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Virgin Australia Case Study Analysis On Business Strategies

Question

Task: You are required to critically analyse the Virgin Australia case study and identify the issues encounter by the organization. Propose business strategies to overcome the issues.

Answer

Introduction
The following report is going to discuss the current issues faced by Virgin Australia. The issues backdate ten years from now when Virgin Australia turned itself into a full-service airline from a lean, low-cost operator. Reportedly, the cause of Virgin Australia’s problems boils down to the present situation of aviation. Ten years ago, Virgin Australia was able to make profits and capable of serving its debt with current traffic. However, the former CEO and Managing Director Mr. John Borgetti took Virgin Australia upmarket and increased expenses of the airlines (Ma, Wang, Yangand Zhang,2019). Virgin airlines have still not gained a market share as Qantas did. Under his leadership, it tried to compete with Qantas airlines thereby increasing their expenses. Virgin Australia has reported a loss for seven consecutive years even before the pandemic situation. Recently, due to the Coronavirus issue, Virgin Australia seems to receive no immediate relief in sight. Etihad had worked with Virgin Airlines to find a solution, but it was unable to raise funds due to impact of Coronavirus on its own business.

Analysis
Virgin Australia is an Australian-based airline which commenced its services on 31st August 2000 as Virgin Blue. This airline was co-founded by British businessman Richard Branson and former CEO Brett Godfrey (PAN,2019).Virgin Australia believes in making a difference and values money, innovation, fun and quality of services. The mission stands to become the airline of choice for corporate and leisure travelers.The strength of the company lies in its quality of services and high level of customer satisfaction. The airlines entered alliances with Etihad Airways and Air New Zealand for co-operational projects (Lohmann and Spasojevic, 2018). However, lack of investment in new technologies and improper financial planning weakened the company position. Introduction to the low-cost carrier flights can be a brimming opportunity to repay the debts. Nevertheless, the rising costs of raw materials and labor can be a threat to Virgin Australia’s profitability.Currently, the current market share of Virgin Australia stands to 31.3% with an annual revenue of $4.1 billion. Qantas, Singapore Airlines, Fiji Airways and Etihad are some of the major competitors of Virgin Australia.

Business Issues
Virgin Australia has been successful in Australian aviation history, however, in recent years the airline has been facing problems due to the current aviation crisis. Although it remained profitable in the initial years, the profitability slowly decreased with major strategic decisions. Virgin Australia has always tried to compete with Qantas and other foreign carriers making it under a debt of over 6 billion (Khadem, 2020). The major strategic decision of splitting ownership has manipulated the airline in several directions. The increase in expenses in the face of continuing losses is a fundamental problem. It introduced premium economy and business classes but costed a lot for the airlines. Strategic decisions like operating in the international routes rather than remaining in the domestic market proved to be ill-fated for Virgin airlines. The ownership of Tigerair in 2014 could not leverage the brand name and profits as expected (Australian Associated Press, 2014).The administrative decisions remained stagnant which lead to gradual decrease in the money-making leaving Virgin Australia with no choice other than borrowing money. The diverse fleets costed more money than the single fleet airlines.

The Australian aviation market although small but serves right for Virgin Australia’s competition, Qantas. Even after operating for 20 years, Virgin Australia still holds only 30% of the market whereas Qantas has 60% in its hands. Senior officials of Virgin Australia have expressed their willingness to leave the airlines and join Qantas for a higher payback. The former CEO John Borghetti tried to enter into the concentrated Australian aviation market, but Australia being a small aviation market served better for Qantas. The competition between the two airlines is fierce but Qantas with its high-end connections, customer loyalty, nice lounges and premium flying experience has outthrown Virgin Australia from the Australian aviation industry. The recent pandemic situation has weakened the operations of Virgin Australia letting its starve of revenues. Since there is no immediate solution to the coronavirus issue, Virgin Australia has to continue facing losses even after spending its valuable funds (Smyth, 2020). The recent changes include reviewing every single flight route and cut over 750 jobs to claw back the 349.1 million US dollars loss. Even after the recurring losses, the airlines could not restructure its administration and losing touch of its original business model. The business model was not financially sustainable making it difficult to recover the losses from both domestic and international flights.

Outcomes
Virgin Australia has been a significant name in the Australian aviation market, however its faulty administrative decisions and delayed responses to its issues have made it face high tides. The situation has been worse for Virgin Australia due to the aviation crisis, low profit margin, lack of single ownership and lack of innovation. The situation has become so worse that Virgin Australia has to borrow money to run its operations. However, possible short-term and long-term ideas may help the airline to back-up to its original position in the aviation industry. The primary focus of the airline must be on its profitability that means to derail service and products that are not significantly making any profit. This will not only help to scrap out unnecessary burden at this time of crisis but also help to concentrate on profit making services. The issue of managing the international routes has been prevalent in Virgin Australia from an awfully long time. Considering changing the routes or scraping out few international routes may lead to good administrative results. The competition to Qantas is high but rather than chasing the international routes, it must focus on making cash out of domestic travels more. The airline was losing more money due to serving the corporate and business class customers.

The decision of taking full ownership of Tigerair Australia in 2014 was a consequence of non-profitable decision making. The decision was taken to re-brand Virgin Australia in the domestic market and earn better market share than Qantas which subsequently did not seem to happen. The shift in its branding is still one of the biggest setbacks for Virgin Australia. Qantas still holds a major market share whereas Virgin Australia is struggling to act better. It has continued to lose money leading to borrow cash but still somehow failed to raise any red flags. The disastrous administration can be considered the root cause for this. Virgin Blue broke into the domestic market with a cheaper alternative to the premium class travels. However, this idea could not sustain for long as the strategies failed to cash out the desired profits from the domestic market.

Recommendations
Virgin Australia is no longer a good player in the concentrated Australian aviation market. However, it has seen its good times in the past where good decision making, profit making and being loyal to the domestic customers was a primary motive of the airline. With 26 million people flying in the Australian aviation market, it has given immense opportunity to Virgin Australia, but it could not sustain the cutthroat competition for long. Firstly, Virgin Australia must think of making profitability as their primary motive without compromising on the services. The availability of more domestic routes and concentrated international routes can cash out more money. This will allow the airline to compete with Qantas at least at the domestic level. Scarping out few of the international routes like routes to Asia can be beneficial as it does not bring good profits. The airline may consider offloading its low-cost carrier Tiger Airways to discontinue making further losses. It is also recommended that the Airline can merge Tiger and Virgin to create a low-cost carrier specially on domestic routes. The attention must be focused on not competing with Qantas’ Jetstar as its less profit making itself and lowering the price of domestic routes. This could mean that the airline can reduce the flying frequencies on busy routes like Sydney to Brisbane and Melbourne including other city routes. The current situation of Coronavirus can be managed by taking better safety measures for its customers.

Conclusion
The Australian aviation market is small, and the problem lies in managing a greater number of airlines. The undercutting fares by new entrants in the aviation market making it difficult for market giants like Virgin Blue, Qantas, and Ansett to survive. Although the radical change in strategy by former CEO John Borghetti to make Virgin Australia a full-service airline earned it some profit, it gradually failed to deliver profits for shareholders. Currently, the voluntary administration by CEO Paul Scurrah has allowed the airline to breathe a sigh of relief but it still needs to make better considerations to improve its crippled situation. A tighter focus may help better focus on the bottom-line issues. Although the recent strategies may work in favor of Virgin Australia, the views and opinions of investors, administrator, creditors, and shareholders will be much more important. It is expected that the Australian domestic market could experience a positive year in 2021 thereby helping Virgin Australia to crawl back to its original position slowly.

Reference List
Australian Associated Press, 2014. Virgin buys low-cost airline Tigerair Australia for $1. [online] Available at: [Accessed 2 September 2020]

Khadem, N., 2020. Virgin Australia owes almost $7b to more than 12,000 creditors. [online] Available at: [Accessed 2 September 2020]

Lohmann, G. and Spasojevic, B., 2018. Airline business strategy. The routledge companion to air transport management, pp.139-153.

Ma, W., Wang, Q., Yang, H. and Zhang, Y., 2019. An analysis of price competition and price wars in Australia's domestic airline market. Transport Policy, 81, pp.163-172.

PAN, M.Z., 2019. Review of Environment Influence on Virgin Australia’s Competitive Strategy. DEStech Transactions on Social Science, Education and Human Science, (ermis).

Smyth, J., 2020. Coronavirus pushes Virgin Australia into administration.[online] Available at: [Accessed 2 September 2020]

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