Virgin Group Ltd.

“You can never go too far wrong by thinking like a customer who’s new to the business.”
- Richard Bradson
1.0 Purpose
The purpose of this report aims to focus more on having a change in business for good
as changing business for good will require thinking of the long term impact of the
business decisions that we have made today and giving a purpose that is clearly
articulated, measurable and embedded purpose in every Virgin business and boost their
success, developing positive impacts on customers, people, communities and
environment. It also embeds the purpose principles and values within existing and new
business investments. Also to advocate as a global business leader and to rise the
challenges as a pioneering systemic change surpassing the Virgin Group through Sir
Richard Branson’s profile.
2.0 Executive Summary

As a British multinational corporation venture capital conglomerate, Virgin Group Ltd is

a founded by entrepreneurs Sir Richard Branson and Nik Powell and was then listed on
1989 for the dated incorporation by the Companies House as a holding company.
However, it’s business and trading activities date to date to the 1970s. And all in all, as
of November 2014, the net worth of the Virgin Group was estimated at £5–5.5 billion.
When Richard Branson and Nik Powell formed a record shop, they arise the brand
name “Virgin” and considered themselves as virgins in business. The “V” in the logo is
described as an expressive tick, depicting the Virgin seal of approval by Richard
Branson.
In this report, Virgin Atlantic Airways Limited, a subsidiary of the Virgin Group Ltd, will
be analyzed. Established in 1984, this company operates as an airline company,
operating as Virgin Atlantic Airways to carry passengers to destinations in North
America, Africa, Middle East and Asia from its main bases in London. Carrying up to 5.4
million passengers since its operation, it is now the seventh largest UK airline in terms
of passenger volume. Furthermore, a detailed PESTEL analysis will be subsequently
discussed with relation to not only the governmental, social and economic effects, but
also how the technology, environment and policies determine the current situation Virgin
Atlantic is now in.
 2.1 How does the company relate to the report you are writing?

Virgin Atlantic has shown great capabilities to succeed and has proven itself by being
the 7th largest airlines in United Kingdom. The business has different strategies to
tackle the different problems that arises in a newly start up business. Hence, I have
chosen the company because relates to the many strategies that have been in place to
secure the success of the business. Moreover, Virgin Atlantic has proven to be a
suitable company to be analyzed and learned from its success.

3.0 PESTEL Analysis

3.1 Political

It is always important to have relevant political factors in the airline industry in fear of
terrorism attack. As conflicts of the political or ideology from the west arise from the
Islamic country, terrorism becomes a serious issue today. There will also be an
additional financial burden to the airline operators of Virgin Atlantic due to the threats of
terrorism attacks and having the airline operators to spend more efforts on ensuring the
safeguard of the flights and incurring capital expenses to insure relevant safety tools
and system on the planes.

3.2 Economical
The economy around the world remains fragile even after three years of slow recovery
from the lowest in the year 2009. And especially in the United Kingdom, having a high
amount of high rates in unemployment, consumers are being all cautious and prudent in
a spendthrift manner. Hence, as long as the economy outlook continues being gloomy,
the community may cut down spending, travelling less frequent for leisure or tourism
and thus dampened the demand of air flights and causing people to switch to a cheaper
expenditure airline operators.
It is also understood how cyclical an airline industry can be especially during
recessionary times where consumers are really cautious with their expenditures and
thus causing a serious decline in the passenger volume. As a highly competitive
industry in the airlines, there bound to be rivalries among competitors, there are talks on
how inevitable consolidation is in the industry that larger players often took the
advantages by having a significant cost of advantage. On the other hand, smaller
players be on the more flexible, creative and innovative side to differentiate themselves
from the competition.
3.3 Sociocultural

All in all, there is an increase in the living standards of people around the world and
even up to today; consumers are so much more demanding, having higher expectations
on services that are provided by businesses they are more aware and understandable
on their rights and power in affecting the businesses profitability. Furthermore, people
aren’t buying products for its features. It is also said that we are introducing into an
emotional economy and people needs to feel touched in their buying decision making
process.
On other hand, due to globalization effects, tourism activities and travelers are
increasing and people are more interested to experience the differences in cultural
setting and the lifestyle and cultural settings of different people around the world. It is
deemed that visiting different places become the new lifestyle of many people and it is
such a trend that’s beneficial to the business of all airline operators.

3.4 Technological

The increase in popularity of internet services and electricity commerce around the
globe is affecting the business nature of airline in the past decades with many different
technologies. Even though there are both positive and negative impact due to the rise in
the trends of internet users, the good points is made in a way such that internet enables
the airline operators to reach out to a larger audience and to service them with an even
lower costs structure. To enhance the profitability of the respective airline operators, a
particularly useful application is developed by airline operations, including the revenue
management program yield management and customer relationship program.
Nonetheless, having internet effectively causes the airline industry to become a perfect
market in the long run by which travelers can effortlessly compares the air fares with a
considerable number of clicks in front of their computers. As such, it is reasonably to
affect the price of the airline operators adversely.
Despite, it can be a highly powerful way to reach people around the world with minimal
costs to use internet marketing and to promote a company through social media as the
rise of internet market might offer opportunities to airline operators too. And
And apart from that, people will be expecting an improvement of services that provided
by airline operators as technologies improve. Gaining the ability to adopt the new
technologies quicker and having customers to access to higher internet speed
connectivity to strengthen competitive positions of the airline operators.
3.5 Environmental

Global warming has been a serious issue. It affects not only the world now, but also the
upcoming generations. It has now been brought up as an alarming issue partially
caused by self centered business entities. With the increasing exposure and education
on protecting the world, the public have sought products that promote Corporate Social
Responsibility. Sustainable development has to be done to ensure that the environment
is protected and able to last. As a result of this trend, it has affected airline operators,
who have been finding alternative ways to reduce emission from their fuel, in hopes of
reducing damage to the environment.

3.6 Legal context

Every country is experiencing different issues that may affect the industry depending on
the changes in legal and regulations of the airline industry.

4.0 Porter’s five forces Analysis

The porter’s five forces will discuss about the five different factors as to where the
running of a company will depend and they are:
1. Rivalry
2. Supplier power
3. Customer power
4. Threat of substitutes
5. Threat of new entrants

4.1 Competitive Rivalry within an Industry – High/Low

More often than not, the airline industry is teeming with carriers in search of making
their mark in the industry itself. One of the main issues with the industry is the
uncertainty of making profits. However, it has not deterred new competitors from
entering the industry which creates an immense competition in the industry. Moreover,
every industry has their own pool of competitors which adapts different competitive
pricing strategies. This means, different competitors will have a different amount of
prices for their service and everyone is concerned of a plausible fare war despite a
declining passenger population. In addition to this, rivalries in the industry leads to a
lower gross profit made by less attractive companies; A lack of profitability that leads to
a downward trend in earnings eventually. It is a lose-lose situation that all airlines do not
want to face, but the fact is that with additional competitors in the industry, this could be
proven to be inevitable.
4.2 Threat of new Entrants – Low

With barriers of entry in the aviation industry being extremely harsh, it does mean that a
huge capital is necessary. Furthermore, given the huge capital and investment needed,
it is tough to leave the sector even when the business is making a loss. Other factors
include contractual obligations and current flight deadlines these airline operators have
to meet. Moreover, being characterized and highly known for its regulations and rules,
airlines have to be meticulous in ensuring their safety measures, apart from having to
satisfy the consumers in the industry. These are the factors to be taken into
consideration in order to maintain financial stability. Based on what I have stated above,
many factors are in place that makes it difficult for new entrants to enter the industry.
However, that being said, competition is inevitable, even though the threat of new
entrants is relatively low.

4.3 Threat of Substitute Products or Services – Very low

Since there is always a need to travel, the threat of a substitute is not that serious for
Virgin Atlantic. That being said, with current recessions and price spikes, businessmen
and other frequent flyers are finding alternatives to cope with the worst economy. For
example, what would otherwise be a better idea to fly and discuss a business face to
face could now be substituted for technological means – telecommuting and meetings
such as teleconferencing. Also, for tourism, people have been trying to find a more
sustainable travel option and one of the more favorable options are budget cruises and
by car, which relate to a lesser dependency on travelling by air. However, with regards
to the above stated, there will always be consumers that will save the time to travel from
point to point, as flying on an airplane is always faster than cruises or trains. Hence,
substitutes are minor threat to the business.

4.4 Bargaining Power of Suppliers – Medium

Since the suppliers for Virgin Atlantic are also aircrafts makers for other aircrafts such
as Boeing and Airbus, which hosts a great number of companies; it is no surprise that
suppliers can have as much a great bargaining power as they want. With so many
companies vying for their aircraft parts, as well as the huge dependency of Virgin
Atlantic on the supplier, it is no surprise that they have the upper hand in the company.
Moreover, since Virgin Atlantic specifically uses special parts to make their aircraft more
premiums, there is this reliance on the supplier to produce these aircrafts on time, and
any changes in supplier could affect their operations immensely, hence increasing their
dependency on the supplier as well. Hence, this has to be considered as well.
4.5 Bargaining Power of Customers – high

It is no doubt that the driving force for Virgin Atlantic is their customers. Buyers
determine their profitability and operations, and are essentially their market, because
there are already a huge number of choices available to choose from. Therefore, Virgin
Atlantic has been extremely sensitive to the needs and wants of their potential customer
base. Being a low cost carrier itself, Virgin Atlantic has to heed the wants of their
customers, and hopefully through analyzing the trends as well as through feedback of
customers, they would be able to sustain themselves in the airline industry, and not lose
out on its market share. Aside to this, an increase in options of accessing airlines could
be a huge drawback for all airlines aside from Virgin Atlantic, as this means that
customers would be able to determine which airline to pay depending on the reviews
available online and the reputation of the company.

5.0 Issue Analysis and Recommendations

With multiple threats facing the company, it is important to highlight and take into
consideration the ways that the company can do to mitigate the issue. In order to allow
Virgin Atlantic to stand out against its competitors, the company may want to consider a
long term investment and plan as a going concern in the near future.

Virgin Atlantic should first consider the needs and wants of their customers, should they
want to allure customers to use their services. It is optimal that they should consider an
occasional promotion in order to entice and stand out from their customers. Instead of a
profit oriented operation, Virgin Atlantic could move towards a more customer oriented
operation to increase customer satisfactory levels. Despite a different approach to their
business, this would allow for a better reputation of the company. Moreover, not to
mention that buyers determine their profitability and operations, the logical way to
improve their profits is to focus on attracting more customers to their business.

Virgin Atlantic should also take into account the presence of competitors in the airline
sector. By working closely with partners, it is possible to devise a plan to encourage
their staff to undergo further training and ensuring a quality experience when flying with
Virgin Atlantic. Since the price competition is already fairly competitive, by improving the
services portion of the company, Virgin Atlantic would be able to stand out against their
competitors. This has proven to be extremely successful, as All Nippon Airways (ANA),
a Japan airline company, has previously done in their efforts to entice potential
customers.

Virgin Atlantic should also focus on finding alternative suppliers, rather than being
reliant on a supplier, to ensure that the bargaining powers of both parties are equally
even. Since most airplane parts can be purchased from different manufacturers and
suppliers, Virgin Atlantic should tap on the vast suppliers and options, and carefully
analyze other suppliers to purchase from, in order to reduce the chances of suppliers
increasing costs on their airplane parts. This also acts as a contingency plan, should
one supplier fail to deliver their parts on time, allowing the airline to not be affected by
changes in delivery time. Moreover, they may allow for a greater bargaining chance
when it comes to pricing, because Virgin Atlantic has choices to choose from.

6.0 Conclusion

In a nutshell, Virgin Group has been successful, growing in the competitive industry
landscape through the year. To expand this business, the company often relies on
creativity, innovation and customer centric philosophy. Richard Branson plays an
important role in the company as he brings forward marketing insights and coming up
with ideas mainly in the public relation, advertising and promoting talents to develop
Virgin’s name into a high profile around the world. PESTEL analysis is then being
carried out, alongside with opportunities and threats faced and getting together to
discuss and articulate.
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