VAA Business Environment
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6528 Downloads I Published: 28 Dec ,2016
According to Ballard and et.al., (2012), business environment refers to all external and internal factors which are not in the control of business and it also makes an impact on the business functioning. It includes competitors, government, customers, suppliers, and the political, technological, social and legal factors, etc.
With a motive to attain deep understanding of varied elements of business environment, present report is prepared. It has been based on Virgin Atlantic Airways (VAA) which is one of the prominent British airline that established in 1984. It is owned 49% by Delta airlines and 51% by Virgin Group. Its fleet size is 41 and employs around 9,231 employees and earned revenue of £2.93 billion in 2014 (virgin-atlantic, 2015). In this report, business environment of Virgin Atlantic Airline (VAA) has been discussed. Further, in this report factors like stakeholder analysis of the firm, various strategies of VAA and the impact of fiscal and monetary policy on the company have also been studied in this report.
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The prime purpose of VAA is to make profit in a socially standard manner by allowing the people to travel various countries. However, another objective is to provide top-quality service and to achieve a considerable growth by meeting the needs and demands of the customers. The prime purpose of organisations like Red Cross Society is to render services to all the members of the given population. Red Cross Society is a registered charity which provides help to the people in at the time of crises in UK well as overseas. It is committed in helping people without any discrimination and regardless of their nationality, religion, ethnic origin or political beliefs.
It is essential for various organisations to recognise the interest of various stakeholders. Therefore, development of strategies and mission for Virgin Atlantic is a crucial task. On the contrary, Búciová, (2010) inferred that it is required to highly emphasize on the needs and requirements of the internal stakeholders like shareholders and employees; and the external stakeholders like suppliers, unions, community, general public, customers, government, etc.
Nandakumar, Ghobadian and O'Regan, (2010) inferred that, economic system is a structure in which a nation or a state allocates its resources its services and goods among the society. It can be referred to a plan of the country for its goods, service and the manner in which its economic plan is carried out. In this regard, three types of economic systems prevail around the world. They are as follows:
Free market economy: In this economy, the state and national government play a very negligible role. Customers and their purchasing decisions aids in driving the economy. In such system, assumptions of the market play a significant role in deciding the correct path for the economic rise of the country. It aims at eliminating or reducing subsidies for a certain industry, degree of regulation controlling various industrial sectors and pre-determination of prices for various commodities. In this regard, key feature of this economic system is the absence of central planning. Here, decisions made through market are highly dominated by the demand and supply (Jennings, 2014). The character of government in this economy is to ensure stability of the market so that, it can carry out the business activities in proper manner.
Command economy: The command economy is also known as planned economy. Its main aspect is that all the decisions regarding distribution, service prices, production and community, all are taken by the government. This economy is directed by the government and the market forces play a minor role in this economy. It is less flexible as compared to the free market economy and due to this reason, it gives a slow reaction to the fluctuating pattern of demand and supply and to the changes in the need of customers (Androniceanu, 2013). However, its motive is to use all existing resources to develop production rather than allocating the resources either for marketing or advertising.
Mixed economy: It combines the elements of both free-market and combined economy in one consistent system. This signifies that some elements from both the markets are taken into account for forming this type of economy. This system prevails in several countries where neither the business entities nor the government controls the economic activities of that nation and both the sectors play a crucial character in economic decision-making of that nation. In this economy, there is elasticity in varied areas and government control in rest of the areas. It includes social and capitalistic economies economic policies and often prevails in such societies which seek to balance a huge range of economic and political views (Varum and Melo, 2012).
Mixed economy results in allocating the resources effectively as it covers some features from both the markets for forming this type of economy. VAA operates in a mixed economic system only and there is a less intervention of the government as it is a private company. However, government only interferes when price is set very high against the services been offered.
Fiscal Policy: It is a government spending policies that certainly makes an impact over macroeconomic conditions. It deviates government spending, interest rates and tax rates for the purpose of controlling economy.
Impact on VAA:One of the fiscal policies which are directed towards the airline industry represents the fees and excise taxes charged on the air tariff. These fees and taxes are been determined by the government for improving the airports, providing security to airports and airlines, raising funds for FAA, delivering services to international customers and supporting services at air-park facilities. The government has made many amendments in this policy to ensure that the needs and demands of the consumers are being met (Gupta, 2013).
In the last few years UK airlines industry has faced continued challenges. This is reach to the extreme case when government forced more taxes on travellers who are going from the UK, alongside with the other expensive that charged by airport in the world (Rand and Tarp, 2010). Due to this external challenges, VAA has to suffer a lot. So, make their passengers attached with their services, they have to raise the level of good customer experience from their service by not charging any extra cost.
Monetary Policy: It is an action of bank currency, central or other regulatory committee which determines the rate and size of growth of money supply that in turn hampers the rate of interest. It is preserved through the actions like increase in interest rate, change in the amount which is required to be kept in the vaults or bank reserves by the bank.
Impact on VAA: Current monetary policy that developed by the regulatory bodies came in the form of stimulus check of the economy. During economic shortfalls of the economy of the country, travellers will have less available resources to enjoy their travel. However, airline industries can achieve economic success by adapting the ever changing environment of the economy and by managing the opportunity cost successfully.
At the time of recession, the government can reduce the tax rates and other government expenditures for encouraging the people to spend their money on the goods and services. However, the flow of money in market at the time of recession can also be maintained through quantitative easing and by reducing the interest rates as well (Zeng, Li and Duan, 2012).
EU Competition Law is regarding the guideline of competitive markets in European Union, to make sure that the companies are not operating in the race of creating a monopoly market and cartels that may destroy the economic interests of the society.
Contents of the policy:
Fix prices: The fixed prices of VAA helps it in maintaining a standard of its services provided, but, it also results in attracting less number of customers as compared to the competitors who provides services at a cheaper price.
Cartel: Cartels helps in providing the customers with new, better and modified facilities by the joint efforts of some manufacturers, but it may also have some adverse effects like, the manufacturers may create a monopoly of prices in the industry.
Limit production, market, technical development or investment: Due to less innovation and technical development in the company's services, make it outdated as compared to other companies in the industry (Richards and et.al., 2012). According to this competition policy, company should focus on technological innovation which promotes dynamic efficiency in the various market.
Oligopoly: This market is generally dominated by few number of large suppliers. Extent of concentration of market is very high in oligopoly. The firms in this market structure produce branded products. In the oligopoly market, the price of the product and output decisions is totally based on the competitors pricing. Sometimes, in this market, there is a barrier to the entry of new entities. The liberalisation of European airline market resulted in reduction of barriers to entry. These new entrants leased the aircraft for keeping the costs low. It can give rise to a variety of different outcomes. In some circumstances, the firm can employ restrictive trade practices for raising the prices and restricting the production.
Monopoly: In this, a single seller owns nearly all market for a certain service or product. In this market, the producer may produce a volume which is less than the amount that would maximise social welfare. The prices are determined by the seller only as he is the only seller of the goods and services in this type of market so he has the advantage to get maximum profits (Bates, Silverblatt and Kleban, 2010). When comes up with new product or services which is acceptable by the consumer it gives them power to make the modification in the output decision.
Perfect competitive market: In this type of market, large number of small firms having perfect knowledge of the technology and prices, sell identical products. There is freedom to enter and exit these markets. It provides an excellent benchmark which can be used for analysing the market structure of real world. In this type of market, a lower price is charged from the consumers and resources are allocated optimally.
Monopolistic competition: In this type of market, many producers sell differentiated products with no substitutes. In this, companies adopt the prices provided by the rivals and do not consider its impact on other companies. The producers have a high degree of control on the price of the products in these markets. Individual firm has the choice to sell a larger output by reducing price of the product or by greater sales promotion efforts (Lindsay, Tan and Campbell, 2011).
Increase in demand of the VAA tickets can result in a decrease in supply of the tickets of VAA. In case of high seasons, when the demand for the tickets increases, its supply decreases. For this purpose, VAA generally raises the prices of its tickets in case of high demand in order to reduce the supply. However, the supply for some premium tickets with high prices do not decrease with an increase in the demand for the tickets, as in that case, the increase in demand for premium tickets is comparatively low. Also, the people who are status conscious will prefer the premium class only irrespective of its prices. On the other hand, if the demand for the tickets of VAA decreases, the supply will be increased. Supply for the tickets can be increased by reducing the price of the tickets or by providing various offers to the customers in order to attract them. In this case, there will be unitary elastic demand as the proportion of change in demand and change in supply will be equal. The above graph also depicts that there is an inverse relationship between the demand and supply (Meiners, Ringleb and Edwards, 2014). Supply increases with a decrease in demand and vice versa.
VAA operates in several countries across the world. So, it deals with diversified culture in the organisation. The employees of VAA vary each other on the basis of languages spoken, ideas, working patterns, etc. So, issues may arise in terms of the uniform, the food provided and many other factors. The company need to take care of the ideas and beliefs of the employees and should integrate their individual’s ideas and objectives with the company's objectives.
Political: It includes goods merit, new interest rate, government intervention, taxation policy, etc. The government do not consider the Air Miles scheme as a taxable perk.
Economic: VAA considers recession congestion, increasing fuel cost and other environmental restrictions like insurance cost and higher security and also the per capita level of the inflation employment (Lindsay, Tan and Campbell, 2011).
Social: VAA focuses on various cultural aspects, seasonal offers, career attitudes, etc.
Technological: VAA is using bio-fuel by which it has benefits over other. VAA pays emphasis on promotion through internet which increases their consumer by providing them services like online ticket which provide convenience to the customer and also results in speeding up the operational processes. Cost synergies, e-marketing helps in attracting more and more customers, web-page development to be in direct touch with the customers. This innovations provides better services to the customer (Búciová, 2010).
Some benefits of international trade to the business organisations like VAA and BA are as follows:
It is crucial as it permits other companies to take the comparative advantage. By doing trade internationally, companies can able to learn the new technologies by which they can enjoy the benefits or competitive advantage over the domestic companies. When the countries take comparative advantage, it leads to an increase in the total productivity in the world. Thus, everyone is benefited from the extra output and in this way, international trade helps in establishing a higher standard of living (Ballard and et.al., 2012).
WTO main objective is to promote free trade all over the world. For this purpose various agreements are signed by the member countries. This help in reducing transportation cost because cross border custom charges are reduced to large extent. Consequently demand for airline services are also increase due to reduction in import and export duties. With reduction in these duties now more and more business peoples are using aeroplanes for importing and exporting products and machineries. NAFTA (North America free trade agreement) like WTO also focusing on promoting free trade among countries. Under this agreement various duties are reduces this directly affects profitability of airline companies. Due to reduction in export and import duties demand for airlines services is increased. Hence, airlines are benefited from these agreements (Richards and et.al., 2012). Due to terrorist attack, many times government closed airports and cancel thousands of flights which give direct cost to airlines. Even after reopening of the airports, passengers finds less safe to travel by it for sometimes due to shock (Varum and Melo, 2012). This global terrorism gives lot of impact on the sales of VAA and BA.
Europe union formed a very strict rules and regulations regarding safety. As a result European airlines have a good safety record in comparison to the other airlines that are operating in the Asia, Africa and Middle East. These rules are devised by EU council with the help of safety authorities of member states and international aviation organizations. EU is steadily making efforts in order to make further improvements in these standards. In earlier years EU banned various airline companies that are not complying with safety rules and regulations. But still there are many airlines that are not following these safety standards. Recently German aeroplane crashed after that European aviation safety agency is looking for modifying its safety policy regarding crew members. Earlier only one pilot remains in planes but after this incident European aviation safety agency planes to increase this number to two pilots (Moraru and Rusei, 2012). According to reports firms operating in aviation industry states that policies of EU are illegal and these policies will increase cost and prices of tickets. Consequently demand for airlines travel will also fall. EU also admits that its policies have adverse impacts on aviation sector but policy is within its rights and it will have minimum impact on the profitability of aviation firms.
In near term policies of EU will positively affects airline companies these companies will be overcompensated by the provisions that are devised to reduce airlines cost (Madura, 2006). This policy will give more benefits to EU airline companies in comparison to the non EU airline companies because EU airlines have more flights in comparison to the non EU companies.
Due to free movement of goods and services in European Union which results in creating more competition in the aviation industry (Rand and Tarp, 2010). Free movement of goods and services also results in increased specialization of the aviation industry and create large economies of scale.
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VAA is booming by 2010 and is ready to make additional changes for continuing the steady expansion of the business. Generally, airline business belongs to slow cycle markets, but because of smaller capital and operations of some companies like Virgin, firms in this industry are unable to expect good long-term returns as they are comparatively vulnerable to general environment. Thus, Virgin should focus on a particular market niche or particular routes for obtaining value and surviving in competition.
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