Case study provided by Superbrands.
The airline industry was affected more than most by the tragic events of September 11th 2001. There was an immediate and significant reduction in passenger demand, particularly across the North Atlantic, and a number of airlines became bankrupt. 9/11 was quickly followed by further challenges of SARS and the effects of the Gulf War. The industry is slowly rebuilding passenger confidence and recent traffic figures show signs of a recovery from 9/11. However, it is clear that in order to survive and compete in this challenging environment, it is vital for airline companies to adapt and evolve, focusing on capturing the market with an ever-improving range of services. Airlines with strong brand leadership, like Virgin Atlantic, should be most likely to emerge from the challenge strengthened.
The brand's achievements have been recognised by a number of prestigious award schemes. In recent years the airline has won a huge number of well respected awards including the Best Long Haul Business Airline at the Business Travel Awards and FX and Design Week awards for the Upper Class Suite. In 2003, Virgin Atlantic won the Business Superbrands Awards for 'the brand that most values its employees'. In 2002, the airline won an array of awards including Best Business airline at Condé Nast Traveller Awards; The Guardian and Observer Awards; Best Transatlantic Airline at the Travel Weekly Awards and in 2001 Virgin Atlantic won OAG Airline of the Year. In addition, the brand has been consistently voted as a Superbrand and in 2001 was given Cool BrandLeader status by the Superbrands organisation.
Despite tough trading conditions in 2003 Virgin Atlantic achieved a turnover of £1.4 billion and carried almost four million passengers.
In the early 1980s, transportation - rather than customer care - appeared to be the top priority of the airline industry. When Virgin Atlantic burst on to the scene offering not only better service and lower costs for passengers but a commitment to put the customer first, the effects were radical.
The company was set up in 1984 when an Anglo-US lawyer called Randolph Fields approached Richard Branson - the young and unorthodox chairman of the Virgin Group -with an idea for a new airline that would fly between the UK and the US. Better known at the time as the leading light in the world of pop and rock music, Branson was enthusiastic about the opportunity to diversify. His characteristic energy and enthusiasm meant that within three months the airline began to lease its planes and June 22nd 1984 marked Virgin's inaugural flight from London to Newark.
From those early days the airline has gone from strength to strength. Now based at both London's Gatwick and Heathrow airports, it operates longhaul services from Heathrow to New York (Newark and JFK), Los Angeles, Boston, San Francisco,Washington, Miami, Tokyo, Hong Kong, Johannesburg, Cape Town, Shanghai, Lagos and Delhi. Virgin also operates services from Gatwick to Orlando, Barbados, St Lucia, Antigua, Las Vegas, Grenada, Tobago and Port Harcourt. Virgin Atlantic has also introduced a service from Manchester airport to Orlando. In January 2003, the airline began twice-weekly services to Port Harcourt in Nigeria and in May 2003 the airline commenced services between Gatwick and Tobago and Grenada bringing its total number of destinations to 22.
Plans have also been announced for new routes between London Heathrow and Sydney to start at the end of 2004 and London Gatwick and Cuba and The Bahamas to commence in summer 2005. On December 20th 1999 Richard Branson signed an agreement to sell a 49% stake of Virgin Atlantic to Singapore Airlines to form a global partnership. The cost of the transaction to Singapore Airlines was £600.25 million, which included a capital injection of £49 million and values Virgin Atlantic at a minimum of £1.225 billion. The deal was finalised in early 2000.
Virgin Atlantic has pioneered a range of innovations setting new standards of service, which its competitors have subsequently sought to follow. Virgin Atlantic has introduced a string of firsts including individual seat-back televisions for all economy passengers and the introduction of automatic defibrillators. Despite Virgin Atlantic's growth the service still remains customer driven with an emphasis on value for money, quality, fun and innovation.
Virgin Atlantic's Upper Class has changed the face of business travel by offering limousine pick-up and Drive-Thru check-in. Virgin Atlantic also has Clubhouses, Virgin lounges for Upper Class passengers, at many of its destinations. The Virgin Clubhouses are deliberately designed to challenge the conventions of the airline industry and to create a different travelling environment. In 2003 Virgin Atlantic launched its revolutionary Upper Class Suite product. The product consists of a reclining leather seat for take off, a place to sit and eat a proper meal opposite your partner, the longest fully flat bed in the world with a proper mattress for sleeping on, a private on-board bar to drink at with your friends, a private massage room and four limousines per return trip - all at a price thousands of pounds less than other airlines' First Class.
By charging the same as other airlines' business class for this first class product, Virgin Atlantic's new Upper Class Suite is not only attracting former Concorde passengers but BA's and other airlines' first and business class passengers as well. The Upper Class Suite has already proved to be a massive success winning the airline all-important market share along with an impressive array of prestigious awards. The 'Freedom' meal service was introduced in 1999 which means passengers can eat 'what they want, when they want'. Virgin Atlantic's unique in-flight beauty therapy service, which celebrated its tenth anniversary in 2002, has a dedicated area on-board the plane.
Virgin Atlantic also opened its first arrivals lounge called Revivals at Heathrow airport. Revivals is designed to provide everything a passenger could need to awaken, revitalise and prepare for their day ahead after a longhaul flight. Virgin Atlantic also operates 'flyingclub', one of the most generous frequent flyer programmes available. flyingclub was re-launched at the end of 1999. As well as restructured membership levels, flyingclub has even more partners with the introduction of more airlines and hotels than ever before.
Premium Economy was first introduced in 1992. It is a service aimed at the cost conscious business traveller who, for budgetary reasons, travels economy but still requires extra space in which to work or relax. Premium Economy features 38" seat pitch, complimentary champagne at take-off and a fully flexible ticket. Virgin Atlantic's Economy class was the first to provide every passenger with a seat-back TV screen. It now provides the most advanced inflight entertainment system available with up to 300 hours of video and audio on demand along with a huge selection of computer games. Virgin Atlantic also gives out 'K-ids Packs' to children on-board and amenity kits containing useful items like socks and toothbrushes as well as more unusual items such as eye gel and lip cream.
Virgin Atlantic continues to launch several new routes. In summer 2002, the airline took its newest delivery becoming the launch customer for the A340-600 - the longest plane in the world. In total, ten aircraft will be delivered by 2006 in a deal worth US$1.9 billion. The aircraft was named 'Claudia Nine' by supermodel Claudia Schiffer in front of an audience of media and VIPs. In 2004, the Queen named one of Virgin Atlantic's new A340-600s during a state visit to France. The aircraft was named 'Queen of the Skies' in commemoration of the centenary of the Entente Cordiale.
The new aircraft offers passengers many new on-board features including a redesigned on-board bar and in-flight beauty therapy area in Upper Class and new seats for both Premium Economy and Economy passengers. The aircraft has the most advanced in-flight entertainment system in the world which provides passengers with up to 300 hours of video on demand, fourteen audio on demand channels, fifteen computer games including multi-player games, on-board SMS text messaging service and a quick find search facility. In 2003 the airline commenced new services to Port Harcourt, Nigeria in February and Grenada and Tobago in May.
Early in 2004, Virgin Atlantic Airways Chairman Richard Branson announced that the airline is embarking on a period of sustained growth which will feature the launch of a series of new routes including Australia, Cuba, and The Bahamas, an increase in services to the US, Caribbean, Asia and the Far East, orders for two more A340-600 aircraft and the recruitment of 1,400 staff over the next year.
The greatest and most well known advertisement for Virgin is Richard Branson himself. Branson is often perceived as the consumer's hero, an entrepreneur operating in a style all of his own, and Virgin's brand values emanate from his personality. At the same time as being one of Britain's most admired businessmen, Richard Branson's daredevil antics, such as ballooning across the Atlantic, have given the Virgin brand additional publicity.
Branson also keeps a shrewd eye on promotional opportunities: when he heard of British Airways' decision to remove the Union Jack from their plane exteriors, for example, he capitalised on the change by introducing the Union Jack onto Virgin planes.
Virgin Atlantic has proved an astute advertiser over the years. Its logo is highlighted on all its goods and services and is a highly protected property. Virgin Atlantic has implemented an integrated media strategy to promote its brands, including television, newspapers, posters, promotions, direct mail and the internet, often to wide acclaim.
The 'Grim Reaper' ad, for example, won numerous marketing awards and creative accolades including a Golden Lion in the Travel Transport and Tourism category at the Cannes International Advertising Festival; a Silver in the British TV Advertising Awards, a Solis award for Travel & Air Transport TV at the International Tourism & Leisure Festival as well as winning the Travel category in the London International Advertising Awards. In 1999 it won The Guardian Newspaper Recruitment award for Best Commercial Advert and Best Written Advert.
Recent television advertisements have been centred around the Upper Class Suite. In addition, a selection of strip advertisements emphasising Virgin Atlantic's services and fares have featured in the UK press and won several marketing awards. During 2004,Virgin Atlantic is launching the Virgin Atlantic GlobalFlyer record attempt to be piloted by Richard Branson's former recordbreaking partner, Steve Fossett.
The Virgin Atlantic GlobalFlyer aims to be the first solo piloted aircraft to fly non-stop and without refueling around the world. With this attempt, Virgin Atlantic is going back to its roots. Back in the 1980s when Virgin Atlantic was launched, the airline had limited marketing budgets and by attempting (and setting) a number of marine and aviation records Virgin Atlantic was put firmly on the map.
Virgin Atlantic strives to provide the best possible service at the best possible value. It is a distinctive, fun-loving and innovative brand, which is admired for its intelligence and integrity. Judging from the results of a poll conducted by research agency NOP the public also associates it with friendliness and high quality. Virgin Atlantic also recently won an NOP World Business Superbrands Award for the 'brand most perceived to keep its promises'.
Things you didn't know about
In 1999 Richard Branson received a knighthood for his services to entrepreneurship.
Virgin Atlantic employs over 200 Inflight Beauty Therapists to give Upper Class passengers beauty treatments in the air.
Virgin Atlantic serves approximately 2.5 million ice cream bars and 120,000 bottles of champagne each year.
The average age of Virgin Atlantic's fleet is around five years old - one of the youngest fleets in world aviation.
Virgin Atlantic has recently spent two years and £50 million developing its award-winning new Upper Class Suite.
(c) 2004 Superbrands Ltd
1) What are Virgin Group’s distinctive resources/capabilities?The Virgin BrandFirstly, the Virgin brand is valuable in the form of brand equity, where ‘Virgin’ is one of the most recognised brand names in the UK, and is also well-known in other important markets including Europe and the U.S.A. Based on 1990s research, the Virgin brand was recognised by 96% of UK consumers (Case, p.685). Secondly, it is rare for a brand to have such positive consumer perceptions; which include value-for-money, fun, innovation, success, and trust across a range of Virgin businesses (Case, p.685). Thirdly, Virgin has built up their excellent reputation over time, and is therefore path dependent and difficult for competitors to imitate. Lastly, competitors cannot substitute resources that serve the same functions as brand equity and corporate reputation.
Richard BransonThe personal reputation and image of Richard Branson is outstanding. He is well respected for his unconventional approach to business, is often cited as a role model, nominated for enterprises, voted the most-popular businessman and named in London polls as the preferred choice for mayor despite never putting his name forward (Case, p.697). Branson possesses distinctive capabilities, including his ability to effectively use the media to raise public awareness of Virgin, his superior negotiation skills and his excellent charisma. Furthermore, as an ‘international celebrity’, he is easily able to acquire access to the right people and obtain partnerships or alliances when necessary. Therefore, Branson’s reputation, and the rare tacit knowledge that he possess, creates value for Virgin Group and is imitable and non-substitutable by competitors.
Look more: management process essay
Innovation, company structure and cultureVirgin Group’s innovative environment creates value for the organisation as innovation promotes employee motivation and can lead to more efficient/effective processes, thereby improving performance. Additionally, Virgin’s organisational structure involves little hierarchy, the company view hierarchies as obstructive, and “impede rapid decision-making” (Case, p.688). This lack of hierarchy, along with their promotion-from-within policy generates opportunities for employees that “their gender, lack of experience, or training would have precluded in more conventional companies” (Case, p.694). Indeed, Virgin’s structure and positive culture attracts and retains quality staff that fit into the ‘Virgin People’ category, whose loyalty and talent have contributed immensely to the organisation’s success. Moreover, Virgin has created an effective culture that emphasises “praise rather than blame, and family rather than alienation”, and informality and ‘fun’ are also encouraged (Case, p.688).
2) In what ways are Virgin Group trying to create synergies across their various businesses?Virgin harnessed the profits from a range of existing businesses towards Virgin record label byinvesting in “new bands and to continue financing existing artists whom [Virgin] believed wouldeventually be profitable” (Case, p.682). Furthermore, Virgin engages in portfolio planning by balancing growth with maturity, cash flow with investment demands such as funding new ventures through divestments. E.g. Virgin Music Group was sold in 1992 to allow Branson to expand the airline business (Case, p.684). Later, Virgin also sold the UK and Irish cinemas in 1999 to repay the loans taken out to buy back Virgin Our Price (Case, p.700).
ParentingVirgin creates synergies through applying general management capabilities across their businesses. Virgin has developed effective HR practices, corporate structure and culture that can be applied to all Virgin businesses. ‘The Virgin way’ and ‘building Virgin people’ is consistently applied, i.e. “human resource tools such as assessment centres, personality profiling, and employee development are commonly used” (Case, p.685). Synergies are created for new businesses because instead from starting form scratch, they can adopt the Virgin framework to improve effectiveness and efficiency.
Economies of ScopeVirgin’s diversification has also created synergies across their related businesses by the added value that some businesses create for others, and therefore increasing the possibility of achieving competitive advantages. E.g. in the travel industry, Virgin Holidays ‘grew on the back’ of Virgin Atlantic by sharing operational resources such as promotion to reduce unit costs (Case, p.689).
Some Virgin businesses are also related in terms of being “ideally suited to e-commerce and in which growth is expected to occur – travel, financial services, publishing, music, entertainment” (Case, p.687). Virgin exploited this potential to create synergies by sharing activities across these businesses to reduce unit costs. i.e. the distribution of various products from different businesses can be shared by using “technology to give all Virgin customers a small mobile device form which they could purchase any Virgin product from a rail or cinema ticket to a CD… and streamline online service with a single Virgin web address: Virgin.com” (Case, p.687).
Furthermore, Virgin tries to create differentiation by bundling services together so that consumers derive more value from the bundled service than each service individually. E.g. Virgin retail stores and Virgin Cinemas in the entertainment industry were bundled together to create ‘Megaplexes’, which also included extras; taking coats, serving drinks and extra legroom (Case, p.689). Synergy is created through sharing customers across businesses, and the increased consumer willingness to pay for a combined service.
3) In light of your answer to Q2, what threats do you see to Virgin Group’s corporate strategy? I.e. what could undermine the success of the group as a whole?The Virgin corporate strategy is centred on the brand and the company has diversified into many unrelated areas to leverage the brand, at the same time achieving brand synergies across their various businesses. However one danger of this is that the underperformance of one Virgin business can undermine the perceived quality and/or value of other businesses. For example, the failure of the Virgin rail company has encouraged negative press (Case, p.698), and therefore the negative perceptions can also escalate to other Virgin products.
Additionally, investors are questioning the notion of financial synergies and portfolio planning due to the external capital market becoming more efficient and sophisticated over time. Investors will likely have all relevant information, and Virgin’s superior access to internal information is diminishing. Therefore investors may prefer to diversify themselves than invest in an already diversified company.
Furthermore, Virgin’s strategy of utilising Richard Branson as part of the company’s identity has additional implications. Firstly, compromise costs are involved, Branson’s core competencies are compromised as he needs to divide his attention between many businesses, and the effectiveness of his management may suffer as a result. Secondly, there are questions surrounding the long-term performance of Virgin Group without Branson, as “his persona is so closely associated in the eyes of the public and investors with Virgin and its ethos…If Branson goes, would the company lose the impetus for innovation and the ‘can-do’ culture that has for so long been its hallmark?… [would it] create a crisis of confidence so severe as to endanger the very survival of Virgin?” (Case, p.699, 701)
Dess. (2007). Strategic Management: Creating competitive advantages (3rd Ed.), The McGraw-Hill Companies.
Case:De Vries, D.R.K. & de Vitry d’Avaucourt, R. (2004) “The house that Branson built: Virgin’s entry into the new millennium” In: B. De Wit & R. Meyer Strategy: Process, Content, Context, Thomson: London, pp. 680-701.