SCHOOL OF ECONOMICS & INTERNATIONAL BUSINESS
—–—–
MARKETING ASSIGNMENT
REPORT
Virgin America: Flight Service
for the Tech Savvy
Hanoi, 8th March 2019
2
Table of Content
…………………………………………………………………………………………………………… 1
Table of Content ………………………………………………………………………………….. 2
A. Presentation Content …………………………………………………………………….. 3
1/ Introduction of the company ……………………………………………………… 3
Profile ……………………………………………………………………………………. 3
History …………………………………………………………………………………… 3
2/ Industrial analysis (Porter’s 5 forces analysis) …………………………….. 7
Competitive rivalry ………………………………………………………………….. 7
Threat of new entry ………………………………………………………………….. 7
Threat of substitutes …………………………………………………………………. 8
The power of buyers ………………………………………………………………… 8
Power of suppliers……………………………………………………………………. 9
3/ First part of the marketing process (S-T-P) ………………………………… 9
The first two steps– Segmentation and Targeting.………………………….. 9
The final two steps- Differentiation and Positioning. …………………… 10
4/ Second part of the marketing process (Marketing mix) ……………… 11
Products ……………………………………………………………………………….. 11
Price …………………………………………………………………………………….. 13
Place ……………………………………………………………………………………. 14
Promotion …………………………………………………………………………….. 14
5/ The content of the chapter ……………………………………………………….. 15
The major steps in designing a customer value–driven marketing
strategy. ………………………………………………………………………………………. 16
The customer value – driven marketing strategy of Virgin America . 18
B. Discussion Questions ……………………………………………………………………. 20
3
A. Presentation Content
1/ Introduction of the company
Virgin America has taken its final flight, bringing the curtain down on a
service that, while by no means perfect, certainly had its fans. Virgin America
Flight 1947 departed Los Angeles at 9:35 p.m. on Tuesday, April 24, bound for
San Francisco, its former base. Overnight, the Virgin America branding will
disappear at the 29 U.S. airports where it operated — along with its online
presence — to be replaced with Alaska Airlines logos. Fourteen years after its
founding, and over a decade since it began operations, Virgin America will no
longer be flying. However the lesson from an airline reaching profitability faster
than any other airline in all airdom still worth analyzing and learning. Therefore
we will first look further into the profile and history of this special airline.
Profile
Founded in 2007 and bought out by the Alaska Air Group in 2018, Virgin
America was a US-based airline which provides low-fare services between the
East and West coasts of the United States. The airline was a subsidiary of Virgin
and is based at San Francisco International Airport, California.
Headquartered in Silicon Valley, Virgin America has grown a loyal
following of flyers for its business-friendly and tech-forward flight experience –
including being the first and still only U.S. carrier to offer fleetwide WiFi and
power outlets at every seat.
History
Since 1970 when the Virgin group has founded, it has gone to grow
successful business in many areas which include mobile technology, financial
services, transportation, vacation, retailing, music and so on. In 2012, Virgin
group has diversified into more than 200 companies in the world and there are
more than 50,000 employees working for virgin group, the global brand generated
£15bn of revenue. As Richard Branson has the previous experience of running an
airline company, he decided to carry on bringing the spirit of Virgin group into
the US airline industry.
In 2007, Virgin America is founded as a California based airline, began to
service, as a young airline company, how did they break into the market and
become successful? There was an investigation done by the Business Insider
website, the result shows that 4 out of 19 complaints in America are from airline
4
companies. Thus the airline industry of America actually failed to please their
customers. However, Virgin America VP of Marketing & Communications
Luanne Calvert emphasises that the goal of Virgin America is to disrupt the
industry and differentiate the airline from all others. The way Virgin America
prefers to operate differently is to bring-up the level of customer satisfaction and
enrich the flying experience which helped the company stand out of its depressed
state in the market.
Since launching in 2007, Virgin America has expanded its domestic network
to include Las Vegas, San Diego, Seattle, Portland, Newark Liberty, Washington
(Reagan National and Dulles), Boston, Chicago, Philadelphia, Fort Lauderdale,
Orlando, Dallas-Fort Worth, Austin, Palm Springs, and Anchorage. International
service is offered to Los Cabos, Cancún, and Puerto Vallarta, México.
Virgin America’s first cross-border service was from San Francisco and Los
Angeles to Toronto in June 2010. Lukewarm demand quickly ended that foray in
favor of Dallas/Fort Worth. Texas was added to the map on December 1, 2010.
In April 2011, Virgin America relocated to the remodeled Terminal 2,
sharing gates with American. A reservation system outage late in October that
year, during a migration to Sabre’s global distribution system, received wide
coverage. Besides reservations, the GDS handles the airline’s Elevate frequent
flyer program, flight operations data, and crew scheduling.
In 2012, The Virgin America Loft, its first airport lounge, opened in
December at LAX Terminal 3, where drinks, snacks, and WiFi are
complimentary. Elevate Gold and Elevate Silver members receive a number of
complimentary day passes each year, while those flying Virgin America, or an
airline partner, can purchase day access.
In a strange dichotomy, Virgin America has become a multi-award winning
major airline but has lost around $700 million in the process. During 2013,
Consumer Reports named Virgin America ‘Best U.S. Airline’; the Airline
Passenger Experience Association (APEX) awarded Virgin America ‘Best
Overall Passenger Experience’ and ‘Best Ground Experience’, and Skytrax
named it ‘Airline of the Year’. It carries more than six million passengers a year,
some 50% of which are on business trips, has three million members in Elevate,
and half a million Twitter followers.
5
In May 2013, the airline converted $290 million of debt and accrued interest
(mostly owed to the Virgin Group) into conditional equity that the debt-holders
will own after an initial public offering, providing the stock hits predetermined
targets. As a result, interest expense declined to $10 million per quarter through
2014.
An IPO, considered possible by year-end, would give the Virgin Group and
other shareholders a chance to recoup some of their investment and facilitate more
favorable aircraft leasing terms. Currently, the company is held by VAI Partners,
a consortium of four US-based investor partnerships holding 75%; the balance is
held by the Virgin Group.
How does a startup airline break into one of the most competitive industries
in the world, notorious for barriers to entry? For Virgin America, the answer is
two-fold—by putting customers first and by targeting the right customer segment.
Virgin America has withstood seven uncomfortable years of distinguishing itself
from competitors with service and in-flight amenities not seen in the U.S. for a
decade or more. Against all odds, Virgin America may be poised to vindicate its
business mantra of ‘Love your people, love your guests and show that all the
time.’
One of the core values that permeates Virgin America is this: Take care of
your people first and profits will follow. In an industry characterized by customer
complaints about service, it would seem that a customer-centric approach would
be enough to gain a foothold in the market. Therefore, Virgin America found a
different competitive hook: by providing exceptional service and amenities that
appeal to just a particular slice of airline customers, Virgin America has been able
to charge slightly higher fares and still establish a growing base of fiercely loyal
patrons.
Indeed, Virgin America has been a hit with fliers. The carrier has won
numerous customer-service awards and enjoys a cult-like following in its home
state of California, where it has hubs in San Francisco and Los Angeles.
Mirroring the ethos of Branson’s broader Virgin brand, Virgin America
brought mood lighting, tech-friendly entertainment and other “hip” features into
the mainstream of the U.S. airline industry at a time when most carriers were
struggling to survive.
6
Being the only airline based in Silicon Valley, Virgin America has learned
to think like its disruptive clientele: “We see ourselves as more of an incubator,”
says chief marketing officer Luanne Calvert. It has experimented with everything
from in-flight social networks to rethinking how to buy tickets, and the rewards
are Valley-like: 2014 revenue of almost $1.5 billion and a $306 million IPO.
The feat is all the more impressive because, since airline deregulation in
1978, about 250 new airlines have opened shop and failed. At first, Virgin
America didn’t appear to be any different: It lost money from its 2007 launch until
2013. But it turns out that the airline was acting like a Valley company—evolving
the service, and trusting that a business model would follow.
Despite all of Virgin America’s success, the airline industry is a tough place
to survive and thrive. In the United States, just four airlines control more than 80
percent of the market. Virgin America knows that maintaining its high rankings
will be a challenge, especially as it expands into new markets—particularly
markets with cold climates, a factor that increases the likelihood of canceled or
delayed flights. As the number of passengers on flights increases, boarding and
deplaning times will also increase, affecting multiple customer service metrics.
And with Virgin’s techy and connected clientele, any slip-up is likely to be texted,
tweeted, or otherwise broadcast for all the world to see. Playing the features and
amenities game is also problematic. Things that delight customers today become
ho–hum tomorrow, especially when competitors are constantly trying to improve
their offerings as well.
To remain competitive as it moves into the future, Virgin America
announced its acquisition of Virgin America in December 2016 for $2.6 billion.
Since 2016, the airlines have taken steps to merge their frequent-flier programs
and some of their operations.
January 11, 2018 marks the day when Virgin America and Alaska Airlines
will begin operating under a single operating certificate. That means Virgin
America and Alaska Airlines will be considered as a single airline by the FAA.
Virgin America flights will cease using the callsign “Redwood,” and the airline’s
pilots will switch to the callsign “Alaska” instead. The merger made Alaska the
fifth-largest airline in the U.S., operating over 1,200 daily flights to over 120
destinations across North America.
In conclusion, the success of Virgin America is not a surprise, this is the
result of drafting a differentiation strategy based on full consideration of the
external environment and carefully planning management which has given Virgin
America a promising future in US airline industry.
2/ Industrial analysis (Porter’s 5 forces analysis)
Porter’s 5 forces framework is for determining ways to access attractiveness
in different organisations. Which includes threat of new entry, the threat of
substitutes, the power of buyers, the power of supplier and competitive rivalry
(Johnson Scholes Whittington. 2008). Porter’s 5 forces will help Virgin America
determine competitive power and maximize profit in the US domestic airline
industry.
Competitive rivalry
Competitive rivalries include different organizations which provide similar
products and services in the same market Virgin America mainly focused on
domestic market of US, it positioned itself as a low-cost airline, so that the airlines
that share a similar positioning became competitors of Virgin America, top three
