The Micro And Macroeconomics Conditions Of A Firm Tourism Essay

1. Introduction

In 1984, Randolph Fields became the first president of Virgin Atlantic air passages, its inaugural service operated between Gatwick and Newark Liberty international airdrome utilizing a Boeing 747-200 ( G-VIRG ) which lead to a net income in the initial twelvemonth and had the ability to take rental another Boeing 747-200 in summer as it was a profitable period.

The air hose is now owned by Sir Richard Branson ‘s Virgin group ( 51 % ) and Singapore air hoses ( 49 % ) , headquartered in Crawley, England ( 7 ) . The air hose was created to concentrate on category, comfort and merriment. It is one of the largest British long draw air hoses runing long draw services. It operates in United Kingdom, North America, the Caribbean, Africa, the Middle East, Asia, and Australia ( includes 30 finishs ) , and wholly has a fleet of 38 aircrafts. It has a CAA Type A licence to transport mail, riders, and lading in the aircraft ( 14 ) .

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The air hose, in 2009 has 8.993 employees and carried 5.77 million riders with an one-year net income of ?68.4 Million and a turnover of ?2,580 million ( 4 ) . The company

Always had an addition in the figures respective to the employees, riders, turnover and one-year net income despite of the recession and tough competition by British air passages and Cathay Pacific. A strong gross growing was helpful in spread outing its operations in domestic and international markets. Reasons behind the gross growing were because of the strong trade name image, the technology/amenities, sofa nines, addition in cargo transit and frequent flyer privileges. Its trade with the All Nippon Airways ( ANA ) enabled to beef up its market presence in Japan which enhanced services which future affected client base and regarded in offering low monetary value menus to the clients.

The competition from international markets peculiarly in the facet of dismissing on menus did non hold an consequence on the company ‘s fiscal status, operations and liquidness in the long tally.

The followers are the chief countries of the research aim:

Conducting research on the determiners of demand, supply, monetary value snap and competition.

Examine how the past nowadays and hereafter of the air hose by sing GDP growing, rising prices, and involvement rates

Giving strategic recommendation based on the analysis.


The statistical information is taken from the undermentioned beginnings, which are guaranteed to bring forth accurate informations so research and decisions are drawn based on this information.

Diaries and Magazines: Strategy Management, Journal on Competitive Analysis, and Management and Strategy Journal.

Books: David Begg & A ; Damian Ward ( 2007 ) .A Economicss for BusinessA 2ndA Ed. McGraw-Hill. And Manklw, G. and Taylor, M. ( 2006 ) , Economics, Thomas Learning.

Internet:, World Wide Web.

Annual Reports: Virgin Atlantic Airways Limited ( Amadeus database )

3. Microeconomics:

3.1 Determinants of Demand:

The major factors which are related to the determiners of demand in of this air hose are monetary value, client gustatory sensations and penchant, supply, consumer income, flight timing, seasonality and peaking ( 4 ) .

For illustration flights runing between Gatwick and Orland ( path ) for uninterrupted 14days from 22nd August to 5th September ( season ) with reaching and going timings as 13:00 and 17:25 ( flight timings ) with inexpensive menu of ?329 ( monetary value ) include good place pitch and telecasting with pick of channels for amusement and excess luggage allowance ( client gustatory sensation and penchant ) ( 14 ) .

3.1.1 Monetary value:

As low monetary value is a cardinal instigator to pull clients, Virgin Atlantic air hoses was acute on giving low cost menus and seasonal offers. And the fiscal operations were strongly operated so that its rivals would non under cut its cost menus. All most 64 % of clients were monetary value sensitive in respect to service industries.

3.1.2 Supply:

Based on jurisprudence of supply, in facet to virgin they have increased in the paths and the figure of flights runing as they have ordered 31 flights which include aircrafts like AirbusA330 – 300, AirbusA380 – 800, Boeing 787 – 9 which will come into

operation by 2011 and 2013 ( 5 ) . As there was a deficit of 17.4 % addition in use of sail than air hoses because of the less resources available so there was still market infinite felt out for air hose industries to turn. The undermentioned graph shows an addition in the assets of the company but a little lessening in 2003.

Graph 1: Entire assets of Virgin Atlantic Airlines ( 17 )

3.1.3 CONSUMER Income:

During the recession period most people had jobs with income they are extremely motivated to diminish their outgo so that ‘s when the argue to travel on low cost air menu which had BASICs need was most preferred to them despite of their excess luxuries in the journey. But virgin Atlantic provided low cost with luxuries which attracted clients so at that place was non a lessening in net income in the tough times.

Graph 2: Real disposable and consumer disbursement of the income in 2009. ( 3 )

Real consumer income was seen on both the positive and negative sides of the graph, where as disposable income is seen merely in the positive side of the graph.


The air hose had three categories that are economic system, premium economic system, and upper category as per the pick and scope of the client. It was the first aircraft to offer personal place back telecasting with audio and picture for amusement ; it besides had EVV systems which display on a cringle instead than on demand. Besides had video games to pull kids ( 15 ) . It was focused on to showcase a merriment, pop civilization on its travel. The basic demand was included like repasts, drinks, agreeableness kits and adjustable lumbar support.


Based on the old experience the client had about the hiking of the monetary values after peculiar season which motivated the clients to reserve their tickets in progress. There were few paths operated in peculiar seasons so nature and construction was good defined. The going and reaching of the flights must be convenient to the clients so the agenda in this air hose was planned harmonizing to profit the major part of the clients like people winging for concern trips or holiday.

3.2 Price snap:

Price snap is frequently termed to be more profitable in air hose industry than monetary value inelasticity. Demand tends to be more elastic when there are larger figure of replacements, good is luxury. In the undermentioned illustration flight from Heathrow to Boston with flight figure VS011 with mean menu of ?787 ( 15 ) for to and fro so the consumer will purchase any measure of at this menu but any monetary value above this the measure demanded is zero and the any monetary value below this the measure demanded is infinite. A gross revenues consequence is achieved in virgin by its seasonal offers to Africa, at present ?395 trade ( 15 ) .

3.3 Market Structure:

Virgin Atlantic has an oligopoly market construction sharing it market with British Airways, Cathy Pacific, Lufthansa, and Air France in the transatlantic paths ( 6 ) , but a monopoly is seen by British air passages in the path from Heathrow to Chicago of 68 % which lead Virgin Atlantic to take its service in those paths in winter 2009 ( 14 ) .

3.4 Competitive Analysis:

The air hose competes with major industry air hoses like British air passages, Bmi British Midlands, American air hoses, Continental, Delta and united but still gets net incomes in market ( 1 ) . As 50 % of the clients are interacted with the usage of cyberspace which helps to compare the menus offered by major air hoses, the company must ever update its web pages. Because of the hapless market research globally it should concentrate on the nucleus operations and non vie against British air passages, AMR corp. and Lufthansa with operate in 150 finishs ( 13 ) . New entrants and impersonators will aim on the low cost menus so if that takes topographic point it allows the company to travel into bankruptcy, so a competitory border with differential schemes should be followed and bing should be revived on a regular basis ( 16 ) .

Graph 3: Net income borders of Virgin Atlantic Airlines ( 17 )

The SWOT analysis of the air hose is:


Strong trade name image: The Company received several awards from the British Travel Awards, including the esteemed Airline of the twelvemonth award in September 2007 and besides won awards at the Travel Trade Gazette. It was besides names as the best air hose in the transatlantic paths. Besides won awards in classs like amenities/technology, frequent flyer privileges and sofa nines this helped the air hose to further better its competitory place ( 8 ) .

Comprehensive Servicess: It provides terminal to stop services to tap high value clients. The air hose is good known for supplying first-class quality service to clients in a high fashioned and corporate manner with merriment and amusement.


Private ownership: Support is a job as publicly owned houses get organic and inorganic enterprises and besides have better acquisition to capital to turn its diversified set of concern ( 7 ) .

Lack of graduated table: As Virgin Atlantic operates merely to 30 finish when compared to its rivals it is less as British Airways and Air-France KLM operate about to about 841 and 300 finishs. The fleet of aircrafts of Virgin Atlantic is 29 where as the rivals is 543 for the former and 245v for the latter ( 7 ) .


Accelerating UK air hose industry: The UK air hose industry was seen to hold a continues and major addition from 2003 as for the figures the addition from 2003 to 2007 was noted to be a entire gross of $ 22.2 billion stand foring a CAGR of 5.9 % .The predicted CAGR as from 2007 to 2012 was of 9.4 % and is expected to accomplish a entire gross of $ 34.8 billion by the terminal of 2012, from this borders it shows that Virgin Atlantic can increase its net incomes and grosss ( 7 ) .

Moderate growing in planetary air hose industry: By 2012 the planetary air hose industry is predicted to make $ 711 billion, addition of 65.4 % since 2007. This shows Virgin Atlantic to capitalize and spread out its services.

Turning planetary touristry industry: The UN World Tourism Organisation forecasts that a growing of 3-4 % in the twelvemonth 2009. So planetary touristry would assist in increasing the demand for the air hose ( 7 ) .


Slowdown of planetary economic system: In respect to IMF it predicted that by the terminal of 2009 there would be a diminution to around 3 % from 5 % in the planetary economic system. So if there is a lessening in the demand the company will confront menace in its fiscal place as it can non supply any type of confidence of its public presentation in the recession periods.

Intense competition and monetary value discounting: As Virgin Atlantic operates on the basic characteristics like monetary value, convenience of agenda clip, frequent flyer benefits, and client service ; it has many impersonators and major rivals like AMR and Air France KLM. , British air passages and etc. And besides a menace is from the understanding signed by the EU-US Open in April 2007 and active in March 2008 permits the US houses to offer services in the UK market, which is increasing the competition ( 6 ) .

3.5 Government Legislation:

The authorities statute law which was made in 2005, counterbalancing to riders by giving repasts, adjustment, when they were holds in flight timings and besides counterbalance when the flight were cancelled due to environmental conditions and likewise the clients besides had to pay compensation when they cancelled their tickets ( 7 ) . So being a little air hose Virgin Atlantic had fiscal jobs in this instance which their net incomes were affected. And besides the authorities passed a statute law of the air hose industries to utilize bio fuels to diminish the emanation of pollutants. The revenue enhancements

paid by the air hose industry were more than those houses in other states. The Troika strategy by the BATA ( British Air Transport Association ) which was put away because of the 9/11 terrorist onslaught was extended and offered insurance liabilities of $ 50 million ( 2 ) .

4. Macroeconomics:

The factors under this construct are GDP, Inflation and involvement rates.

4.1 GDP

The British Chambers of Commerce said that there was a 4.3 % psychiatrist in the economic system in 2009 which will increase to turn of approximately 1.1 % by 2010 ( 12 ) .Unemployment is besides to be raised up to 3 million by mid 2010, which is equal to 9.6 % or the work force ( 12 ) . Due to the recession of the economic system the Virgin Atlantic removed 2000 employees in the twelvemonth 2008. Despite the company deriving net incomes as it wanted to be fiscal strong in its operations.

Graph 4: Number of employees in Virgin Atlantic Airlines ( 17 ) .

4.2 Inflation:

A sudden addition in rising prices was seen because of the addition in fuel monetary values and besides because the Virgin Atlantic and Cabin crew brotherhood unite has agreed to increase the wage to 4.8 % in 2009. As of the analysis of the National office of statistics in UK the upward force per unit area of rising prices in 2009 was majorly from the conveyance industry due the addition in fuels and lubricators and a downward rising prices in 2008 was due to fall of gasoline, Diesel and petroleum oil ( 10 ) .

CPI infaltion of 1.9 % and RPI rising prices of 0.3 % was recorded.

Graph 5: Inflation recorded from 2007 to 2009 in UK. ( 10 )

( The RPI strats at above 4 % , CPI at supra 2 % and RPIX at supra 3 % . )

4.3 Interest Ratess:

As to keep a low rising prices and value of the money the Bank of England has announced the involvement rates to be 0.5 % ( 11 ) . So as to protect many companies including air hose industries as big sums of capital is needed to run the concern. As the addition in rising prices in the air hose industry the lower involvement rates will assist to convey down the rising prices.

Graph 6: Interest rates of Bank of England ( 11 )

5. STRATEGY Recommendation:

Based on the economic analysis of the air hose, its hereafter development must be based on planetary enlargement as of now it focuses merely in markets of Africa and Australia but as the competition is increased in the western market it should emerge its markets in Asia and south America as it can excel the rivals in those continents because of its efficient trade name schemes, in order to carry through this international market research must be developed as this is limited in this facet.

The air hose is build on factors like supplying low cost menus and first-class quality service so it should concentrate on keeping fiscal operations under control so that its rivals will non under cut its menus and put the company into bankruptcy.

As client service is as attractive characteristic of the air hose by supplying luxuries to clients like province of art, lean backing seats, in flight massages, hair stylists, it needs to concentrate on its impersonators and demands to integrate progress technological inventions and supply options against major rivals and concentrate on long term ends.

Based on current fortunes in recession it should keep its concern policies which Richard Branson believed from errors made by Laker air hoses, the superior quality service is of import in an air hose industry to hold a competitory border.

Organizational and frontward functional planning, determination devising and working together as a squad which allows sharing information thoughts and values so that efficient determinations can be made. There should non be many beds between employees organisational construction so that thoughts and action can takes topographic point in a quick and new fangled manner.

Based on 9/11 onslaughts of terrorist security has become a major jeopardy so market publicity should be done in all topographic points so as to do clients aware of non merely travel convenience and service provided but besides security measures the company has taken.

A squad of members should be established who gather information and focal point macro and micro economic conditions to be cognizant of updated and latest operations, direction changing, political issues, legal and demographic tendencies so that market detection, client linking, selling and technological monitoring can be taken into consideration at each degree.

It should concentrate on developing new thoughts to function clients with better fresh and valuable offers to clients based on the old merchandises.

Hazard pickings should be handled expeditiously even though it is one of the company features as high sum of money is required in its operation because Richard Branson owns merely 51 % .

It should print its one-year studies like its rivals to showcase it ‘s cooperate manner in direction so that to appeal to maturate clients who prefer their air hose to be concern like.

Public dealingss and good will should be maintained in this sphere as clients tend to acquire more information about civilization of the air hose in this internet universe.

6. Decision:

By analyzing the micro and macro economic sciences of Virgin Atlantic air passages.

Low cost menus and seasonal offers are assumed as the determiners of the demand where monetary value snap and deriving net incomes is achieved by runing flights in vocational and seasonal periods to peculiar finishs like New York and Africa. As no concern venture is established without the end to maximise its net incomes and increase its supply so is the instance of this air hose, as the net incomes increased it was able to order 31 aircrafts for operating in 2011 and 2013. In malice of impersonators and major rivals its stood second in the largest air hose in Uk with addition in net incomes every twelvemonth by taking hazards and making competitory border. Brand name, low cost, quality service attracted clients to this air hose. Richard Branson took a head and said all air hose companies should come together and form ordinances, so that to diminish

the emanation of pollutants and promote the usage of bio-fuels before the authorities took a base on it ( 9 ) .

In respect to GDP there was gradual addition in entire income by gross and besides an addition in outgo for set uping new engineering buying fixed assets and for keeping public dealingss. Inflation force per unit area was seen due to the addition in monetary values and besides a minor issue was because of the hiking of the employee wage. The air hose played a major function in unemployment for supplying occupations for 2000 employees in the UK.

The involvement rates decreases so as the company could ne fiscal stable and put in the capital earned by lessening in involvement rates to further develop the services.

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