Assignment title

Business Environment

Purpose of Assignment: Nowadays organisations are facing intense

competition and therefore, there is a need to understand the internal and
external environment in which they operate so that the can have better
strategies to compete.
Scenario: The Virgin

The Virgin group is one of the UKs most popular and largest companies.
It was founded in 1970 as a small mail order record business and developed
as a private company in music, publishing and retailing. In 1986 the
company was floated on the stock exchange with a turnover of 250 million.
As at 2006, the group comprised of 63 businesses in diverse areas as
airlines, health clubs, music stores trains etc.
Virgins structure has been described as an organisation with an autonomous
units run by self-managed teams that use a common brand name.
Virgin Atlantic Airways Limited (VAA)
Virgin Atlantic, a trading name of Virgin Atlantic Airways Limited, is a
British airline majority-owned by Sir Richard Bransons Virgin Group. The
Virgin Group owns 51% of the airline, and Delta Air Lines of USA owns the
remaining 49%. Virgin Atlantics head office is in Crawley, England, near
Gatwick Airport. The airline was established in 1984, and was originally
planned by co-founders Randolph Fields and Alan Hellary to fly between
London and the Falkland Islands.
Virgin Atlantic uses a mixed fleet of Airbus and Boeingwide-body jets and
operates between the United Kingdom, North America, the Caribbean, Africa,
the Middle East, Asia, and Australia from its main base at Gatwick with

secondary bases at London Heathrow and Manchester. The airline has

operated domestic flights within the United Kingdom since, 31 March 2013.
Its administration is separate from other Virgin-branded airlines.
In 2012, Virgin Atlantic carried 5.4 million passengers making it the seventhlargest UK airline in terms of passenger volume. In the year to February
2013, it had an annual operating loss of 128.4 million, a loss that is
attributed to various factors and subject to investigation but in December
2013 this loss was reduced to 51 million pounds.
The improvement was due to god network and alliances and the way they
managed their cost base in a way which did not impact on the customers.
For example, use of a new fuel management system delivered savings of
8m in a single year.
They also increased their revenues and passenger numbers, which is the
result of committed workforce providing exceptional customer service and a
loyal customer base with high advocacy.
International Expansion
Selling Chunks of some businesses to fund new and existing business had
become a familiar story at virgin- It had sold-off its UK and Irish cinema
houses, sold virgin Music, sold a 49% stake in Virgin Atlantic to Delta Airlines
and in 2001 sold Virgin sun, a short haul package holiday business, to first
choice, a larger rival of business, for 5.9m.
Branson suggested that for every year they will sell about five businesses
but will replace five. They wont buy companies but will start them from the
scratch. However, they would not sell Virgin Atlantic despite that 49% was
owed by the Delta airline.
It is a key company. We will never sell it. There are some businesses you will
preserve, which wouldnt ever be sold, said Branson.
The personal image and the personality of the founder, Richard Branson, was
strongly related with the company. The name virgin was chosen to represent
a company that was virgin in every business and was associated with words
such as fun, innovative daring and successful.

Branson goes Green

In 2006 Branson announced plans to invest 1.7bn pounds in renewable
energy.
His engagement with the search for greener fuels and reducing global
warming had not led him to ground his fleet but rather to prompt a debate
on measures to reduce carbon emissions from aeroplanes.
Main competitor- The British Airways (BA)
The main competitor of virgin is British Airways (BA) which is said to be one
of the worlds leading global premium airline. To compete well in the market,
it merged with the Spanish airline, Iberia in 2010. In a statement, the two
companies said the merger would benefit shareholders, employees and
customers. It is expected to save the airlines 350m a year. The new
company will be called International Airlines Group (IAG), but the BA and
Iberia brands will continue to operate as normal. The Group will have its
headquarters in London with BA shareholders retaining 55% ownership of the
company. In total, the group will operate 419 aircraft, flying to more than 400
destinations world-wide, and carry a total of 62 million passengers a year.
BA also operates a worldwide air cargo business, largely in conjunction with
its scheduled passenger services. Operating one of the most extensive
international scheduled airline route networks, together with its joint
business agreements, code share and franchise partners, its vision is to be
the most admired airline across the worlds key cities.
Performance of BA during the last few Years
The Group has been performing well until the 2009 when the recession and
fuel cost caused revenue to drop by almost 11%.

IAG, the parent company of British Airways and Iberia, reported a

consolidated loss before tax of 263m for the first quarter ended 31 March
2012.
Total revenue increased by 7.8 per cent to 3.92bn (2011: 3.39bn), while

operating loss came to 212m (Year2011: 65m). During the 3rd quarter, fuel
costs rose by 24.9 per cent to 1.41bn (Year 2011: 1.13bn) and fuel cost
per a gallon rose by 24 per cent. The groups net debt declined 19m to
1.13bn. Iberias overall operating loss for the quarter was 170m (Year
2011: 100m) and British Airways operating loss was 62m before
exceptional items (Year2011: 5m).
Iberias poor performance was blamed on weaknesses in the Spanish
domestic market, as well as industrial action by pilots.
Willie Walsh, chief executive of IAG, said:
The financial performance of our business continues to be undermined by
government actions. In addition to the UK government increasing the worlds
highest aviation tax air passenger duty by twice the rate of inflation, the
Spanish government plans to increase departure taxes from Spain by up to
10 per passenger.

In spite of this, the company flew back into profit for the 2013 following
reduced losses at its Spanish airline, Iberia and the acquisition of a profitable
budget Carrier, Vueling. They also benefited from cost improvements and the
additional Heathrow take-off and landing slots it acquired through its 2012
takeover of the lost making UK carrier BMI. Its pre-tax profit from continuing
operations and after deducting exceptional items at the end of December
2013 was 186m a turnaround from 774 m losses the previous year.
Though, the Iberia airline remained in the red, its losses was reduced to
166m Euro while Vueling made 168m Euro operating profit since it was
acquired by the group in April 2013.

http://www.telegraph.co.uk/finance/newsbysector/transport/10666822/British
-Airways-owner-IAG-flies-back-into-black.html
www.britishairways.com/cms/global

The Recession and its impact on UK industries

Between 2008 and 2013 the UK and many parts of the world suffered a
recession. In UK, manufacturing output declined by 7% between 2008 and
the third quarter of 2009 and this affected many sectors of the economy
including banks, investment firms etc. Additionally, unemployment rose to
8.1 % in 2011. Furthermore, a double dip recession occurred from Q4-2011
until Q2-2012, according to the latest revised UK GDP data published on 20
December 2013.
Monetary Policies
As a result of these crises, the Bank of England used the policy of
quantitative easing (QE) to try to revive consumer spending and economic
growth.
The Bank of England purchased 375 billion assets in January 2009 to
boost the economy.
At the Banks meeting in early February 2009, the then governor, Sir Mervyn
King backed more action to boost the amount of QE purchases above 375bn
but was outvoted by his colleagues.
Moreover, interest rate was lowered to 0.5% for a long time until the latter
part of 2013.
Fiscal policies
Throughout 2008 a number of fiscal measures were introduced including a
145 tax cut for basic rate (below 34,800 per annum earnings) tax payers,
a temporary 2.5% cut in Value Added Tax (Sales Tax), 3 billion worth of
investment spending brought forward from 2010 and a variety of other
measures such as a 20 billion Small Enterprise Loan Guarantee Scheme.
The total cost of these measures, mostly announced in the November 2008
Pre-Budget Report was roughly 20 billion (not counting loan guarantees .
Further, limited measures worth 5 billion were unveiled in the 2009 budget
including training help for the young unemployed and a car scrappage
scheme which offered 2,000 in subsidy for a new car purchase for the
scrapping of a car more than 10 years old (similar to schemes in Germany

and France)
References:
Johnson, G., Scholes, K., and Whittington, R. (2010), Exploring Corporate
Strategy, Pearson Education
www.bbc.co.uk/news/business
Virgin-Atlantic-faces-record-loss.html
http://www.bankofengland.co.uk/
www.ft.com
http://www.theguardian.com/business/recession
ht http://www.theguardian.com/business/2013/mar/28/uk-economy-avoidtriple-dip-recession-oecd
tp://news.bbc.co.uk/1/hi/business/7827273.stm
http://www.brookings.edu/research/articles/2009/03/g20-stimulus-prasad
http:/http://www.telegraph.co.uk/finance/newsbysector/transport/9920468/Br
ansons-/en.wikipedia.org/wiki/National_fiscal_policy_response_to_the_Great_R
ecession
http:news.bbc.co.uk
http:newstatesman.com/business/transport/2012
hm-treasury.gov.uk/d/Budget2009/
http://worldairlinenews.com/tag/virgin-atlantic-airways/