Principles of Management in Aviation

In other words, how are a company’s services and products superior to what the competition has to offer that will attract customers? Leisure travellers, who constitute two thirds of most airline markets chose flights based on price, therefore are very fickle (Lawton 2002, p. 36-37). This shows the importance for airlines to keep costs down and to innovate to set themselves apart. Domestic air travel in Australia has proven to be an indispensible tool for businessmen and holidaymakers across the country. Until the entrance of Virgin Blue in the Australian airline market, the duopoly between Ansett and Qantas kept airfare prices high.

This essay will discuss Virgin Blue’s many positive attributes that provide a competitive advantage over its main competitors, Qantas, Jetstar and Tiger Airways: Affordable travel, maintaining a high level of customer service satisfaction through its front-line employees, its reputation and the peculiar company culture often associated with Virgin brands. The Low Cost Carrier (LCC) business model has been tried and tested by numerous airlines around the world (Lawton 2002, p. 5). Airlines such as Ryanair, Southwest, Easyjet, and Virgin Blue, all implement the common cost-cutting strategies in their business models.

Virgin Blue was the first truly low cost airline to be established in Australia, offering seats at a much cheaper price than Qantas and Ansett, who at the time were the biggest competitors. In a statement published on their website on August 15 2000: “We are here to make air travel the most simple, convenient and inexpensive way to get around Australia”, Virgin Blue clearly stated their company’s vision for the future, and changed Australia’s aviation industry to the consumers advantage Virgin Blue (2000).

Common cost-cutting strategies used by Virgin Blue and other LCC include: Utilizing only one or few different types of aircraft, cutting out unnecessary luxuries or frills, online reservation systems, fast aircraft turnaround times and so on (Lawton 2002, p. 39). Omitting the inclusion of business/first class seats allows the aircraft cabin to be fitted with more economy class seats and can reduce costs by approximately 16% (Lawton 2002, p. 40). Since the introduction of Virgin blue, more companies have followed suit in a bid to exploit this new LCC submarket in Australian aviation, thereby further increasing competition within the industry.

In response to the competition that Virgin Blue created in the market, Qantas launched its own low cost subsidiary, Jetstar airways (SMH, 2003). Jetstar offers fares which are in direct competition with that of Virgin Blue, using similar cost-cutting strategies and operating a nearly identical network of destinations. In addition, Tiger Airways Australia joined the Australian LCC market in late 2007 (Rochfort, 2007). So how does Virgin Blue differentiate themselves from its low-cost competitors? In its early beginnings, virgin blue followed a strict cost leadership strategy to differentiate themselves from Qantas and Ansett.

But since the arrival of other LCC, Virgin Blue have had to find other ways of discerning themselves to maintain market share. One way they did this in 2007 was to introduce a premium economy class to its fleet of aircraft in an attempt to attract more business travelers (Redorbit, 2007). Virgin Blue also attempted to gain clientele by being the first Australian airline to offer live satellite TV on its domestic flights (Doorman, 2008). These moves point towards a differentiation strategy being employed by Virgin Blue.

A differentiation strategy is a strategy whereby the organisation gains more customers by providing unique products, without necessarily focussing on being a low-cost leader (Robbins et al. 2008, p. 289). It is not easy to achieve, but implementing cost-leadership and differentiation strategies is possible and has been accomplished by Virgin Blue. Virgin Blue airfares may generally be a few dollars higher than its competitors Jetstar and Tiger, however what they have found is people are often willing to pay a little extra to get the extra perks.

Another area in which Virgin Blue thrives in is its management. Managers use strategic management to develop the organisations’ strategies that will define a company’s long-term performance (Robbins et al. , 2008, p. 273). Strategic management process starts with the identification of the organisations mission, goals and strategies (Robbins et al, 2008, p. 276). Virgin Blue’s mission has been since the start, to offer Australians affordable airfares without compromising on safety and quality of service through the use of innovation, among other methods discussed later in this paper (Virgin Blue, 2011).

The second step in the strategic management process is an analysis of factors external to the organisation. For instance, Virgin Blue needs to know the current market trends, what competitors are doing, laws governing their operations, changing customer needs, social and environmental issues, threats and opportunities and so on. This gives an idea of what the company can do to continue providing relevant services to society. After finding out what they should do, the third step is to analyse the organisation’s resources and capabilities, what they can do.

One method of doing this is by conducting a SWOT analysis, identifying Strengths, Weaknesses, Opportunities and Threats. The fourth step is to formulate strategies while taking into account the external environment and the company’s own capabilities. The fifth step taken in the strategic management process is to finally implement the strategies. A well planned and designed strategy that isn’t implemented properly will not provide strong benefits to a company.

Last but not least, an evaluation of the implemented strategy will give the company feedback into how effective the decisions have been, and whether any amendments need to be made (Robbins et al, 2008, p. 279-280). One of the strategies Virgin Blue have used is to provide a ‘fun’ and interesting work environment to its many employees to create a unique and energetic workplace (Virgin Blue, 2011). Richard Branson’s Virgin Empire prides itself on having minimal levels of management and steering clear from becoming a bureaucracy (Virgin, 2011). This gives employees a sense of belonging and being part of a team.

A corporate level strategy is one that is decided upon by managers at the top level of an organisation (Robbins et al, 2008, p. 280). Corporate level strategies determine the direction in which the company is heading towards, which demographic they will be targeting and so on. For example, the introduction of more premium products by Virgin Blue to differentiate itself from the competition and to gain attention from business travellers was clearly a growth strategy made at a corporate level. Last year, Virgin Blue made an order for up to 105 new Boeing 737-800/900 aircraft, representing another growth strategy decision (SMH, 2010).