QUESTION
Virgin Blue unveils more changes
New uniforms, a new business class product and new airport lounges are among some of the
initiatives Virgin Blue Holdings has unveiled as part of its bid to lure more corporate
travellers.
The airline group has flagged more changes to come over the year to December 31, 2011,
including a new marketing campaign, new product across the fleet and a revamped Velocity
frequent flyer program.
Virgin Blue has roughly 10 per cent of the business market and hopes to double that share
over the period ahead to reduce its reliance on leisure travellers.
Chief executive John Borghetti says solid progress is being made to build Virgin Blue’s share.
Moreover, recent weak consumer sentiment and uncertainty in the economic outlook
validated the airline’s strategy to reposition itself as a viable and attractive option for
corporate flyers.
Among the things announced on Wednesday, Mr Borghetti confirmed the first routes for
Virgin Blue’s widebody Airbus A330 aircraft would be between Sydney and Perth, with
services to start in May.
The aircraft would feature a new business class cabin and a “superior economy class”, the
airline said.
“With our competitive pricing strategy, we believe this will be a compelling proposition for
corporate travellers, whether they travel in business or economy class,” Mr Borghetti said.
Virgin Blue revealed its choice of turboprop aircraft for the partnership with Skywest to fly to
regional routes, announced last month, was the 68-seat ATR-500 and ATR-600 turboprop
aircraft.
The airline also unveiled new uniforms for cabin crew and staff on Wednesday, and said it
would open a lounge at Coolangatta airport by June 30 this year.
A further two lounges would be added by the end of the year.
Business class would be rolled out across the domestic fleet by December 31, Virgin Blue
said.
The new uniform for cabin crew and ground staff, designed by Project Runway winner Juli
Grbac, were shown off at a fashion show at a Sydney CBD shopping centre featuring
supermodel Elle Macpherson.
Mr Borghetti said the company was on track to strengthen its position in both the leisure and
corporate market in 2011/12, with the full implementation of all the new initiatives to be
rolled out by the end of the year.
Virgin Blue on Wednesday reported a 62 per cent decline in first half net profit to $23.8
million, which was at the lower end of company guidance and below market forecasts.
Source: Chong, J 2011, ‘Virgin Blue unveils more changes’, The Sydney Morning Herald, 23
February, first edition, viewed 31 January 2012, http://smh.com.au
SOLUTION
Executive Summary
The Report on Approaching Change Management at Virgin Australia describes the change cycle at Virgin Australia, starting from assessing the need for change, to defining strategies and implementation, measuring results and discussing challenges that will be faced by managers. Change is a part of the business world today. To survive the increasing competition in the low-fare airlines segments, Virgin Australia needs to change its positioning strategy to attract the other market segments as well. The business travel being monopolized by Qantas offers opportunity to Virgin Australia. The loss-making international operations also require changes at organization level. Some of the strategies to be followed to facilitate the transformation of Virgin Australia into a carrier for business as well as leisure flyers are: revamping airlines, offering quality business-class services, constructing world-class airport lounges, forming alliances with international airlines, and transforming its rewards programs. In order to ensure efficient implementation of the strategies to facilitate the change process, the management needs to motivate and involve the employees by creating urgency and communicating the vision to them. A number of challenges may arise like lack of support from employees, increased costs, counter-measures by competitors and losing out the existing ‘low-cost-no-frill’ preferring customers. The report gives some suggestions on how the managers can handle these challenges and embark successfully on the path of change.
Contents
Executive Summary. 2
Introduction. 4
Need for Change. 5
Strategies for Implementing the Change. 6
Literature Review.. 6
Change Strategies. 6
Implementation. 7
Challenges for Managers. 8
Measuring the Results. 9
Conclusion. 9
References. 10
Introduction
Virgin Australia, formerly known as Virgin Blue, is Australia’s second biggest airline flying 30% of Australia’s capacity (Knibb, 2011). It started its operations in the year 2000 as a low-cost-no-frills airlines company (Virgin Australia). The company mainly catered to the low-cost passengers of the leisure market sector. Qantas, Jetstar and Tiger Australia are the main competitors of Virgin Australia, with Qantas having a monopolist reign over the corporate flyers market segment and Jetstar and Tiger giving it tough competition in the low-cost market sector (Knibb, 2011). Virgin Blue renamed itself as Virgin Australia in 2011 aiming to reposition itself in the airlines market as a “new world carrier” for the business class as well as leisure travellers.
The environment in which Virgin Australia operates is extremely dynamic and unpredictable. Fluctuating fuel prices, natural calamities like cyclones, floods and earthquakes, union strikes and global economic downturn all have an impact on the airlines industry affecting it adversely. The global economic recession of 2008 saw a heavy reduction in the number of leisure travellers. With increasing domestic competition in low-fares, achieving profit is becoming difficult for the low-cost carriers. Gradual liberalization of this industry has resulted in competition from international companies as well. Qantas continues to be the biggest competitor for Virgin Australia, as it enjoys near monopoly on business travel (Knibb, 2011).
As a part of “game-changing strategy” for Virgin Australia, its CEO John Borghetti has started a process of numerous changes including revamping the existing airplanes, world-class airport lounges and new uniform for the staff to attract the business travellers. These changes are aimed at capturing 20% of the business travel segment (Knibb, 2011). Making changes is not easy. There has to be proper planning regarding the investments required, funding arrangements, employee involvement and motivation, counter-movements by competitors and external environment. Many theories and models attempt to capture change management. Some popular change management models/ theories include Action Research Model (Collier, 1945), Lewin’s Three Step Change Theory (Lewin, 1951), Lippitt’s Phases of Change Theory (Lippitt et al., 1958), Kotter’s Strategic Eight-Step Model (Kotter, 1996) and Shield’s Five Step Model (Shields, 1999). After a thorough assessment of the various models (Kritsonis, 2005; Pryor et al. 2008), in this report, Kotter’s eight-step model has been used for implementing the process of change management at Virgin Australia.
To sustain in the dynamic and competitive environment an organization needs to be able to cope with change. Change is a part of each industry. Airlines industry is no exception. The unpredictability of the external environment makes it even more difficult to predict change. However, change can be anticipated; and accordingly strategies should be made to cope with the change in an effective way. This report tries to understand the change cycle for Virgin Australia airlines by understanding the need for change, strategies for implementing change, challenges that the managers may face while implementing the change processes, and finally, measuring the results. The following sections describe all these elements of the change cycle for Virgin Australia, with recommendations on how the managers can deal with challenges.
Need for Change
As said by Greek philosopher Heraclitus, “Change is the only constant”. Today’s business world is synonymous with new technological innovations, increased competition, outdating of methodologies and business processes, attrition etc. To survive in this business world, a company needs to continuously reinvent itself with the market demands and business needs. The same goes for Virgin Australia.
Virgin Australia’s need for changes arises partly from opportunity and partly from necessity. Qantas being the sole big player in Australian business travel market, there is lots of opportunity for any company offering some choice to the corporate travellers (Knibb, 2011). When John Borghetti put up a question to 300-plus executives that how many fly with Virgin Australia, only a few hands went up (O’Sullivan, 2010). This shows the kind of opportunity business travel has for Virgin Australia. When a company enters a monopoly market, it is bound to gain something.
The necessity part of the need for changes is even more important for executing the changes. Virgin Australia’s initial strategy of operating as a low-cost-no-frills carrier was working fine for it, till Qantas launched Jetstar as low-cost airlines services. Jetstar gave strong competition to Virgin Australia, reducing its market share. Then, Tiger Australia entered the market, also aiming at the low-cost seeking passengers. With fare-wars between the three companies, Virgin Australia had more to lose than to gain if it continued with its services for the low-cost seeking passengers.
Moreover, the dependence of Virgin Australia on the leisure travellers for their revenues made it quite prone to market shocks. For example, the global recession saw a steep fall in the number of leisure travellers, thus hampering Virgin Australia’s finances. The risky aviation market requires for the companies operating in the industry to hedge their risks. Qantas has been doing this by its two brands: Qantas and Jetstar which target different market segments and also through its frequent flyer programs. To reduce the risk associated with leisure travel market, Virgin Australia needs to attract the stable and high-yield market segment of corporate flyers. It also needs to hedge the market risks through frequent flyer programs like Qantas.
Strategies for Implementing the Change
Literature Review
Kotter suggests how to achieve changes in an organization through his 8-step model (Kotter, 1996). A brief recap of the Kotter’s 8 step-change model is given below (Kotter, 1996):
Step1: Create Urgency: According to Kotter(1996), change is possible when an organization wants it and that too really wants it. Creating urgency gives motivation to the employees to embrace the changes. As Kotter suggests, 75 percent of a company’s management needs to really want the change for it to be a success.
Step2: Form a Powerful Coalition: Creating a team with key people of the organization and leading the change coalition effectively is another criterion for changes to be successful. The process requires leaders who can mobilize the people and gain confidence from the key people of the company and lead them towards the goal.
Step3: Create a Vision for Change: Values are essential for everything. There are certain values which are core to the change. A clear vision helps to convey it to everyone as to why the change is required and why they are being asked to do something.
Step4: Communicate the Vision: Communicating the vision is critical for changes to succeed. The vision should be kept alive in the employees through continuous and effective communication. Here, walking the talk is what is required.
Step5: Remove Obstacles: Challenges have to be dealt efficiently. Strategies like hiring efficient change managers, changing organizational structures, rewarding people who are contributing in the process of change can be helpful.
Step6: Create Short-term Wins: Short-term targets should be created rather than one long-term goal which will give a taste of winning early in the change process.
Step7: Build on the Change: Change is a long-term process, and an organization needs to build on it for long-term success.
Step8: Anchor Changes in the Corporate Culture: Making the changes a part of the core organization is what will make the changes successful.
Change Strategies
Some of the strategies that Virgin Australia needs to follow to reposition itself as a carrier for corporate flyers as well as leisure travellers are described below.
Revamping the airplanes:
With Qantas coming up with its A380 luxury cabins, Virgin Australia cannot sit back. Luxurious seats, sufficient leg-space, well-lit and comfortable interiors etc. are what the modern day business travellers are looking for.
Business-Class Service:
To provide business-class service, Virgin Australia needs to train its staff accordingly. New dress uniforms for the staff, refined service behaviors by the staff, exquisite in-flight menus, and world-class waiting lounges at airports etc. will give an impression of business-class service to the users. These are some of the must-dos if Virgin Australia wants to reposition itself.
More flights and more routes:
To accommodate the business travellers, Virgin Australia needs to increase its flight frequency and capacity. More routes, especially involving heavy business travel like between Sydney and Perth, need to be covered.
International Alliances:
Virgin Australia needs to go international to hedge its risks against domestic market shocks, and increase revenues. At the initial stage, it would be wise to form alliances with other international players rather than covering the routes by itself.
Organizational Transformation:
A motivated Human Capital is pre-requisite for the Airlines’ success. With the arrival of John Borghetti as the CEO, Virgin Australia already has a good leader with 30 years of experience in the industry to lead it through the changes. However, it is essential that the employees are motivated to join the CEO in the organization’s transformation process.
Frequent Flyer Programs:
Virgin Australia has the Velocity frequent flyer program. However, it is not very successful and hence, actions should be taken to overhaul the rewards program (Flynn, 2011).
Implementation
Implementing the strategies is the real challenge for the management of Virgin Australia. In order to efficiently manage the change, they could follow Kotter’s 8-step model described in the previous section.
The aim should be to invest less and gain more. Virgin Australia cannot afford to spend extravagantly as its financials are already stretched out.
Instead of servicing old-airlines which involve a lot of cost, they could lease out newer airlines at marginal cost increase. While doing renovation of airport lounges, Virgin Australia should aim at making world class by spending a bit more, rather than constructing new lounges altogether. Alliances are important for the airlines’ expansion plans into Asia-Pacific region. Finding viable partners is a challenge, which can be overcome by efficient negotiation and communication with other airlines brands.
Motivating the human capital is the most important job for the CEO to attain the vision he has planned for Virgin Australia. Following Kotter’s model, the CEO, John Borghatti, has to have a vision for change and communicate the vision efficiently to his team and other employees. Leading the change is much more important than managing the change.Investment options have to be carefully examined. Short-term targets, for example attaining 20% of business travel market should be set, which can be measured at regular intervals should be set. A time-frame of 5 years is enough for measuring the results of the change process that Virgin Australia plans to initiate.
Challenges for Managers
Going ahead with its aim of becoming a carrier for business travellers, Virgin Australia will face a lot of challenges. Some of the challenges that will be faced by the managers at Virgin Australia and some recommendations on how to deal with the challenges are described below:
Change in leadership is always bound to have effects on the employees, sometimes it is for good and sometimes not so much. John Borghatti’s becoming CEO of Virgin Airlines has had some effects on the employees as well, with a few senior and middle management level employees walking out. Moreover, the way of running things by the previous CEO were very different. The employees may not be ready to embrace the changes. For instance, John Borghetti once bumped into a man in shorts at the office, he was furious about it, the employee said that there was no dress code; and Borghetti’s reply was quite rude (Kitney, 2011). In order to ensure the initiatives do not go into drain, managers have to motivate the employees, understand their problems with the change in leadership and management styles at the company, and try to align them with the management strategy necessary for the success of the vision.
Investments are another major hurdle in front of Virgin Australia. With its financials already stretched out, if it does not invest carefully, it may face the same plight as Ansett, Compass and Impulse (O’Sullivan, 2010).
Moreover, in the process of attracting the business-class, it might lose out the leisure travellers who prefer low-cost-no-frills attitude. A balance needs to be struck. Marginal rise in prices can be accommodated.
Forming alliances with international airlines is not an easy task. Efficient communication and negotiation skills are required on the part of managers to make it possible.
A big challenge that managers may face is handling the competitors’ reactions. Qantas is not going to let the transition process to be easy. It is sure to come up with counter-strategies. The managers have to deal with this efficiently. The managers also need to ensure that the time-frame assigned for various check-points are followed.
Measuring the Results
Continuous appraisal of the change process is important for understanding whether the organization is on the right track. Setting up short-term targets and measuring the results is a good way of appraising the change process.
For Virgin Australia some of the performance indicators of the Change process are:
Market share: Virgin Australia’s current domestic market share is 30% with 10% of it being corporate travellers. Virgin Australia should aim at attaining 20% of corporate travellers market and 45% of domestic market share by 2017.
Penetration into Asia-Pacific markets: Virgin Australia should aim to establish international alliances and thereby expanding its operations to at least 10 countries by 2015.
Awards: Virgin Australia winning awards for business-class services, customer satisfaction etc. can be a measure of its success.
Customer satisfaction: An important measure of the success of the initiatives is the customer satisfaction. This can be measured by taking feedback from customers and assessing the improvement over time.
Conclusion
Change is a part and parcel of every organization’s life cycle. If it does not change with market demands, it may cease to exist. Virgin Australia needs to go through a transformation process to ensure its success in the aviation industry. The change management process should be well-oiled, with a proper vision, a leader to guide, proper communication to the employees, involvement of employees in the change process by creating urgency and motivating them and finally evaluating the success at regular intervals. Virgin Australia’s vision of transforming itself into a “new-world carrier suitable for business as well as leisure travellers” is not an easy one. Managers have to be adept to face the many challenges on the way to its transformation.
References
Collier, J. 1945, ‘United States Indian Administration as a Laboratory of Ethnic Relations’, Social Research, vol. 12, pp. 275-85.
Flynn, D. 2011, ‘Virgin Blue to re-launch today as Virgin Australia’, Australian Business Traveller, Viewed on 15 May 2012, Available at http://www.ausbt.com.au/virgin-blue-to-relaunch-today-as-virgin-australia
Kitney, D. 2011, ‘Collision Course’, The Australian, Viewed on 15 May 2012, Available athttp://www.theaustralian.com.au/news/features/collision-course/story-e6frgabx-1226076878043
Knibb, D. 2011, ‘Interview: Virgin Australia Chief Executive John Borghetti’, Airline Business, Viewed on 15 May 2012, Available at http://www.flightglobal.com/news/articles/interview-virgin-australia-chief-executive-john-borghetti-359653/
Kotter, J. P. 1996, Leading Change, Harvard Business School Press, Boston
Krytsonis, A. 2005, ‘Comparison of Change Theories’, International Journal of Scholarly Academic Intellectual Diversity, vol. 8, no. 1, Viewed on 15 May 2012, Available athttp://nationalforum.com/Electronic%20Journal%20Volumes/Kritsonis,%20Alicia%20Comparison%20of%20Change%20Theories.pdf
Lewin, K. 1951, Field Theory in Social Science: Selected Theoretical Papers, Harper Brother Publishers, New York.
Lippitt, R., Watson, J. and Westley, B. 1958, Dynamics of Planned Change, Harcourt Brace, New York.
O’Sullivan, M. 2010, ‘Virgin Blue changes course in battle to bag top flyers’, The Age, Viewed on 16 May 2012, Available at http://www.theage.com.au/business/virgin-blue-changes-course-in-battle-to-bag-top-flyers-20100917-15gfr.html
Pryor, M. G., Taneja, S., Humphreys, J., Anderson, D. and Singleton, L. 2008, ‘Challenges Facing Change Management Theories and Research’, Delhi Business Review, vol. 9, no. 1 (January-June 2008), Viewed on 15 May 2012, Available athttp://www.delhibusinessreview.org/V_9n1/v9n1a.pdf
Shields, J. 1999, ‘Transforming Organizations, Methods for Accelerating Culture Change Processes’, Information Knowledge Systems Management, vol. 1, no. 2 (Apr.), pp. 105-115.
Virgin Australia Company Website, Viewed on 15 May 2012, http://www.virginaustralia.com/au/en/about-us/company-overview/
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