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UNIVERSITY OF WEST LONDON

The Claude Littner Business School

MBA

Assessment 01: Individual Report

Module: M70093E - Strategy and Entrepreneurship

Student Number (UWL Registration Number): 21419546
Student Name: D P L Senuree Hasara Magedera
Assignment Name: Internal and External Environment Analysis of Virgin Atlantic
Lecturer Name: Suresh Mohamed
Word Count: 3072 (Excluding table of contents and references)

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TABLE OF CONTENTS

Acknowledgement 03
Chapter 01: Introduction 04
Chapter 02: Environmental Macro Analysis
2.1 Pestel Analysis 05-07
Chapter 03: Industry Analysis
3.1 Porter’s Five Forces 08 - 10
Chapter 04: Internal Analysis
4.1 Porter’s Value Chain 10-11
Chapter 05: Conclusion
4.1 SWOT Analysis 12-13
Chapter 06: Refernces 14

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ACKNOWLEDGEMENT

This note of acknowledge is to convey the author’s warmest appreciation to the Lecturer of
Strategy & Entrepreneurship, Mr. Suresh Mohamed for providing the author with the
guidelines and instructions with attention to help complete the assignment. For dedicating
his valuable time to share his fathom deep knowledge without which this would have not
been possible.

The Author would also like to thank the staff at ANC, Colombo for the support given in getting
access to reading material and classroom facilities and finally, sincere thanks goes to the
Author’s family and friends who supported and encouraged her throughout the course.

The author is responsible for any errors that remain in this assignment.

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CHAPTER 01 : INTRODUCTION

The primary purpose of this report to undertake an analysis of the external and internal
environment of Virgin Atlantic, along with an industry analysis of the macro environment. The
tools used for the analysis of same will be through a thorough PESTEL analysis, Five forces
analysis and value chain. In terms of key challenges, we can depict that over the years the
Virgin Atlantic Net Profits have been declining resulting in an overall business drop which will
be spoken about in detail through the course of the assignment.

Virgin Atlantic is a British owned airline carrier that is co-owned by Richard Branson of the
Virgin group with 51% shares and Delta Airlines with 49% shares. Founded in 1984, it is
currently ranked as the best airline in the United Kingdom amongst several other countries.
The airline was established with the intention of making air travel exciting, stylish and
enjoyable again. Since inception, Virgin Atlantic has been in it for the long haul with over five
million people who want to use their services and fly the ‘Virgin Way’ every year to some of
the best destinations around the world – America, Africa and Asia. The heart of Virgin Atlantic
is pioneering, and the airline is driven towards innovating with the customers best interest in
the heart of it all.

The organization’s main office is based in Crawley, England where operations are mainly done
with several offices and call centers around the United Kingdom including a base in Wales for
reservations and sales, baggage claims and tracing, Live chat web support and a customer
relations department. Apart from the above, Virgin Atlantic also has international offices
based in Atlanta, Johannesburg, Barbados, Shanghai, Hong Kong, Greater Delhi, Lagos and
Dubai to run operations.

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CHAPTER 02 : ENVIRONMENTAL MACRO-ANALYSIS

2.1 PESTEL ANALYSIS

PESTEL is a strategy used at large to analyze the macro environment and evaluate trends in
Political, Economical, Social, Technological, Environmental and Legal factors which might
impact individual organizations within a certain industry. Upon the completion of this the key
drivers will be identified and will set base for frameworks such as Five Forcers and SWOT to
assist Virgin Atlantic to assist in utilizing internal core competencies and taking advantage of
opportunities whilst defusing threats in the industry.

MACRO FACTOR IMPLICATION

Virgin Atlantic operates in a complex political climate marked by major terrorist
attacks on main destination markets like Paris, Nice and Brussels. Yet Brexit was the
biggest political surprise in June 2016. Britain voted to exit the EU, a decision that
was expected to cause both political and economic disruption and instability not just
for businesses but also for the UK economy in the short term at least. Nonetheless,
the government's decision in 2016 to allow a third runway at Heathrow to increase
UK airport capacity was a welcome boost for Virgin Atlantic and other British
POLITICAL
airlines, as Britain leaves the EU. Currently the world's most expensive gateway
airport at Heathrow, expansion would build additional and inexpensive extra space
at Heathrow and would also minimize running costs to travel from Heathrow
(Johnston, 2016). In addition, the expansion of Heathrow post-Brexit would allow
carriers such as Virgin Atlantic to provide more direct flights not only to UK
destinations but also to up to 40 new cities abroad such as Wuhan, Osaka and Quito.
(BBC, 2016)
The confusion surrounding Brexit influenced several British airlines, including Virgin
Atlantic, in an economic context. According to the annual report, 2018. Virgin
Atlantic's sales produced in the US were adversely impacted as the value of the
Pound Sterling fell to a 31-year historic low. It is because the highest costs of Virgin
ECONOMICAL are in dollars, while profits are in pounds, ensuring that since Brexit, the effect of
the trade on the financial performance of the business was unfavorable, amounting
to £ 50 m following hedging attempts (Annual Report,2016). However, Virgin
Atlantic benefitted from reducing fuel costs as fuel prices of Brent Crude oil fell by
21.8. (Annual Reports)

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For several airlines, including Virgin Atlantic, the peak summer seasons were
operationally problematic due to, social causes beyond the influence of the carrier
such as, air traffic controller (ATC) strikes in France. Many ATC labor strikes struck
France because of social discontent over a series of contested labor changes by the
Socialist Government, leading to Virgin Atlantic cancelling many flights over and to
SOCIAL
France. Moreover, French air traffic controllers went on a five-day strike in 2016 that
affected many flights substantially. Alongside Virgin Atlantic, other airline carriers
such as British Airways and EasyJet had signed a petition to the EU, and the French
Government to develop action plans to minimize the impact of ATC strikes on
passengers. (The Guardian,2017).
After years of relative calm since 911 the aviation industry is now experiencing
global disruption. The internet transition was ignited by the Internet and its larger
position in the way consumers communicate. (Bloomberg, 2017)
More significantly, emerging innovations are transforming the industry's cost
structure dramatically, allowing new competitors like WOW Air to leverage digital
technology to challenge the legacy carriers like Virgin Atlantic. Furthermore, as
(Jones,2009) claimed, the Internet makes rivalry ideal for industry as it helps
passengers to compare airfares of different airline firms in just a few clicks, which in
turn effects pricing ability.
TECHNOLOGICAL
Nonetheless, the internet also gives Virgin a cost-cutting tool, which is why it
recently launched AIR4, Virgin Atlantic's biggest technology transition in the history
of the group, which saw Virgin invest in IT-based customer service systems such as
a new mobile app, self-service booking technology and improved kiosk functionality
(Annual report,2016). Virgin has also invested in new IT support systems for Virgin
Flight Service Managers, such as new crew tablet apps, which enable them to
provide a more streamlined and customized experience to passengers. Virgin
Atlantic should be able to reduce global disturbances when taking advantage of
technologies to remain competitive of the market by leveraging technical creativity.
Everywhere today the environment, global warming, climate change are all heated
topics. People are well aware of the consequences of climate change, because
people from all nations have encountered a form of negative disaster; drought,
ENVIRONMENTAL flooding, intense record breaking high temperatures, record breaking sub-zero
levels, rising sea level, which scientists refer to global warming. Like all other airlines,
Virgin Atlantic sustained operational disruption and challenges in light of the
adverse weather conditions caused primarily by Global Warming, which in turn lead
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to flights getting cancelled and several delays of flights. (Swinnerton,2017). This is

most severe and uncontrollable external environmental factors that cause travel
chaos amongst the organization, adversely affecting passenger satisfaction and in
turn resulting revenue loss and increase in additional costs to compensate
passengers.
In late 2016, Virgin Atlantic Pilots decided to take strike actions over union
representations after the Professional Pilot Associations which includes over 70% of
LEGAL the 900 plus pilots employed by Virgin Atlantic demanded to be solely recognized
union for Virgin’s pilots and for British Airline Pilots Association to be derecognized
(The Guardian,2016).

Being a challenging couple of years for Virgin Atlantic, with uncertainty in issues such as Brexit,
terrorist attacks and adverse weather conditions the company was able to rise above it and mitigate
many issues through the launch of AIR4, being the biggest technological revolution of the company
minimizing the digital disruption and the ability of modernizing their fleet.

Furthermore, if are we look at the company from the aspect of Bowman’s clock strategy, it would lean
towards differentiation pricing strategy is clear and accurate and runs with the message,’ price is no
object as long as the customer service is of a high standard’. They use a comparative pricing strategy
resulting in their prices being prices lower than competitors such as British Airways. For Virgin Atlantic,
Differentiation is key where they offer services no other airlines offer to date such as booking a limo
or bicycle for airport transfers alongside customized in house spa and bars to give customers an
extraordinary experience.

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CHAPTER 03: INDUSTRY ANALYSIS

3.1 PORTERS FIVE FORCES

Porters five forces model is a tool that is used to understand the structure of an industry and
the ability of firms in the particular industry to act strategically depending on the relative
strength of the five forces; Rivalry amongst existing firms, threats of new entrants, threat of
new substitute, bargaining power of buyer and bargaining power of supplier. Through the
analysis we will strive to understand how the five forces have shaped the airline industry and
impacted the behavior of airline companies operating in the market, specifically targeting the
UK market.

3.1.1 Rivalry among existing firms

Current competition in the industry greatly affects the industry which means the changes in
customer behaviors. Organizations such as Virgin Atlantic operating in highly competitive
market structures find it difficult with the lack of power over various factors such as pricing
and other strategic actions. Such is the market in which Virgin Atlantic operates in with very
less market power except to brand loyal customer and the new customers attracted through
various marketing and differentiation mechanisms. It is a rather fragmented industry with
several firms each commanding a given share of the market.

In contrast, Virgin Atlantic has also considered their neighboring airlines as competitors with
the deregulation of the European Airline, many are making tactical moves to make it into the
airline industry, however Virgin Atlantic being considered as one of UK’s largest planned
airline definitely has its advantages.

3.1.2 Threats of New Entrants

It is noted that the market structure or the current competition affects the behavior of firms
in any industry. Looking at just the current competition does not give the full picture of threats
in any industry; hence the threat of potential competition can affect behavior of firms. The
Airline industry is a contestable market with which requires high capital investment to enter
and even at the point of exiting, it would require them to write down and absorb losses,
alongside pleasing the Civil Authority Association with content and proofs on the capability
and readiness to join in. Barriers to enter the airline industry can be such as brand loyalty,

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access to exclusive services and technologies and high level of retaliation by existing firms.
Virgin Atlantic has been in constant move to improve on the quality of the services they
provide to their customers. We find that new airlines into the industry pose significantly high
entry and exit barriers with the impact being High.

3.1.3 Threats of Substitutes

When it comes to the airline industry, substitutes are minimal as for air travel and traveling
between countries, using airlines is the most economical method. Unless in large countries
for interstate travel, certain customers use methods such as opting to drive and motor down
or using the train for journeys which poses as a threat of a substitute, but this would be likely
a minimal percentage for Virgin Atlantic as a larger percentage will opt to choose flying in air.

3.1.4 The bargaining power of buyers

Many markets where strong consumers can and do exercise a great deal of influence over
manufacturers and this leverage is an important source of economies of scale in marketing.
Strong buyers have beneficial effects on the market as they can offset the power of controlling
producers and in turn lead to higher seller concentration to counteract the power of the
buyer, which explains as to why Virgin Atlantic, Delta Airlines and Air France entered into a
partnership. However, the buyers in this case being the consumers have a greater advantage
of online ticket booking and no longer has to go to travel agents. Moreover, as the passengers
of the airlines are being protected by the regulators meaning that the balance od power is
tipped towards their favor. Since buyers have the option of ‘Price Discovery’ the price
fluctuations do not discourage them as they have the power of purchasing tickets from
various multiple channels.

3.1.5 The bargaining power of supplier

When it comes to the three most inputs in the airline industry; fuel, aircraft and labor it is all
affected by external environment factors. When it comes to aviation fuel it is decided by
fluctuations in the global market for oil which can have spiraling changes because of
geopolitical and other factors. Secondly, labor is subject to the power of trade unions who
bargain and will try to get unfair concessions from Virgin Atlantic. Thirdly when it comes to
the aircrafts itself it is a heavy investment which is an outright sale or a lease and will have to
depend on two main giants, Airbus and Boeing for their aircraft needs.
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3.2 Porter’s five forces summary on Virgin Atlantic – Airline Industry

Threats of New Entrants Threats of Substitutes

MODERATE LOW
Rivalry among
existing firms -
MODERATE

The bargaining power of supplier The bargaining power of buyers

HIGH HIGH

CHAPTER 04: INTERNAL ANALYSIS

4.1 PORTERS VALUE CHAIN

The idea of Porter’s Value chain is based on the view of organizations and the idea of seeing
an organization as a system and to assess the internal environment of a company, mainly
support activities and primary activities. (ifm,2020)

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Firm Infrastructure – Virgin Atlantic has three operating bases in Gatwick, Heathrow
and Manchester with the headquarters based of Crawley, England with a fleet size of
42 and has the capacity to travel to over 30 destinations
Human Recourse Management – Employs around 8500+ employees worldwide and
SUPPORT ACTIVITIES

is an equal opportunity employer. Alongside keeping employees engaged through

different mechanisms they are also offered 07 free flights to any destination of their
choice annually. Moreover, they also show cordial relationships with trade unions
under the Association of European Airlines.
Technology – Virgin Atlantic strives to have a culture that enhances innovation and
creativity and technological innovation is embedded into every aspect of the business
including the first airline to start RFID tagging technology at the warehouse, e invoicing
mechanisms
Procurement – Virgin Atlantic audit suppliers based on sustainable procurement policy
to iron out a set of policies, from no child labour to reducing environmental impact of
their supply chain. (Virgin Atlantic, 2020) With the global e-invoicing operation it has
created a mutual positive impact with suppliers where the organisation receives tax
compliant invoices and the supplier gets enhanced service delivery
Primary Activities
Inbound Operations Outbound Sales and Service
Logistics Logistics Marketing

This includes stock Virgin Atlantic As passengers Marketing tactics of Virgin Atlanic has won
control such as is currently the move from Virgin Atlantic awards year after for
fuel, food and second largest economy class to includes TV, Taxi their astonishing
drinks, passenger haul in United upper class, they Sides, Magazines services and claims of
service systems, Kingdom, will receive a limo and mail. Moreover, setting up new
facilities planning. whilst being the service to travel to their loyalty standards of
As the class goes third largest the airport where program, ‘Flying innovations. For
up so does the European the check in Club’ offers a range Example: Going on to
benefits provided. carrier over service will already of rewards. They have the longest and
North Atlantic be done and the also give out most comfortable flat
and recipient of passenger will be multiple bed for upper class
multiple directed to a promotional passengers, offering
awards dedicated security schemes through Limousine and bicycle
area travel agents. (Virgin services.
Atlantic,2020)

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CHAPTER 05 : CONCLUSION
5.1 SWOT Analysis
Following will go on to analyze the positive and negative impacts to Virgin Atlantic based on the
findings from above on micro and macro environmental observations using a SWOT analysis. This is a
comprehensive step towards strategic planning.
STRENGTHS
• Strong brand reputation and was ranked as the
sixth best airline the world’s best airlines survey
• The fleets have been modified moving into
better Airbus models
• The New head office based in central UK
enhances competition and can be tolerated due
to regulation
• Collaboration with Delta Airways/Singapore
airlines making it one of the most powerful
airlines
• Brand name and image that the company holds
rolled on with the innovation and services they
offer exclusively such as AIR4
• Powerful e-business structure with strong
technological innovations
• Winning the EASE award for four consecutive
years
OPPORTUNITIES
• Succession plan to be implemented upon the
passing of Branson to look at how the
organization be further improved
• Expanding into more Asian markets in terms of
flights, as they are currently only touching
ground of few Asian countries and could look at
going into more emerging markets such as Doha,
Abu Dhabi, Seoul, Sri Lanka etc.
• Post Brexit operations will lead to the expansion
of the Heathrow airport further offering more
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WEAKNESSES
• The connection to the brand with Richard
Branson seems to be tricky, with the risk that
when Branson is no more the brand will
struggle as they seem to be very dependent on
him
• Tough competition from not only local and
American players but also from gulf airlines
such as Etihad who compete on the same
routes
• Code sharing flights are limited in the global
presence
THREATS
• With UK, officially leaving the EU in January and
BREXIT taking places it causes a lot of uncertainty
for the organization
• The continued strikes of the Air Traffic
controllers in France leads to often cancellations
and delays in flights causing dissatisfaction and
the continued feud between the PPU and BALPA
fighting to be recognized as Virgin Atlantic’s sole
and primary trade union
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direct flights creating new and affordable extra
capacity
• Aviation fuel prices have been significant
constant and going down in the last months with
January 2020, recording at 1.78 compared to
2.25 in October of 2018. Favorable economic
factors will make way to promote industry and
organization growth
• Increased competition in the airline industry
with many budget airlines coming into play it will
create pressure to maintaining stable profits.
• The possibility of other airlines adopting Virgin
Atlantic’s concept poses as a threat to the brand
image and exclusive brand created by the
company.

CHAPTER 06 : REFERENCES

• Andrew parker (16 May 2013) “Virgin Atlantic Chief vows return to Profits”. Financial Times London.
• Bamber, G.J.; Kochan, T. Von Nordenflytch, A. (2009). “Up in the air; How Airlines can improve
performance by engaging their employees”. Cornell University Press.
• BBC News. 2020. Is New Runway More Important Post-Brexit?. [online] Available at:
<http://www.bbc.com/news/business-37762701> [Accessed 15 March 2020].

• BBC News. 2020. Third Runway At Heathrow Approved. [online] Available at:
<http://www.bbc.com/news/business-37760187> [Accessed 16 March 2020].
• Bloomberg.com. 2020. Bloomberg - Are You A Robot?. [online] Available at:
<https://www.bloomberg.com/news/videos/b/607ee90e-aa0d-4fc8-9bda-b6955209a212> [Accessed
19 March 2020].
• Corporate.virginatlantic.com. 2020. Annual Reports | Virgin Atlantic. [online] Available at:
<https://corporate.virginatlantic.com/gb/en/annual-reports.html> [Accessed 14 March 2020].
• Ifm.eng.cam.ac.uk. 2020. Porter's Value Chain. [online] Available at:
<https://www.ifm.eng.cam.ac.uk/research/dstools/value-chain-/> [Accessed 18 March 2020].
• Jones, P., (2009) Impact of the global recession on the hospitality and tourism industry.. Tourism and
Hospitality Research, 9(4), pp. 363-367.
• Jurevicius, O., 2020. The 5 Powerful Forces That Impact Your Profit. [online] Strategic Management
Insight. Available at: <https://strategicmanagementinsight.com/tools/porters-five-forces.html>
[Accessed 18 March 2020]
• Managementstudyguide.com. 2020. Porters Five Forces Analysis Of The Airlines Industry In The United
States. [online] Available at: <https://www.managementstudyguide.com/porters-five-forces-analysis-
of-airlines-industry-in-united-states.htm> [Accessed 13 March 2020].
• Ostrower, J., 2020. Virgin Atlantic Faces A Test: Is It Enough Just To Be Cool?. [online] CNNMoney.
Available at: <https://money.cnn.com/2017/03/31/news/companies/virgin-atlantic-airways-richard-
branson/> [Accessed 9 March 2020].
• Radcliffe, Madeline (9 Dec 2015). “Virgin Atlantic raises 220M Pounds from mortgaging its Heathrow
landing slots” Cityam.com. CITY A.M. 15 March 2017.
• Swinnerton, Lois 2020. [online] Available at: <http://www.getwestlondon.co.uk/news/west-london-
news/heathrow-airport-flight-cancellations-after-12441827 [> [Accessed 18 March 2020].

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• The Guardian. 2020. Virgin Atlantic Pilots To Take Industrial Action Over Union Recognition. [online]
Available at: <https://www.theguardian.com/business/2016/dec/16/virgin-atlantic-pilots-industrial-
action-ppu-union> [Accessed 18 March 2020].
• Virgin. 2020. Virgin Atlantic. [online] Available at: <https://www.virgin.com/company/virgin-atlantic>
[Accessed 08 March 2020].

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