INTRODUCTION
Virgin group is one of the biggest capital organisations in the
In this coursework, the airline ventures by Virgin will be studied. The factors that would have helped the Virgin Express to succeed assuming that its rivals, Ryanair and Easyjet, were out of business will be identified. The importance of local market knowledge and operating experience will also be studied. Further in this coursework, the benefits that Virgin Express would get from its merger with SN Brussels will also be identified. Finally the factors that would help Virgin succeed in its airline venture in
VIRGIN EXPRESS COULD HAVE SUCCEEDED IF RYANAIR OR EASYJET WERE OUT.
The following factors would have made Virgin Express successful if Ryanair or Easyjet would have gone out of business.
i. Route network. In the absence of Ryanair or Easyjet, an appropriately designed route network would have been a major success factor. This means operating a flight schedule that is optimally configured to customer needs. A good route network has direct flight connections and high frequencies. (
ii. Access to infrastructure. The airline companies require slots on the target airports. In the slot awarding process, established companies have clear advantages since they only lose a slot only if they give up. New entrants are restricted to the allocation of new or unused slots. Therefore an absence of Ryanair or Easyjet would help it gain the slots on the target airports and therefore Virgin Express would have more access to infrastructure. (
iii. Attracting Customers. Attracting customers further depends on two factors. They are 1) the attractiveness of the airline's service and 2) the effectiveness of the airline's promotional expenditures. However nowadays another factor plays a very important role in attracting customers which is price of tickets. A lower relative price would generally be more attractive to most customers. (McCabe, 2006; p1)
iv. Efficient management. Another important factor for success is an efficient management of the people. If the airline manages it people well the productivity of the employees increases and this helps in increasing the overall productivity of the organisation.
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v. Use if IT. The effective use of IT in sales and distribution can have a significant impact on both cost reduction and revenue improvement through effective revenue management and enhanced customer loyalty programmes. IT should be used in all the airline operations, from aircraft maintenance to crew roistering, and from revenue accounting to gate allocation at airports. (Doganis,2006;p196)
vi. Cost management. Being a low fare carrier, it will have to keep its costs too low so that it can keep its fare low. This will require an efficient management of costs.
vii. Yield management. In order to be successful for an airline an important factor is yield management. The objective of yield management is to maximise the total revenue from a flight by the combination of price and capacity management. (
LOCAL MARKET KNOWLEDGE AND OPERATING EXPERIENCE
Nowadays the most important things that are required by organisations to achieve success are local market knowledge and the operational experience. The term local market knowledge means knowing the local competition, lay of the land, local laws and customs, current events, consumer base, audience, etc. (Source: http://www.business-in-barnet.com/local-market-knowledge.html)
The term operational experience means knowledge or practical wisdom gained from what an individual or an organisation has observed, encountered, or undergone. In most cases, operating experience is what an organisation gains from its previous business ventures. However an organisation may also gain operating experience by merging or indulging in a joint venture with organisations that have adequate operating experience.
IMPORTANCE OF LOCAL MARKET KNOWLEDGE
The local market knowledge is very important for organisations in order to achieve success. The points that support this statement are as follows.
Primary requirement of formulating a strategic approach to enter a new market:
The local market knowledge is the most essential requirement of formulating a strategy to enter a new market. Without knowing the local competition, lay of the land, local laws and customs, current events, consumer base, and targeted audience it is impossible to plan a strategy. For instance, if the organisations don’t know who their competitors are and what are the products they are selling, how will they design their product to compete the other local products. Further if they don’t know the local laws and customs required to be followed to operate in that particular area or market, the organisations may land up in legal hassles, which may lead to the failure of the organisations. Therefore local knowledge is the primary requirement of formulating a strategy to enter a new market.
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Attracting local customers: In order to attract local customers it is important to have the knowledge of the needs, tastes and preferences of the local audience. Moreover it is also important to understand their local culture, local fashion local climate etc. For example people some South Asian countries have less preferences for beef. Therefore restaurant chains may have to take care of that and put other items in their menu in accordance to the tastes and preferences of the local people. Similarly fashion houses may have to design clothing line keeping the mind the climate, tastes and fashion of the targeted audience.
IMPORTANCE OF OPERATIONAL EXPERIENCE
Besides local market knowledge, operational experience is also considered an important requirement to be successful by organisations. Organisations that have operating experience have higher chances of being successful when they start a new venture in that sector. Below are the points that support the statement.
Firstly, when the organisation with adequate operating experience starts a new venture it knows what precautions to be taken, learnt in its previous ventures. It therefore tries not to repeat its previous mistakes.
Secondly, organisations with adequate operating experience have less wastage of resources and this helps in bringing in cost efficiencies and high profitability.
Thirdly, not all businesses have same principles applicable to them. For example marketing strategies that are successful for soft drinks industry may be a disaster if applied to airline industry. Therefore if organisations have enough operating experience it can apply appropriate principles and operate accordingly.
In the case study of Virgin Blue, the success of Virgin Blue could also be attributed to the operating experience that the Virgin Group gained by their failure at the similar previous venture called Virgin Express.
There are many examples where big organisations have failed when they have entered a new field without operating experience.
Because of lack of local market knowledge and operating experience, it is seen that many organisations enter into a joint venture or merge with a local company that have adequate local market knowledge and operating experience. This helps them to take advantage of their local market knowledge and operating experience.
BENEFITS THAT VIRGIN COULD ACCRUE FROM MERGING VIRGIN EXPRESS WITH SN
By merging Virgin Express with SN Brussels, they can accrue the following benefits:
- Increase market share. The first benefit would be an increase in market share as the market share of each of them would be clubbed by the merger. This would help them have more control on the market.
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- Extend product/service portfolio. By merging with SN Brussels, Virgin will have more services to offer to its customers as it can link its routes with those of SN Brussels, thereby it can increase it services portfolio by a great extent. For instance there will be some locations where Virgin is not flying but SN Brussels would be flying.
- Economies of Scale. Another benefit that virgin could accrue from the merger would be economies of scale. It means that by merging with the SN Brussels the scale of operations would increase and these would help them to bring in cost efficiencies and reduce the cost and increase their profit margin. For example, purchase of bulk quantities of fuel will cost less.
- Acquiring technology. By merging with SN Brussels, Virgin Express can take advantage of the technology used by SN Brussels if it is more advanced than what is used by Virgin Express itself.
- Use of infrastructure. One of the important benefits of merging is use of infrastructure of the other company. Virgin Express can share the shelters, sheds, garages, maintenance and repair facilities, canteen supplies, etc with SN Brussels and these will help them reduce the costs of setting up separate facilities.
- Access to more markets. The merger with SN Brussels will give Virgin Express an access to markets where it couldn’t operate previously. For example it can use their licence to operate in markets where it couldn’t previously because of no licence.
- Better management. The management of the firm could also increase if the SN Brussels has better management within the organisation.
- Increase in Brand Value. The brand value of Virgin Express could also increase because of merger with SN Brussels as SN Brussels would have some brand value attached to it.
FACTORS THAT MIGHT DETERMINE BRANSON’S SUCCESS IN
Having achieved success in
- Absence of major competitors. A major reason for success of Virgin Blue’s success in
- Right management. An important ingredient for success in airline industry is an experienced management team with business education. For an airline president experience with that airline and industry are important. (Morrison & Winston, 1951; p101). If Branson uses right management that has enough local market knowledge and operating experience it would help Virgin USA to succeed in
- Good deals on aircrafts. Another major reason for Virgin Blue’s success in
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good deals on aircrafts. Therefore if Virgin USA manages to get good deals on aircrafts again, it can decrease its operating costs and therefore improve its profit margin.
- Establishing a framework for process ownership. According to James Yatras , Manager in Virgin blue, establishing a framework for process ownership was another reason for its success. Therefore Virgin USA should also establish a similar framework for process ownership in order to carry on the same success.
- Low costs. Being a low cost airline Virgin USA will have to reduce its costs as it did in Virgin Blue by including in-flight meals and printed tickets in favour of selling food on-board and using telephone and internet booking systems. It will also have to cut costs by limiting the number of airports serviced and by operating one type of aircraft, the Boeing 737.
(source: http://en.wikipedia.org/wiki/Virgin_Blue)
- Use of Internet. One contributing factor to Virgin Blue's success in
- Route network. Another key factor for success for airlines is to operate a flight schedule that is optimally configured to customer needs, i.e. that offer direct connections and high frequencies. ( Therefore Virgin USA will have to design an appropriate route network in order to achieve success.
CONCLUSION
At the end of this coursework, one can conclude that in spite of having all the right resources, business ventures can still fail if it lacks the power to fight its competitors. Further by looking at the failure of Virgin Express and success of Virgin Blue, one can also understand the important role played by local market knowledge and operating experience in an organisation’s success. This project also identified the benefits that an organisation can get by merging with another organisation, by using the merger of Virgin Express and SN Brussels as a case study. Through this coursework we also identified the factors that helped the Virgin Blue to succeed at a quick pace.
Therefore to conclude, this project revolves around one word: success. Through the case study of Virgin, this project identified, investigated, and analysed the various factor that can help business ventures to achieve success.
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References:
Books
- Doganis, R 2006, ‘The Airline Business, Routledge, p 196.
- Delfmann , W 2005, ‘Strategic Management in the Aviation Industry ,Ashgate Publishing Ltd., pp 229-230.
- McCabe, RM 2006, Graziadio Business Report, vol. 9, no.4, pp1-3
Websites
- Virgin Blue, viewed
- Contribution of IT in Airline Industry, viewed
<http://www.dell.com/content/topics/global.aspx/casestudies/en/2004_virgin_blue?c=us&l=en&s=corp>
- Local market knowledge, viewed
< http://www.business-in-barnet.com/local-market-knowledge.html>
