Roads to Resilience

Case study: Virgin Atlantic

Introduction

Virgin Atlantic Airways Ltd is a British long-haul airline, founded in 1984 by Sir Richard Branson. 51 percent of the company, which is headquartered near Gatwick Airport, is owned by the Virgin Group. For many years Singapore Airlines held the remaining 49 per cent, but sold their stake to Delta Air Lines in December 2012, subject to regulatory approval. The airline employs about 9,000 people, 4,300 of which are cabin crew and 750 are pilots. Virgin Atlantic uses a mixed fleet of 41 modern wide-body Airbus and Boeing jets to fly passengers and cargo to over 36 destinations in North America, the Caribbean, Africa, the Middle East, Asia, and Australia, from Gatwick and Heathrow airports. Virgin Atlantic announced recently that it would also start operating daily domestic flights between London Heathrow and Aberdeen, Edinburgh and Manchester. In 2012, Virgin Atlantic carried 5.4 million passengers, achieving a load factor of 78% and a turnover of £2,740 million. It is the UK’s second largest long-haul airline, the third largest European carrier over the North Atlantic, and the UK’s eighth largest airline in terms of passenger volume. Although Virgin Atlantic’s key figures and statistics are on average only a fifth the size of their main competitor, British Airways, in the eyes of travellers, both airlines are perceived as two super- brands of level pegging. As Sir Richard Branson stated on Virgin’s website, “ [Virgin Atlantic] has grown into a wonderful airline which has punched above its weight for almost three decades. We intend to carry on doing so for many years to come. ” 1 Operating profitably in the heavily regulated airline industry is a challenge. Fixed costs are high and fuel prices, which make up a third of operating costs, have increased incessantly. Further, with many different carriers offering a good but increasingly commoditised product, profit margins and customer loyalty are generally low. To succeed in this complex, dynamic and uncertain environment, managing costs carefully and minimising disruptions to operations is essential. However, without a product and service that continually attract sufficient passengers to fill aircraft and provide a memorable experience which draws people back, an airline is not going to remain in business very long, as the costs are so high. Making the brand really stand out is therefore crucial. Compounding the business challenge are a number of risks, in addition to the fundamental need to ensure safe travel. Demand can fluctuate dramatically and is affected not only by changes in global economic and financial conditions, but also by acts of nature and political instability in certain parts of the world. With shortages of key airport infrastructures, growth is also constrained. Additionally, airlines, like many other companies, have to deal with public environmental concerns, as well as new threats such as cybercrime and computer hacking. Dealing with terrorism has, unfortunately, been an issue the airline industry has had to contend with for a long time. Against competitors that have scale and networks, Virgin Atlantic can only Business challenges

1 See: http://www.marketingmagazine.co.uk/sectors/travelleisure/article/1163631/Branson – hits-back-BA-Virgin-Atlantic-brand-axe-rumours/

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Roads to Resilience: Building dynamic approaches to risk to achieve future success