Virgin Atlantic Airways: Objectives, Responsibilities, And Impact Of Fiscal And Monetary Policies

Objectives of Virgin Atlantic Airways (VAA)

Describe about the Progress or Collapse: The Crises of Market Greed?

Founded in 1984, Virgin Atlantic has grown to become one of the largest airline companies in England (Virgin Atlantic 2013). The company currently operates as a joint venture with the Singapore Airline, which owns 49% stake. Even though the company was started to provide flights between London and Falkland Islands alone, the increased demand for the airline services forced the company to increase its travel destinations. Today, the airline provides air transport to different destinations around the world, including Europe, Asia, Africa, America and Australia using a mixed fleet of Boeing and Airbus.

Objectives of Virgin Atlantic Airways (VAA)

As one of the fastest growing airline companies in the world, the key objective of Virgin Airways is to become the most preferred airline of choice across the continent. In this regard, Virgin Atlantic has put his focus in providing an airline that is not only cheap, but also creates comfort to its clients. According to the CEO of the company, one of the main aims of the company is to provide its clients with quality services that they cannot get elsewhere (Virgin Atlantic 2013). These include good customer service, inexpensive charges for flights and good flight experience among other services that their clients might need.  Like many other airline, Virgin Atlantic also aims to become a profitable airline. Even though the company has been reporting huge losses in the past few years, the company believes that it would soon start registering profits. In 2013 financial year, for instance, Virgin Atlantic reported a loss of £128.4 million. However, the company believes that by improving the quality of service delivery as well as expanding its program coverage, the company will become the airline of choice to people across the globe. In return, this will make the company profitable.

In addition, Virgin Atlantic aims to become an example to other airlines in the industry by setting standards for them to emulate. This includes flying airlines that are green and fuel efficient. So far, global warming is one of the major environmental issues affecting the world. Therefore, Virgin Atlantic aims to set an example by providing green airlines. In fact, the company is already in the process of going green. In 2006, the company announced it plans to invest £1.7 million the production of renewable energy. As earlier mentioned, the aim of making such a huge investment is to lower level of carbon emissions that cause global warming effect currently felt in different parts of the world.

The purposes and objectives of Virgin Atlantic are different from those of the British Red Cross. Formed in 1870 the purpose of the British Red Cross is to provide humanitarian assistance in disaster stricken areas in the U.K (Laking 2011, p. 3). This is a direct contrast the purpose of Virgin of providing air transport services to different destinations around the world. Britain, as other parts of the world is prone to disasters. Therefore, in the event that disaster strikes in the UK, such as a fire break out, the British Red Cross normally comes in to provide evacuation assistance. In addition, it ensures that people injured during a disaster receive first aid treatment and rushed to the hospital. Further, British Red Cross also provides food assistance to the hungry in the UK In this regard, it becomes apparent that the purposes of the two organizations contrast with one another.

Responsibilities of VAA towards its key stakeholders

Secondly, whereas Virgin Atlantic aims at making huge profits, British Red Cross main aim is to ensure that people receive humanitarian assistance free of charge (Laking 2011, p. 3). As a non-profit making organization, British Red Cross does not provide services with the aim of profit as Virgin Atlantic does. This is attributable to the fact that British Red Cross gets funded through donors and well wishers.

However, both Virgin Atlantic and the British Red Cross aim to ensure that their clients receive quality services. As earlier mentioned, Virgin Atlantic is working tirelessly towards ensuring that traveling using its airline services receive lucrative travel experience. British Red Cross, on the other hand, also aims to ensure that British nationals affected by a disaster receive quality care (Laking 2011, p. 6). These include faster response to disasters and other areas of in need of emergency services.

The recent financial crisis of 2007/2008 did have a ripple effect on the US economy. In fact, economists claim that the UK is still suffering from the effects of the recent global financial meltdown that affected almost all sectors of the economy in the UK The manufacturing industries in the UK were among the worst hit sectors of the economy that registered a decline of 7% between 2008 and 2013. Unemployment rates also increased to 8.1% in 2011 (Moulds and Inman 2013, p. 6).

The airline industry was among the worst hit industries. According to Steve Ridgway, the CEO of Virgin Atlantic Airways, no single airline is immune from recession. He made this statement in reference to the fact that Virgin Atlantic, like other airlines, such as the British Airways suffered from recession. For instance, Virgin Atlantic was forced to downsize due to the recession by laying off about 600 workers in order to cut down cost. The recession also affected Virgin Atlantic Airways in that had to cut the pay of some of its employees to reduce cost. In addition, the company shareholders were also severely affected by the drop in the share prices. In fact, the CEO of the company Steve Ridgway reveals that shareholders received very little dividends on their investments because of the recession that affected the airline industry. The most surprising thing, however, is that the UK government failed to offer any assistance to the airline industry during the recession.

 These fiscal and monetary initiatives have had a huge impact on Virgin Atlantic operations. For instance, the qualitative easing policy initiative have encourage consumer spending in this country. This impacted positively Virgin Atlantic Airways by making money available to passengers to spend on air transport. The increased number of passengers on VAA has increased the revenue of the company. As a matter of fact, VAA experienced a decline in the number of UK passengers using the company airline services during the recession due to lack of money. However, the company has been experiencing an increase in the number of passengers since the BOE introduced the QE monetary policy.

Organizational Responsibilities

The monetary and fiscal policies initiated by BOE have also improved economic growth, as well as reducing inflation rates in the country. Most airline companies, including VAA experienced a rise in the cost of service delivery due to the increase in the cost of fuels during recession. In fact, VAA has attributed the losses it has made in the recent past partly to the rising cost of fuel. However, the situation has changed significantly in the company since the UK government initiated the fiscal and monetary policies. According to Whish (2008, p. 56), the fiscal and monetary initiatives have contained inflation, which has resulted in a reduction in fuel prices in the country. The reduction in fuel prices has been a reprieve to VAA since this has significantly reduced the cost it incurs in buying fuel, which has also translated to a reduction in the cost of operations.

Fiscal and monetary initiatives have had a huge impact on Virgin Atlantic operations. For instance, the qualitative easing policy initiative have encourage consumer spending in this country. This impacted positively Virgin Atlantic Airways by making money available to passengers to spend on air transport. The Competition Act 1998 , Enterprise Act 2002 and Article 101/102 of the EU legislations are the most important statuteslegislations. These laws prohibit agreements or practices that restrict free trading and competition between business entities.

The Enterprise act 2002 as well as article 85 or 86 of the EU legislation were actually enacted for promoting free competition as well as preventing development of monopolies. Thus, the UK/EU competition as well as regulatory policies would benefit VAA performances as the policies usually create an environment whereby free competition is permitted. For instance, lack of the policy might create an environment that promotes monopoly, which would be disadvantageous to VAA. Therefore, the UK/EU competition as well as regulatory policies would create an environment to favor all market players within the airline industry in Europe.

Pricing and sales decisions of any company operating in a competitive market are depended on the forces of demand and supply. VAA is one of the airline companies that operate in a very competitive environment. This implies that, in order for the company to gain competitive advantage, it must consider the forces of supply and demand in the industry (Johnson, Scholes and Whittington 2010). Some of the airline companies that VAA competes with include the British Airways, Ryan Air and Easy Jet just to name but a few. Therefore, in making pricing decisions, VAA must consider the supply factor. According to the law of supply, an increase in price in the market results in an increase in the quantity supplied, ceteris paribus. Therefore, in making a pricing decision, VAA will have to consider the supply element. As such, before fixing a price for its airline tickets, VAA will have to consider the number of airlines in the industry. This is attributable to the fact that charging high prices for tickets in a market with many airlines will make VAA lose the passengers using its airline services to its rival firms, such as British airways, Easy Jet and Ryan Air among other airline companies. Therefore, it would be prudent for VAA to set ticket prices competitively after taking the supply of airline into consideration. This implies that, VAA will have to set ticket prices not too high or too low in comparison to other firms' ticket prices in the airline industry.

At the same time, VAA must consider the demand factor in the market before setting prices for air tickets and other services. According to the law of demand, the higher the price, the lower the demand while the lower the price the higher the demand. This implies that it would be prudent for VAA to charge higher prices for its airline tickets when the demand for its airline services is high. This is because the high demand will mean few airline tickets (Johnson, Scholes and Whittington 2010). As such, the many passengers who wish to fly on VAA airline will be scrambling for the few available tickets making it easy for VAA to charge highly for the tickets. However, when demand for its airline declines, VAA will have to lower its ticket prices in order to attract more passengers to travel on its airline. Therefore, taking into consideration the forces of demand and supply will certainly be very crucial in making pricing and sales decisions.

The way the business environment affects the behavior of VAA can be evaluated using PEST analysis tool. PEST is an acronym that stands for political, environmental, social and technological factors that affect a firm. Politically, VAA operates in an environment full of government interventions. For instance, the company's operations are affected with the taxes imposed by different countries on landing and packing (Moscaritolo 2014, p. 5). At the same time, some countries where the VAA operates are facing political instabilities. These among other factors impact negatively on the company's operations.

Regarding economic environment, the operations of VAA have been impacted negatively in the past by increases in the cost of fuels, recession, high insurance and security costs, as well as increased rate of unemployment. These factors are partly responsible for the declined profitability of the company in the recent past.

Regarding social environment, the operations of VAA are affected by the cultural aspects, career attitudes, as well as seasonal offers. Since the socio-cultural influences value from one place to another, VAA constantly evaluates the customer attitudes in different parts of the world before beginning to fly its airplanes these regions.

Technology is another factor that affects VAA's strategic planning initiatives. Therefore, to keep up with the technological advancement, VAA has implemented the internet for distribution and cost synergy. In addition, the company also offers online ticketing services, as well as e-marketing. In addition, most operations of the company have been computerized to increase efficiency in service delivery.

Culture is a major factor that affects the airline industry. Virgin Atlantic is one of the airlines that have been confronted with cultural influences. For instance, the company has always found it had penetrating into some Asian countries due to cultural influences, such as religion and the fact that it is a British company (Moscaritolo 2014, p. 5). At the same time, the company is sometimes forced to abide by the cultures adopted in certain countries in order to get landing license.

Virgin Atlantic Airways has been greatly benefiting from the aspect of international trade. Being a firm that offers the service of air transport to various destinations across the globe, the company is likely to benefit from varied approaches of international trade as it would give it the opportunity to explore innovative markets to bring about growth as well as profitability (Johnson, Scholes and Whittington 2010). Presently there exist some potential markets to bring about expansion of the company operations. Hence, international trade would definitely make it possible for the company to enhance its own market share within new markets where it has yet not ventured. The company would even benefit from various approaches of international trade by means of brand awareness as well as networking. There are several people who have not heard about the company. Nevertheless, international trade is said to offer the company some explicit opportunities to create its brand awareness. Besides, international trade would lead to enhancement of imports as well as exports amidst nations by providing VAA with a business opportunity.

Multinational companies, such as VAA are normally confronted with another of factors, including political, economical, sociological, technological, legal and environmental factors.

Political: VAA is hugely affected by the taxes levied in different countries where it operates for landing and fuel.

Economical: Globally, the interest rate fluctuation normally affects the company's pricing decisions. At the same time, the global prices of oil also affect the VAA's profitability as was evident during the recent recession that caused global increase in prices of oil.

Social: The operations of VAA are also affected largely by social factors. For instance, the company is required by law to abide by certain safety measures both on the ground and on board (Moscaritolo 2014, p. 5). At the same time, the increase in population, as well as ageing populations also affect the activities of the airline. For instance, an increase in baby boomers implies that there are many people with disposable income, which increases the company's profitability.

Technological: Research shows that as the technological advancements experienced in the recent past has impacted hugely on the activities of VAA. For instance, the company has had to computerize its operations to increase efficiency. Currently, VAA offers online ticketing services with the help of technology. At the same time, the company engages in e-marketing for its products and services. Today, the company uses various social media platforms to create brand awareness and engage with its customers. This has helped improve the relationship between the VAA and its customers.

Legal: Some of the legal aspects within various nations are said to affect the company operations. The firm has revealed that nations maintain strict laws thereby making the operation difficult. For instance, some nations put restrictions upon landing time that impacts negatively upon the operations of airlines within such nations.

Environment: The aspect of global warming is considered to be a key environmental issue that affects the world today. Thus, airlines companies must reduce the level of fuel emissions for mitigating the global warming issue. In compliance with the legal law, the company is in the process of implementing a raft of initiatives, involving investments within renewable sources of energy for reducing the level of emissions from its airplanes (Moscaritolo 2014, 5). However, this is associated with a cost since the airline is forced to spend huge amounts of money upon the project.

A reduction within international border of trade as well as agreement would certainly benefit the company greatly. It is due to the fact that such type of barriers would usually make the trade amidst countries quite difficult. Thus opening up trade amidst nations would mean that the company would get more and more customers willing to travel by airlines, thereby resulting in enhanced sales as well as profit. The harmonization of technical as well as safety standards abided on varied products (Johnson, Scholes and Whittington 2010). Therefore, harmonising the standards will make the work of VAA easy. Exercise duties and fiscal barriers normally make the operation of VAA difficult. This is because the company has to comply with one after the other. Therefore, closer harmonization of excise duties and VAT will make the work of VAA easier, as well as increase faster compliance.

Generally speaking, economists recognize three fundamental economic systems that determine what goods to produce, how it is produced and to whom the goods or services in question are produced. The three economic systems include free market, command and mixed market economies. The three types of economic systems differ from each other with regard to the manner in which economic decisions are made.

A free market economy is one of the most common types of economic systems in operation in many countries across the globe. In this type of economy, key economic decisions are made by individuals themselves (De Vogli 2013, p. 6). This implies that there is no government control over the economic decision that an individual makes. As such, in a free market economy, consumers are free to purchase the goods of their choice without interference from the government or other external forces. Similarly, in a free market economy, corporations are free to make their own economic decisions. In this regard, firms are free to produce goods of their choice without interference or being told by the government. This implies that firms are allowed in a free market economy to produce goods and services, which they believe will attract a large number of consumers. This implies that if a firm chooses a wrong product to produce, it may be forced out of business due to lack of customers to buy the products. However, if a firm chose the right product or service to produce in such a market, it sells well and makes profits.

A free market economy is also characterized with high competition. In fact, economists believe that a free market economy is perfectly competitive due to the existence of many autonomous buyers and sellers. The competitiveness in a free market economy is also exuberated by the fact that there is free entry and exit of firms. This is attributable to the fact that such a market has no barriers to entry and exit of any firm (De Vogli 2013, p. 6). Therefore, firms are forced to compete fiercely for the consumers available in the market while consumers also compete among themselves for the products and services on offer.

A free market economy is also recognized by the pricing mechanism. Since the market is perfectly competitive, prices in the market are mainly dictated by the forces of demand and supply. This implies that no single firm has the power to control the prices in the market. As such, it is normally known as a price mechanism market. A majority of major economies in the world, including the United States, Germany and Japan is all free market economies.

Command or planned economy is also another economic system mainly adopted by emerging economies (Shapiro 2007, p. 26). As the name implies, within a command economic system, it is assessed that the government is said to control the three economic decisions, including what to produce, how to produce and whom to produce the goods and services. As such, unlike in a free market economy, whereby a company is usually free for producing goods as well as services, command economy does not allow it to occur. Instead, the government is said to dictate the firms what they must produce, irrespective of whether the goods will be sold or not. This is attributable to the fact that the government owns all the country's factors of production. Shapiro (2007, p. 27) noted that the only factor of production where the government has no total control in a command economic system is the labor. However, the government has some degree of control over workers. Within a planned economy, no free enterprise exists as is the case within free market economies. In fact, in a planned economy, the government, consumers and employees all work for a common good rather than for self interest as evident in communist countries, such as in the former Soviet Union.

Unlike in a free market economies where competition is high, there is very little or no competition in a planned economy. As a result, there is no price mechanism in a command economy. This implies that, unlike in a free market economy, where forces of demands and supply determine the prices of goods and services, price mechanism does not exist in a planned economy. As such, prices of goods and services are set by authorities. Some of the practical command economies in the world include China and South Korea.

As suggested by the name, a mixed economy refers to an economic system whereby the extremes of both the free market as well as command economies exist. As a mixed economy combines the characteristics of both the economies, the theory fails to answer the economic questions of what to produce, how to produce and whom to produce. This is due to the fact that mixed economy is a complement of both the economies.

Hence within a mixed economy, some factors of production are owned by the national government whereas some are owned privately. This denotes the absence of absolute ownership of factors of production by either individuals or individuals. Within the economic system, self-interest is partially a motivational factor of the economy. It denotes that consumers can freely maximize their welfare just like within a free market economy (Shapiro 2007, p. 31). However, the government is also said to play a significant role to fulfill good objective. As referred to competition, the private sector of mixed economy may be quite competitive. The government Control reduces the competition to a great extent. Also within a mixed economy, the mechanism of pricing operates within the private sector. But, the efficiency of price mechanism is based upon the degree of market competition. In the United Kingdom, the government is said to normally provide programs like that of education as well as NHS quite free at the point of use. Also, the government at times imposes some charges for providing services, such as lunch.

Depending upon the way the economic systems would allocate resources, it would become apparent that a free market economy is said to allocate resources more effectively than the mixed economies. As stated previously, within a free market economy firms are quite free to produce goods of choice without interruption from government (Shapiro 2007, p. 36). In addition, resources are privately owned by individuals. This refers to an efficient manner of allocating resources as compared to mixed resources. The fact that individuals have the power of allocating resources on an individual basis is effective since an individual either buys or sell goods, which one wants. This is not usual within command economy whereby the government is said to control the manner of resources allocation. Furthermore, the fact that in a command economy the government has absolute control of how resources are allocated, this is susceptible to abuse (Whish 2008, p. 52). This is because authorities might favour some areas resulting in unequal distribution of resources. The same applies to a mixed economic system, which does not allocate resources effectively due to government control over some sectors of the economy. Therefore, it's certain that a free market allocate resources more effectively than the other two economies.

Basically, firms operate in different types of markets that dictate how prices and outputs decisions are made. The different markets include a perfectly competitive market, monopoly, monopolistic competition and oligopoly. In this regard, the pricing and output decisions are made in accordance with the nature of the market.

Generally the pricing as well as output decisions are based upon the way a market is deemed competitive. This is applicable to a perfectly competitive market, whereby the pricing as well as output decision taken in accordance with the market attributes. A perfectly competitive market refers to the type of market where several buyers as well as sellers exist (De Vogli 2013, p. 13). Within this type of market, the products sold are quite identical in nature, thus form many substitutes. Also no barriers to entry and exist of firms exist within the market. Thus due to the competitive nature of the market, the prices at which goods are usually sold are well determined by the market forces of supply as well as demand. This is said to imply that sellers or firms possess no control over prices of goods as well as services within the market. For instance, in a perfectly competitive market, no single company can dictate the prices of products as well as services due to the existence of several sellers who offer substitute products (Whish 2008, p. 56). This implies that, if one firm decides to increase the prices of goods, consumers would simply move to other sellers who supply the same goods at a low price. This makes firms that increase their prices to lose their market share.

Gasoline market is a classical example of a perfectly competitive market where the pricing and output decisions are determined by the forces of demand and supply. This implies that, a single firm in a gasoline market has very little control over the prices to charge. As such, as long as the station is busy getting customers, there is no reason for such a gasoline station to lower prices. However, if the gasoline station increases its gasoline prices by say 5 cents a gallon, this will result in the gasoline station losing its customers to other gasoline stations selling gasoline at a cheaper price than the station.

The pricing and output decisions in a pure monopoly are quite different with that in a perfectly competitive market. To begin with, a pure monopolistic market is one where there is only a single producer of product or services, but with many consumers. As a result, there is no competition in a pure monopoly (De Vogli 2013, p. 19). This implies that the monopoly produces the goods at its own pleasure. At the same time, the goods supplied by a monopoly have no close substitute. Unlike in a perfectly competitive market where there is free entry and exit, in a purely monopolistic market, entry is blocked and the monopoly focuses mainly on the maximization of profits. Since only one firm exists in the market, prices of goods and services are not determined by the forces of demand and supply. Instead, the monopoly has absolute control over the prices in the market due to lack of substitutes for the product or service in the market.

At the same time, monopolist has no ability to sell as much as it desires at the prevailing market price. Rather, if a monopolist intends to sell a large quantity of goods, it must lower prices. Shapiro (2007, p. 70) attributed this to the fact that for a monopolist has a downward-slopping as the firm sells to the entire market. In addition, for a monopolist who wants to maximise profits, then firm must continue producing the good as long as the marginal cost is less than marginal revenue. Public utilities are a good example of pure monopolies.

A monopolistic competition refers to a market structure with relatively a large number of firms producing products which are similar but not identical (De Vogli 2013, p. 22). This type of market is almost similar to a perfectly competitive market in the sense that there are many firms in the industry with each producer selling a small part of the goods supplied in the market. Like in a perfectly competitive market, there is free entry and exit of firms in a monopolistic competition. In addition, buyers in a monopolistic competition market are believed to have perfect information regarding the prices of goods and services in the market.

Generally, a monopolistically competitive firm is a price maker (Shapiro 2007, p. 76). This is attributable to the fact that, even though there are many small firms in the market, the products dealt with are not identical. However, the pricing decisions of such firms are made depending on the short or long-run prevailing conditions. In this regard, in the short run, a monopolistic completion is similar to a perfect monopoly. However, the firm is only able to maximise its profits where marginal revenue is equal to the marginal cost. However, at the point where average total cost equals the price, a monopolistically competitive firm will only earn normal profit. This is different will the long-run where a monopolistically competitive firm does not earn economic profit, rather earns just a normal profit. As profits in the short-run attract new firms in the industry, this increases competition resulting in increase in average cost.

Oligopoly by definition refers to a market structure dominated by few firms (Shapiro 2007, p. 81). This may result from collusion between firms in order to minimise competition so as to increase prices charged to consumers. Since there are few firms in the industry, the action of one firm is normally followed by other firms in the industry. The media industry, such as television firms is a classical example of an oligopoly. In the UK, for instance, any move made by BBC News broadcast station influences the decisions made by other firms. Regarding pricing decisions, an oligopoly is a price maker. This implies that any firm in the market is able to determine a price. This is particularly so with regards to the most dominant firm or price leader. In this regard, in the event that one firm reduces fees charged for a given service, other firms are likely to follow a similar move in order to remain relevant. Failure to lower price as does the price leader makes a firm lose market share since consumers will shift to the firm charging low fees for the product or service (Shapiro 2007, p. 91). However, a firm operating in an oligopolistic market usually finds it difficult increasing its prices. This is because any increase in price means that consumers have alternative firms to turn to for services or products. In most case, only the dominant firm sets prices, which other firms in the industry are forced to follow.

References

De Vogli, R 2013, Progress or collapse: The crises of market greed. Routledge, London, UK.

Johnson, G., Scholes, K., & Whittington, R 2010, Exploring Corporate Strategy, viewed 13 Feb. 2014 www.bbc.co.uk/news/business.

Laking, A. T 2011, Elementary manual of First Aid - British Red Cross Society. Read Books Design, Manchester, UK.

Moscaritolo, A 2014, ‘Virgin Atlantic testing Google Glass to make flying sexy again.’ PC News, 11 February, p. 5.

Moulds, J., & Inman, P 2013, UK economy should avoid triple-dip recession, OECD forecasts. The Guardian, 28 March, p. 7.

Shapiro, M. M 2007, Foundations of the market price system. Ludwig von Mises Institute, London, UK.

Virgin Atlantic 2013, World-first low carbon aviation fuel to be developed for Virgin Atlantic, viewed 13 Feb. 2014 https://www.virgin.com/travel/world-first-low-carbon-aviation-fuel-be-developed-virgin-atlantic.

Whish, R 2008, Competition law (6th Edn). Oxford University Press, New York, NY.