Virgin Atlantic

International Economic Environment and Virgin Atlantic

International Economic Environment and Virgin Atlantic

Introduction

Virgin Atlantic Airways is a British airline based in Crawley and has bases in London Heathrow and Gatwick. It is an organisation, which is 51% owned by Sir Richard Branson of Virgin Group and 49% by Singapore Airlines. Virgin Atlantic was founded in 1984 and took the first flight from London Gatwick to New York-Newark with a leased Boeing 747-200. In December 1999, 49 percent of Virgin Atlantic was acquired by Singapore Airlines for 1.81 billion Euros.

Virgin Atlantic was the first airline in Europe that offered a premium economy class product as between business and economy class, and was the first to the now used by several airlines (including Cathay Pacific, Air New Zealand and Air Canada). The airline also introduced a "Herringbone Configuration "in the Business Class (Upper Class on Virgin) - a diagonal seating arrangement allows each passenger direct aisle access (Meersman et al., 2008, p. 71-90).

Virgin Atlantic mainly operates intercontinental destinations, such as in the Caribbean, as well as international cities such as Los Angeles and Hong Kong. Thus Virgin Atlantic maintains no short haul network; where the shortest route is the London - Accra route. The longest track is London-Hong Kong to Sydney. Most flights are handled from London Heathrow airport from; other airports in the UK are Gatwick, Manchester and Glasgow.

Virgin Atlantic's profitability rose but drop during 2005-2007 due to rising oil prices. The company applied cost efficiency mechanisms and ultimately regained profitability in 2008 - 2010.

Yr

Net profit margin

ROE

ROA

= NPAT / operating revenue

= NPAT / TE

= NPAT

/TA

2005

5.63%

11.08%

4.74%

2006

4.08%

9.16%

3.70%

2007

5.18%

12.69%

4.93%

2008

4.71%

12.95%

4.62%

2009

0.98%

2.50%

1.52%

2010

1.24%

2.88%

1.76%

VBA

0.71%

2.82%

0.59%

AIZ

2.03%

5.17%

1.7%

Industry

-0.30%

1.64%

0.32%

UK Airline Industry projected revenue

Discussion

Macro Environment

Theories of Global Trade

The classical theory of international trade has its roots in the work of Adam Smith, he thought that the goods were produced in the country where the cost of production (in the framework of his theory of labour value is valued at work) was low and from there exported to other countries. He advocated free trade and unfettered to reach and stimulate the growth process supported the trade based on absolute advantage and believed in the international mobility of production factors (United States 2009). According to their theories, the absolute advantage are those countries that are able to produce a good using less productive than other factors, and therefore with a lower production cost. The traditional theory was developed into a more sophisticated theory by Ricardo what matters is not the absolute costs of production, but the relative costs resulting from the comparison with other countries. According to this theory, a country always get benefits of international trade, even though production costs were higher for all types of products manufactured, because this country will tend to specialize in that production that comparatively more efficient. This is the case with Virgin Atlantic, which enjoys the recognition of the Virgin Brand and possesses a key competitive advantage in offering premium airline services.



Figure 1.1 - Domestic Air Fares (Business)

Figure 1.2 - Domestic Air Fares (Economy)

Figure ...