STRATEGIC MANAGEMET

Strategic Management: Virgin Atlantic Airways

Strategic Management: Virgin Atlantic Airways

Introduction (Q 1)

By the external environment, we mean factors that are beyond the control of the organization and may impact on its strategic direction, its internal processes and structure (Pearce & Robinson, 2011, p. 88). The external environment consists of the macro-environment: analyzed with PESTEL (an acronym for Political, Economic, Socio-cultural, Technological, Environmental and Legal factors). A PESTLE analysis shows the effect of these factors in the Airline industry. We would examine this effect on Virgin Atlantic.

Discussion

Political Factors

These are Government operating regulations within, which the airlines have to work with. The Single European Sky (SES) initiative was created to serve as a regulator for Air traffic management in the European Union. The European airline deregulation has created a single market, removing restrictions from member countries and creating international competitiveness. This would mean reduced competitive advantage of national carriers like British Airways, which is a good for Virgin Atlantic. However, this has also seen the rise of low-cost airlines that has increased competition for the major airline companies like Virgin Atlantic. The recent EU-US “open skies” agreement, which opens up the transatlantic route allowing all European carriers to fly to US has also increased competition for Virgin Atlantic. This is because this route was exclusive to Virgin and 3 other Airlines.

Economic Factors

Economic factors are concerned with the nature and trend of the economy in which the firm operates (Pearce & Robinson, 2011, p. 89). The profits from the Airline industry are expected to fall by 40% this year as stated by IATA, this is due in-part by the rising oil price (Bisignani, 2011). Another report suggests that revenues from UK airlines Industry fell by 19.7% in 2009 with passenger volume shrinking by 7.4% the same year (Datamonitor, 2010, p. 9). Virgin Atlantic was also hit by the economic downturn of 2009, reporting an operating loss of £132m and revenues going down by 8.6% to reach £2,356.6 m (The Virgin Atlantic Press Office, 2010, p. 5). However, they showed signs of a quick recovery a year later.

Socio-cultural Factors

These are factors that influence the beliefs, values and culture of the society (Dess et al., 2010, p. 56). In a recent survey of UK business class travelers, 74% said children were what annoyed them most about the first class travel, and they are currently clamoring for 18+ only travel. Travel experts are looking at Virgin Atlantic to start offering this service. (Business Travel and shows, 2011, p. 3) The population of the UK is ageing, with an increase of 1.7million of people aged65 and over in the last 25 years (Office for National Statistics, 2010, p. 1). As these figures are expected to increase in the coming years, this would affect the generally reduce the number of travelers in the airline business and also increase the cost of building aircrafts that would support over-age passengers.

Technological Factors

Technology is increasing expected to contribute to the success of the aviation ...