle choices. Although India is seen to be a rapidly growing and emerging market, it is quite clear that it could not be equally at par with some of the other developed countries like U.K, Japan and the U.S. The expense patterns in India were also not comparable to those seen in other countries. Virgin Atlantic had to learn the different Indian customer’s opinions, habits, opinions and attitudes. It was quite clear to Virgin Atlantic that its Indian customers were apparently quite diverse despite of their being in the same country. Virgin Atlantic’s customers were found to be having different perceptions and expectations that varied as per their different origins within the Indian sub-continent (IFL 2012). As part of Virgin Atlantic’s entry strategy into the Indian market, Virgin Atlantic had to take detailed considerations on their customer’s expectations especially in regards to their Non-vegetarian and Vegetarian food habits. The airline also had to take into account every subtle element that happened to relate to its Indian customer’s different cultures and sub-cultures so as to be able to adequately secure its planned ambition of establishing a positive long standing relationship with its Indian customers. The airline also successfully offered its Indian customers different music depending on their different tastes (Smith 2010). The Impact of the Economic Conditions and the Market Entry Strategy Employed ` The economic climate of India is such that the country is a developing country whose middle class families make up an estimated 80% of the country’s total population at the varied lower, medium and upper levels. Although this condition might not be quite appealing to most entrepreneurs, Richard Branson was able to successfully anticipate the market’s potential growth and implemented a market entry strategy that saw him design a pricing policy that was in accordance with the different consumers various mind-sets. The Indian market’s customers happen to seek more economic solutions, as opposed to seeking the more luxurious lifestyles which happen to come at rather huge cost. In order to be able to fit into the expectations that its Indian customer’s happened to be favoring, Virgin Atlantic was able to successfully introduce a new premium economy class for its customers. This economy class was layered between the business and the economic classes (Radiff 2012). In allocating seating and capacities for its classes on its Indian route, Virgin Atlantic implemented a quota system that saw a large percentage of the quota being filled by the Economic classes closely followed by the Economic classes and the Business Classes which are subsequently allocated a meager 2 to 5% of the plane’s total seating arrangement. The Consumption of Virgin Services in India Virgin Atlantic is seen to give fantastic and new services to the Indian market as compared to those offered by other airliners. It is seen that Virgin Atlantic was able to keep on successfully grabbing up the market shares on the flights between the United Kingdom and India. Virgin Atlantic was able to successfully position itself as providers of a unique aviation experience in the minds of most of its Indian Customers. The number of passengers travelling between India and the United Kingdom is fast approaching nearly 1.5 million people. Initially, there were no direct flights from India to the United Kingdom and passengers flying the route had to use several different transit flights. Virgin Atlantic, which also happens to currently be Britain’s second largest long haul airliner is seen to be currently operating 7 flights between the United Kingdom and India. It also offers various daily services to London from India that have helped it manage to grab about 20% of the market share of passengers on the route (Daily News Analysis 2012). With the global economic recession, Virgin Atlantic was forced to stop its flights on the route, but it was able to enter into a successful code sharing agreement with Jet Airways that will help it keep its customers with them. Under the code sharing agreement, customers can now be able to travel using Jet Airways flights from India and then connect the rest of the destination and fly using Virgin Atlantic’s Airways services from London to the other destinations that they might be flying to. Virgin Atlantic was later able to resume its flight services to this route (Singal 2012). The Key Competitive Advantages that Virgin Atlantic has been Able to Gain from Market Strategy One of the key competitive advantages that virgin Atlantic was able to successfully gain from its Indian entry market strategy is its huge popularity after having implemented a successful product differentiation that took its customers’ expectations a step further via different service innovations and effectively communicating with its various customers. Some of the unique product offerings include in-flight beauty therapy and Drive-thru check in (Virgin Atlantic 2012). In implementing its entry strategy into the Indian market, Virgin Atlantic had to make a variety of changes in the food menu that it availed to the Indian customers travelling on the United Kingdom – India route. Indians have a culture of ensuring that ensuring that they treat all their customers with utmost respect. Virgin Atlantic managed to gain a competitive edge over most of its competitors flying the route by making changes in their normal standard menu by ensuring that they serve the passengers with Indian food. About 25% of India’s growing population lives below the poverty line, and Virgin Atlantic were able to obtain another competitive advantage by increasing the volume of its economy and premium economic classes to serve this huge market (Telegraph, December 2008). As part of Virgin Atlantic’s entry strategy into the Indian market, Virgin Atlantic had positioned itself on a value for money, as opposed to price leadership grounding. This was maintained although the Indian Market was fast growing intensively competitive and Indian customers actual choice of flights was seen to be somewhat acting against the pricing philosophy that was being championed by Virgin Atlantic. In an attempt to accommodate these pricingchallenges, Virgin Atlantic was able to offer various several early registration offers and bundled packages, in addition to its mile club, membership. This mile club membership served to promote the airline by granting customer’s points and offering several free auxiliary services that normal airlines charge for including luggage and food charges and picking up from origin (Telegraph, December 2008). The current charge of 500 GBP charged on the United Kingdom to Delhi route is found to be quite competitive to what other airlines are charging for the same (Virgin Atlantic, 2010). Virgin Atlantic’s Promotional Campaigns Virgin Atlantic was able to successfully enter into various promotional campaigns that were part of its entry strategy into the Indian Market.The marketing campaigns have helped the airliner get the competitive advantage of increasing its market share in the market. The airliner was able to formulate various fun, catchy but marketwise campaigns such as “Our Crew talk back” to help in conveying to the customers that customer service in the airliners is rather quite different as compared to that that is offered by the more orthodox Air – India. Other campaigns include the “We do it thrice a day” and the “Ours is longer” to inform the customers that the airliner offers three daily flights and one long haul journey to the United Kingdom respectively (Virgin Atlantic, 2012). In its India market campaign, Virgin Atlantic opted to mainly utilize print media adverts such as SMS marketing, Direct mails and selective market placements, as opposed to the strategy it implements in the UK where it mostly relies on non – print advertisements such as television promotions (Virgin Atlantic, 2012). The Company’s CEO, Sir Richard Branson is constantly portrayed in the company’s marketing campaign advertising the airliner as being not only fun loving but also professional. This has helped the company cut down on the costs that other brands encounter when they hire celebrities to promote their products. Conclusion It is evidently quite clear that although Virgin Atlantic experienced a myriad of various challenges in its foray into the Indian market, it has been able to effectively tackle the various challenges that it happened to face. It is seen that Virgin Atlantic Airways has been able to effectively utilize the impact of globalization in the aviation industry by expanding its routes to several different regions and countries so as to reap maximum benefits from the increased air travel that is afforded by globalization. It has also formed various mergers and code-sharing agreements with other airlines that happen to be serving routes that Virgin Atlantic is not serving on, so as to be able to more easily expand into these markets. The multi-pronged market entry strategy that was employed by the airliner in its entry into the Indian market such as creating various air travel classes, and offering Indian foods and music to its customers has also greatly helped the airline. The various competitive advantages such as its fun and tactful promotional campaigns, competitive pricing, its offering of various free luggage and food services as well as the implementation of various innovative new offers and services such as the introduction of Drive-thru check in services and online beauty therapy services has played arather huge role in effectively securing the company in the largely competitive Indian aviation industry market and had enabled the company to be able to comfortably secure 20% of the United Kingdom to Delhi air – travel marketshare. Bibliography: Virgin Atlantic. 2012. virgin History. Accessed on December 15th 2012, from http://www.virgin-atlantic.com/en/us/allaboutus/ourstory/history.jsp Grant.M, 2000.Air India-The Virgin Airways Saga.Accessed on 14th December 2012 from: http://www.icmrindia.org/free%20resources/casestudies/The%20Virgin%20Airways .htm. India Infoline Limited, 2010.Michael Burke, General Manager – India, Virgin Atlantic Airways, India Infoline Limited 14 January, Accessed on 13th April 2012 from: http://www.indiainfoline.com/Research/LeaderSpeak/Michael-Burke-General -Manager-India-Virgin-Atlantic-Airways/7489251. Smith.M, 2010.An Open Letter to Sir Richard Branson and the Virgin AtlanticManagement on Corporate Social Responsibility practices. Accessed on 14th December 2012 from: http://www.justmeans.com/An-Open-Letter-Sir-Richard-Branson-Virgin-Atlantic-Management-on-Corporate-Social-Responsibility-practices/12015.html. Cockcroft.L, 2008.Airlines launch price war cutting fares by up to 25 percent.Telegraph.co.uk, 23 December, Accessed 15th December 2012 from: http://www.telegraph.co.uk/travel/travelnews/3918657/Airlines-launch-price-war-cutting-fares-by-up-to-25-per-cent.html. Virgin Atlantic. 2012. Marketing. Accessed on December 15th 2012 from http://www.virgin -atlantic.com/en/ke/allaboutus/ourstory/forstudents.jsp#marketing Virgin Atlantic. 2012. Drive thru check in Accessed on December 15th 2012 from http://www.virgin-atlantic.com/us/en/travel-information/airport-guides/london-heathrow/experience-upper-class.html Singhal M.2012. Price war: Jet Airways slashes Mumbai-London base fare to less than Rs 10,000. Accessed on 15th December 2012 from http://articles.economictimes.indiatimes.com/2012-10 -23/news/34680143_1_mumbai-london-ba-fare-branson-s-virgin-atlantic Daily News Analysis.Virgin Atlantic plans Goa, Bangalore flights. Accessed on 15th December 2012 from http://www.dnaindia.com/money/report_virgin-atlantic-plans-goa-bangalore-flights_1756594 Radiff.com. 2012. Accessed on December 12th 2012 from http://www.rediff.com/business/report/premium-economy-class-a-big-hit-on-intl-flights/20121112.htm IIFL. 2012. Virgin Atlantic pledges 300mGBP investment. Accessed on 14th December 2012.fromhttp://www.indiainfoline.com/Markets/News/Virgin-Atlantic-pledges -%C2%A3300m-investment/5529555878 Read More