VIRGIN ATLANTIC

BEM1023 FORMATIVE PRESENTATIONS – GROUPS 1 and 2 (Week 8)

RYANAIR/VIRGIN ATLANTIC

Our first set of case study presentations, to be delivered by groups one and two, will focus on the crucial link between developments in business strategy,management style and the relative success of organisations.  This case study links to the lecture content in weeks one to three, but we would also like you to undertake a little of your own research into organisational structures and cultures (to develop your independent study skills!), in advance of upcoming lecture content.

This case examines two organisations that have a lot in common and yet differ quite significantly in the cultures and values that ‘get them off the ground’. So, how similar and how different are Virgin and Ryanair?

Some commonalities

The most obvious similarity is that both companies operate in the UK passenger air transport industry. Both started off by having to compete with major national flag-carrier airlines, Virgin with British Airways and Ryanair with Aer Lingus (the state-owned Irish airline). As they became more established, they had to compete with other major players in their markets; Branson’s Virgin Atlantic competes with companies such as American Airlines and Qantas, whilst Ryanair is primarily competing with Easyjet in the short-haul market. After the changes to EU regulations in 1997, which enabled new airlines to enter markets previously dominated by national carriers, Ryanair promptly opened many new routes between Dublin and continental Europe and between many European cities and started to compete with the likes of Air France, Alitalia and British Airways.

Travelling back a few years and looking at their history, what they have in common is that they were founded at roughly the same time. Ryanair was founded Tom Ryan (1936-2007) – who, after working in a sugar factory since he was 14, at 18 joined Aer-Lingus as a baggage handler. His hard work and ambition landed him in a more managerial role with Aer Lingus as he was made responsible for the aircraft leasing division, lending Aer Lingus crews and aircraft to other airlines. This led him to creating his own aircraft leasing company and to found Ryanair in 1985. In that same year, Michael O’Leary was chosen as chief executive of the then small Irish airline.

Virgin’s air transport business was founded in 1984, by Richard Branson, “an English business magnate, investor, author and former philanthropist”.  The maiden flight from Gatwick Airport to Newark Liberty International Airport took place on 22 June 1984.

Both O’Leary and Branson are well-known for having powerful and eccentric personalities, with high media presence as they often appear on the news media in relation to stories about their industry. Their faces and personalities are strongly associated with their respective companies.

Not the same!

Although in the same business, the two companies target different markets. Virgin situates itself in the long-haul mainly transatlantic market whilst Ryanair operates primarily in the short-haul domain, focusing on European destinations.

Their competitive positioning is poles apart: whilst Ryanair is known as the ‘cheap/low-cost airline’ and propounds the ‘no frills’ approach; Virgin advertises superior quality and promises a stylish and comfortable travel experience. If with Ryanair anything that goes beyond the basics is charged as an extra, i.e. hand-luggage, seat allocation, drinks and snacks; Virgin offers a wide range of in-flight extras, including e-books and a wide range of entertainment as well as free meals and drinks.

Their brand values are also dissimilar: Ryanair emphasises price rather than customer’s satisfaction (it is not uncommon to hear ‘never again’ when passengers exit a Ryanair flight!) and its strategy revolves around ‘popularising’ flying/allowing as many people as possible to buy a flight; Virgin tries to build loyalty and relies on a strong and popular branding, that not everybody can afford.

At Ryanair, managers are responsible to deliver the above strategy of cost-control by:

• Using a single aircraft type, which simplifies maintenance, training and crew scheduling
• Using secondary airports with low landing charges and less congestion
• Staff prepare the aircraft for its next flight in 25 minutes (other airlines normally allow 1 hour) so that aircrafts can be operational for longer (11hrs/day as opposed to the 7hrs/day of other companies)
• Cabin staff collect rubbish from the cabin, saving costs
• New aircrafts have non-reclining seats and no magazine pockets as to reduce cleaning time
• The company has always tried to minimise staff costs by using productivity-based incentive payments (e.g. bonus for cabin staff based on in-flight sales; to pilots based on the hours they fly).

At Virgin, crew and customers are together for longer and brand image must be maintained. Virgin:

• Uses a greater variety of aircrafts, hence more training and scheduling takes place
• Its air traffic happens between big-city airports
• Staff are allowed longer rest times in the destination locations between flights
• Cabin crew are important projectors of the company brand and are there to be helpful and welcoming to make sure they generate loyalty. In the ‘Working for us’ section of their website, Virgin state: “…whoever you are and wherever you join us, you’ll never stop thinking of our customers and what we can do for them…everyone here plays a role in delivering the Virgin brand’.
• Crew members are given more freedom of choice, as since 2019, Virgin Atlantic began to allow its female flight attendants not to wear makeup and to wear trousers rather than a skirt, if they so choose.

The two companies also recruit following different criteria and processes. Ryanair employees start working for a supplier organisation (Crewlink) after an initial screening that consists of ten online questions only. New recruits have to enrol in a six-weeks training and have to pay for both the training and accommodation fees themselves. Once employed, they are normally offered a three-year contract with Crewlink, which stipulates that they have to work shifts, with no overnight stays. Individuals cannot specify a preferred work location. Virgin has in place a lengthy recruitment process, which starts off with a group interview that filters employees for a series of further tests, before any job offers are made. Training is free. Staff are then offered a wide range of benefits, including private pensions and medical care, discounted goods and services across the Virgin group and seven free flights a year.

Employee relations and collaboration with Trade Unions has been a hot topic in the press for Ryanair, as O’Leary has done all in his power to refuse to recognise Trade Unions. Only after mismanagement of the crew scheduling system and the number of protests that followed, Ryanair changed its policy and, in 2018, reluctantly, reached a 5-year pay deal with the unions.

Virgin has also had its share of union disputes, however, in one of the latest disagreements, a Virgin spokesperson expressed the company’s position as follows“We value our pilot workforce enormously and have an ongoing and constructive relationship with our recognised union” (Robertson, 2019).

The ethos of the two carriers is clearly communicated to the public by Branson and O’Leary in the way that they present themselves to the public. Whilst Branson is all smiles and adamant to gain popularity with customers, employees and the wider public; O’Leary comes across as cynical and not too fussed about public opinion.

Recent developments:

Both companies have been quite successful for many years, with some unavoidable up and downs. However, their performance has been dramatically affected by the events of earlier this year. The impact of Covid-19 has been disastrous for both.

As a result, Ryanair in May announced that they would have to reduce the workforce by 3000 staff, however, they eventually managed to avoid redundancies and to negotiate a temporary pay cut for their staff (5% for the lowest paid, 7.5% for others, and 10% for the highest paid with the union).Pay cuts will be reversed in two tranches in 2023 and 2024, or earlier if Ryanair returns to pre-Covid-19 levels of business sooner, Unite said.Last week Balpa (the pilots’ union) said Ryanair pilots had voted to accept temporary pay cuts after the May announcement that 330 pilot jobs could go.

In March 2020, during the pandemic, Branson and Virgin attracted criticism by asking staff to take eight weeks’ unpaid leave. On 5 May 2020, Virgin announced that -due to the COVID-19 pandemic- the airline would be laying off 3000 staff, reducing the fleet size to 35 by the summer of 2022, retiring the Boeing 747-400sand would not be resuming operations from Gatwick following the pandemic. In September 2020, the company announced that they are planning to cut additional 1,150 job positions. The employee cuts are expected to be from all the departments. On August 4, 2020, Virgin Atlantic filed for bankruptcy protection from creditors in the US amid the Covid-19 pandemic. This comes after Virgin Atlantic’s announcement in July that it had secured funding to survive for another 18 months. On August 25 2020 creditors approved a £1.2bn (€1.3bn) rescue package and debt restructuring.

Sources:

Case Study adapted from: Boddy, D. (2020) Management: An Introduction. 8th Edition.  Harlow: Pearson and from Christy, G., & Mullins, J. M. (2016). Management and Organisational Behaviour. Harlow: Pearson.

Company website: www.ryanair.com also https://corporate.ryanair.com/about-us/history-of-ryanair/?market=gb

Company website: Virgin Atlantic. “All about us”, www.virgin-atlantic.com/en/us/allaboutus/ourstory/history,jsp

Crewlink: www.crewlink.ie

Dawkins, David (16 March 2020). “Bad Times For Billionaire Branson–Staff At Virgin Atlantic Asked To Take Unpaid Leave As Coronavirus Cripples Air Travel”Forbes.

The Economist, 20 July 2004

Financial Times, 19 January 2018 (p.18) and 12 February 2018 (p.17)

Georgiadis, Phillip (4 September 2020). “Virgin Atlantic to shed 1,000 more jobs as Covid-19 crisis bites deeper”. Financial Times.

The Guardian, 31 July 2018 and 23 October 2018 (p.29).

https://www.bbc.co.uk/news/business-53341716Ryanair cabin crew agree to temporary pay cut to keep jobs, 8 July 2020

“Virgin Atlantic to cut 3,000 jobs and quit Gatwick”. BBC News. 5 May 2020

https://en.wikipedia.org/wiki/Virgin_Atlantic

http://www.flixens.com/director/richard-charles-nicholas-branson Archived 28 August 2016 at the Wayback Machine

Robertson, E. (2019) Virgin Atlantic faces strike threat over union representation. In: https://www.ttgmedia.com/news/news/virgin-atlantic-faces-strike-threat-over-union-representation-19536

“Working for us”: www.virgin-atlantic.com/en/gb/careers/workingforus/index.jsp

More sources of information

The management strategy of both companies has received wide press coverage over the years.  You will find several well-researched articles in The Economist and Financial Times archives as well asin the press (Guardian, bbc). These will provide you with plenty of background information.  You can also find comprehensive information on both companies via the Statista database via the e-library.

Reading the biography of both Branson and O’Leary might contribute to your understanding.