McGraw-Hill © 2000 The McGraw-Hill Companies 1 S M S M McGraw-Hill © 2000 The McGraw-Hill Companies Slides to accompany Slides to accompany CASES CASES

McGraw-Hill © 2000 The McGraw-Hill Companies 2 S M Virgin Atlantic Airways Service Strategy

McGraw-Hill © 2000 The McGraw-Hill Companies 3 S M Case Objectives To integrate the concepts of services marketing as a capstone to the course To examine the themes of service quality, innovation, public relations and pricing as they relate to success in a service To demonstrate the delivery of customer value To illustrate service positioning as a competitive strategy

McGraw-Hill © 2000 The McGraw-Hill Companies 4 S M Attributes and Dimensions of Customer Value Offered by VAA Value for Money Innovation Non Conformist Alternative to BA Entertainment Cheapest Deal Young Richard Branson’s Airline Service Dynamic Trendy Fun David against Goliath Life Style Personal Low Price Convenience Friendly Informal Service Quality Entertainment Fun Innovation

McGraw-Hill © 2000 The McGraw-Hill Companies 5 S M Comparative Flight Revenues for VAA and BA Peak-time London Heathrow/JFK flight at full capacity B747 aircraft with configurations described on p. 6 of case VIRGIN ATLANTIC AIRWAYS Upper Class: 50 seats at $1,195 = $ 59,750 47% Mid Class: 38 seats at $473 = $ 17,974 14% Economy: 271 seats at $185 = $ 50,135 39% Total Revenues = $127, % BRITISH AIRWAYS (BA) First Class: 18 seats at $1,935 = $ 34,830 15% Club World: 70 seats at $1,061= $ 74,270 32% World Traveler: 282 seats at $445 = $125,490 53% Total Revenues = $234, %

McGraw-Hill © 2000 The McGraw-Hill Companies 6 S M VAA’s Weaknesses MARKETING STRATEGY No clear customer targets “Wild” image not good for all customers Public relations efficient but less controllable than advertising Low trial rate Power of competing frequent flyer programs Small feeder networks SERVICE AND ORGANIZATIONAL CAPABILITIES Punctuality Age of fleet Losing momentum on innovation? For how long can staff be kept motivated?

McGraw-Hill © 2000 The McGraw-Hill Companies 7 S M VAA’s Weaknesses ECONOMIC VULNERABILITY High break-even point Lack of economies of scope Capital DEPENDENCE ON BRANSON Value of VAA without Branson? Real value of Virgin brand?

McGraw-Hill © 2000 The McGraw-Hill Companies 8 S M PRESERVE AND IMPROVE CURRENT STRENGTHS Innovation Service quality Fun Staff motivation Punctuality Fleet renewal Expand Virgin Freeway VAA Possible Actions

McGraw-Hill © 2000 The McGraw-Hill Companies 9 S M VAA Possible Actions BUILD A NEW STAGE IN THE DEVELOPMENT OF VAA Transform core values into unambiguous positioning strategy Design differentiated marketing strategy for specific target groups Break the trial rate wall Build selected feeder lines in Europe Investigate sensitivity to price increase, while keeping a price advantage

McGraw-Hill © 2000 The McGraw-Hill Companies 10 S M VAA - What Happened? VAA announced joint Heathrow-Sydney service via Hong Kong with Ansett Airlines Announced another partnership with Malaysia Airlines for flights from London to Kuala Lumpur Alliance with Delta approved VAA renamed its full-fare Mid Class cabin Premium Economy because of confusion VAA won yet another Executive Travel Airline of the Year award in January 1995 Branson ranked in eleventh place in 1994 among Britain’s rich with 895 million net worth