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Virgin Australia Case Study AssignmentHome »
The main emphasis as placed in this report is mainly towards analysing the important aspects of a business as selected from Australian background i.e. Virgin Australia. The main areas that will be analysed in this report includes an analysis of the main products that are offered by Virgin Australia, its business conditions as faced by it across Australia, important aspects related to the business operations of the airline including its factors of production and their cost, the macro environment conditions as faced by the organisation, and the sustainability practices that are considered by it. An analysis of all these aspects in relation to Virgin Australia is performed as follows:
Introduction of Business and General Business Environment
A critical analysis of the business activities of Virgin Australia with a brief assessment of the competitors and customers profile of the airline is performed as follows:
Name and Location of Business: The business as selected for the purpose of analysis is Virgin Australia and its analysis implies that it is Australia’s second largest airline. The Airline was founded in 2000 and within a short period of time, it has achieved higher level of success in its operations to become the Australia’s second largest airline (Virgin Australia, 2014).
Products or Services of Business: In terms of the nature of products and services as offered by Virgin Australia, its core product is air travelling services to its customers and this is mainly aimed at facilitating them with the opportunity to travel from one particular destination to another (Virgin Australia, 2014).
Main Customers of Virgin Australia: The customer profile of the company is also an important area of analysis because it is mainly the customers that define the overall effectiveness of an organisation. In respect to Virgin Australia, an analysis indicates that the main customer group of Virgin Australia includes business and corporate customers, customers from abroad especially the US and general Australian people at large. The core aspect to Virgin Australia that has contributed towards higher level of growth is the focus of the airline towards providing cheaper air travelling services, as it operates in the low cost model. This contributes positively towards the improved performance level of the airline and in attaining significant position within the Australian airline industry (Virgin Australia, 2014).
Main Competitors of Virgin Australia: Apart from customer analysis, it is also essential to evaluate the profile of competitors because an organisation is directly affected by its competitors. In respect to the Australian market, the main competitor of Virgin Australia is mainly Qantas Airline which has been the provider of premium class air travelling services and also low cost services through its subsidiary Jetstar. Apart from these, the other major operators competing directly with Virgin Australia include United Continental Holdings Ltd, Singapore Airlines Ltd etc. Since Virgin Australia operates on the low cost business model, the airlines that are operating on this model across the globe also competes with it and these mainly include Southwest Airline, Ryanair etc (Qantas v Virgin Australia: The war that cost $8.75m a day, 2014).
Market Share: In respect to the market share of Virgin Australia in the Australian air travelling industry, an analysis indicates that the market share of the airline accounts to 25% currently and the company has undertaken various major initiatives with respect to providing its services with a view to ensure the delivery of high quality services with a view to attract more and more customers. As a result, the airline is eyeing for larger market share with a view to achieve enhancement over it to 30% by 2017 (Cheap airfares disappearing as Qantas and Virgin Australia truce takes toll, 2014). Contrary to this, in respect to its competitor Qantas, it has been the market leader with 65% of market share in the airline industry across Australia.
The entire analysis as carried out especially in respect to the competitive environment conditions across the airline industry in Australia, the market condition can be defined as the one similar to that of perfect competition. There has been higher level of competition between the two major airlines especially Virgin Australia and Qantas Airline as they are competing against each other with a view to acquire higher market share. Virgin Australia in particular has recently performed modifications to its business model by adding extra services in its low cost model and there are changes with respect to uniform and other physical evidences being carried out. These are mainly to compete with Qantas and achieve higher market share. In addition to this, the analysis with respect to the substitute in airline industry indicates that there is no close substitute. However, the road transportation and waterways are posing certain major challenges to the efficient performance of the airline industry (Virgin Australia, 2014).
Apart from this, the analysis of the cost of the product implies that it is equivalent to 10% of the average income of the customers as earned by Australians. The annual per-capita income of Australians accounted to around $50000 whereby in travelling to local destinations, they mostly have to incur a cost between $5000-$8000 depending on the time and destinations as selected by them.
Production Costs and Scale
The services that are provided by Virgin Australia are now aimed at analysis with regard to their production costs and scale. There are certain major production processes that have to be carried out for the purpose of delivering the products and services to customers. As a result, the major factors of production that are considered in respect to delivering Virgin Airline’s services in the form of fixed and variable cost of production are analysed as follows:
Fixed Factor of Production: The services as offered by Virgin Australia to its customers imply that it is mainly the transportation services whereby people select the airline in order to travel from one destination to another. The delivery of such services is being ensured by Virgin Australia by following through certain major fixed and variable factors of production. The major fixed factor of production that has been noted in respect to the successful delivery of services to customers include the cost borne by the company in purchasing aircraft since it is a one time cost. Another major fixed factor of production that is identified in respect to the efficient service delivery by Virgin Australia to its customers is the airport operating charges that the airline has to face. In efficiently performing the airline services, the airline operators are required to pay the airport charges to the authorities. This cost is also fixed in nature and airline have to incur this cost even if it does not fly is aircraft. In running the aircrafts, the taxes to government on the services as offered to customers is also fixed in nature that have to be paid by the airline by way of collecting them from their customers. These are the major fixed factors of production that have been noted in respect to Virgin Australia’s successfully delivery of services to its customers (Virgin Australia, 2014).
Variable Factor of Production: In addition to the fixed factors of production, the airline operation is also supposed to incur variable costs in ensuring its successful performance. Variable costs are the one that varies with the quantity of products or services delivered to customers. An analysis with respect to Virgin Australia indicates that the airline also incurs significant variable cost in the process of successfully delivering services to its customers. The variable factor in the process of delivering service is mainly the oil charges, as this charge is mainly decided by the distance as selected for travelling purposes. The longer distance would mean higher fuel charges, and vice versa. Thus, in case, if a flight does not operate on a particular day, there would not be any fuel cost and this suggests that the cost of fuel is variable and it occurs with the delivery of services as performed by airline. The analysis of Virgin Australia’s services implies that the airline operates on low cost model and it has recently considered the delivery of foods and refreshment on-board to its passengers that wish to buy them. This is also a major variable cost in the delivery of services to customers because the cost of such products and services has to be borne when the customer avails such services (Virgin Australia, 2014).
Thus, the analysis above indicated about the fixed and variable factors of production that Virgin Airline has to incur in providing its low cost air travelling services. The factors of production as assessed in respect to Virgin Australia has indicated that the cost structure of the firm is partly fixed and partly variable in nature. As for instance, there are certain major fixed costs as well as variable costs that have to be borne by the airline in the process of delivering cost efficient services to its customers. However, the fixed cost occupies the larger share of the entire total cost in delivering services and this is mainly because the airline operating charges including the cost of airline itself is massive and this leads to higher fixed cost share in the total cost of the firm.
Macro Business Environment
An analysis of the macro environment conditions is also crucial from the point of view of performing a critical analysis of the Virgin Airline’s operation. As a result, the focus of analysis in this section is mainly towards the external environment conditions that is affecting the performance of Virgin Australia. The international operations of Virgin Australia indicates that the airline is operating across different major destinations throughout the globe, but for the purpose of analysing the external market environment, the specific market that has been considered is mainly the Indian markets. It has been assessed that Virgin has its flights to major cities in India including Mumbai, Delhi etc. In relation to this, the important factors are discussed as follows:
Stability of the Political Systems: The airline industry in any economy is highly affected by the political conditions, and similar is the situation in respect to Indian economy. It is essential that there should be favourable trade relations that should be ensured between two countries for the purpose of efficient exchange of products and services within them. In terms of such trade relation of Australia with India, there has been favourable trade relation and this is quite clearly evident from the Australian flights operating in India and Indian flights serving its passengers across Australia. This indicates the existence of political stability in respect to Indian economy in respect to its political systems (Parvathi, 2013).
Economic Factors: The economic factors are also the important ones affecting the performance of an organisation, and there are various major indicators of the economic performance of a country. The inflation levels in particular has been showing a declining trends in India as it was 9.84% earlier and declined to 7.8% in 2014 (Indian Inflation Rate, 2014). In respect to the unemployment trend in India, it has been rising over the past few years whereas in terms of interest rates, it is analysed that the performance has been excellent as it increased significantly to touch the figure of 14.5% (Unemployment levels rising in India, experts say, 2014). The economic factors in respect to Indian economy is therefore showing favourable performance conditions as the inflation level declines in last two years, and the impact of recession is also declining, as the Indian economy is showing favourable performance levels (India Interest Rates, 2014).
Exchange Rate Impact: In respect to global operations, the role of exchange rates is also crucial. As for instance, the operations of Virgin Australia are directly affected by the exchange rate fluctuations because of its flights operating across different corners of the world. In respect to operation of Virgin Australia in Indian markets, there is an impact of the exchange rates, as one Australian dollar is equivalent to 55 Indian national rupees (Exchange Rates, 2014). There has been a decline in the Indian currency being identified recently as against the Australian Dollar as indicated below:
In terms of overall economic performance of Indian economy, it is analysed that it has been effective in supporting the performance of Virgin Airline to a greater extent. This is evident from declining inflation rates and rising interest rates and as a result, there has been the greater possibility of Virgin Australia operating more of its flights to India in serving its customers and thereby in attaining higher growth levels. The current performance levels suggest that the economic factors are favourable to the overall performance of Virgin Airline and they would further contribute in a positive manner as evident from the discussion below:
- The current performance level of economies implies that they have positive level of impact on the performance of Virgin Airline. The demand is affected by significant levels during recessionary period because people mostly face liquidity problem and these results into the economic climate of countries showing poor performance with regard to sales.
- With regard to the availability of key factors of production, they will not be impacted from the inefficient performance of the economy because they do not impact on the future operating cost of Virgin Airline.
- There has been the devaluation of Indian currency as against the Australia dollar being noted and this would therefore affect Virgin Australia in a negative manner as there would be fewer passengers seeking the airline services.
Sustainability Practice of the Business
The sustainability practices that are being followed by Virgin Australia in performing its operations are briefly analysed in this section of the report. The important areas of discussion are performed as follows:
- There have been negative externalities in respect to the performance of Virgin Australia being noted, as the operations of airline adversely affect the environmental conditions in terms of emission of fuels. There are although regulatory measures that controls the emissions of airlines by imposing necessary standards in terms of controlling the emission rates. This impacts the performance of Virgin airlines in terms of positively working towards achieving reduction in its emission rates, and addressing the issues as posed by externalities.
- There is no any adverse impact on company’s performance levels or its environment from the production of services as carried out at Virgin Australia. The negative environmental performance is mainly evident from the aircrafts that are operated by the Virgin Airline, and there is no such impact of the services as consumed by the passengers.
In respect to ensuring the efficient performance level of Virgin Australia, it is essential that the airline should focus towards higher level of sustainable performance levels in order to operate in a successful manner. The sustainable performance level at Virgin Australia can be positively ensured in the form of utilising fuel efficient aircrafts in its operations, disposing of aircrafts that have become old and considering the purchases of new ones, and also participating in activities that ensures societal development. By considering these sustainable practices, it could be possible to organisation in achieving higher sustainable performance levels in its operations and thereby, positive overall growth can be ensured by it.
This report involve an evaluation of the performance of Virgin Australia in respect to different major areas and the findings as arrived has been critical in this respect. The analysis leads to identification that Virgin Australia is an Australian airline company that is mainly aimed at providing air travelling services to its customers across the globe. The analysis mainly focused towards evaluating the factors of production which are identified as both fixed and variable factors of production that are utilised in delivering the high quality airline travelling services to customers. The analysis of the macro environmental condition has been performed in respect to Virgin Australia and it is analysed that the economic factors affecting the performance of the airline are positive. Such conditions especially in respect to Indian market are evaluated because Virgin has its operations across India. It is analysed that there has been favourable overall performance of the Indian economy and it will therefore support positively to the entire Virgin’s performance level. There has also been the evaluation of the sustainable performance of Virgin Australia has been performed and it is analysed that the sustainable measures are essential for the purpose of achieving effectiveness in the entire industry performance. The greater consumption of fuel has affected the airline performance adversely and this necessitates the need for sustainable performance by the airline operators in achieving effectiveness in their operations.
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