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Internal and External Environment: Virgin Australia Research Paper

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Updated: May 21st, 2020

Introduction

In their operation, firms are affected by environmental changes which may either emanate from internal or external sources. Despite the changes, firms’ management teams have an obligation to develop their organizations’ internal strengths and at the same time exploit opportunities available. This purpose of this paper is to evaluate Virgin Australia’s internal and external environments.

Analysis of the general environment

Virgin Australia is likely to be affected by two main environmental forces which include demographic and social-cultural changes. According to Farabi (2012), demographic forces have significant influence on the airline industry. Currently, Australia is experiencing significant demographic changes which are evidenced by changes in the country’s population.

For example, Generation Y which accounts for approximately 4.5 million of the country’s total population has a significant influence on the country’s spending patterns. Second, the country is also characterized by a large number of retiring baby-boomers who have large debt. Considering these changes, the country is likely to experience an increment in the rate of consumption in the future. The large size of Generation Y population presents a unique market opportunity for Virgin Australia to increase its sales by targeting this generation.

With regard to social-cultural changes, consumers have over the past few decades become very conscious of the environment in their consumption process. Consequently, they are leaning towards environmental friendly products and services. This is likely to affect Virgin Australia’s operational strategy. For example, the firm will be required to invest in fuel efficient technologies in order to attract and retain customers.

Degree of rivalry

The degree of rivalry is one of the most important forces in the aviation industry (Gandellini, Pezzi & Venazi, 2012). This arises from the fact that the industry is very competitive. Virgin Australia operates in an industry that is characterized by intense competition which translates into a high degree of rivalry.

In the course of its operation, Virgin Australia is focused towards development of a high competitive advantage. However, the degree of rivalry in the industry has over the past few years limited the firm’s quest to attain the desired level of competitiveness.

To deal with the high degree of rivalry, the airline’s management team has invested in product differentiation. Virgin Australia has achieved this by enhancing the level of customer experience. The airline has invested in technological innovations that are aimed at improving both on-the-ground and in-flight services.

Moreover, the firm has invested in new service initiatives. Another strategy that the firm has invested in an effort to develop customer satisfaction is employee development program. The objective of the program is to develop a workforce so that is customer focused (Virgin Australia, 2012).

High buyer bargaining power

The Australian airline industry has undergone significant growth over the past two decades. Some of the factors that have contributed to the industry’s growth include greater industry efficiency, growth in the country’s tourism sector, high rate of economic integration and intense regulatory reform.

As a result, a large number of domestic and foreign airline companies have entered the industry. Some of the major industry players include Jetstar, Qantas Airlines and Tiger Airways. The large number of industry players has increment in buyer bargaining power. This arises from the fact that customers incur minimal or no switching cost.

Despite the high buyer bargaining power, Virgin Australia has managed to attain an optimal market position. The airline has achieved this by developing a strong brand image. Additionally, the firm has invested in innovative ideas that are aimed at enhancing the level of customer loyalty. For example, the airline provides business executive customers with chauffeured limousine services. This serves in enriching their experience by travelling with the company.

What the firm might do to address the degree of rivalry and high buyer power in the future

The future competitiveness of Virgin Australia is dependent on the effectiveness with which the firm will deal with the high degree of rivalry and buyer bargaining power. To deal with these two forces, there are a number of options that the firm should consider. First, the firm should consider investing in Customer Relationship Management (CRM).

By investing in CRM, Virgin Australia will nurture a high level of customer loyalty thus driving revenue generation. Additionally, investing in CRM will enable the airline to effectively interact with its customers hence developing a comprehensive understanding of its customers’ needs.

As a result, Virgin Australia will be able to undertake effective market segmentation thus differentiating itself from competitors. However, to gain the benefits associated with CRM, Virgin Australia should invest in modern CRM technology. This will improve the effectiveness with which it manages its customers’ experience.

Second, the firm should also consider enhancing the quality of services that it offers to customers. Currently, customers are increasingly demanding high quality airline services. The airline should ensure that customers receive value for money by investing in provision of superior services.

One of the ways through which the firm can achieve this is by ensuring that it has a strong workforce that is customer focused. Additionally, the firm should improve its on-the-ground and in-flight customer services. Investing in CRM and improving the quality of service offered to customers will increase the probability of the firm developing a high level of customer loyalty hence promoting its competitive advantage.

External threats affecting the firm and the opportunities available

Economic recession

Firms in different economic sectors are affected by economic recession either positively or negatively. The recent 2008/2009 global economic recession adversely affected the firm’s financial stability. The firm’s management team projected a substantial reduction in the level of its profitability during the recession. During its 2008/2009 financial year, the firm projected that it would incur a net loss of $165 million.

Despite the Australian government investing in stimulus package to enhance economic recovery, the country has not fully recovered. As a result, the level of consumer confidence is relatively low. This has adversely affected the consumers’ consumption patterns. Considering the high rate of globalization, occurrence of another economic recession can adversely affect the firm.

High fuel prices

The global aviation industry is currently being affected by high fuel price which started in the mid-2000s. Most firms in the industry including Virgin Australia base their pricing on the prevailing fuel price. Fuel cost accounts for approximately 30% of the total cost incurred by airline companies’. Consequently, any fluctuation in oil price requires firms in the industry to adjust their pricing and operational strategies.

One of the ways through which firms achieve this is by minimizing their flight schedule in order to conserve fuel. Another strategy that is integrated by airline companies in an effort to cope with rising fuel prices is increasing their ticket prices. In 2011, Virgin Australia was forced to raise its airfares by a margin of 10% as a result of increment in global jet fuel prices. Such moves adversely affect the firms’ level of profitability.

To deal with high oil prices, Virgin Australia should consider utilizing alternative forms of energy. This will enable the firm to cease from depending on petroleum-based fuels that are greatly affected by global price fluctuation. One form of energy that the firm should consider is bio-fuel which is not only efficient but also environmental friendly. As a result, the firm will safeguard itself from high fuel prices. Furthermore, the firm should consider enhancing its business level strategy by establishing a low-cost carrier under a different brand. The firm should also consider discounting its fares in order to attract customers from low-cost competitors such as Tiger Australia.

Opportunities

Improving customer service – Investing in human capital is one of the main sources of competitive advantage especially for firms in the service sector. Despite the harsh economic environment, the firm can improve its competitiveness by investing in customer service. For example, the firm can develop its workforce so as to ensure that its employees are customer focused.

The effectiveness with which the firm will handle its customers will determine the competitiveness of the Virgin Australia brand. In 2012, the firm invested in a recruitment drive that was aimed at ensuring that it has a sufficient workforce that is passionate towards development of the firm’s brand in addition to delivering unique customer experience.

To survive into the long term, the firm should continuously improve its workforce. One of the ways through which the firm can achieve this is by investing in a comprehensive employee training program. The program should be effectively designed so as to equip the workforce with skills and knowledge necessary to handle customers.

Forming alliances – The firm can also improve its competitiveness by entering into strategic alliances with other firms in the airline industry. This will contribute towards the firm attaining economies of scale. Additionally, forming alliances will enable the firm to effectively coordinate its domestic and international flights.

Collaborating with other firms in the service sector – The firm should consider collaborating with other firms in the hospitality industry such as travel agents, hotels and restaurants. This will not only enable the firm to increase its customer base but also develop a high level of customer loyalty. By collaborating with other firms in the hospitality industry, customers develop a positive perception regarding the firm’s services.

Strengths and weaknesses

Effective branding and development of strong brand recognition – Since its inception; Virgin Australia has been committed in developing a strong brand. To achieve this, the firm has invested in development of a strong brand identity. Some of the dimensions that the airline’s management team have over the years focused on include offering high quality services, innovation, provision of quality in-flight entertainment and ensuring that customers receive value for their money.

Operating in an environmental sustainable manner – Virgin Australia is cognizant of the adverse effects of climate change arising from global warming. Consequently, the firm has invested in carbon foot-printing in order to reduce the amount of carbon dioxide that its aircrafts emit into the atmosphere.

Optimal customer service – Effective and efficient customer service are some of the main pillars that drive the firm’s operations. By offering its customers quality services, the airline has been able to nurture a high level of customer satisfaction.

To further improve its strengths, Virgin Australia should invest in product development. Some of the ways through which the firm can achieve this is by undertaking new product development and continuous development. This will enable the firm to sustain its competitiveness.

Weaknesses

One of the airline’s major weaknesses relates to the fact that it is not a member of major global alliances such as the One World Alliance. This limits the effectiveness of the firm in exploiting opportunities presented in the global market. For example, the firm is not able to create awareness regarding its services to a large number of customers.

Secondly, the firm is not able to undertake code-sharing which is an important aspect in firms’ quest to develop competitveness. To deal with this weakness, the firm should consider improving the scope of its strategic alliances for example by joining major global alliances.

Virgin Australia resources, capabilities, and core competencies

Resources – Over the years it has been in operation, Virgin Australia has managed to develop a strong human and financial resource base. The firm’s financial strength has enabled Virgin Australia to develop an effective global network by joining a number of strategic alliances. The alliances have enabled the firm to share codes which is one of the cornerstones in the airline industry.

Capabilities –Virgin Australia is focused towards ensuring that its customers attain a high level of customer satisfaction. Consequently, the firm has invested heavily in areas that contribute to delivery of high quality services such as employee training and aircraft maintenance. Moreover, the firm is also committed towards installation of high quality entertainment facilities such as internet.

Core competencies One of the main sources of the firm’s core competencies is its brand. In an effort to nurture a high level of customer satisfaction, Virgin Australia has heavily invested in developing its brand. The firm undertakes continuous product innovation in order to meet the customers’ tastes and preferences. By improving its brand, the firm develops a positive attitude amongst customers.

The firm can utilize its financial strength and a strong human capital base in determining market changes. One of the ways through which the firm can achieve this is by investing in continuous competitor and consumer market research. The research will enable the firm to effectively assess changes in customer tastes and preferences. As result, the firm will be in a position to develop products or services that satisfy customers.

On the other hand, competitor market research will enable the firm to identify gaps amongst it competitors that it can exploit. Moreover, the firm can also utilize it strong workforce to develop a strong customer relationship which is key in promoting customer loyalty. By improving its value, the firm’s competitive advantage will be enhanced significantly.

Conclusion

The external and internal environment analysis conducted reveals that there is a high likelihood of Virgin Australia succeeding in the future. However, to exploit the opportunities presented by the external environment, the firm will be required to adopt effective business level strategies. Moreover, Virgin Australia will be required to develop an effective value chain. This can be achieved by utilizing its core competences, capabilities and resources.

Reference List

Farabi, Y. (2012). Analysis of marketing environment of Virgin Australia. New Jersey: GRIN Verlag.

Gandellini, G., Pezzi, A. & Venanzi, D. (2012). Strategy for action-I: the logic and context of strategic management. Milan: Springer.

Virgin Australia: Virgin Australia Holding Limited reports financial results for full year ending 30 June 2012. (2012). Web.

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