Analyse the internal and external environment of Virgin Atlantic using SWOT & PESTLE

• For BA Pestle and Swot analysis, see British Airways Pestle & Swot.
• For EasyJet Pestle and Swot analysis, see EasyJet Pestle & Swot.

1.0 INTRODUCTION 

Virgin Atlantic is a British airline carrier that is co-owned by Richard Branson’s Virgin Group [51%] and Delta Airlines [49%].  Started in 1984, it is currently the UK’s best carrier in terms of punctuality, quality and the speed of dealing with compensation claims (Morris 2016). Latest revenues for the year ending 31 December 2016 were approximately £92million on operating profits of £23 million, 0.5% increase from the previous year (Annual report 2016).

2.0 Virgin Atlantic PESTLE analysis 2016-2017(Opportunities and threats)

PESTLE is used in strategy to analyse the macro environment and identify how future trends in the political, economic, social, technological, environmental and legal environments might impact individual organisations within an industry. Firms then study the key drivers of change behind the PESTEL factors. These key drivers of change constitute opportunities and threats in a firm’s external environment and industry which can be overcome by focussing on strengths and eliminating weaknesses. This is why PESTLE is only a starting point since other frameworks such as SWOT and Porters Five Forces are used in conjunction by firms such as Virgin Atlantic to help in utilising internal core competencies and take advantage of opportunities while neutralising threats in the industry.

2.1 Political environment

In 2016, Virgin Atlantic operated in a challenging political environment, characterised by major terrorist attacks in key destination markets such as Paris, Nice, and Brussels. The biggest political shock was however Brexit when in June 2016, Britain voted to leave the EU, a move predicted to cause both political and economic upheaval and uncertainty for not only firms but also the UK economy, at least in the short term. Unsurprisingly, Brexit has already sparked political turmoil across the UK with Scottish Prime Minister Nicola Sturgeon calling for a second Scottish independence referendum to protect Scottish interests in the EU (Douglas and Gross 2016). The potential implications to leave the EU are many, not least, the regulatory consequences of the UK leaving the current EU aviation regulations with no clear future policy yet (Annual report 2016).

As Britain leaves the EU, the government’s decision last year (in 2016) to approve a third runway at Heathrow to expand UK airport capacity was nevertheless a welcome boost for Virgin Atlantic and other British airlines. With Heathrow currently the world’s most expensive hub airport, expansion will create new and affordable extra capacity at Heathrow which will also reduce the cost of operating to or from Heathrow (Johnson 2016). Further, expansion of Heathrow post-Brexit will allow carriers like Virgin Atlantic to offer more direct flights to not only UK destinations but also up to 40 new cities abroad such as Wuhan, Osaka and Quito (BBC 2016).

2.2 Economic environment

The uncertainty following Brexit had an economic impact on many British airlines including Virgin Atlantic. According to the annual report (2016), due to the Pound Sterling’s value dropping to a 31year historic low, Virgin Atlantic’s revenues generated in the USA were negatively impacted. This is because Virgin’s largest expenses are in dollars while revenues are in pounds, meaning after Brexit, the impact of exchange was negative on the company’s financial results, amounting to £50million despite hedging efforts (Annual report 2016).

On a more positive note, Virgin Atlantic benefited from low fuel costs as fuel prices of Brent crude oil fell by 21.8% during the first half of 2016 (Annual report 2016).

2.3 Social Environment

The peak summer season in 2016 was operationally difficult for many airlines including Virgin Atlantic, largely due to social factors outside of the airline’s control particularly, air traffic controller (ATC) strikes in France. A number of ATC union strikes hit France in 2016 due to social unrest over a series of disputed labour reforms from the Socialist government, causing Virgin Atlantic to cancel many flights to and over France. Further, recently in March 2017, French air traffic controllers (ATCs) started a five-day strike that affected flights to and from the UK, France, Spain, Switzerland and Italy. Virgin Atlantic, British Airways and other airlines such as EasyJet have already petitioned the EU and the French government to develop an action plan to minimize the impact of ATC strikes on passengers (The Guardian 2017).

2.4 Technological environment

The airline industry is currently undergoing digital disruption after years of relative stability following 911. The digital revolution has been ushered in by the internet and the larger role it plays in how consumers travel (Bloomberg 2017). More importantly, digital technologies are materially changing the cost structure of the industry, enabling new entrants such as WOW Air, to use digital technology to disrupt the legacy carriers such as Virgin Atlantic. Further as Jones (2009) has argued, the Internet makes industry competition perfect because it allows passengers to compare airfares of different airline companies with just a few clicks, which in effect affects pricing ability, according to Gal-Or (2011).

Nevertheless, the internet also presents a cost-cutting opportunity for Virgin which is why it recently launched AIR4, Virgin Atlantic’s biggest technological transformation in company history, which saw Virgin invest in IT based passenger service systems such as a new mobile app, self-service booking technology and improved kiosk functionality (Annual report 2016). Virgin also invested in IT new support systems such as new crew tablet devices for Virgin Flight Service Managers that help them deliver a more seamless and personalized service to passengers. In utilizing technological innovation, Virgin Atlantic will be able to minimise digital disruptions while taking advantage of technology to stay ahead in the industry.

2.5 The Legal environment

During the December 2016, Virgin Atlantic pilots decided to take industrial action in a row over union recognition after the pilots union, Professional Pilots’ Union (PPU) which represents over 70% of Virgins 900 plus pilots, demanded to be the only solely recognized union for Virgin’s pilotsand for British Airline Pilots Association (Balpa) to be derecognized (The Guardian 2016).

2.6 Environmental Factors

The environment, global warming, climate change are hot topics today everywhere. People are much aware of the effects of climate change since people of all nations have experienced some form of negative disaster; from drought, floods, extreme record breaking hot temperatures, record breaking sub-zero temperature, rising sea level, etc, that have been attributed by scientists to global warming.

Virgin Atlantic like many other airlines faced sustained operational disruption in June last year (2016) as well as January 2017 due to adverse weather conditions, in particular thunderstorms in South East England, which led to a cancellation of flights to and from London Heathrow and Gatwick and a delay in many other flights (Swinnerton 2017). Such external environmental factors do cause travel chaos for Virgin Atlantic and adversely affect passenger satisfaction resulting in loss of future revenue and additional costs.

Figure 1: Virgin Atlantic pestle analysis 2016-2017

3.0 Virgin Atlantic SWOT Analysis 2016-2017

A SWOT provides a reality check on Virgin Atlantic’s internal and external situations and performance (see figure 2).

3.1 Strengths

• Virgin Atlantic enjoys strong brand reputation and was ranked sixth in a survey of the world’s best airlines, the only British carrier to make the global top 10. The survey carried out by AirHelp, rated 78 airlines around the world to find the best based on punctuality, quality and the speed of dealing with compensation claims. Qatar Airways was rated the best in the world (Morris 2016).
• Fleet has been modernized.
• New VHQ headquarters opened in September.
• AIR4, Virgin Atlantic’s biggest technological transformation in company history, saw Virgin invest in passenger service systems such as a new mobile app, self-service technology booking technology and improved kiosk functionality. Virgin also invested in IT new support systems such as new crew tablet devices for Virgin Flight Service Managers that help them deliver a more seamless and personalized service to passengers (annual report 2016).
• A part of the Virgin Group of Companies portfolio means it has a financial umbrella that gives the company financial leverage. The joint venture with Delta also provides more flexibility and choices for its customers in travel.
• Virgin Atlantic is a very powerful brand, well known, especially in Europe and North America. It is one of Britain’s largest airline companies with a loyal base of customers who are attracted to the company’s focus on customer comfort and reliability. In 2016, Virgin Atlantic scooped the Best Cabin Crew Award of Airlineratings.com Airline Excellence Awards, with Airlineratings.com praising them as “a benchmark or what cabin service should be” (O'Hare, 2016).

3.2 Weaknesses

• Unfortunately, Branson’s connection to Virgin Atlantic seems to be so inextricable, because of his accomplishments for the company, which may be a risk to the company’s future. The weakness of this consists in the possibility that when Branson is gone, Virgin Atlantic is likely to struggle due to a possible over-dependence on him. The company needs to start have a good succession plan, if it does not have one, and to groom other people who will take over from Branson.
• Another weakness of Virgin Atlantic’s is stiff competition not only British Airways or American carriers, but also from cash rich gulf airlines such as Emirates, or Etihad, which also ply the same routes as Virgin Atlantic.
• Virgin Atlantic has minimal global presence. The Airline concentrates on Europe and especially North America, and has not taken advantage of emerging markets in Asia. For instance, in Asia, the Airline operates routes to Shanghai, Hong Kong, and Delhi, only; while in the Middle East, they fly to Dubai only (Virgin Atlantic, 2017). With the strong brand and a firm aviation background the Airline boasts, Virgin Atlantic should expand its routes to more emerging markets such as Mumbai, Doha, Abu Dhabi, Kuala Lumpur, Seoul, among others.

3.3 Opportunities

• Government approved third run away at Heathrow is great opportunity for Virgin Atlantic.The proposed expansion will create new and affordable extra capacity at Heathrow. It will also reduce the cost of operating to or from Heathrow which is currently the world's most expensive hub airport (Johnson 2016). Further, expansion of Heathrow post-Brexit will allow carriers like Virgin Atlantic to offer more direct flights to not only UK destinations but also up to 40 new cities abroad such as Wuhan, Osaka and Quito (BBC 2016)
• 2016 was characterized by low fuel prices and interest rates, and if such favourable economic factors continue, it will help promote growth in market capacity, benefiting Virgin Atlantic as well as other airlines.

4.4 Threats

• Brexit uncertainty is bad for many businesses including Virgin Atlantic
• Continued Air traffic controller (ATC) strikes in France continue to cause massive cancellations and delays for Virgin Atlantic and other airlines. This is not helped by the continued sole union recognition fight between the two Virgin Atlantic pilots union, Professional Pilots’ Union (PPU) which represents over 70% of Virgins 900 plus pilots, and British Airline Pilots Association (Balpa) which is the one currently recognized by the airline (The Guardian 2016).
• Digital disruption continues to pose risk
• Adverseweather conditions in the UK such as thunderstorms and extreme winter conditions are only becoming more frequent, not less, leading to more future scenarios of cancellations and delays for Virgin Atlantic and other airlines.

Figure 2: Virgin Atlantic SWOT analysis 2016-2017

Conclusion

2016 was a challenging year for many airline carriers including Virgin Atlantic dealing with major issues such as uncertainty due to Brexit, terrorist attacks in major destinations and flight disruptions due to industrial disputes as well as adverse weather. Nevertheless, the company sought to mitigate where possible the impact of these challenges through actions such as the launch of AIR4, Virgin Atlantic’s biggest technological transformation in company history to minimize digital disruption and modernizing its fleet. The good news is the company also benefited from low fuel prices and interest rates, economic factors that helped promote growth in market capacity. Going forward, Virgin Atlantic has core competencies and strengths that can enable it withstand short-term shocks. It is profitable with a strong global brand reputation which can serve it well to grow and expand to more international destinations especially Asia, Middle East, Africa, and Latin America as growth is currently too skewed towards North America.

References

BBC (2016) “Reality Check: Is new runway more important post-Brexit? Available [Electronic] at http://www.bbc.com/news/business-37762701[Accessed 11 May 2017]

Bloomberg (2017) “How Digital Revolution Is Disrupting the Airlines” available [online] at

https://www.bloomberg.com/news/videos/b/607ee90e-aa0d-4fc8-9bda-b6955209a212 [Accessed 11 May 2017]

Johnston, Chris (2016) “A third runway at Heathrow to expand UK airport capacity” BBC [Electronic] at http://www.bbc.com/news/business-37760187 [Accessed 11 May 2017]

Gal-Or, E., (2011) Pricing Practices of Resellers in the Airline Industry: Posted Price vs. Name-Your-Own-Price Models. Journal of Economics & Management Strategy, 20(1), p. 43.

Jones, P., (2009) Impact of the global recession on the hospitality and tourism industry.. Tourism and Hospitality Research, 9(4), pp. 363-367.

The Guardian (2016) “Virgin Atlantic pilots to take industrial action over union recognition” available [Electronic] at

https://www.theguardian.com/business/2016/dec/16/virgin-atlantic-pilots-industrial-action-ppu-union [Accessed 13 May 2017]

The Guardian (2017) “UK flights cancelled as French air traffic controllers strike” [Online] Available at: https://www.theguardian.com/world/2017/mar/06/flights-cancelled-french-air-traffic-controllers-strike [Accessed 11 May 2017]

The Telegraph (2016) “Christmas chaos expected at UK airports as Virgin pilots take industrial action and 1,500 airport staff vote to strike” available [Electronic] at http://www.telegraph.co.uk/news/2016/12/16/virgin-atlantic-pilots-strike-two-days-christmas/ [Accessed 13 May 2017]

Virgin Atlantic (2016) “Virgin Atlantic Annual report – 2016” [Online] at https://www.virginatlantic.com/content/dam/vaa/documents/footer/mediacentre/VAL_FY16_Annual_Report.pdf [Accessed 12 May 2017]

Morris, Hugh (2016) “The world's best airlines: only one UK carrier makes top 10” The Telegraph, Available [Electronic] at http://www.telegraph.co.uk/travel/news/the-worlds-best-airlines-according-to-how-quick-they-deal-compensation-claims/ [Accessed 11 May 2017]

Swinnerton, Lois (2017) “Heathrow Airport and British Airways flight cancellations after severe weather warning” available [Electronic] at

http://www.getwestlondon.co.uk/news/west-london-news/heathrow-airport-flight-cancellations-after-12441827 [Accessed 13 May 2017]

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