Airways

VIRGIN ATLANTIC GLOBALIZATION

Virgin operates in the third era of Globalization (2000 onwards) where everything is connected through the Web. This means that Virgin use extensively Internet and other technological platforms to conduct its business. The Globalization of Virgin Atlantic contributed to capture the international market and to the improvement of the organization, but still there are some challenges experienced that influence the organization policies and the decision making, they include: Co-operation with other airlines (i.e. Singapore Airlines)

Consideration of different cultures of people

Environmental factors (measures to reduce drastically pollution) Research of outer-space tourism

Consideration of trade agreement and tariffs
Increased airline destinations to other countries especially developing countries Virgin bargaining power to negotiate better deals with manufactures Investments in latest technologies
Offer of better working conditions for employees

The benefits Virgin gains from Globalization are that the cooperation with other airlines has proved to be useful to the organization in improving its global network of international destinations and has increased its profit margin. Moreover, thanks to the research of outer-space tourism more and more consumers are curious about the outer-space, and hence the company has taken the initiative to be the first airline that is offering this service. Furthermore, the consideration of trade agreement and tariffs reduces entry barriers costs and organization expenses. Even stakeholders obtain some advantages from Virgin’s Globalization, i.e. consideration of their different cultures, environmental measures to reduce pollution, increasing number of available airline destinations, better working conditions, and increasing job offers and cheaper airfare through the co-operation with other airlines.

GLOCALIZATION

Virgin Atlantic Strategy is to “think global, act local” to better understand customers’ needs. For this reason, the company has decided to make the airfare flexible to suit different cultures and languages of targeted consumers: for example, hostesses wear the burka in Etihad Airways. Virgin Atlantic Services are standardized across different countries, varying in the flight segment that depends on the company you are flying with (i.e. Virgin Atlantic and her sisters, Virgin Australia in Oceania and Virgin America in USA). To better satisfy local customers’ needs, the company has undertaken some partnerships, as they did with Air New Zeland that offer unprecedented choice in flights acrosAirlines, ?s the Tasman, Singapore Airlines, Etihad Airways, Delta Airlines, SkyWest Airlines, Hawaiian Airlines, etc.

In particular, Singapore Airlines has emerged as the single biggest investor in Virgin Australia, snapping up $122 million (19,9%) in shares in the airline of Richard Branson’s Virgin Group. Air New Zealand has about 19% of the remaining shares, Etihad 8%, and Virgin Group 13%. Moreover, Virgin Atlantic Airways operates the vast majority of its weekly seat capacity on routes to North America. Its network ps 33 non-stop passenger destinations of which 11 are in North America, eight in Central America and the Caribbean, four in Africa, one in the Middle East and eight in the Asia-Pacific region. The Global/Local Responsiveness graph for Virgin

According to the Global/Local Responsiveness graph Virgin Atlantic Airlines is on a medium-high position, as regionalization is difficult to obtain for such a global service like the one of airlines. Read about the impact of globalization on Ghana’s economy

As you can see from the Graph, a competitor such as Ryanair offers more standardized services compared to Virgin, in fact Ryanair’s fleet consists of only one kind of Airbus (i.e. Boeing): every time you fly with Ryanair you will receive the same food, feel the same comforts and feelings, and it will be only for a short haul.

On the other hand, Virgin is able to offer global services on a local-scale, making it possible to define this company Glocal.

4 P’s ANALYSIS FOR VIRGIN

Virgin Atlantic has sought to offer a fun and innovative product with high
quality services and convenient locations for the customer.

PRODUCT

Virgin Atlantic offers flights worldwide in three distinct classes: Upper Class, Premium Economy, and Economy. In details:

Upper Class
Complimentary limo-service on both sides of the Atlantic
Drive through check-in from the limo
In-flight beauty therapy – massages and manicures
Freedom menu – restaurant style cuisine at any time
Onboard stand-up bar
Personal 10.4 inch video screen
Ergonomic seats with over 6 feet of sleeping space
Sleep service – pajamas, full size pillows, feather duvets and fleece blankets A dedicate sleeping area
Fast track-priority service through immigration

Premium Economy
Dedicated check-in desk
Priority baggage handling
Flexible ticket – no penalty for last-minute changes
Separate cabins
Comfortable wider seats with up to 6 inches of extra-legroom Seatback video-screen
Preflight champagne
Fruit throughout flight and ice-cream during movies
Free amenity-kit
Fast track-priority service through immigration

Economy
Seatback video-screen with up to 43 channels of movies, music, and video games Choice of three entrees, including a vegetarian option
Complimentary beverages, including cocktails
Free amenity-kit
Children’s services including K-iD backpacks, TV channels and special meals Ice-cream during movies

PRICE

The price for the Upper Class ticket is around $9,000 dollars. Premium Economy tickets are listed around $3,000 dollars and Economy tickets are currently priced at $500 dollars to London.

PLACE

Virgin Airlines tickets can be bought principally on the websites, travel-agencies, sales-offices and call centers.

PROMOTION

Promotion is the publicized announcement designed to attract customers. Virgin Atlantic is continuously promoting through various media. It has pioneered Internet marketing in the airline industry. Their website allows more efficient communication between Virgin Atlantic and customers.

Concrete examples of promotions are the Velocity Gold Card and the Flying Club Loyalty Program, a frequent flyer program that encourages loyalty in its customers. In addition to offering miles that can be exchanged for free flights and other rewards, Flying Club members are offered other support services and clubhouse access.

Virgin Atlantic also is continuously involved in sponsorship programs. It has their own communication program aimed at staff within the company. With regards to promoting the company, Virgin Atlantic has an events team that organizes press launches and other activities.

4 C’s ANALYSIS FOR VIRGIN

CUSTOMER (NEEDS)

Virgin is able to satisfy the needs of each kind of customer, in particular high-income people, by offering 3 different flight-classes (Upper Class, Premium Economy, and Economy). Virgin Airlines’ surveys monitor the punctuality of flight departures, the length of check-in-lines, and the quality of in-flight entertainment and service. The results of these surveys provide the airline with valuable information on which to base improvements in its services. In this way Virgin can provide what customers want day-by-day.

COST

Virgin offer high ticket price for good-quality services and low searching costs, while opportunity costs depend on customers’ preferences.

COMMUNICATION

Virgin Airlines uses a wide range of marketing communication techniques. Advertising activity includes direct mail, TV, press, magazines, outdoor posters and taxi sides, all featuring their distinctive logo, like the one of the Flying Lady. Advertising is used to encourage people to fly with Virgin Airlines, to raise awareness of new products’ developments and to inform customers about new routes. Among these advertising practices, Virgin provides direct responses, sales promotions and public relations all combined to grant clarity, consistency and maximum communication impart.

CONVENIENCE

The website offers full electronic booking capacity, allowing passengers to reserve and pay tickets online, plus full destination information and a comprehensive guide to the benefits of flying with Virgin Atlantic. Moreover, Flying Club members are able to use this their mileage balance, rewards and earning opportunities, while new members can subscribe on-line.

SEGMENTATION

Virgin segments the market according to geographic and demographic variables, i.e. customers’ destinations and customers’ income/status, gender and age by providing three different travel classes.

Upper Class passengers are predominately traveling on business and are 35 to 45 years old male, earning £50K plus per annum; passengers in Premium Economy are split between traveling for business or leisure, male aged 41; and Economy passengers are a much broader group, traveling mainly for leisure, spread across most socio-economic groups and age ranges.

TARGETING

Virgin Airlines have targeted upper class customers who are primarily business passengers traveling on transatlantic routes, by realizing the opportunity to gain a considerable market-share through effective marketing of their quality, fun, innovative, honest, and caring airline.

The most suitable targeting strategy is, therefore, the Differentiated Marketing Strategy, whose main advantage is that you can satisfy all needs of your targeted consumers, and main disadvantages are that there are too much high costs and you fail to consider other potential customers by differentiating too much.

POSITIONING

Virgin attracts customers by being fun and innovative and offering high luxury services, i.e. spacious setting arrangements, limo service to and from the airport on both sides of the Atlantic, in-flight entertainment system, restaurant-style dining and full-service bar, high level of customer service, business facilities, Internet capabilities and distinctive upper class services like exclusive use of clubhouses, Virgin touch beauty salon-massages, facials, and barber services at Heathrow and Gatwick.

One of the main competitors of Virgin Atlantic on principal international
routes is British Airways (as can be seen from the table below), that is perceived by customers for its reliability, its reputation, and the efficiency of its staff.

For these reasons, Virgin Atlantic has located itself as direct competitor to British Airways on all routes by offering an innovative service to position itself as the most original brand in the airlines’ market. Firstly, it was extremely aggressive in obtaining slots at Heathrow International Airport. Secondly, it attacked the proposed British Airways and American Airlines partnership stating that it was unhealthy for competition. Finally, Virgin Atlantic has strived to compete with British Airways on all routes into and out of London.

(About the campaign of “No way BA/AA” that fights against the merge of British Airways and American Airlines to prevent BA monopoly)

Therefore, in such a competitive environment, Virgin needs to differentiate to perform in the best way: Virgin Airlines can differentiate its product by taking customers’ expectations one step further through communication with the customer. An easy example can be seen in providing in-flight ice-cream, something other airlines do not offer. 11. MISSION STATEMENT

Virgin focuses on giving customers new experiences based on Luxury, Comfort, and Innovation.

Indeed, it is clear that the mission statement is strongly related with the targeting and positioning strategies of its business plan.

12. SWOT ANALYSIS

STRENGTHS

Brand Awareness: Virgin Brand is recognized by 98% of British Public; Good customer service in each separate class;
Innovative technology personalization: including in-flight music, ice-cream,
games, movies, beauty and massage therapy (i.e. in India), and lounges offering quality food and comfort for gold club holders; Quality trained employees;

Richard Branson’s innovative entrepreneurial management;
Competitive pricing for business class that offers more services; Partnership with Singapore Airlines: this partnership is beneficial because their routes are non-overlapping and the partnership allows the transfer of core competencies; Positive publicity, in regards to winning every quality award known to man.

WEAKNESSES

Flight delays: need to improve flight efficiency;
Travel routes limited, considering just Virgin Airlines;
Cut routes to Chicago, Toronto, and Cape in relation to the September 11 tragedy; Virgin’s great reliance on transatlantic traffic: more vulnerability to the drop in demand for travel to and from the U.S.; No clear strategic direction: Richard Branson is a one man manager being the owner and director of multiple companies, and this could put Virgin at stake; High Costs to offer premium services: two five star chefs, lounge, and limo-service; OPPORTUNITIES

Being innovative, fun, maintaining values, caring, and produce quality can enhance the company ‘s image; Keep developing new advances in technology like Galileo and in-flight Internet connection; Opening to new destinations/ new partnerships;

Acquiring new planes;
Find alternative plan fuels to reduce carbon emissions;
Virgin Galactic, flying into outer space from 2004: in September 2011, Virgin Galactic has started accepting reservations aboard their sub-orbital spacecraft.
(Flying Lady Logo for Virgin Galactic)

THREATS

A global economic recession;
Terrorism: September 11th will and has affected the entire airline industry, order cancellations, risk aversion for flying customers; Strong competition with British and United States routes;
Weather issues;
Fluctuating fuel prices (15% of total airline expense).
13. INTERESTING MISTAKE

Virgin Blue, a Virgin’s partner, sent to all customers’ database an e-mail congratulating on achieving the Velocity Gold frequent flyer membership.

With this card customers have access to lounge areas, can use the priority check-in and get up to 32 Kg of baggage.

After just one hour, they sent another e-mail saying:

Of course, customers felt very disappointed and avoided flying with Virgin Blue in other occasions.

In order to fix this huge mistake, Virgin should have sent at least a discount on the next flight ticket or let customers take advantage of the priority check-in, instead of doing nothing. In this way the company had lost, with its reliability, too many customers.

14. CONCLUSIONS

In such a challenging market as the airlines’ one, it is hard to locate the brand in the mind of price-sensitive customers in terms of product attributes and benefits that the brand does or does not offer with respect to products of other airlines.

For this reason, Virgin should take advantage of its original brand to maintain its profit sustainability and:

Create an image of itself as a more reliable and balanced company by going public and encouraging investments by ensuring that the company won’t take impulsive decisions or uncalculated risks, and instituting a board of directors who will take decisions together so that the company’s future won’t rely only on one person; Concentrate more on the products offered by the airline: all the promotional matter is too Richard Branson centric, in fact, most people got to know about the airline through news associated with him, and, although this is a cost-effective means, it could threaten the longevity of the product as the dependence for brand awareness on one person is too high; Use innovative means to keep attracting new people and sustain their current passengers: the novelty of frills such as massages, on board bar, etc. can lose its magic; also, this can be copied by competitors very easily (Virgin need to keep coming up with services that have a first runner advantage, such as book your ticket to space born in 2008); Reduce waste generated by minimizing the costs of fuel, maintenance, acquisition and salaries; Try to lower tickets to aggressively capture the market that faces an increase of competitors, as it’s almost becoming a do or die industry, by, for example, offering affordable discounts especially for consumers who travelling as a family; Expand its airline network to other countries (i.e. Ghana, Egypt, etc.); Focus at expanding its operations in India, where today the consumer has evolved and is seeking higher quality of services at a value for money price, and double its daily services to Delhi and Mumbai, besides extending its services to at least 3-4 more destinations; Reduce emission of air pollution by reducing cargo weight, aircraft weight in order to sustain environmental regulations.

By following these recommendations, Virgin should be able to augment and maintain its competitive advantage over other airlines.

15. REFERENCES

Websites

http://www.virgin-atlantic.com/
http://www.singaporeair.com/
http://www.britishairways.com/
http://danwarne.com/virgin-blue-email-screwup-congrats-gold-flyer/ http://www.brisbanetimes.com.au/business/singapore-ups-virgin-stake-20130424-2if1r.html http://www.virgin-atlantic.com/en/gb/allaboutus/ourstory/forstudents.jsp#marketing http://www.venturedata.org/?i88932_Virgin-Atlantic-Airways-of-the-market-positioning-strategy http://centreforaviation.com/analysis/fiercely-independent-virgin-atlantic-struggles-to-attain-profitability-79979 http://www.managementparadise.com/forums/public-relations-management/6928-virgin-atlantic-gap-analysis.html http://www.emeraldinsight.com/journals.htm?articleid=1498423;show=html http://en.wikipedia.org/wiki/Main_Page

Bibliography

DiSabatino, Jennifer, Virgin Airways Set to Fly the Wired Skies, Computer World Online, 27 March, 2001.
Goetzl, David, Virgin Atlantic Airways, Advertising Age, 26 June, 2000. Vol. 71, Issue 27, Page 37.
Philip Cateora, John Graham and Mary Gilly, International Marketing, 28 September, 2012.

Jet Blue’s Business-Level Strategy: Value and Cost Drivers

Jet Blue uses to create and maintain ist competitive position. Founded by the discount airline veteran David Neeleman in 2000, JetBlue Airways has quickly become one of the largest discount airlines in the United States. Starting primarily by serving the East Coast, the airline has since expanded throughout the country and entered the international market.

The reasons for its early success are numerous:

• JetBlue entered the market with one of the largest levels of liquidity of any start-up airline;
• it met the needs of customers’ whose primary concerns are price and route;
• it successfully defined its brand and differentiated itself from competitors by offering an above average customer experience and amenities for a discounted price;
• They are offering fares with the “point to point” system.

JetBlue’s business-level strategy is therefore a mix of cost-leadership and differentiation.

David Neeleman’s idea behind JetBlue was to start a company that combined the low fares of a discount airline carrier with the comforts of a small cozy den in people’s homes. His vision involved both business and leisure customers to have cheap and affordable flights throughout the United States and abroad on newer aircraft that are not only comfortable, but are equipped with modern entertainment options, and a customer centric business model which makes customer service a number one priority.

In contrast to its competitors, for example, JetBlue offers fares up to 65% lower but added comfort features such as assigned seating, leather upholstery and satellite TV on individual screens in every seat. Moreover, they are practicing a “get-to-the-destinations-at-all-costs” culture, which makes it their declared aim never to cancel a flight. JetBlue Airways does not operate to a traditional mission statement; rather, it operates to a set of core values:

• Safety
• Caring
• Integrity
• Fun
• Passion.

 Positioning to Create a Strategic Competitive Advantage Company

The biggest and simultaneously oldest airline companies are United, American, Delta and Continental Airline. This is why they are referred to as legacy carriers. Their strategic competitive advantage is the hub and spoke system. In this system, airlines created hubs at specific airports where thousands of passengers were shuttled to their connecting flights, the so called spokes.

In doing so, these airlines can ensure to keep costs low and protect market share. Another argument strengthen this strategy is that passengers can travel between numerous destinations without changing airlines. Delta uses this strategy to dominate geographical segments of the market, for example Atlanta. Southwest Airlines on the other hand established a completely different strategy. They take passengers direct between cities, which is referred to as point to point. Additionally, Southwest is using secondary airports serving major metropolitan areas.

With their different strategic advantage, they are able to attract another target market. Because they offer fares between cities that are often less than 500 miles apart, they targeted customers that would have otherwise traveled by car. In this way Southwest maintains high levels of plane utilization while keeping its operating costs low enough to support its discounted fares. Another part of their strategy is their reliance on a single type of plane, the Boing 737. This allowed them to standardize ground and flight personnel training which decreased the airline? average turnaround time between landing and starting again. Moreover, Southwest focuses on customers whose priority is low-cost, on-time performance. There are no complications for customers, like seat assignments. Therefore, Southwest as well as Jet Blue are considered as low cost carriers (LCC). Jet Blue offers fares up to 65 per cent lower than legacy competitors. Jet Blue Airways positions itself by connecting large, typically northeastern, US cities with warmer cities in the southeast. Jet Blue? s emphasis is like Southwest? s on low fares and point to point transportation.

Jet Blue entered the market like Southwest with only one machine, the A320. In this way they could ensure serving a variety of medium- and long-haul routes and numerous overnight flights. Jet Blue could also standardize its training and servicing processes around the aircraft. This allowed them to gain flexibility in scheduling and capacity management. Another feature for customers to make travelling with this airline more attractive are added comfort features such as assigned seating, leather upholstery and satellite TV on individual screens in every seat.

Their key principle was that flight cancellation should be avoided at all costs. In 2005, Jet Blue broadened their portfolio in entering the market of medium-sized cities, which was served only by regional airlines. They entered this market using a new midsized aircraft called E190. In launching this new machine, they were able to use synergy of combining the A320 and the E190 profitably while serving now smaller and bigger airports. This portfolio mix gives Jet Blue a yet matchless, strategic competitive advantage compared to the other airlines.

Their goal now should be to improve the synergy between the two machines and the profitably run their fleet with the optimum amount of aircrafts.

Strategy/Structure Needed to Support the A320 Versus the E190

The new developed strategy of Jet Blue was to acquire enough E190 aircrafts to serve medium- sized cities to provide a steady flow of passengers to fill the seats on the longer-haul routes of their A320 aircrafts. A big advantage of this system was that it also worked the other way around.

Jet Blue turned out to have an enormous advantage in comparison to the regional airlines, because the E190 had more seats than the traditional RJ. They could use the best option for efficiently serving medium-sized markets while offering passengers more comfort, because they did not had to face limitations on the size of the planes as RJ did. Therefore, Jet Blue has to overcome some essential problems caused by significant differences between these two aircrafts. On the one hand, the E 190 is operated at 12 per cent greater costs than the A320, therefore 34 per cent less costs than for a typical RJ.

The E 190 was a great innovation because it could target a wider range of profitable destinations with a greater seating capacity to feed into A320 flights. This results in higher loads and improved economics for Jet Blue. The breakeven load for the E190 of 75-80 per cent was much lower than for the A320, which made is easier to introduce service into new markets. One of the problems is that it takes up to 40 to 50 airplanes before a company benefits from economies of scale. And while taking delivery of the new E190, Jet Blue continued its purchases of A320 aircrafts.

Reasons therefore are that this machine had proven to be an extremely reliable machine, and Jet Blue had standardized its operations around this plane. Another concern is the dual certification for pilots . It was simply not feasible for a pilot to simultaneously obtain enough flights as an E190 captain and as an A320 captain. This means pilots could only fly one of the two machines. This brought up another issue: An A320 captain received higher hourly wage rate than an E190 captain.

This is why they had to keep pace with the A320 deliveries. The short-haul routes served by the E190 increased revenues but they also increased costs. The reason therefore is as more frequent flights required E190 aircrafts to spend more time on the ground than the A320 for taxiing, loading, and unloading between flights because the processes were not standardized yet. This resulted in a disadvantage in accumulating flying hours for pilots, because they get only credit for time spend in the air.

Any time spend on the ground was not included. This affected their whole seniority and income availability, which is tied to the number of airplanes they take. Additionally, the E190 has non-skid flooring on the cargo bins as a safety feature to prevent baggage handlers from slipping on the floor while loading and unloading. Although it was intended to be a good thing, it increased loading time and also increased the potential for strains and back sprains as handlers had to lift bags they previously have slid.

Also flight attendants had to make significant adjustments. The E 190 had smaller galleys from which to serve customers. The shorter duration of E190 flights provided less time for the attendants to provide the high level of service to which jet Blue passengers had become accustomed. The work of the employees in charge of servicing and maintaining Jet Blue? s fleet also increased considerably. They had now two completely different machines to take care of manufactured by different companies. This created additional operating complexity.

This is why they decided to invest in maintenance capabilities. The last and most important group affected by the differences between the two machines is customers. Changes in their behavior and expectations are required. Especially concerning to the carry- on baggage, because the storage bins are from different sizes. This means passengers can take the same baggage in one machine as hand luggage, on the other machine they need to check it at the gate. There are enough opportunities for synergy effects.

The system of the two machines working together is still in its introductory phase. Once these difficulties and maintenance and special level of service for the customers are overcome, the synergy should run pretty well as it was intended to be.

Efforts of JetBlue to Repair Damage oo Its Reputation: Successful Efforts?

The Valentine’s Day crisis that would later be referred to as „the worst operational week in JetBlue’s seven-year history,“ began on February 14, 2007 when flights from JFK were heavily booked.

Although the snow lingered longer than expected, JetBlue boarded its flights. As the snow turned to freezing rain the FAA prohibited domestic flights from taking off. This winter storm that enveloped the New York metropolitan region and JetBlue’s hub at John F. Kennedy International Airport left hundreds of the company’s passengers stranded aboard planes on the tarmac, some for as many as ten hours. Hundreds more waited in vain in the terminal for flights that the airline would eventually cancel.

The flight disruptions at JFK plunged JetBlue’s entire operation into chaos, forcing the carrier to cancel more than one thousand flights over a six day period. In the morning of this Wednesday, JetBlue? s executives and employees had no idea that an operational catastrophe was about to happen, one that would threaten the company’s financial stability and tarnish its otherwise sterling public image. David Neeleman stepped down after the Valentine’s Day incident in 2007 only because his organization failed to deliver on its principles of excellent customer service.

To restore its reputation, JetBlue embarked on a bold and unconventional image restoration campaign that included issuing disarmingly candid public apologies and a radical new covenant between the company and its customers called the “JetBlue Airways Customer Bill of Rights. ” The change of management was instituted to help rebuild JetBlue’s tarnished reputation and to develop innovative strategies which would prevent situations like that from ever happening again. The CEO described the bill of rights as a written covenant between the company and its customers.

The bill of rights specified in no uncertain terms the monetary compensation customers would receive if JetBlue failed to meet certain performance benchmarks, such as ground delays after landing. The Bill of Rights, allowed JetBlue to strengthen its brand among loyal customers and even those who were affected in the airline’s operational difficulties at JFK and other airports across the country. Additionally, the announcement of the Bill of Rights served as a powerful introduction to countless other air travelers who had yet to fly with the airline.

In addition, the Valentine’s Day crisis taught the Corporate Communications group valuable lessons about using the Web and social media. For example, the corporate communication team arranged for Neeleman to appear on more than a dozen television news and talk show programs on February 20, including The Today Show and The Late Show with David Letterman. Neeleman had already starred in videos posted to JetBlue’s Web site and YouTube in which he said he was “humiliated and mortified” by the company’s failures.

Through numerous written and spoken mea culpas, Neeleman begged JetBlue’s customers for forgiveness. I feel that JetBlue? s powerful brand, corporate structure, and agility as a smaller airline should enable it to rebound from the Valentine? s Day crisis in 2007 and beyond. Of course, the events that began at JFK will not soon be forgotten by the public or the organization, but the issuance of the JetBlue Airways Customer Bill of Rights and the apologies demonstrated the airline’s commitment to its patrons over the long term, not just in the days and weeks following the onset of the crisis.

There used to be a clip when British air passages ( BA ) could asseverate to be “ the universe ‘s favorite air hose ” , as its streamers conceitedly confirmed. However, taking the present economic scenario BA is undergoing a figure of jobs in the industry. British air passages are still fighting with the bequest of province ownership even after it has been privatised for last twenty old ages. Even recession has hard-hit the air hose industry and to get the better of the losingss that British air hoses had faced during recession ; it had decided to cut down on its cost by cut downing cabin crew and by detering an addition in the wage. However this acted as a accelerator in the industrial differences and the consequence of which is still really much felt in the day-to-day concern of BA ; there have been a figure of dead ends and work stoppages within the air hoses which have left riders to make up one’s mind on for other air hoses. ( ECONOMIST, 2009 ) Due to economic crisis concern coming from North American paths was hard-hit due to a autumn in the business-class travel. However, this could be recovered with the recovery of American economic system every bit good as resuscitating the long-haul travel which makes a major portion of BA net incomes. One of BA ‘s major jobs is “ Pension Deficit ” . BA has besides been confronting tough competition from low-cost air hoses that have been supplying clients with cheaper menus on short-haul travel. So, the lone remedy to get the better of such losingss is seen in making or teaming up with a low cost spouse. ( ECONOMIST, 2009 ) Iberian air hoses have been enduring from lower air cost travel demand every bit good. It has reported a thrashing of 16.4 million euro in the 3rd one-fourth compared to gross of 30.4 million euro earned in the earlier one-fourth. The standard menus of this air hose have declined by 14 % and even the burden factor i.e. how filled the air-crafts are, declined to every bit much as 1.1 % points to 82.1 % . To get by up with the recognition crunch it has decided to stop dead the rewards for 2010 and 2011 therefore heightening one-year nest eggs up to 37 million euro by 2011. It besides plans to make new air hose to provide to the demands of the traffic of Madrid Hub.( MENAFN, 2009 ) British air passages decided to fall in custodies with Iberian air hoses as a consequence of recognition crunch. By coming together they would come in the conference of large European air hoses. The amalgamation with the Spain based air hoses was looked upon as an appealing blend a twelvemonth ago. However, taking the present province of personal businesss it seems to be worth a joint deliverance procedure. This is so because both of their air hoses economic systems are still under the influence of fiscal crisis ; fighting with costs higher than the income. Iberia is still non moved by Mr. Willie Walsh ‘s, main executive of BA, dissensions with the brotherhood. It still holds optimistic position towards BA ‘s major job of “ Pension Deficit ” . However if we consider the articles or the memoranda of the amalgamation which was signed in November ’09 between the two companies, Iberia has the right to name of the contract if BA is unable to run into up to the demands of the legal guardians refering the two pension financess. As recalculated on December 14th ’09 by the legal guardians, the deficit of the two financess was declared to be at & A ; lb ; 3.7 billion, based on March 31st ’09 rating. Presently BA is seting in hard currency worth & A ; lb ; 131m a twelvemonth. The Pension Regulator is assisting to reason whether the rating performed by the legal guardians is satisfactory or non and what farther actions are required to get the better of the recognition crunch. In this context, Iberian air hoses say that it can make up one’s mind to name of the trade if BA lands up paying more hard currency.( ECONOMIST, 2009 )

Airlines amalgamations and acquisitions are based upon schemes which involves several conditions. Airlines M & A ; A is good for both travelers and air hose employees. The issues which are considered while air power M & A ; A are “ clip, blessings, efficiency, competition, rider benefits, and struggles. ”

Amalgamations and acquisition in air hose industry is an emerging development across the universe. But such M & A ; A are highly planned and several of import factors are considered. Such of import factors are: The BA and Iberia treaty will make a bearer of $ 25 billion, for case. This trade makes a batch of sense and will cement the taking places of the large three European web participants. The amalgamation seems to take topographic point when the air hose sector is severely hit by the lessening in figure of riders and lading traffic. Apart of that the amalgamation became the demand of the hr, British air passages reported a 20 % diminution in grosss to 4.1 billion lbs ensuing in an operating loss of 111 million lbs in the six month period stoping at September 2009. Harmonizing to analyst Tony Shepard at the British securities firm house Charles Stanley, the company is likely to describe a 400 million lb loss for its full financial twelvemonth stoping in April 2010. British air passages of import North American paths and concern have been difficult hit by the prostration in business-class travel. This could resile back rapidly with economic recovery in America and, provided that cost additions from environmental steps are non excessively burdensome ; the long-haul travel on which BA ‘s profitableness depends should resuscitate in clip. But, like all former national bearers in Europe, it is confronting lay waste toing competition on its short-haul flights from low-priced air hoses. .On the other manus the amalgamation is decidedly in demand by Iberia besides as the air hoses faces adversities because air hose sector in Spain is confronting “ exceptionally hard ” conditions amid the economic crisis and competition from high-velocity rail. Iberian air hoses fiscal place is rather weak as the company had plunged into the ruddy in the 2nd one-fourth of 2009, entering a immense net loss of 72.8 million Euros. Afterwards the company declared its 3rd one-fourth consequences where it reported a loss of 16.4 million Euros ( 24.4 milliondollars ) ( hypertext transfer protocol: //www.bangkokpost.com/business/aviation/159895/british-airways-iberia-agree-to-merge ) Due to such utmost losingss and no marks of recovery in the market, the amalgamation was seen as a best strategic move by Iberia. The planned amalgamation with Iberia, the Spanish air hose, looked as if it would be a victorious combination a twelvemonth ago when it was foremost mooted. Today it seems more like a common deliverance operation. Both air hoses ‘ national economic systems are still in the stagnation ; both houses are fighting with costs greater than their grosss. It is besides moderately sanguine about BA ‘s other large job: its tremendous pension shortage. But harmonizing to the amalgamation memoranda signed in November, Iberia can name off the nuptials if BA can non make a satisfactory understanding with the legal guardians of its two pension financess. As on 9th November 2009 there was an official proclamation that both of them ( British air passages and Iberian air hoses ) reached an initial understanding for a amalgamation which is planned to be completed by late 2010.As per the market this amalgamation, which will necessitate the European Commission ‘s seal of blessing, will take to the creative activity of the universe ‘s 3rd biggest air hose. The trade would see the new company being split with Iberia being allocated a 45 % interest and BA the staying 55 % . The new concern would hold 419 aircraft and over 200 finishs. In their last fiscal old ages, their joint grosss are about ˆ15 billion. The air hoses believe there is a compelling strategic principle for the dealing, which is expected to bring forth one-year synergisms of about ˆ400 million, and profit both companies ‘ stockholders, clients and employees. ( hypertext transfer protocol: //news.bbc.co.uk/1/hi/8356780.stm )

The new group will unite the two companies ‘ taking places in the UK and Spain and heighten their strong presence in the international long draw markets, while retaining the single trade names and current operations of each air hose. In July 2008 there was intelligence of brace being in negotiations for an all-share amalgamation. But, because of issues such as the balance of control and the size of BA ‘s pension-fund shortage the treatments were put at a halt. As per the current market scenario rider traffic appears to hold stabilized, and air hoses have been able to convert their work forces that the industry is in crisis, forcing through some labour grants and cut downing capacity. BA is doing “ echt advancement ” in take downing costs, says analyst Nick Cunningham of Evolution Securities. As per the British air passages ongoing activities it seems the state of affairs of the company has started bettering after proclamation of the amalgamation, the company has recapitalized ; following a exchangeable bond offering over the summer last twelvemonth and now has a hard currency balance of 1.5 billion lbs. In add-on the company has seen an addition in long draw flights which is one of the major countries where air hose companies make most of the net income.

( hypertext transfer protocol: //www.smartmoney.com/investing/stocks/market-update-friday-nov-13-2009-20162/ )

Rivals in the market have a really assorted reaction towards the amalgamation of both the air hose. Virgin Atlantic which as per the market position faces the biggest competition from this amalgamation its functionary said in a statement that the amalgamation will “ increase BA ‘s laterality at Heathrow with 44 % of takeoff and set downing slots this winter, ” and added its “ impossible for any other air hose to retroflex their graduated table. ” Other air hose companies have the position that the trade could really assist them win concern. Michael O’Leary, CEO of price reduction Irish bearer Ryanair, told CNBC that the trade was like “ two rummies keeping each other up on the manner place. All you get when you put two high-fare, loss-making air hoses together is even higher menus and even bigger losingss. Mr. Leary operates a regional bearer and does n’t vie on long-haul flights against bearers like BA. Though these statement can be said as guess in one sense as the true consequence of this amalgamation is still to be seen. But as per in a public proclamation by BA main executive Willie Walsh “ The amalgamation will make a strong European air hose good able to vie in the twenty-first century ” . The trade would make Europe ‘s 2nd biggest air hose by stock market capitalization, and 3rd biggest by income, with around 60 million riders per twelvemonth, As per market experts. The Times quoted assorted intelligence on different day of the months sing occupation cuts which were probably at bing caput offices in London and Madrid, in care installations and the incorporate gross revenues forces.In reappraisal of intelligence Mr. Walsh will be main executive, and Iberia air hoses president Mr. Antonio Vazquez will be president of the new company to be based in London and listed on the London Stock Exchange.

MR.Vazquez hailed the understanding, stating they were “ puting the foundations of what will be one of the most of import air hoses in the universe, a existent planetary air hose. ” ( hypertext transfer protocol: //www.smartmoney.com/investing/stocks/market-update-friday-nov-13-2009-20162/ )

It is said that if the amalgamation consequences fruitful and the economic system begins its recovery in 2010 or possibly 2011 so it will be a major encouragement to both of them. One thing can be predicted that If the trade gets successfully executed the clients are traveling to hold a broad assortment of finishs as BA clients would derive entree to up to 59 new finishs, of which 13 will be in Latin America, while Iberia ‘s clients would derive up to 98 new finishs across the BA web. In add-on to it the effects of amalgamation will ensue in combined stock market capitalization of some 4.9 billion Euros ( 4.3 billion lbs, 7.2 billion dollars ) .

Different Approaches To Covering With The Problem

Harmonizing to the current state of affairs at that place appears to be merely one job which is doing the trade hard to put to death.

British Airways the UK flag-carrier pension shortage was revealed and it was found that the shortage was more than double amounting to 3.7 billion lbs at the terminal of March, which was higher than analysts expected but it is non a bug adequate to be a ground for stoping up of the amalgamation with Spanish air hose Iberia. As told to Reuters by a beginning in Iberia air hoses “ We ‘re non surprised by this figure. It falls within the expected scope, ” As it is already implied before, BA ‘s pension shortage is the important country in the dialogue of amalgamation and Iberia has the right to draw of the amalgamation if the payment of this shortage turns to be excessively large. Furthermore, there are opportunities that the shortage figure could originate till the clip the rating procedure is completed in following twelvemonth in June because as per Britain ‘s Pensions Regulator the premise which is used to cipher the shortage are excessively optimistic. In position of this BA said in a statement “ The regulator ‘s probationary position is that the proficient commissariats may be materially below a degree it feels appropriate, ”

As per the job the British air passages direction is seeking to calculate out different ways to work out the job. As per in one of the proclamations BA said that the company and the pension legal guardians will work together to develop a recovery program, a procedure through which the company will confer with its employees and their trade brotherhoods and will seek to take out a determination from it by the terminal of June 30, 2010. The scheme which is employed now is to alter the nature of any pension ‘s trade BA can strike with its staff and ciphering the proportion of spread which can be covered by the company. As said by Deutsche Bank “ The Company may be forced to renegociate pension benefits with employees if it is to avoid utilizing more stockholders hard currency, ”

Academic Studies Supporting The Article

The world that merely 20 per cent of the acquisitions really win and the remainder erodes stockholder wealth ( Grubb and Lamb, 2000 ) can extremely conflict with illustrations of successful coup d’etats like Swiss by Lufthansa in 2005.Talking about amalgamations, they create stockholder value with most of it accruing to the attendant company. One of the of import grounds behind unifying a company is that it helps in increasing stockholder ‘s value much above the sum sum of the two companies.( Watson and Head,2007 )

The optimistic impact of amalgamations extends to and involves economic systems of graduated table or synergisms, helps to derive power in the markets by making monopolies, manages bureau costs and manages hazard for undiversified directors( Gregor Anrade, Mark Mitchell, Erik Stafford, 2001 ) .

Amalgamations create synergisms, cut down operational costs and enhance market portion. On the other manus it consequences in the generation of bureau jobs as the directors can do amalgamations for their ain benefit. It besides consequences in decentralization of power that reduces duty and answerability. Merger which can be defined as when two ( or perchance more ) concern combine. In other words one can state that ‘merger ‘ is defined as a state of affairs when two companies/firms decide by common understanding to unite the concerns. The term ‘takeover ‘ holds a different significance in comparing to ‘merger ‘ . It means when a larger concern takes over control of a smaller concern and the smaller concern gets immersed by the larger concern. But in today ‘s epoch it is non cleared that whether the concern has been merged or it has been taken over.

Harmonizing to the relationship between the concerns being merged, amalgamations and coup d’etats can be divided into three parts and they are:

• Horizontal amalgamationoccurs when two concerns in the similar industry, and at the Same point in the production procedure decides to unite.
• Vertical amalgamationoccurs when two concerns in the similar industry, but at different points in the same production procedure decide to unite.
• Conglomerate amalgamationoccurs when two concerns in unrelated industries decide to unite.

As it can be implied from the academic surveies back uping the article the amalgamation between British air passages and Iberia air hoses is Horizontal type of amalgamation as both the companies are from the air hoses sector taking to same production procedure and they have got high presence at international degree.

Application of Data to Model

Harmonizing to research, the last few old ages were n’t an acceptable period for the air line industry as a consequence of quickly increasing fuel costs and due to economic downswing. Airline amalgamations and acquisitions have clustered and most of the air hose bosses exclaimed “ consolidation is ineluctable ” . The outstanding illustrations of amalgamation and acquisition in the industry are Air France – KLM in 2003, Swiss- Lufthansa in 2005, US Airways-America West in 2005 and Delta- Northwest in 2008. The Europeans lead the manner in set uping mega-carriers. By gross Air France-KLM is the universe leader with $ 34 billion, followed by the Lufthansa Group at $ 30 billion. ( The Mating Game.Airline Business, 02687615, Jan2009, Vol. 25, Issue 1 ) . At the same clip, US Airways and America West amalgamation drained their disbursals by over $ 250 million a twelvemonth and created a company better able to endure $ 100-a-barrel oil. USAirways, the state ‘s fifth-largest bearer — earned $ 427 million on gross of $ 11.7 billion. ( A Cautionary Tale for Airline Mergers, Palmeri, Christopher, Business Week ; 3/17/2008 )

Therefore it can be determined that amalgamations and acquisitions had sustained air hose industry during the economic downswing accomplishing important synergisms and economic systems of graduated table.

Although the amalgamations and acquisitions prevented air lines from settlement, inauspicious impacts can besides be emphasized. Even US Airways exists bankruptcy ; the expanded company still face the internal battle of consorting two separate air hoses. The chief obstructions are employee dissatisfaction and client ailments ( A Cautionary Tale for Airline Mergers, Palmeri, Christopher, Business Week ; 3/17/2008 )

However the universe ‘s air hoses are organizing themselves into immense confederations. Does this affair? Yes: the hazard is that the air hose industry is traveling from one extreme and it ‘s clip to worry about the competition.

What Has Been Learnt

Harmonizing to our surveies and research it can be seen the air hose industry has been hit by the economic downswing. They struggled with the cost hikes higher than their incomes. Both the air hoses have been faced by the jobs of industrialisation and globalisation, the competition of other air hoses such as low cost air hoses and inveigh services like Euro Star. Most of the air hoses restructured and merged and gave them a competition every bit good.

Pension black hole is one of the chief current jobs happening in the British air passages and some of the analysts say that they need more clip to retrieve from the shortage than their estimated clip of 2016. ( in pattern ) Longer clip is required for the closing of the shortage harmonizing to some analysts. But in the state of affairss of hard currency in Rhine wine the company can see doing non-cash parts such as non-monetary inducements alternatively of hard currency. If the company utilizes its assets for pension financess it might stultify the company with the same forces cut downing its cyberspace worth. The faultless size of the shortage is non known by the BA and at the same clip they have released before denoting the recovery program the size of the shortage efficaciously.

However, air hose and legal guardians are now working together to develop a recovery program to negociate with employees and trade brotherhoods. Unless and until BA manages come up with a solution to find the pension shortage the amalgamation will stay unsettled.

Mentions

A Cautionary Tale for Airline Mergers, Palmeri, Christopher, Business Week ; 3/17/2008, Isuue 4075, p066-066, 1p

Airline Amalgamations: Ready for Takeoff? By: Bachman, Justin, BusinessWeek Online, 12/22/2006

Corporate Finance ; Principles and Practice ; 4th Edition, Denzil Watson & A ; Antony Head, Pearson Education ECONOMIST, 2009

Fiscal Management for Decision Makers,5TH Edition, Peter Atrill, Pearson Education

hypertext transfer protocol: //finance.mapsofworld.com/merger-acquisition/airline.html

hypertext transfer protocol: //news.bbc.co.uk/1/hi/8356780.stm

hypertext transfer protocol: //grupo.iberia.es/portal/site/grupoiberia/menuitem.84584da99e6d0dada0d4a195d21061ca/ .

hypertext transfer protocol: //readingft.blogspot.com/2009/11/ba-and-iberia-blue-sky-marriage.htmlhttp: //www.britishairways.com/travel/about-british-airways/public/en_gb

hypertext transfer protocol: //www.bangkokpost.com/business/aviation/159895/british-airways-iberia-agree-to-merge

hypertext transfer protocol: //www.smartmoney.com/investing/stocks/market-update-friday-nov-13-2009-20162/ MENAFN, 2009

One universe, few airlines.Economist, 00130613, 09/26/98, Vol. 349, Issue 8087

The Mating Game.Airline Business, 02687615, Jan2009, Vol. 25, Issue 1

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