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Posted on March 18th, 2013, by

European airline industry is currently highly competitive, due to reduction of regulations and creation of unified economic space. Currently, it is possible to determine four strategic groups: mainline carriers, charter carriers, regional airlines and low cost carriers. Mainline carriers are large national flag carriers like British Airways, Air France, Star Alliance, One World, Lufthansa etc. They face high competition and tend to form alliances in order to consolidate the industry. Regional airlines operate on small distances and more than 50% of them are affiliates of mainline carriers. These companies tend to choose focused strategy, with offering various destinations and pricing at their level. Charter carriers actively expand into tourism and leisure industry, and cover seasonal market gaps in airline industry. Finally, low-cost airlines operate over the UK and Europe, with some of them covering other parts of the world. Major players in this group are SkyEurope, Volare, EasyJet, BalticAir, Ryanair etc. Virgin Atlantic can also be classified as low-cost airline company; however, the firm has grown to the level of a mainline player. Thus, it is useful to analyze strategies of both strategic groups. Regarding low cost airlines, their main targets are to cover main routes and point-to-point markets, these companies tend to cut costs and focus on short turnaround strategies. Mainline carriers focus at expanding the scope of their activity, integration and formation of alliances; mainlines also take control over regional sectors and open new transportation hubs internationally. From strategic point of view, Virgin Atlantic should also select a similar strategy, in order to increase revenues, offer more directions for passengers and provide enhanced interaction.
Regarding strategies of mainline carriers, Virgin Atlantic should pay attention to increasing number of medium and short flights provided by major players, and address similar issues within the company’s scope of coverage.

 

TOWS matrix for Virgin Atlantic Airlines

TOWS analysis allows to classify strategies and to have an overview of the full scope of optimal strategies. This matrix commonly addresses questions of maximal utilization of organizational strengths, capitalization on opportunities, issues of circumventing weaknesses and managing threats in order to minimize risks. The product of this matrix are four sets of strategies:

SO (maxi-maxi) strategies, which use strengths in order to maximize opportunities;

WO (mini-maxi) strategies, which are based on opportunities and minimize weaknesses;

ST (maxi-mini) strategies, which minimize threats on the basis of strengths;

WT (mini-mini) strategies, which focus at minimization of weaknesses and avoiding threats.

Below is the TOWS matrix for Virgin Atlantic Airlines with appropriate recommendations for strategies.

 

Opportunities:ü      Tourism is increasing while economy is improving

ü      Mergers and alliances

ü      Opportunities for growth (280 new airports) across Europe

ü      Rapidly growing Asian market

 

Threats:ü      Antitrust legislation with regard to mergers

ü      Threats of terrorist attacks

ü      Falling revenues as a result of increased supply

ü      Price competition due to online booking of tickets

ü      New means of telecommunications reduce the need for traveling

Strengths:ü      One of the largest airline companies in the UK

ü      Rated third European company to carry passengers over North Atlantic

ü      Service, price and value differentiation

ü      High brand awareness

ü      Flying club

ü      Additional services for passengers with special needs

ü      Known for innovations

ü      Well-functioning organizational structure

ü      Skilled and talented management

q   Use various company facilities, technical base and brand reputation to promote and develop tourismq   Apply core strengths such as management and corporate culture to become a European carrier industry leader

q   Penetrate into Asian airline market

q   Use special services and club options to retain customers and to address their specific health and safety needsq   Continue diversification and establish partnerships/alliances instead of mergers
Weaknesses:ü      Certain target groups of customers are not addressed

ü      Weak distribution system

ü      Lack of internal data analysis and cost optimization

ü      Excessive and often ineffective use of mergers (Virgin Group)

ü      Lack of partnership and alliances

ü      Environmental concerns

ü      Small number of airplanes

q   Analyze market and approach new target groups of customers with unique offersq   Adopt and utilize effective cost management system and direct revenues to financing growth opportunities

q   Selling ineffective businesses and investing into European and Asian airline development

q   Reduce percentage of mergers, and consider possibilities of collaboration and partneringq   Use innovative power to address the issues of environmental protection and expensive fuel (thus improving revenues and gaining new competitive advantage)

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