The Mission and Overall Strategy AnalysisVirgin Australia Holdings Limited was established in 2000 as Virgin Blue Airlines. It was part of the Strategic Business Units pursued by Virgin Atlantic in the Australian domestic airline market. The company owns many aircraft such as Embraer E-190 and E170 along with Boeing 737-700 series (Chan, 2013). The company initially re-positioned in the Australian market as a budget airline or a low-cost carrier (LCC). The strategy was successful, but in 2011 a grand strategy was adopted to counter entry of new LCCs such as Jetstar a company linked to Qantas. This brought forth intense competition that saw a saturated market bringing forth market prices (Lück, Gross, & Lück, 2016). As a company that had reached the peak of its product life cycle as an LCC, it opted to pursue consolidation in 2011 (Chan, 2013). It was renamed Virgin Australia further adopting an overall strategy as a full-service carrier. The move provided the company with more capacity and unique perspective of the Australian market.
Opportunities and Threats
There are many opportunities in niche markets rather than targeting the general market. By having certain niches such as tourists and international students, the company can tap into new profitable markets (Lück, Gross, & Lück, 2016). Australia experiences political stability which makes it a preferred destination for many multinationals and visitors. Virgin Australia can expand its market share by focusing on these elements (Horn, 2015). However, there are threats faced by the entity in its quest to be a market leader in Australia. It continues to face high competition from other LCCs such as Qantas. It is prudent to note that Qantas enjoys double the equity that Virgin Atlantic has. This means that Virgin Australia is more vulnerable to corporate collapse.There is also the threat emanating from the rising operational costs as labor. This continues to increase pressure to the organization in its quest to expand its operations.
The Strengths and Weaknesses
The biggest strength the company has is its brand name, Virgin. The brand is one of the most recognized globally. It also embodies its founder, Richard Branson’s enthusiasm and vision that many people easily associate with globally. The company offers quality services as it is under Virgin Atlantic flagship (Horn, 2015). Its biggest strength also comes from its outsourcing of engineering, and ground handling. With outsourcing, some of the operational costs can be brought down.
The company has various internal weaknesses that affect its profitability and success. It has a limited number of routes as compared to some of its competitors. With fewer routes, Virgin Australia cannot effectively dominate the market (Horn, 2015). The company also is weak regarding freight choice which affects the efficient cargo unloading and loading. This means that the airline loses out on business particularly in handling big cargo to various destinations.
The company can grow through strategic alliances within the Australian market. The alliances are critical as the air transport market continues to be created creating less room for differentiation. With alliances, the market can be redefined and in the long run become profitable. It should also focus on making its “velocity” program competitive to shadow Qantas Frequent Flyer Program which is very popular with Australians.
Financial Statement Analysis Year Ended 2016
According to Financial Times (2017) website, 2015-2016 Virgin Australia had an increase in income net loss of AUD150.10 million from AUD110.80 million in 2015. Despite rising revenues, the company continued facing falling revenues with the net profit margin being -6.21% (Financial Times, 2017). From its balance sheet, Australia Holdings Limited had a Debt to Total Capital Ratio of 59.9%. This figure was much lower than 2015 which stood at 243.03% (Financial Times, 2017). The company increased its cash reserves by AUD95.30 million or 9.27%. The cash flow from financing was 5.26% of the total collected revenues or AUD263.20 million. The total cash invested was AUD389.00 million while the company generated AUD198.50 million.
- Chan, K. M. (2013). Virgin Australia: Situation analysis of the ‘Game Change’ strategic plan. GRIN Verlag.
- Financial Times. (2012). Virgin Australia Holdings Ltd, VAH:ASX financials – FT.com. Retrieved from https://markets.ft.com/data/equities/tearsheet/financials?s=VAH:ASX
- Horn, C. (2015). Competitive Intelligence Report for Virgin Blue/ Virgin Australia Airline. Competitive Intelligence Final Report.
- Lück, M., Gross, S., & Lück, M. (2016). The low cost carrier worldwide. London, UK: Routledge.