Airline Enviromental Analysis

Introduction

Virgin Australia was established on 31 August 2000 by Richard Branson as Virgin Blue, with only one route, two aircraft, and a team of just 200 people （Virgin Australia history, para. 13）. However, the airline became the second largest airline in Australia in 2001, severed 29 cities, with a fleet consist of more than 130 aircrafts, including Boeing 737 and 777 (Virgin Australia, 2013). The global airline industry is facing more fierce competition due to expansion of the low-cost carrier (LCC) business model and the increase of airlines in the Middle east, but for Virgin Australia the biggest competitor is Qantas. (PwC US 2014, para.1).This essay will analyse the external environment of Virgin Australia by using PEST method, including potential benefits and negative influences could have on Virgin Australia.

Political Factors

The aviation industry is widely influenced by the regulation, policy and issues related to international environment, such as war, disease and terrorism. The “open skies” policy is an international agreement that intend to creating a liberalization environment for airline industry. Australia signed this agreement with the U.S at 2008, less restriction could help Virgin airline grow market in the U.S and bring more opportunities to the company in terms of lower fares and more travelers (U.S, Australia sign open skies agreement, 2008). Terrorism could negative influence the globe airline industry, Australia also influenced by 911 attack,-27% ongoing demand shift accelerated the bankrupt of Ansett ( Ito & Lee, 2005). Virgin airline took place of Ansett, became the second largest aviation company in Australia. For long term run, Virgin Australia could provide training to pilots in term of safety and quality flight. Use new technology to improve the safety of flight, because safe is the most important consideration of travelers.

Economy Factors

The booming Asian economy could contribute to boosting the airline industry. Asia development outlook forecast that the regain’s economy growth will increase from 6.1% in 2013 to 6.2% in 2014 and 6.4% in 2015 (Asia development outlook 2014, 2014). In 2009, 366,000 Chinese people travelled to Australia and spend $2.8 billion. Mr McEvoy forecast 830,000 Chinese travelers will be spending $8 billion in Australia by 2020. (John, 2010). According Australia Department of foreign affairs and trade (2014), Australia signed Free-Trade Agreement with China on 17 November 2014. This will bring more business travelers for both countries. How to attract Asia travelers and cooperate with Asia aviation in order to expand market could be a major problem Virgin Australia may confront with in the near future.

Social Factors

People’s demand for travel has increased in recent years. According to Australia Bureau of statistics, the trend of short term resident departures increased every year from 2004-2014, the short term visitor arrivals rose from 436,000 movements in August 2004 to 577,400 movements in August 2014 (Australia Bureau of statistics, 2014). This trend would be a opportunity for Virgin Australia to attract more customers.  

Technology Factors

Adopt new technology is important for airline companies to survive in the competition. Boeing claim their new aircraft 787, 747-8, 737 MAX and 777X, will reduce fuel consumption by double-digit percentages compared with earlier-generation airplanes. Furthermore, they have many developments that could reduce fuel use and improve range capabilities (Boeing, 2013). Advanced technology could help Virgin Australia reduce the consumption of fuel and bring more profit because fuel is one of the major cost in airline industry. Apple released first applications in app store for Iwatch, Qantas airway is on the list (Whaling, 2014, para.4). This may bring negative impact of developing customer market on Virgin Australia.

Environmental Factors

Distinctive geography, animals and plants draw tourists to Australia (Australia in brief). This directly help Virgin airline attract more foreign tourists. Other environmental issues, such as air pollution also influence airline industry in Australia. Nation Greenhouse Inventory 2011 reported, Australia’s airline industry emit 17.7 million tonnes of carbon dioxide which accounted t for 3.1% of Australia’s total emission in 2011 (Department of infrastructure and regional development). Reduce emission of carbon dioxide could be one of the important issues for Virgin airline.

Legal Factors

Acts and legislation enact by government could impact airline industry. “Qantas Sale Act” (1992, C2004C00317 ) that introduced in 1992 by Australia Government, set a strict restriction on foreign ownership of Qantas (capped at 49%). On the contrary, there is no any limitation on ownership of share in Virgin airline whose 75% shares hold by foreign companies. Although this act negative impact Qantas, it opens more opportunities for Virgin airline become more competitive. The enforcement of “Carbon tax” could increase the cost of fuel of airline companies, Virgin airline said they have to pass the cost into customers, as little as $3 per flight (Carbon tax overview, 2011). They post $365 million loss due to excess capacity and carbon tax (Creedy, 2014 ). However, this act was abolished in 2014 in order to boost Australia economy growth and lower cost of Australia’s business. This will reduce the pressure of cost on Australia airline industry.