Discuss about the Market Challenges of Virgin Australia.
Virgin Australia, founded in 1999 is a multinational company under the virgin group. It started operating from 31st August 2000. Their company is spread in 52 nations all over the world with the prime focus on Adelaide, Gold coast and Perth airport. The headquarters are located in Brisbane. It has a complex organizational structure as it owns 300 companies which operate separately. They have control over their services and products and the employees that they hire. To manage this complex structure, every company of the group exchange values and ideas and take care of other company’s shares to work in collaboration and make common interests (Button, 2017). In order to deal with the complicated structure, they have introduced another uncommon structure and approach for this huge group. According to the company, they believe that their staff is their biggest asset. So they use the approach of decentralization and staff authority. Employees of the company are given the chance to express their views and opinion and can communicate with the supervisors because the communication takes place in both upward and downward way. This increases the comfort level among the management and the employees which makes the working environment suitable. Decentralization helps in effective communication thus the employees can get to know their workplace in a better way, which shows that Virgin Australia has a flat organizational structure. They do not implement much rules, regulations, policies and procedures on their employees. They are allowed to have self control over the management through the process of decentralization. Their organizational structure can have enlarged or enriched job because Virgin Australia allows their employees to take decisions on their own so that they can complete various tasks in a single job (Harpur, 2016).
Description of the problem
Although Virgin Australia flies higher in local market but they face challenges in the international market. They have a strong hold over the domestic business as they get the benefit of cutting cost but they are yet to get a hold of the international market. This second largest airlines group of Australia had an expectation to improve their international market but they have failed to do so. Their major domestic business had a profit of $104 million which increased from $26 million of the previous years but that did not increase their market share in international airports (Schofield, 2015). Virgin makes the biggest share of the earnings in local market. The earnings yield from the business increased by 3% which contributed in earning a greater share from the corporate as well as the government passengers. But their international loss increased from $32 million to $50 million due to high competition in the route of Southeast Asia and Europe. For turning around the performance of the international unit, the airlines company is making adjustments in their frequency and timing to Bali to be at par with the demand and also establish business classes on those flights that go to New Zealand and the Pacific islands. They have also started new business class on their Boeing 777aircraft. They had to face a loss of $48 million in six months compared to a loss of $74 million in the previous years. The annual revenue increased to $2.38 billion by 6% from the earlier years. Although they had an already existing customer sentiment which had an effect on the total demand still they had increase in yields. They also had to provide quarterly earnings because another important shareholder, Singapore airlines had released their report which accounted for the interest in their own results (Sharifpour, Walters & Ritchie, 2014).
Problem to consider
The essential problems that can be considered in the decreased international market share of Virgin Australia are cost effectiveness and strategic challenges. Porter’s competitive strategies can be accounted as a model for this problem (Srisaeng, Baxter & Wild, 2014).
Fig- Porter’s competitive strategies
Source- as created by the author
The position of Virgin Australia in the airlines industry indicates if their profitability is below or above the average. When the basic profitability is above average then there will be continuous competitive advantage in the long run. Reduced cost and differentiation are the two basic kinds of competitive advantage. The scope of activities for which the company finds the competitive advantage has three generic strategies for attaining better than average performance- cost leadership, focus and differentiation. Again the focus strategy has two variants- differentiation focus and cost focus. Cost leadership technique sets Virgin Australia to become a low cost producer in the airlines industry. There are different sources of cost advantage which depend on the industrial structure. It might include keeping a track of the scale economies, access to raw materials, proprietary technology and some other factors. Low cost of production has to seek and exploit all the factors of cost advantage. If Virgin is successful in attaining and retaining the overall cost leadership, it will have an above average performance. Differentiation strategy of a company tends to be unique along with a dimension that the customers value. Focus has two categories. Cost focus allows Virgin Australia to find out the cost in their target customer. Differentiation focus seeks the differentiation of the company’s target group. Both these factors depend on the target group of focus and other segments of the airlines industry (Zhang, 2015).
Design of intervention
It is difficult to gain profit in the airlines industry. Implementing of certain strategies in this business will help in increasing the profitability. Virgin Australia can keep their operations simple and easy. If the operations are kept simple and easy the things will remain organized which will help in attaining success. For example, if Virgin Australia can keep just one type of jet then that will reduce the complication of using ten or more types. Using of just one simple type lead to cost saving efficiency. This is because the employees need to be trained only on the mechanics of one type of plane. Equipments and extra parts will be required only for that specific type of plane. If any crisis situation arises when the plane needs to be exchanged then the fleet is fully interchangeable. They can also try not to assign seat numbers which will not create any problem if the fleet is interchanged. Virgin can also reduce extra cost by not applying charges on checking bags as most other airlines do. They can also make some changes in their locations as in the flights can be scheduled from point- to- point. The problem of networking occurs when there is tendency to stop at airports in between. Depending on a single airport can solve the problem of depending on others. This approach has been used by Southwest Airlines and proved to be successful for them. So it can be suggested for Virgin too so that they can attain their objective. Virgin Australia can also try to make a portfolio of luxury, budget, business or economy which can be beneficial for their growth. This approach has been initiated by Singapore airlines and seemed to be successful so it can be suitable for Virgin Australia too. Virgin can also try to move from their traditional method of focusing only on the service to variety in the budget segment. By covering the services of travel and budget together, they can consider the short, medium or long term journey for the passengers.
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