Brand Strategy Assignment for Virgin Atlantic

1. Marketing and Brand Strategy
Virgin Atlantic
Univesity of Westminster
Word Count: 4323

2. Executive Summary
The following report has been written with the intention to consider Virgin
Atlantic’s current position in the market, how the company has come so far
and what its points of focus should be as strategies for the
future. Throughout, Virgin Atlantic’s performance will be compared with its
four main competitors: British Airways, Cathay Pacific, American Airlines and
Lufthansa.
The first aspect that will be addressed will be the one of finance. From the
produced data it is clear that Virgin is not performing as well as its
competitors, except in the case of American Airlines. Fuel prices on the rise
and the pressure of rising market shares of low cost airlines in the aviation
sector creates a very small margin of profit and operation. Airlines are
therefore merging to reduce their losses and expand their service base.
In respect to current Marketing activities Virgin focuses on quality rather than
quantity. In order to be more engaging with consumers Virgin has launched
social media campaigns. The ‘Face’ of the brand Richard Branson is also
used extensively in PR stunts to raise brand awareness.
While analyzing the strengths of Virgin it is evident that Brand Identity and
Comprehensive Services are the front-runners. Weaknesses that exist are
mainly due to the limited fleet size and destinations. The threats presented to
Virgin are the current price war, economic downturn, consolidation of airline
industry and the volatile nature of fuel prices. The opportunities are however
possible expansion into Asian market and the building of Brand Provenance.
The application of Ansoff’s Matrix and Porters Five Forces further
consolidates the aforementioned findings.
Virgin positions itself as a direct competitor to British Airways, the markets
current leader. The shift in economy has however resulted with a focus on
Asian markets where Virgin has an advantage in the form of an existing
alliance.

3. Recommendations have therefore been made that suggest the movement of
Virgin Atlantic into the Public sector. A merger with Singapore Airlines in order
increase fleet size is another way forward. A re-brand to ‘Virgin Pacific’ with
an emphasis on the Asia-Pacific market; the deployment of local offices and
management to strengthen the Global-Local nature of the endeavor and the
exploitation of existing, reputable alliances for gaining trust is the
recommended option.
Virgin’s future in conclusion lies solidly in the Asian market and its continued
growth.

4. Table of Contents
Introduction....................................................................................................5
1.0 Financial Analysis....................................................................................6
1.1. Virgin Atlantic Financial Performance ........................................................ 6
1.2. Marketing Activities and Performance........................................................ 7
2.0 Marketing Activities .................................................................................7
2.1. Flying in the face of ordinary....................................................................... 7
2.2. Buzz Marketing and Social Media: Looking for Linda................................ 8
2.3. Loyalty Programs ......................................................................................... 9
2.4. Richard Branson........................................................................................... 9
3.0 Analysis of the current market situation .............................................10
3.1 Porter’s Generic Strategies ........................................................................ 12
3.1.1. Cost Leadership..................................................................................... 12
3.1.2. Differentiation ........................................................................................ 13
4.0 Virgin Atlantic’s position.......................................................................14
4.1 SWOT ........................................................................................................... 14
4.2 Ansoff Matrix ............................................................................................... 17
5.0 Recommendations.................................................................................18
6.0 Conclusion .............................................................................................21
7.0References...............................................................................................23
8.0 Bibliography:..........................................................................................29
Appendices ..................................................................................................30
Appendix 1: Perceptual Map............................................................................. 30
Appendix 3: PEST Analysis European AIrline Industry.................................. 40
Appendix 4: Financial Analysis........................................................................ 43
Appendix 5: The Ansoff Matrix........................................................................ 46
Appendix 6: Porter’s five forces....................................................................... 47
Appendix 7: Competitive Analysis ................................................................... 49

5. Introduction
Initiated by Sir Richard Branson, founder of the Virgin group, “Virgin Atlantic
took to the air in 1984” (Virgin Atlantic History, 2013) And it reflected all the
values promoted by all the products under the ‘virgin’ umbrella: “value for
money, quality, innovation, fun and a sense of competitive challenge” (Virgin
Atlantic, About us, 2013) “On 20 December 1999 Richard Branson signed an
agreement to sell a 49% stake of Virgin Atlantic to Singapore Airlines to form
a unique global partnership.” (Virgin, about us, 2013) However, Branson
retained the controlling 51% stake in the company and focused on
developing it into a successful airline.
Currently, Virgin Atlantic operates in the UK out of Heathrow airport: “We've
only got 3% of the slots at Heathrow, but we have 10% of the movements and
a 23% or 24% market share on the North Atlantic."(Kinglsley-Jones, M., 2011)
And it has positioned its self as the main competitor of British Airways. For
this reason, during the following analysis of the airline market situation and
Virgin’s position within it, the company will be compared to the previously
mentioned airline and its other three direct competitors that can be seen in the
image below.

6. (Source: The author, view Appendix 7)
The success of the airline industry depends on numerous uncontrollable
factors influencing the market place. These range from volatile fuel prices,
economic crises, natural catastrophes to an increase in political as well as
safety regulations, just to name a few of the challenges companies face. In an
environment with such intense rivalry, it is crucial to differentiate to survive; a
point which Virgin has continuously excelled at through their marketing
communication efforts. Virgin Atlantic has managed to transform their product
into an experience, allowing their brand personality to thoroughly shine
through. (Brownsell, 2013)
1.0 Financial Analysis
During the times of rapid expansion before 1969, the airline industry used to
be a highly profitable business sector. (Hutchkinson 2011) Today, however,
the industry is considered to be a somewhat unattractive market, especially
with regards to return to shareholders. When exploring the recent industry
statistics, the highest profit margin the sector was able to attain was an
unspectacular 2.9%, in 2007 and 2010. The lowest year was in 2008, when
the financial crisis, coupled with record-high oil prices, resulted in a
devastating return of minus 4.6%. (Frenquest, 2012)
In order to compete for an increase in market share under these burdening
circumstances, airlines are required to go “the extra mile” and differentiate
their services. Whereas Virgin is putting all its marketing efforts into creating a
strong brand personality and highlighting the feel of the experience of using
their services, Hutchkinson (2011) argues that “the general experience of
flying is so universally unappealing that an airline competing on superior
service is like a dentist competing on the basis of having a more comfortable
chair”.
1.1. Virgin Atlantic Financial Performance
Despite enjoying very stable positive brand image, Virgin Atlantic has showed
a weak profit margin over the past 5 years. The underlying reason in addition
to increased fuel prices and turmoil in the economic market is that Virgin

7. Atlantic has had a weak cost control culture and was not able to fill the seats
on its carriers appropriately to cover its expenses. (Appendix 3, Centre of
Aviation, 2013) American Airlines is the only competitor doing financially
worse by even operating on bankruptcy. Effective cost management have
allowed Lufthansa and British Airways to keep their profit margins steady and
losses at bay. Cathay Pacific, on the other hand, has benefited from the
increasing demand for air travel in Asia and could outperform its competitors
during the years of crises. (Appendix 3, Financial Analysis)
1.2. Marketing Activities and Performance
Virgin Atlantic’s marketing activities have increased the brand preference over
time. From 1993 to 2006, the brand preference for Virgin Atlantic compared to
British Airways augmented. In May 2009, Virgin published a £68 million,
whereas British Airways reported an operating loss of £401million. Their total
investment in marketing communications amounted to £20.77 million
(Donnelly, 2009). Despite outperforming British Airways in 2009, its fragile
cost management has and will encumber their financial performance.
2.0 Marketing Activities
2.1. Flying in the face of ordinary
In January 2013, Virgin has launched its latest campaign with “Flying in the
Face of Ordinary” with its new global brand scheme. The TV commercial
brings Virgin Atlantic’s innovative and pioneering spirit to life by capturing their
passionate attitude for flying and highlights their mission to go beyond the
standards to provide passengers with a memorable and exclusive experience.
With a consistent message throughout all areas of business, it is perceived to
be a very powerful brand proposition (Haystackonline, 2013). Their
advertising campaigns have managed to strongly connect consumers to the
brand emotionally (Donnelly, 2009).

8. (Courtesy of Virgin.com)
2.2. Buzz Marketing and Social Media: Looking for Linda
In 2011, Virgin has launched its first TV campaign since 2006. In order to
complement their presence on TV and reaching a larger audience Virgin
started a social media campaign through their Facebook page. The firm
implemented a non-traditional promotional approach by introducing
conversational marketing into their mix by engaging their customers. Based
on the Facebook fans and Twitter followers’ love for travel, the audience was
offered meaningful and tangible rewards in exchange for participation and
engagement. Virgin Atlantic introduced “Linda,” a fictional stewardess, who
blogged about her world travels. Followers, who could guess Linda’s
destinations correctly, were able to partake in contests to win flight tickets. By
joining the marketing dynamics of the digital era, the campaign was highly
successful and allowed them to expand their social follower base and create
positive buzz and word of mouth. (Wildfire.com, 2013) Lufthansa regards
their Facebook page as the most important customer communication tool, but
has been utilizing their presence in more technical terms rather than
meaningful engagement to improve their customer relationships. American
Airlines, on the other hand, uses social media to monitor consumer created

9. content to gain key business insights via real-time social
analytics. (Eyefortravel, 2013)
2.3. Loyalty Programs
Whereas British Airways, American Airlines and Cathay Pacific are members
of Oneworld and Lufthansa a member of Star Alliance, Virgin Atlantic has not
joined an alliance to this day. Even though their loyalty programs provide
attractive rewards, they are only able to transfer their air miles to a limited
number of other carriers with which they have a code sharing agreement.
2.4. Richard Branson
The brand identity of Virgin in general is modeled on Richard Branson’s
personality. He embodies the brand he created and also frequently makes an
appearance in the advertisements of his companies. Even though he has not
appeared on any Virgin Atlantic commercials recently, he is very active in the
public eye through PR stunts in association with Virgin Atlantic. The most
recent example is when Branson lost a Formula 1 bet with CEO of Air Asia,
Tony Fernandes. The loser’s penalty was to serve as a female flight attendant
on the winner’s airline. Bransons’ appearance got a lot of media attention and
reinforced Virgin’s fun brand image (CNN 2013). No other airline has
incorporated the use of a brand ambassador in their marketing activities.

10. (Courtesy of channelstv.com, 2013)
3.0 Analysis of the current market situation
“Virgin Atlantic’s success is not down to people flying on it because they buy
into a philosophy, but because it’s a very good product at a competitive price.”
(Taylor, D.; 2006, p.6) Currently, Virgin Atlantic is one of the main airlines in
the world, with a fleet of 38 planes servicing 34 routes (Appendix 2) and
receiving numerous awards. (Appendix 2)
The airline industry is a very competitive one especially for a brand that has
positioned itself as the main competitor of one of the biggest players in the
industry: British Airways. Aside for Great Britain’s flag carrier, Virgin's
competitors are also Lufthansa (Appendix 2), American Airlines (Appendix
2), and Cathay Pacific (Appendix 2)
The current political unrest in the middle east, particularly in
Syria, (IATA 2013, Appendix 3) has caused for the oil prices to rise and
therefore for airfares to become more expensive, this is a clear threat to the
industry that can hardly be addressed. Throughout the past 2 years, the world
has not seen the oil price per barrel drop below a 100 dollars (PWC 2012).
However, for 2013, the fuel prices have stayed below the past years’ levels,
which enable airlines to cut down their operating expenses. Regrettably,

11. sinking fuel prices are also a sign of a weakening economy, which ultimately
will affect the demand for global air travel (Zacks.com 2013, Appendix 3).
The unstable economy has also affected some of virgin's competitors as, in
terms of geography, the German and UK markets are recording a better
performance compared to the rest of the Eurozone. This indicates that there is
the opportunity to grow for Virgin Atlantic; the company could take on the
routes of the competitors that are currently in a country that is performing
worse than the United Kingdom.
Moreover, well-established larger airlines with stable long-haul operations
have been less encumbered by the crisis. IATA is expecting a 4.0% increase
of passenger demand with only a 2.8% expansion in capacity. (IATA 2013,
Appendix 3)
However, the shifting economy has benefited Cathay Pacific and airlines with
a strong base in South-East Asia, as Chinese tourist are now the biggest
source of travel spending. (BBC 2013, Appendix 3) Virgin Atlantic has an
ongoing partnership with several Asian-based companies such as China Air.
This allows customers to spend air miles on both airlines. The development of
the South-east Asian markets also represents an opportunity for Virgin
Atlantic as they could partner with more local airlines and start performing the
flights from Europe to the main Asian destinations with their own planes.
(Virgin Atlantic, Flying club, last accessed 2/12/2013)
The Asian market should be of interest to all airlines as their regulations are
also more flexible. Recently, the EU has established a cap on CO2 emissions
for flights arriving and departing from EU airports. The majority of the
emissions come from overseas flights. Direct emissions from aviation amount
to 3% of the total greenhouse gas emissions of the EU. (European
Commission 2013, Appendix 3). In order to operate within the EU, Virgin
Atlantic has adapted its’ corporate social responsibility program, as its
competitors have done too: “Virgin Atlantic has introduced a number of
recycling initiatives both on board aircraft and throughout the company's
offices. These measures are environmentally conscious and cost effective,

12. enabling the airline to assist a number of charities and institutions. Recycling
is carried out in compliance with Ministry of Agriculture directives to ensure
the highest health and safety procedures are adhered to.”(Virgin Atlantic, All
about us, last accessed 2/12/2013)
3.1 Porter’s Generic Strategies
Porter’s Generic Strategies help illustrate the strategic choices a firm must
make to strengthen its position in relation to the five forces, which outline
competition and threats. (Peng, 2009 p.44) (Appendix 6)
3.1.1. Cost Leadership
Low cost carriers (LCCs) as well as mid-range airlines are appealing to a
broad scope of consumers. As Virgin Atlantic does not fall into the low cost
category, but pioneered unique features to differentiate their services, they
have adopted a differentiation strategy. However, as LCCs follow a cost
leadership strategy, they are offering the same value for product, in this case
the flight, at a lower price. This tends to attract a larger number of customers
and allows them to sell higher volumes at lower margins (Peng, 2009 p. 45).
The chart below indicates the significant increase in routes operated by low

13. cost carriers and therefore demonstrates that they have formed a substantial
threat for traditional airlines.
(courtesy of: http://www.caa.co.uk/ 2006)
Cost leaders are usually able to reduce the threats examined in the five
forces. Besides being more profitable due to lower prices, the barriers to entry
can be reduced greatly as less initial investment is required. The price
comparison websites mentioned in Appendix 6 have increased the
bargaining power of buyers, but postulate an advantage for LCCs as it
highlights their competitive advantage to their potential passengers. To keep
prices at bay, firms might cut corners that could affect reputation negatively,
as witnessed with Ryanair when their CEO, Michael O’Leary, announced that
he was considering the introduction of standing seats on his carriers (Lane,
2010). Even though the pressure from LCCs has forced Virgin Atlantic to
introduce a no-frills scheme as well a premium economy class to their long-
haul operations, the brand identifies with being different from its competitors
(Appendix 2).
3.1.2. Differentiation
The recent changes in passenger needs (Mintel 2013, Appendix 3) have
influenced the trend and direction of the aviation market. Even though low
cost travel caters to the needs of the price sensitive consumer, passengers
desire to be presented with the option to choose the components of their
service package individually. Virgin Atlantic pioneered with offering flexible,
customizable service. Providing the passengers with choices makes them feel

14. as though they are able to own the experience, which increases customer
satisfaction, ultimately leading to enhanced brand loyalty. Paul Dickinson, the
sales and marketing manager at that time (2007, Conference Board
Customer Experience Conference) said: "Differentiation is everything, we're
small, with only 40 planes. The only chance we've got is to be better." Their
upper class passengers are able to access the office area, the in-flight bar
and spa area even personalizing meal times. Virgin Atlantic aims at end-to-
end service, on and off the plane, allowing passengers to even book Virgin-
sponsored motorcycles or limousines for their airport transfer. Consumer
surveys confirm that 95% of upper-class customers rated their service as
good or excellent, and would recommend it to others. (Glagoswki, 2007)
4.0 Virgin Atlantic’s position
4.1 SWOT
Virgin Atlantic’s strengths are its brand image, inclusive services and the
recognition it has obtained from the public through time (Appendix 2). It is
the strongest brand in terms of product uniqueness and differentiation
compared to their competitors. The company has created a strong brand
image by building emotional connection with the consumer through providing
the best services, connecting to the public through effective marketing
communications and rewarding loyalty (Appendix 2), marketing itself to
create a higher value than its competitors (Lecture material, 2013). Based on
competitive analysis (Appendix 7), Virgin Atlantic has the highest rating in
customer satisfaction criteria, which implies a positive response to the
emotional connection and brand experience. The marketing campaigns have
generated a positive response towards the brand (Keller, p.54, 2012). Virgin
has portrayed a consistent message and established unique differentiation
strategy compared to the competition.
For example, British Airways focuses on its British heritage and
establishment, this makes them appealing to an older consumer but in
contrast Virgin appeals to a fun, younger generation.
Virgin provides extensive services including one of the largest tour operators
in UK. In comparison to its competitor, Virgin Atlantic provides the “must ride

15. program” for its customers, which assures services for cargo (Virgin Atlantic,
2013). VEX express courier services is provided by the airline for urgent
airport-to-airport shipment (Virgin Atlantic, 2013). In comparison to its
competitors, Virgin’s services are considered superior.
The restricted size of Virgin’s fleet puts it in a position of weakness when
compared to its competition. The significance of this being that, consumers
are likely to switch to another airline for a more suitable time or destination.
This significant drawback not only weakens the bargaining power of the
company but also limits its capability to compete fruitfully with the large
players.
Grounded on the Competitive Environmental Analysis, the airline industry is
facing intense competition in price, consolidation, unpredictability in fuel
prices, and changing trends. Furthermore its dependence on Richard Branson
is a future threat in case of his death or negative PR. There is a considerable
price competition in the market because consumers’ needs are more
distinguished and prefer low cost options (Mintel, 2013). Consumption trends
and opinions on the market are therefore in flux, largely thanks to the ‘baby
boomers’ (Mintel, 2013). In an effort to spark traffic in low season, airlines
often cut prices. This has resulted in an increased market presence of low
cost carriers. This affects the capability of network carrier to make a profit in
the domestic market and hurts their financial and operating conditions. The
most popular type of airline used by more than half of air travelers are low-
cost carriers because consumers are cost conscious and eventually being
one of the threats to Virgin Atlantic (Mintel, 2013). Airlines in the industry
increase their global destination to compete for the markets they serve, which
directly affects Virgin because they have the least destinations. In order to
reduce costs in times of a financial recession many international airlines
merged in order to streamline their cost structure and hedge their costs
through fuel hedging. For example, US Airways Group and American Airline
merged due to the financial crisis (Etim, 2013). Fluctuating fuel cost, being
integral as a resource has negatively affected Virgin’s profit and operating
margins. Virgin Atlantic has an opportunity to grow in the global tourism
industry especially in the Asian market preferably China. Furthermore it would

16. be recommended to build their marketing strategy on “provenance”. Since the
recent trend is a focus on British roots, Virgin should consider focusing its
strategy on being “British”. This country-of-origin effect will help them catch up
with British Airways. They were hugely affected by the recession in 2008
based on the financial analysis; however, the World Tourism Organization has
forecast that Europe will grow from 2 to 3% (World Tourism Organization,
2013). Virgin Atlantic can easily enter new market because of their
established strong brand identity worldwide. Consequently, it will help the
airline benefit from the global industry and generate revenues. Based on the
strength of Virgin, the global airfreight sector is forecasted to have a
significant growth rate and they could profit from this growth (Air Freight
Market Analysis, 2013).
Virgin has a tremendous opportunity to expand into new market without
having to invest heavily because of their established brand identity. They are
also able to expand and profit from the growth of airfreight.

17. 4.2 Ansoff Matrix
The Ansoff Matrix as described by McDonald and Meldrum (2007) is old but
effective. It provides an uncomplicated framework that encapsulates all the
strategic directions an organization has and can use in one tool of analysis.
The Ansoff Matrix when applied to Virgin Atlantic brings to light the brands
choices in product development. It becomes evident that as a brand, Virgin is
interested in the penetration of existing markets and the further betterment of
their service and USP through the addition and development of its services. In
1992 the introduction of Premium Economy as a mid-class seating option, one
that is still in existence displays adequately the foresight with which the brand
was functioning. The market at which the airline was aimed at did not largely
change but allowed for a new level of luxury for those who may not have
previously been able to afford the Business or First Class services on offer.
The Sale of nearly half (49%) its shares to Singapore Airlines in 1999
automatically introduced, Virgin to a new market and its association with an
established, existing airline gave it further credibility. Virgin’s direction then
focused on new product development within the same market on the interest

18. of improved services/facilities. The introduction of the Virgin Clubhouse at
Heathrow and the Upper Class Suite (2003 & 2006) were specifically
designed for the betterment of customer services and to maintain a unique
level in the consumer experience.
As a brand, Virgin has explored and mastered the first and second quadrants
and has begun to make a real mark on the third. The future development of
the brand will have to consider a further exploration of new markets.
5.0 Recommendations
(In courtesy of Taylor, D.; 2006;p.7)
As a company, virgin has always stood for: “‘value for money, quality,
innovation, fun and a sense of competitive challenge.”(Virgin Atlantic, About
us, last accessed 1/12/2013) Delivering functional benefits to their
consumers whilst stimulating emotional responses has always been a
prerogative in all the sectors they have operated within, and the airline one is
no different.

19. The previous chapters have explained how the company has differentiated
itself through the years and how it has retained its competitive advantage by
always reinventing itself and never letting down their clients. However as can
be seen by the comparison of financial data performed in chapter 3, virgin’s
financials show that the company is not performing well, therefore some
changes have to be made.
Based on the information collected so far, and on a projection of the possible
threats and opportunities for the next five years, three propositions of possible
solutions will be put forward.
The first proposal involves virgin Atlantic becoming a public company rather
than a privately owned one. Currently Sir Richard Branson owns 51% stake of
the company and the remaining 49% is of Singapore Airlines. (Virgin
Atlantic, About us, last accessed 2/12/2013)
This would be recommendable, as the company needs an injection of capital
to continue delivering value to its customers. With a current fleet only 38
planes strong (Appendix 2), the company needs to grow both internally,
purchasing more planes and hiring more personnel, and externally by
servicing more routes (Appendix 2). In the next five years a possible threat
will be that more low-cost airlines, such as Easy Jet, will grow and expand,
taking on the routes that Virgin Atlantic is servicing and therefore competing
on a price level. If the prices of fuel don’t diminish, it will be near to impossible
for Virgin Atlantic to continue delivering the much appreciated product it has
currently at lower prices therefore it will not be able to compete with no-frills
airways.
The second proposal suggests that Virgin merges with a South-East Asian
airway. Currently Singapore Airlines owns part of virgin Atlantic, however a full
partnership would allow for the British company to penetrate the profitable
Asian market.

20. (Courtesy of Mintel, 2013)
As can be seen in the image, most people fly either for holiday purposes or
business ones. According to the World Tourism Organization (UNWTO): “the
remarkable growth of international tourism reached new heights in 2012 with
over one billion people crossing international borders. The Asia Pacific region
has seen rapid economic development and dynamic change in the last
decade, and it is a source of much of this growth. Today, with over 230 million
international tourist arrivals, it is the second most visited region in the world
and the fastest growing.”(UNWTO, 2013)
Moreover, for the business aspect: “Southeast Asia has come up to occupy a
pivotal position in terms of drawing the attention of all the nations and
organizations with regards to business development and expansion, as per
the reports revealed by FI CCI. It is strongly believed that Southeast Asia has
tremendous potential to evolve into economic power by the year
2025.”(Dhingra, Y.; 2011)
Therefore by partnering with an airline already strong in the Asian market,
Virgin Atlantic would be able to penetrate profitable markets that represent a
great opportunity for virgin's expansion.
The last suggestion is that Virgin Atlantic maintains only two of its current
routes: the one to New York, as it the one the company started with (Virgin
Atlantic, About us, last accessed 2/12/2013) and the one to Washington
D.C.

21. As the company only has 38 planes (Appendix 2), two would be dispatched
to provide the usual service on these two routes while the remaining 36 would
serve to a new purpose. It is suggested that a new branch is created: Virgin
Pacific. This new branch would be the carrier of the same values as Virgin
Atlantic and it would serve the same cause: delivering functional and
emotional benefits whilst adding value to the customers but it would be flying
to a new set of destinations located in South-east Asia. Remaining in the UK
would be the ‘Little red’ virgin airlines’ branch, the United States routes would
be dramatically reduced, even if for inbound flight there will still be virgin
America, and the company will open to a new market.
6.0 Conclusion
The analysis of trends exhibited by the travel sector indicates a definite
growth in the Asia-Pacific market. As recommended earlier an airline focused
mainly on this market, rebranded, as ‘Virgin Pacific’ with its base in London is
a natural progression in terms of product development. In concurrence with
this suggestion it is advisable that Virgin further strengthen its ties with
existing members of the Asia-Pacific airline industry. Much like their dealings
with Singapore Airlines the company's existing business relationship with both
Air Asia and Jet Airways puts them in a position of being a trusted and
reputable option by association. The further exploitation of these relationships
and possible further connections with Air China can only further its
cause. The creation of offices and base facilities in destinations where they
are not currently present such as Shenzhen, China and Indonesia is also
advisable. Virgin can strengthen their perception by “thinking Global but acting
Local” in the hiring of local management who are aware of local regulations
and useful in the propagation of CSR activities. Current Mintel data (2013)
displays the willingness of consumers to pay for a higher standard of service
when traveling internationally rather than the trend for no-frill service on local
flights. (Mintel, 2013)

22. (Courtesy of Mintel, 2013)
The Table above indicates the resuscitation of travel from the UK, the current
destination further supports our recommendations as the destination of choice
at the moment can be identified as Asia. If Further justification is required, the
impending merger of BA and American Airlines and its inevitable
monopolization of the UK to Europe flight path is a valid reason for Virgin to
expand in the Asian sector. In a recent press release (2013) Virgin Atlantic
predict the monopoly as follows:
Heathrow-Dallas Fort Worth 100%
Heathrow-Boston 80%
Heathrow-Miami 70%
Heathrow-Chicago 68%
Heathrow-JFK 62%
Heathrow-LAX 48%
In conclusion, the recommendations pave a sustainable path to continued
future success.

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30. Appendices
Appendix 1: Perceptual Map
PRICE V/S CUSTOMER SATISFACTION RATING(SKYTRAX)

31. Appendix 2: Marketing Mix, 7P’s
The 7 ps
(Image courtesy of Rao, M. R. K.;2011, p.162)

40. Appendix 3: PEST Analysis European Airline Industry
Political
- The political tensions in Syria affected oil prices (IATA 2013)
- CO2 Emissions: To contribute to the global action to reduce the impact of
aviation on the climate, the EU has established a cap on CO2 emissions for
flights arriving and departing from EU airports. The majority of the emissions
come from overseas flights. Direct emissions from aviation amount to 3% of
the total greenhouse gas emissions of the EU. (European Commission 2013)
- Deregulation of the aviation market 1984 in the UK (Smith & Cox 2013)
Economical
- Fuel Prices: Over 30% of operating cost is dedicated to fuel in the industry
and is regarded as the key element influencing its profitability. Throughout the
past 2 years, the world has not seen the oil price per barrel drop below a 100
dollars (PWC 2012). However, for 2013, the fuel prices have stayed below the
past year’s levels, which enable airlines to cut down their operating expenses.
Regrettably, sinking fuel prices are also a sign of a weakening economy,
which ultimately will affect the demand for global air travel (Zacks.com 2013).

41. -Financial Crisis: The European debt crisis had a severe effect on the
performance of the airline industry. As the economy is picking up slowly, there
is a gradual stabilization in the European aviation market. However, in terms
of geography, the German and UK markets are recording a better
performance compared to the rest of the Eurozone. Moreover, well-
established larger airlines with stable long-haul operations have been less
encumbered by the crisis. IATA is expecting a 4.0% increase of passenger
demand with only a 2.8% expansion in capacity. (IATA 2013)
Socio-economical
-The increase in disposable Income for developing nations lead to a higher
demand for air travel, as air travel become affordable for those regions. For
instance, Chinese tourist are now the biggest source of travel spending.
Therefore, airlines are required to adjust their flight routes to profit from the
shift in economy. (BBC 2013)
Social
- As consumers have become more environmentally aware, airlines are forced
to respond to those trends through their corporate social responsibility
departments. To conduct effective reputation management, airlines need to
lay out their business strategies to meet the standards in terms of
sustainability, such as CO2 emissions and noise. (Sustainableaviation
2013)
- Despite the popularity of low cost carriers, a Mintel report (2013) suggests
that the times of discounted air travel may be coming to an end. In order to
maintain their profit levels, airlines will continue to combat these pressures by
raising supplementary sales. The consumer landscape is changing as
passenger’s needs are becoming more differentiated. The latter therefore
suits the trends in the market environment, as it enables the consumer to
choose according to his differentiated needs. As some may not be in favour of
a no-frills service, others might not be in need of a full-on service. Previously,
extra services, such as priority security checks and speedy boarding, access

42. to lounges and Wi-Fi, were only provided to premium passengers as a part of
their service bundle. Despite this strategy’s main aim to increase ancillary
revenues, this approach can be highly successful where passengers perceive
more value through the ability to cater to their individual needs by being
presented with a greater choice.
Technological
- Innovative communication technology reduces the need for business air
travel, as professional meetings can easily be held over
videoconferences. (Biello 2013)
- 7 in 10 people in the UK book their travels entirely online using price
comparison travel websites (travelweekly 2012). This has increased the
bargaining power of consumers as they have the ability now to find the best
deals themselves without relying on the promotional efforts of airlines.

43. Appendix 4: Financial Analysis
Virgin Atlantic 2007 2008 2009 2010 2011 2012
Sales 1816200 2010900 2238800 1984100 2263500 2402100
Profit 31400 6000 49800 -158500 2500 -98600
Profit Margin 1.73 0.3 2.22 -7.99 0.11 -4.1
% Profit Change -0.7 1.22 -8.99 -0.89 -5.1
British Airways
(mn) 2007 2008 2009 2010 2011 2012
Sales 8753 8992 7994 7994 9987 10827
Profit 611 883 -401 -531 679 -139
Profit Margin 7.2 10.09 -4.46 -6.64 6.8 -1.28
% Profit Change 9.09 -5.46 -7.64 5.8 -2.28
Cathay
Pacific(th) 2007 2008 2009 2010 2011 2012
Sales 4845582 7702189 5348954 11638120 12792780 7887548
Profit 514985 -860356 477092 1826240 715130 122628
Profit Margin 10.63 -11.17 8.92 15.7 5.6 1.55
% Profit Change -12.17 7.92 14.7 4.6 0.55
American
Airlines(mn) 2007 2008 2009 2010 2011 2012
Sales 11457 16339 12322 22170 23979 15272
Profit 179 -1745 -1088 308 -1054 -1535
Profit Margin 1.56 -10.68 -8.83 1.39 -4.4 -10.05
% Profit Change -11.68 -9.83 0.39 -5.4 -11.05
Lufthansa(mn) 2007 2008 2009 2010 2011 2012
Sales 16542 23895 19798 23412 24001 24440
Profit 1190 772 -203 838 373 843
Profit Margin 7.19 3.23 -1.03 3.58 1.55 3.45
% Profit Change 2.23 -2.03 2.58 0.55 2.45

44. Virgin Atlantic
Virgin Atlantic has showed a weak profit margin over the past 5 years. The
underlying reason in addition to increased fuel prices and turmoil in the
economic markets, these trends suggest Virgin Atlantic has had a weak cost
control culture and was not able to fill the seats on its carriers appropriately to
cover its expenses despite strong branding. (Centre of Aviation, 2013)
Cathay Pacific:
In 2008, Cathay Pacific suffered a large loss, as they had hedged almost half
of their fuel supply at a much higher price than the current rate, which resulted
in a loss of 1.9bn HKD. (Leung, 2009) Even though their sales had increased
from the previous year, the fuel cost offset those. In 2010, Cathay Pacific
made record profits thanks to a solid recovery in demand for cargo services
and passengers in the area as well as Therefore, they have been expanding
their capacity to meet the increase in demand. (Chiu 2010)
Lufthansa:
In 2009, the economy and the international air traffic were hard hit by the
financial crisis in 2009. The airline industry reported a worldwide fall of 4.1 per
cent in passenger transport and 13.0 per cent in freight transport. Lufthansa
was hit by the weak demand, however, in comparison to its competitors it had
kept the damages at bay (Lufthansa, 2009).
American Airlines:
American airlines were significantly affected by the fuel rise in 2009 to the
point they had to park 20 of its carriers to cut cost. (Wallace, 2008).
By the end of 2009, American Airlines A300 jets were moved to storage in
Roswell. They continue to close bases in September 2010 and cut 700 jobs to
cope with financial crisis and an increase in fuel costs (CBS 2010)
The financial crisis has been reflected strongly in their financial figures, as
American Airlines has recorded a loss throughout the last 4 years expect for
2010, when they briefly recovered from a strengthening economy. American
Airlines are operating on bankruptcy and are likely to merge with US Airways
to exit bankruptcy. (Lubben, 2013)

45. British Airways
In 2009, British Airways experience the poorest financial performance due to
the global economic downturn and high fuel prices (Milmo, 2009). However,
the situation got worst when the cabin crews strike and Iceland’s volcanic ash
cloud (BBC, 2010).
Virgin Atlantic: Marketing Activities and Performance
Virgin Atlantic’s marketing activities have increased the brand preference over
time. From 1993 to 2006, the brand preference for Virgin Atlantic compared to
British Airways augmented from 49 to 73. In May 2009, Virgin published a £68
million, whereas British Airways reported an operating loss of £401million.
Their total investment in marketing communications amounted to £20.77
million. The Still Red Hot campaign therefore resulted in an return on
investment of around £19 for every £1 spent. (Donnelly, 2009)

46. Appendix 5: The Ansoff Matrix
The matrix takes into consideration the products and the markets in which the
brand exists and can be divided as follows:
 The first quadrant is where the focus of an organisation is on existing
markets and penetration.
 The second quadrant focuses on a brand with expansion of product
range in a familiar market
 The third quadrant is where brands explore new markets with product
that already exist.
 The fourth quadrant is the region of diversification wherein ne products
are introduced to new markets.

47. Appendix 6: Porter’s five forces.
Porter’s framework identifies the competitive forces in the industry’s
environment to highlight the opportunities and threats (Hill & Jones
2010, p.42). His model focuses on the following five forces that act on
a product and the market:
 Risk of new Entrants to the market
 Rivalry among Established Firms
 Bargaining Power of Buyers
 Threat of Substitutes
 Bargaining power of Suppliers
Porter argues further that the stronger the forces on the product and its
market, the more limited its ability to alter prices and make a profit. The
strength of these forces are subject to change and therein lie the opportunities
and threats to the market. When assessing the risk of new entrants
the growing number of passengers does not affect the market as the barriers
to entry are extremely rigid. ’The volume of passengers uplifted at UK airports
increased marginally in 2012, reaching 203.3 million passengers’ (Mintel,
2013). For mid range airlines ’the rising volume and market share of budget
airlines, the falling share of full-service flights, the sharp falls seen in domestic
air travel and overseas charter flights’ (Mintel, 2013) This makes the
sustainability of their type of service challenging. This means that the
strongest threat is the rivalry amongst established firms. They are fiercely
competitive and in constant search of a unique points of sale. This is evident
in the development of premium economy seating divisions, demonstrating a
response to market trends and consumer demands. ‘Passenger needs are
becoming more differentiated: not everyone wants no-frills on the one extreme
or full-service on the other’ ( Mintel, 2013). The ability of the consumer to
express a desire for a certain type of service and the compulsion the industry
feels to deliver is an apt summarization of the competitive nature and the cut-

48. throat policies of the aviation sector. The Threat of Substitution, given the
current economic climate, and the fall in disposable income rate the average
consumer is more inclined to forgo luxury for a comparatively low price.
Consumers making short haul trips have the option of alternate forms of
transport such as rail and bus in the public sector and car rental in the private
sector. For intercontinental travel Cruises, specially those in the luxury sector
become an extension of the holiday itself, Mintel’s research shows that 44%
of flyers aged 55 or over (Mintel,2013) suggesting that their attitude towards
leisure travel, such as cruises in the absence of children is more likely .The
Bargaining power of the Buyers is evident in the growing number of price
comparison websites such as Trivago, Trip Advisor and Make My Trip.com
that help consumers identify and customise the cheapest and most
convenient forms of travel. These developments are further forcing the airline
industry to bring down its ticket costs in order to lure consumers who want
both service and a bargain. The Bargaining Power of the suppliers in the
aviation industry is the foremost factor in the setting of ticket prices. Willie
Walsh, CEO of British Airways commented in 2008 that high oil prices pose a
real threat for the industry , causing major problems in the aviation sector as
its number one cost. The IATA predicted a slowdown in leisure air travellers
as higher oil prices push up fares, however business class travel was
expected to grow by up to 6% due to "growing world trade and business
investment ( Milmo. D, The Guardian, 2011).

49. Appendix 7: Competitive Analysis