Research Korner: Virgin Atlantic Airlines Strategy

CORPORATE SOCIAL RESPONSIBILITY

Introduction Globalization is the comprehensive term for the emergence of a global society in which economic, political, environmental, and cultural events in one part of the world quickly come to have significance for people in other parts of the world. Globalization is the result of advances in communication, transportation, and information technologies. It describes the growing economic, political, technological, and cultural linkages that connect individuals, communities, businesses, and governments around the world. Globalization also involves the growth of multinational corporations and transnational corporations ( 2004). The international institutions that oversee world trade and finance play an increasingly important role in this era of globalization. Although most people continue to live as citizens of a single nation, they are culturally, materially, and psychologically engaged with the lives of people in other countries as never before ( 2004).   Distant events often have an immediate and significant impact, blurring the boundaries of people’s personal worlds. Items common to people’s everyday lives such as the clothes they wear, the food they eat, and the cars they drive are the products of globalization. Globalization has both negative and positive aspects. Among the negative aspects are the rapid spread of diseases, illicit drugs, crime, terrorism, and uncontrolled migration. Among globalization’s benefits are a sharing of basic knowledge, technology, investments, resources, and ethical values ( 2000). Most experts attribute globalization to improvements in communication, transportation, and information technologies. Advances in communication and information technologies have helped slash the cost of processing business orders by well over 90 percent. Using a computer to do banking on the Internet, for example, costs the banking industry pennies per transaction instead of dollars by traditional methods. Advances in communications instantly unite people around the globe. For example, communications satellites allow global television broadcasts to bring news of faraway events, such as wars and national disasters as well as sports and other forms of entertainment. The Internet, the cell phone, and the fax machine permit instantaneous communication. The World Wide Web and computers that store vast amounts of data allow instant access to information exceeding that of any library ( 2004).   Improvements in transportation are also part of globalization. The world becomes smaller due to next-day delivery by jet airplane. Even slow, oceangoing vessels have streamlined transportation and lowered costs due to innovations such as containerized shipping. Advances in information technologies have also lowered business costs. The global corporation Cisco Systems, for example, is one of the world’s largest companies as measured by its stock market value. Globalization raises other questions that will be central to the 21st century. What is the proper role for the IMF, WTO, and UN, and how should they be governed? What is the best way to finance development? How much autonomy should countries have when the economic, political, and environmental decisions they make can have global repercussions? To what extent should global institutions be able to constrain what countries can and cannot do in an increasingly globalized world? What is the right way to balance social and cultural values with the need for economic efficiency? As the 21st century progresses, more and more decisions regarding these and other issues will need to be debated (2004). Globalization affects the way companies treat its environment. Changes in businesses affect the way they preserve the different things in the environment. The paper will discuss about corporate social responsibility. The paper will also provide a comparison of Bp UK oil refinery and oil refinery in Pakistan. The paper will then discuss the problem the companies follow the corporate social responsibility and what can be done towards it.   Corporate responsibility The process of globalization over the past decade has created unprecedented opportunities for global companies in trade, investment, services, and production. The fact that the rapid pace of growth of economic opportunity has not corresponded with the growth of leadership in business ethics and a sense of corporate responsibility has potentially threatening consequences for the reputation of free market economies and businesses. Public concern is accelerated by a wider use of electronic communications that is changing the nature of politics as much as that of business operations. The leadership of a few progressive companies, the rise in consciousness of corporate responsibility as an essential feature to sustain global capitalism, and emerging evidence of partnership initiatives which hold the key to equitable development, are all encouraging pointers towards progress. Business has the capability of bringing creative and sustainable solutions to many of the ills facing the world such as ill health, illiteracy, and unemployment, and to reinforce freedoms and choice, if it engages in the challenges which will contribute to its long-term sustainability and profitability ( 2003).     The challenge for those engaged in promoting corporate social responsibility is not just to make a compelling business case, as important as that is, but to elevate business values and integrity. It is to spread awareness that one cannot cherry-pick globalization and reap the rewards of open markets without responding to the forces that will ultimately undermine free markets. It is to recognize that responding to the challenges of diversity and transparency is at the heart of successful internationalization of business. It is to dare to appeal to business leaders, in an imperfect world, for values based leadership, decency and integrity, and an absolute commitment to attack corruption as the essential bedrock of business activity with a human face ( 2003).   In a globalizing world, business leaders will need to be more pro-active and progressive. They cannot rely on their business and trade associations that are so often held back by the slowest ship in the convoy, national interests, legalistic defense of rights and lack of vision. The consequences of business and business leaders failing in this challenge will be growing and corrosive public and media cynicism, declining values and respect for property at work, negative activism and efforts to regulate business by international institutions lacking competence and capacity. There has been a vivid demonstration that regulated markets in even the most experienced capitalist economies are tough to set up and run, and that the cost of getting it wrong is corrosive public cynicism of business and hostility towards its leaders ( 2003).  There is not a great deal of evidence that the lessons have been learned or that governments have the capacity or desire to regulate for corporate responsibility, even if opportunistic politicians have the ingenuity to make political capital out of the problems.   Corporate responsibility is a pact for the mutual benefit between society that needs business for economic and social development, and business that needs a supportive business environment. It is also a pact between capital and management in modern companies, which has been as shaken up by some recent scandals where management disregarded the bond of transparency with shareholders. All too often, professional managers and their advisers have been tempted to see the resources of public companies as their own property without the sense of stewardship that owner-managers once had. The balance can only be struck by combining professionalism with transparency ( 2003).   Social Responsibility Social responsibility has acquired an increasingly important role in the practice of corporate management and in corporate decision making. Firms may benefit from socially responsible actions and policies in terms of community reputation of commitment to the public good, enhanced employee morale and productivity, and in terms of stock- and bondholders' perceptions of management skill at risk reduction as indicated by social responsibility. Companies who show concern for the environment acquires many benefits. Almost everybody believes that corporations should be concerned about something more than making money, that they have responsibilities not only to stockholders but to their employees, to their customers, to the communities in which they work and to society at large. The extent to which social responsibility will continue to influence corporate decision making depends in part on managerial perceptions of the impact of socially responsible actions on the effectiveness of the firm.   Many companies base their socially responsible actions on the belief that these actions provide or will provide some benefit to the company, a strategy referred to as enlightened self-interest ( 1993). The results of several studies support a positive relationship between corporate social responsibility and firm financial performance that used five different measures of financial performance. In the study it concluded that the companies within the pulp and paper industry that had the best record on pollution control and the environment were also the most profitable. However, other studies provide conflicting conclusions, suggesting that firms may incur costs from socially responsible actions that put them at an economic disadvantage compared to other, less responsible firms ( 1993). Consumer and investor concerns about corporate social behavior can be a compelling factor in determining what is in a company's best interests in terms of their impact on market share. It has been suggested that corporate managers will take social initiatives seriously only when they are convinced that their company's social record affects market share and thus financial performance maintain that companies fight hard for even a small percentage gain in market share for their products. If and when corporate managers become convinced that their company's social record affects market share, they will be forced to take social initiatives seriously. One way to ascertain the extent to which companies are and will continue to be committed to corporate social responsibility is to measure the beliefs of top management about the relationship between social initiatives and market share. The role of top management in the integration of social responsibility issues into corporate decision making cannot be overestimated. Progress has been made in assessing managerial attitudes toward corporate social responsibility but little is known about managerial perceptions of the relative importance of social responsibility issues in organizational effectiveness ( 1993).  Social responsibility is not only important for people but businesses as well.   Corporate social responsibility Corporate social responsibility can be defined as the duty of organizations to conduct their business in a manner that respects the rights of individuals and promotes human welfare. While the level of social responsibility exhibited by multinational corporations is said to be improving, perfection has hardly been attained. Governments and people around the world seem to have an increasing interest in scrutinizing the actions of global corporations, in effect forcing international companies to be good corporate citizens. One reason for this could be the realization that multinational companies (MNCs) are not as invincible as they were once thought to be; therefore, their policies can be influenced to benefit society. A second reason may be a realization that effective legal governance of companies whose activities stretch beyond national borders is impossible, leaving self governance as the only practical alternative. Social responsibility in business has been debated for a long time, and several sides of the issue have been presented by ethicists. This debate has been extended in recent years to include the operations of MNCs ( 1995). About public interest in business ethics and corporate social responsibility (CSR) during the past three or four decades, two conclusions can be drawn. First, interest in business ethics and social responsibility has heightened during each of the past forty years. Second, interest in business ethics and CSR seems to have been spurred by major headline-grabbing scandals. Certainly, society has taken an on-again, off-again interest, but lately this interest has grown to a preoccupation or obsession ( 2003).   Because of ethical missteps like those just alluded to, business has been undergoing the most intense scrutiny it has ever received from the public. As a result of the many allegations and charges that it has little concern for the consumer, cares nothing about the deteriorating social order, has no concept of acceptable behavior, and is indifferent to the problems of minorities and the environment concern continues to be expressed as to what responsibilities business has to the society in which it resides. These concerns have generated an unprecedented number of pleas for CSR, more recently included in the broad term of corporate citizenship. No one would argue that life in most business organizations was much simpler in the past, in a less complex period, with minimal and clearly understood expectations among the various parties. Investors put up money to start or finance the business, owners and employees kept the business running, suppliers made raw materials available for production, and customers purchased the product or services. In today's society, organizations face a more complex state of affairs. The public recognizes that today's business organization has evolved to a point where it is no longer the sole property or interest of the founder, the founder's family, or even a group of owner-investors. That development has been a principal driving force behind this societal transformation (2003).    Organizational management that truly cares about business and corporate social responsibility is proactive rather than reactive in linking strategic action and ethics. It steers away from ethically and morally questionable business opportunities and business practices. It goes to considerable lengths to ensure that its actions reflect integrity and high ethical standards. If an organization's stakeholders conclude that management is not measuring up to ethical standards, they have recourse. For example, concerned investors can protest at the annual shareholders' meeting, appeal to the board of directors, or sell their stock. Concerned employees can unionize and bargain collectively, or they can seek employment elsewhere. Customers can switch to competitors. Suppliers can find other buyers. The community and society can do anything from staging protest marches and urging boycotts to stimulating political and governmental action ( 2003).   Petroleum and the petroleum industry Petroleum, or crude oil, naturally occurring oily, bituminous liquid composed of various organic chemicals. It is found in large quantities below the surface of Earth and is used as a fuel and as a raw material in the chemical industry. Modern industrial societies use it primarily to achieve a degree of mobile both on land, at sea, and in the air that was barely imaginable less than 100 years ago. In addition, petroleum and its derivatives are used in the manufacture of medicines and fertilizers, foodstuffs, plastics, building materials, paints, and cloth and to generate electricity. The United States petroleum industry is composed of tens of thousands of separate businesses, covering an enormous range in size, influence, and breadth of operations ( 1959).   Its behavior is governed not merely by the profit-seeking activities of these private parties, but also in vital ways by a network of governmental controls, direct and indirect, state and national agencies that regulate output, providing differential tax treatment in the way of special exemptions and levies, fixing prices, limiting international commerce, as well as merely persuading, threatening, or cajoling managers into one course of action or another. This aggregation of separate business entities, thus organized and controlled, is expected to safeguard the national defense, conserve scarce resources, reduce prices, improve quality, expand capacity, and protect the competitive status of thousands of private parties whose interests are often flatly opposed. The diversity of these influences on industry behavior and the complexity of these tests of good and bad performance preclude a simple verdict in assessing the charges and counterclaims of waste and monopoly, conservation and competition that have plagued the industry during the entire course of its history ( 1959).   Modern industrial civilization depends on petroleum and its products; the physical structure and way of life of the suburban communities that surround the great cities are the result of an ample and inexpensive supply of petroleum. In addition, the goals of developing countries to exploit their natural resources and to supply foodstuffs for the mushrooming populations are based on the assumption of petroleum availability. In recent years, however, the worldwide availability of petroleum has steadily declined and its relative cost has increased. Many experts forecast that petroleum will no longer be a common commercial material by the mid-21st century. Petroleum is formed under Earth’s surface by the decomposition of marine organisms. The remains of tiny organisms that live in the sea and, to a lesser extent, those of land organisms that are carried down to the sea in rivers and of plants that grow on the ocean bottoms, this are enmeshed with the fine sands and silts that settle to the bottom in quiet sea basins. Such deposits, which are rich in organic materials, become the source rocks for the generation of crude oil. Once the petroleum forms, it flows upward in Earth’s crust because it has a lower density than the brines that saturate the interstices of the shales, sands, and carbonate rocks that constitute the crust of Earth ( 1959).   The crude oil and natural gas rise into the microscopic pores of the coarser sediments lying above. Frequently, the rising material encounters an impermeable shale or dense layer of rock that prevents further migration; the oil has become trapped, and a reservoir of petroleum is formed. A significant amount of the upward-migrating oil, however, does not encounter impermeable rock but instead flows out at the surface of Earth or onto the ocean floor. Surface deposits also include bituminous lakes and escaping natural gas. In order to find crude oil underground, geologists must search for a sedimentary basin in which shales rich in organic material have been buried for a sufficiently long time for petroleum to have formed. The petroleum must also have had an opportunity to migrate into porous traps that are capable of holding large amounts of fluid. The occurrence of crude oil in Earth’s crust is limited both by these conditions, which must be met simultaneously, and by the time span of tens of millions to a hundred million years required for the oil’s formation ( 1959).   Petrochemicals are manufactured from naturally occurring crude oils and gases. Once removed from the earth, the crude oil is refined into gasoline, heating oil, kerosene, plastics, textile fibers, coatings, adhesives, drugs, pesticides, and fertilizers. Crude oil contains thousands of natural organic chemicals. These are separated by distilling, or boiling off, the compounds at different temperatures. Gases such as methane, ethane, and propane are also released. Methane, when combined with nitrogen and pressurized and heated, yields ammonia, an important ingredient in fertilizers. Simple plastic materials, such as polyethylene and polypropylene, are manufactured by first heating ethane and propane gases and then rapidly cooling them to alter their chemical structure (1991).   ARL Attock Group of Companies is the only fully integrated group in the Petroleum sector of Pakistan. Attock Group deals in exploration, refining, and marketing of petroleum products that makes it the most reliable and resilient operator in the industry. Attock Refinery Limited (ARL) is the pioneer in crude oil refining in Pakistan with its operations dating back to 1922. Backed by a rich experience of more than 80 years of successful operations, ARL’s plants have been gradually upgraded with state-of-the-art hardware to remain competitive and meet new challenges and requirements. The Attock Group of Companies comprises of the Attock Oil Company Limited (AOC), Attock Refinery Limited (ARL), Pakistan Oilfields Limited (POL) and Attock Petroleum Limited (APL). AOC is registered in UK and supervising the overall business of Attock Group in Pakistan. POL is engaged in exploration, drilling, production, and transmission of petroleum and related activities. POL has provided channels to transport crude oil to ARL through its pipeline network from not only its own oilfields but also from some other oilfields. ARL has the ability to refine the crude oil received from POL as well as eighteen (18) other exploration companies.   The refined petroleum products are then sold to Operation and Maintenance Center (OMCs) operating in Pakistan that also includes APL, which is operating as an OMC since 1998. ARL’s configuration allows it to process crude to produce a complete range of petroleum products from LPG to Asphalt including specialty products such as Jet Fuels (Jet A 1, JP-4, and JP-8) Cutback Asphalts, Polymer Modified Asphalt, Mineral Turpentine Oil and Solvent Oil. ARL’s current nameplate capacity stands at 37,500 Barrels per day (BPD) but is currently operating at around 43,000 BPD.   ARL is strategically located in the Oil and energy sector providing petroleum products to the Northern Region of the country and simultaneously providing an outlet to crude oil produced in the Potohar Region of Pakistan. ARL is enormously contributing towards the economy of Pakistan in different manner that includes supplying of things like of petroleum products to Civil and defense market including Airlines, Railways, Power stations, Cement and other industries; providing an outlet to indigenous production of crude oil in Pakistan and particularly from the Potohar Region otherwise required be exporting or transporting at huge cost; generation of government duties/taxes on supply of petroleum products including General Sales Tax; generation of foreign exchange earnings through petroleum products exports including Naphtha/Jet Fuels exports; and providing employment and work opportunities in the Refinery including deployment of large transportation fleet of crude oil and products movement.   The company’s most valuable asset is their people.  Implementation of HR best practices has enabled them to induct and retain honest, competent, committed and motivated team players. Their employees take pride in their lifetime relationship with the organization, employee turnover is negligible and one can find numerous examples of generation after generation employment at ARL. The company has a systematic and well thought out Management Development Plan and they help the employees in keeping them fully abreast of the latest knowledge and skills through in-house and out-sourced training and development programs. ARL Management Development Center (MDC) caters for the employees training initiatives. ARL is an equal opportunity employer. They offer excellent career opportunities at market based compensation packages for the best available talent.  They recognize the professionalism of the employees as one of the foundations of the company’s corporate strength, and ensure the fullest possible utilization of their employees’ initiative through provision of working environment, that is conducive. The company continues to be a leader of the industry in the areas of provision of employee benefits, and having cordial industrial relations.   ARL and CSR ARL promotes sustainable community development as part of its core values to create the foundation for a more equitable, just, productive, competitive and knowledge-based environment. As a responsible corporate citizen, ARL has always believed in working as part of community and has made sizeable contributions for projects in the field of environment, health, income generation, women development, HRD, education and sports.  Besides being the right thing to do, ARL believes that’s its investments in CSR benefit the company’s bottom line.  Spending the time and resources on environmental performance improvements, fostering relationships based on trust and respect with key stakeholders and working with local communities to ensure they share in the benefits of the businesses and are simply part of good business practice.  Some of the benefits can be backed up with numbers, while others are less easily measured and therefore less easily linked to the bottom line.  CSR has helped enhance ARL’s reputation, which builds credibility and trust with stakeholders at all levels, and these are valuable assets.  While acquiring the latest state of the art facilities ARL has never been oblivious to the human factor and has been in the forefront to discharge its CSR.   ARL since its establishment in 1922 has played a significant impact on the Morgah and Kotha Kalan communities. ARL is making a sincere effort to involve local community in development projects, focusing on capacity building rather than traditional donor-beneficiary relationships. Provision of water, carpeted roads, playing grounds, culverts, and parks etc. has not only resulted in poverty alleviation and improving lifestyle of the locals but has also helped ARL in expanding its operations through the support of the local population. ARL has a Vision and Values Statement that sets forth the company’s values. The three top most core values are linked with CSR includes Integrity & Ethics, Quality and Social Responsibility. These are supported by concrete guiding principles that allow employees to understand what they mean and how the values relate to their day-to-day work. The Vision, Mission and Values Statements were developed through consensus at all levels within the company, which also helped garner employee buy-in and understanding.   BP BP Amoco p.l.c. is an international petroleum, gas, and chemical company, based in London, England. Formerly known as The British Petroleum Company PLC (BP), the company merged with Amoco Corporation in 1998 and adopted its current name. BP Amoco is one of the world’s largest oil companies. It explores for oil and natural gas in Latin America, North America, the North Sea, North Africa, Southeast Asia, and Central Asia. The company operates major refineries around the world and markets its products in more than 100 countries. It holds a half-interest in the Trans-Alaska Pipeline, which transports oils from fields in northern Alaska to the port of Valdez in southern Alaska. In 1999 BP Amoco announced its plans to acquire Atlantic Richfield Company (Arco), a petroleum and natural gas company based in Los Angeles, California. In 1901 British mining magnate  received permission from the shah of Iran to look for petroleum throughout the shah’s empire.    In 1908 ’s geologists discovered oil in southwest Persia the first commercial oil discovery in the Middle East. In a joint venture with the Burmah Oil Company,  formed the Anglo-Persian Oil Company in 1909. In 1914 the company signed an agreement with the British government under which the government purchased 51 percent of the company’s shares and acquired two seats on its board of directors. Despite the government’s majority ownership, which continued until Britain sold off the last of its shares in 1987, Anglo-Persian continued to operate as an independent company ( 2001)   Anglo-Persian profited from the discovery of major oil fields in Iraq in 1927 and in Kuwait in 1938. The company was renamed Anglo-Iranian Oil Company in 1935. Its favorable arrangement with Iran, however, was challenged by the country’s nationalist government in the 1940s. In 1951 the government of Iranian premier  took control of Anglo-Iranian’s oil fields in Iran. For three years the company ceased production in Iran, where its largest oil field was located. In 1953  and other nationalists in the Iranian Parliament moved to seize power from  , the shah of Iran. The shah fled the country, but within a few days a coup, in which the British and U.S. secret services reportedly played a role, returned the shah to power. A new agreement, reached in 1954, made the company a 40-percent shareholder in a consortium of Western oil companies drilling in Iran. The company was renamed The British Petroleum Company PLC that same year.    Discoveries in Alaska in 1969 and the North Sea in 1970 made the company one of the largest producers of oil and natural gas in the western hemisphere. The difficulties of extracting oil in such extreme environments made BP a leader in oil-field technology and contributed to its later successes in extracting crude oil from reserves in the Sahara, the Gulf of Mexico, and Papua New Guinea ( 2001) Beginning in the 1970s, the company pursued a strategy of diversification, acquiring companies that engage in food processing, mining, and computing services. However, in the late 1980s BP began to sell its peripheral businesses to concentrate on its core businesses in petroleum and chemicals. In 1994 BP discovered 100 million cubic meters of gas reserves in Colombia. In August 1998 BP announced it would acquire Amoco, the largest supplier of gas in North America. Federal regulators approved the deal, valued at approximately $57 billion, by the end of 1998. A few months later, in 1999, BP Amoco announced its plans to acquire Arco for about $26.8 billion. In 2000, after meeting certain requirements by the United States Federal Trade Commission (FTC), the deal was completed ( 2001)   BP and CSR The company believes that it can and it will play a part in finding issues associated with sustained development.  It also believes that the company is a part of the solution and not the main solution to the problems in the environment. The company makes sure that it reports its greenhouse gas and other emissions, oil spillages, employee satisfaction, days lost through injury at work, and community investment all over the world. The company’s policy statement commits the company to achieve its business goals. The reporting done by the company helps in illustrating the company principles.   Business and the environment Society's attitude to environmental matters has evolved with the other changes. These changes should be seen alongside striking changes in the values, ethics, morals and beliefs held by society, which have themselves largely been a consequence of industrialization and urbanization. New lines of communication, the changing role of the media, education, and a shift from the need for survival to a desire for an improved quality of life-at least in Western societies-has changed people’s views of what is important. The rise of environmentalism has influenced the views of the individual and these have put pressure on business to change. Two hundred years ago there were no environmentalists as people know them today. Gradually, their views have shaped society's attitude to the environment and to the impact that business has had on the environment. Business activities have an impact on the environment. This occurs through pollution, the modification of ecosystems, introducing exotic species and chemical compounds, genetic engineering and irreversible physical changes. The sorts of impacts widely reported in the popular press and television. The ways in which land has been used, particularly for agriculture and forestry, are a reflection of the way in which the commercial pressures of business have changed the physical landscape.   Business affects the environment in a variety of ways both deliberate and accidental ( 2001).  Most of the effects are usually seen as detrimental, although increasingly people see some business activity improving the environment. For example, a number of museums and country houses have been opened to the public where the restoration of former days of glory have halted decades of decline and reinstated previous, albeit not entirely natural, surroundings. However, many firms who claim to be improving the environment are in reality only mitigating against the most injurious impacts of what is occurring.   Hence the practice of planting trees and landscaping around industrial plants is not improving the environment but merely reducing the detrimental effects of building the plant in the first place. Second, but less obvious, are the impacts the environment has on business. Changes in climate have led to changes in business activity. Depleting resources or physical limitations on the use of some materials have changed patterns of exploitation and their uses. Changing environmental conditions have led to the birth of new industries. Although less widespread and less covered by the literature, these changes are still worthy of people’s attention (2001).   Third, business activities are influenced by environmental concerns. It is hard to identify a business where environmental concerns have no impact on its operations. For most businesses, environmental issues are less important than other external influences such as the state of the economy or the behavior of its competitors. For some, which are close to the environment such as agriculture or tourism, the impacts can be at the top of their agenda. Environmental legislation, customer attitudes to the environment along with direct actions by environmental groups are among the most obvious influences which can be grouped together under the umbrella term of environmentalism. Environmentalism has a considerable impact on many individual businesses. Businesses are increasingly aware of public pressure to have due regard for the environment and now many have corporate policies that are either sympathetic, or pro-active, to environmental aims. Fourth, business has worked hard to influence public opinion about the environment. While many such actions can be seen merely as window dressing, many business opportunities have been seized to pro-actively develop products and services resulting in environmental improvement. Business has actively promoted some of its activities in terms of the environmental benefits they have brought (2001).  There are different effects of production and use of oil in the environment. This includes pollution; oil contamination of sea; the modification of ecosystems, introducing exotic species and chemical compounds, genetic engineering and irreversible physical changes.   Oil Pollution The oceans have traditionally been the ultimate dump for many of humanity's noxious wastes. Some pollutants are pumped into them directly from ships or are discharged from coastal facilities. Others are carried into the oceans by rivers or fall from the atmosphere with precipitation. Among the major types of pollutants that have been released into the oceans are sewage from municipal systems; the herbicides, pesticides, and fertilizers that run off agricultural land; a great variety of industrial wastes such as mercury, lead, and other heavy metals; radioactive materials from nuclear power plants and weapons production; and petroleum and other oily substances, upon which this case study will focus. This different wastes has different and often than not negative environment to the environment. Until recently, it was thought that the oceans were vast enough to disperse and neutralize these substances without significant harm to the environment. Such complacency is no longer warranted in view of growing evidence of significant damage to the marine environment from pollutants, especially in certain coastal areas ( 1985).  Oil pollution has become a serious problem with the dramatic increase in the world consumption of petroleum occurring since World War II. Simultaneously, there has been an even more rapid rate of growth in the international trade in oil, most of which is transported over the seas. However, shipping accounts for only slightly more than one-third of the petroleum hydrocarbons entering the oceans. Over half of that pollution comes from land sources, such as industries and refineries. Approximately 10 percent seeps up naturally from the ocean floor, and although offshore drilling accounts for only about 1 percent of the oil pollution, spectacular blowouts such as the ones that took place in the Santa Barbara Channel in 1969 and in the Gulf of Mexico in 1979 can have serious impacts on the local environment (1985).   Most of the pollution attributable to shipping results from the operation of the world's gigantic fleet of oil tankers. Relatively small amounts come from other vessels that use petroleum as a power source. Over the past fifteen years, various types of accidents involving tankers have resulted in numerous oil spills. Because of their immense size, supertankers are difficult to maneuver and are prone to mechanical and structural failures. Collisions become more frequent as waterways are increasingly congested, and groundings are not uncommon where there are treacherous geological features and severe storms. And volatile gasses remaining in emptied tanks have caused a number of spectacular explosions. As dramatic as these shipwrecks have been, accidents account for only 5 to 10 percent of the ship-related oil pollution. 24 Much greater quantities of oily substances are discharged intentionally from vessels as part of their routine operations ( 1985).   After the cargo of oil is removed, some of the empty tanks are filled with sea water, which serves as ballast to keep the vessel stable on its return trip. Prior to reloading, the ballast water is pumped out and returned to the ocean mixed with the leftover oil that coated the insides of the tanks. It has also been a common practice on return trips to wash some of the empty tanks to remove sludge and to dispose of the oily residues by discharging them directly into the oceans. The seriousness of the environmental damage resulting from oil pollution has been a matter of dispute among scientists. It is apparent that much depends upon the type of oil that is spilled and the local conditions. Under favorable circumstances, much of the oil will evaporate rather quickly or be dispersed by wind and wave action ( 1985).   Modifying Ecosystems Like any other creatures, human beings have always had some effect on the ecological systems of which they were a part, but the history of deliberate and significant modification of ecosystems doubtless began with the development of agriculture.  Since then, human influence has reached to the remotest areas of the planet and has been intensified by increasing numbers of people and the development of modern technology. What are some of the ways in which humanity modifies ecological systems? Obviously, some ecosystems are destroyed outright by such diverse activities as clearing land to plant crops, starting fires, building dams, applying defoliants to jungles, constructing buildings, and laying pavement. Forests are chopped down for structural wood and firewood.  Estuaries are dredged, filled, or altered by bulkheads.  And ecosystems can be destroyed as a part of military strategy ( 1997).    The effects of such assaults are diverse. Paved areas are normally removed from natural systems for long periods and their rapid reclamation is both costly and difficult. Dams take land out of terrestrial systems for long periods, but as noted earlier, dams are temporary structures, and enriched land will eventually be returned. Strip-mined areas in developed countries often have not been reclaimed; the practicability of doing so at all is a function of both economics and ecology. When prairie is converted to cornfield, an unstable ecosystem replaces a stable one. Attempts to stabilize such systems artificially can lead to further destabilization and bring about changes elsewhere as well ( 1997).   Physical assaults on ecosystems often interact with overexploitation and pollution to threaten species with extinction. For example, industrial and harbor development encroaching on breeding areas is combining with oil pollution and competition from the fishing industry to deplete South African jackass penguin populations already reduced in size by overexploitation of the bird's eggs and disruption  of their breeding activities ( 1997). Now that ecologists are gaining a more detailed understanding of the factors that threaten ecosystems, they are beginning to examine carefully strategies for preserving natural diversity. Especially interesting have been attempts to develop a guideline for location, number, size, and configuration of natural reserves, based on the theory of island biogeography. Application of the principles uncovered will require a commitment to conservation and a halt to human expansion while there are significant wild areas left to conserve ( 1997). Due to these different problems that oil production can create; an interview with companies was done to create effective CSR strategies.   The results of the interview When the respondents were asked regarding whether or not the organization has responsibility over the stakeholders. The resounding answer was yes. With regards to the type of interaction with the stakeholders the reply varies on each respondents. Some interact through EGM, AGM. Others through BOD meetings; some interact through focus group. The respondents interact with stakeholders through meetings, queries, hotline, survey and response. The respondents were asked about what they think among corporate governance, business ethical principles, environment compliance, disclosure environmental and social report, product integrity, community investment, stakeholder dialogue, financial performance, and supply chain security shows that the company is socially responsible.  Among these things the respondents believed that business ethical principles, environment compliance and product integrity showed that the company is responsible. The respondents were asked about what community initiatives the company was involved in. They replied that the company was involved in 4 schools, upgrades to state of the art technology that will benefit the society, drinking water treatment plant that satisfies WHO standards, environment awareness, sports participation and capacity building.   The respondents are asked about where they base their purchasing decisions. The replies of the respondents were energy efficient products, environment friendly products, and recycle ability. The respondents were asked on consideration for product quality. Their reply includes durability, international standards for products and services, products meet customer requirement, and customers and their rights. The respondents were asked about what different things the company does to improve the environmental conditions. The respondents replied that the company does things that include re-cycling, reuse, product safety, and waste minimization. By doing these things the company can prevent the different problems brought about by oil creation and usage. The company can also have a better image towards its clients and the society.   CSR strategies Companies can make use of different strategies to show that they have corporate social responsibility. By showing that they are responsible and are socially active more people are encouraged to buy the different things the company offers. Two things can show that the company has corporate social responsibility. This includes engaging in recycling and waste minimization.   Recycling Material and energy utilization can be improved by reuse in the same or another system. This avoids the energy and waste costs of mining or creating virgin materials. The potential savings from this have always been realized for many expensive materials, which have been recycled for decades or centuries. There is now the opportunity to extend the principle into all business sectors, including the manufacturing, construction, office, retail, and service sectors, as well as to individual households. It is important to realize, however, that eco-efficient recycling is that which maximizes the financial value of materials and minimizes the environmental effects of their processing. Recycling is environmentally unproductive when the amount of energy, materials, and pollution used in collecting, preparing, and processing the recyclate exceeds the impact of the system that delivers the primary materials. This can be determined by a life cycle analysis (LCA).   Financial costs and benefits can be assessed by traditional methods. Of course, there are situations where recycling is environmentally justified but unprofitable. It is difficult for individual companies to take action in these circumstances; experience suggests that the best response is some combination of partnership with other companies, communities, or governments and / or redesign of products to change the economics ( 2000). There are also different kinds of recycling. One option is to reuse components or materials.   This retains the value created by their original manufacture and avoids the environmental impact associated with making them suitable for other uses and with producing replacements. Another is remanufacture, which also has these benefits albeit with the higher cost and impact associated with the remanufacturing processing. Four further options are recycling the material to an alternative use, incineration to utilize its energy content, composting, and biogasification. The best option for a particular situation will vary, for example, if reuse, remanufacturing and recycling involve long-distance transport of low-value materials (2000).   Companies such as Hewlett-Packard and Xerox have certainly found that reusing equipment and parts makes both environmental and business sense. Other electronic manufacturers are likely to follow them as economic incentives are joined by take back legislation making them responsible for the final disposal of their products. Hewlett-Packard, for example, created its Hardware Recycling Organization to process excess products and parts into useful service parts by disassembling and refurbishing them. This program improves HP's service levels by increasing the availability of parts, while lowering costs. Parts that cannot be used for service are sorted and diverted to lower-level; noncompetitive recovery channels ( 2000).   Waste minimization Reducing the amount of waste produced at the source is the only permanent and practical solution to the myriad of problems caused by environmental pollutants. Additionally, pollution prevention and designing for the environment makes economic sense; today's generators are tomorrow's potentially responsible parties with legal liability even if current regulations are followed. Pollution prevention means source reduction. Waste minimization means the reduction, to the extent feasible, of any solid or hazardous waste prior to any treatment, storage, or disposal. Waste reduction means the reduction of volume, and or toxicity, of waste after the waste has been generated and prior to disposal. The waste management hierarchy places pollution prevention or source reduction as the top priority in waste management decisions ( 1997).   The waste management hierarchy is source reduction followed by recycling. If these two preferred options are not possible then waste treatment should be considered before the final and least preferable option of disposal is considered. Pollution prevention and waste minimization techniques can be broken down into two major categories: source reduction and recycling. It should be pointed out that waste minimization does not include such processes as incineration, treatment, storage or disposal. Source reduction and recycling should always be considered before treatment and/or disposal. Source Reduction includes inventory control, improved housekeeping, production/process modifications, product substitution or reformulation, waste segregation and new uses ( 1997).   Conclusion In a globalizing world, business leaders will need to be more pro-active and progressive. They cannot rely on their business and trade associations that are so often held back by the slowest ship in the convoy, national interests, legalistic defense of rights and lack of vision. Business activities have an impact on the environment. This occurs through pollution, the modification of ecosystems, introducing exotic species and chemical compounds, genetic engineering and irreversible physical changes. An interview was made and the respondents were asked about what they think among corporate governance, business ethical principles, environment compliance, disclosure environmental and social report, product integrity, community investment, stakeholder dialogue, financial performance, and supply chain security shows that the company is socially responsible.  Among these things the respondents believed that business ethical principles, environment compliance and product integrity showed that the company is responsible. The respondents were asked the different things the company does to improve the environmental conditions. The respondents replied that the company does re-cycling, reuse, product safety, and waste minimization. References

CORPORATE SOCIAL RESPONSIBILITY

Introduction Globalization is the comprehensive term for the emergence of a global society in which economic, political, environmental, ...

Strategy of Virgin Atlantic Airlines

Strategy of Virgin Atlantic Airlines   Virgin Atlantic Airways is a British airline operating between the United Kingdom and North America, the Caribbean, Africa, the Middle East, Asia and Australia from its London Gatwick Airport and London Heathrow Airport bases, and using Airbus and Boeing wide-body aircraft. Most of these aircraft offer the Economy, Premium Economy and Upper Class configuration of cabins. The airline owned by Sir Richard Branson’s Virgin Group and Singapore Airlines registered an annual operating loss of 132 million pounds on a  2,357 million-pound turnover in the year to February 2010. From the beginning, Virgin Atlantic has been a rival of British Airways.[1]   Virgin Atlantic Airlines’ strategic mission is to grow a profitable airline that people will patronize and where people will like to work. A comparative analysis of the company’s strengths, weaknesses, opportunities and threats (SWOT) will help executives summarize the major facts and devise a course of action in the face of constantly changing external and internal factors. Virgin Atlantic’ strengths include its recognition by 98% of the British public, the expectation of good customer service by clients in each separate class and the firm’s introduction of innovations like in flight music, ice cream and games. Its weaknesses include flight delays and inefficiency, limited travel routes and the separation of Hot Air magazine from traditional advertising magazines. The opportunities open to Virgin Atlantic include the continued thrust toward innovative, good value, caring and quality services, providing in flight Internet connection and adding more airline routes. The threats it faces include the too rapid and global expansion of the Virgin brand image without focus on the important products, competition offered by British and United for routes and fluctuating fuel prices.[2] On the transatlantic front, Virgin Atlantic has declared the British Airways/American Airlines planned merger in 2008 as anti-competitive, because this will eliminate competition, raise prices and reduce service. The move is a reaction to the factor of rivalry in Porter’s 5 Forces business strategy framework. To maintain profitability, Virgin Atlantic has concentrated on its core competencies, including strategies on sustaining quality service and relationships with its Upper Class clients by way of route closures to Toronto, Chicago and Cape Town and reduction of flights and personnel across the North Atlantic. The latter is due to significantly less traffic following the September 11, 2001 incident in the US. The company has also introduced recycling initiatives on its aircraft and offices to declare its concern for the environment, cost effectivity and healthy and safe procedures. These moves are in line with the PESTLE business strategy model, which seeks to understand the operating environment of a business independent of its internal operations. To show the value Virgin Atlantic places on all stakeholders, it has attempted to keep all Virgin family members employed in the Virgin group by offering employment possibilities with the group’s leisure and health club and has also planned to rehire ex-employees once the airline industry resurges.[3]   Virgin Atlantic Airlines has chosen upper class customers who basically travel on business on transatlantic routes as its specific marketing target based on size and growth potential, competition, company objectives and feasibility of success in the market. The company offers fun, innovative and distinctive upper class service, including Internet capabilities and a high-tech inventory management system, at business class prices. The Virgin brand is one of the top 50 global brands, with people all over the world increasingly preferring the Virgin Atlantic brand image for its reputation of quality and experience in airline travel.[4] Virgin Atlantic Airlines has doubled its profits to more than $100 million in 2008 due to its fuel hedging and rising sales of first and business-class seats. The company is winning market share from competitors because of resilient load factors as travelers take advantage of bargain fares.[5]   While dropping unprofitable routes and reducing personnel, Virgin Atlantic has chosen not to cut back on its influential advertising campaigns. Its ’25 years and still red hot’ marketing thrust was able to resist the economic downturn and was successfully picked up websites, bloggers and cyber geeks worldwide.[6] 	   	 	 		 		 		 		 		[1] “Virgin Atlantic Airways”, 		Wikipedia, 16 June 2011, <http://en.wikipedia.org/wiki/Virgin_Atlantic_Airways> 		 		[accessed 23 June 2011] 	 		 		 		 		 		[2] Donal Manning et al, “Virgin 		Atlantic Marketing Case Study”, SalterQuest.com, pdf, 2005, <http://www.safarigraphics.com/salterquest/portfolioPDFs/ws_Virgin_Atlantic_Marketing_Case_Study.pdf 		 		[accessed 23 June 2011] 	 		 		 		 		 		[3] ibid 	 		 		 		 		 		[4] ibid 	 		 		 		 		 		[5] Sarah Arnott, “Virgin Atlantic 		Defies Airline Slump”, BloombergBusinessweek, 27 May 2009, <http://www.businessweek.com/globalbiz/content/may2009/gb20090527_747393.htm> 		 		[accessed 24 June 2011] 	 		 		 		 		 		[6] ASC Staff, “Interview: Paul 		Dickinson, Virgin Atlantic”, ArabianSupplyChain.com, 21 March 		2010, <http://www.arabiansupplychain.com/article-3760-interview-paul-dickinson-virgin-atlantic/> 		 		[accessed 24 June 2011]

Strategy of Virgin Atlantic Airlines

Strategy of Virgin Atlantic Airlines Virgin Atlantic Airways is a British airline operating between the United Kingdom and North ...

Case study in international tourism management

The European Low-Cost Airline Industry           By: Course: Instructor: Date:           Executive Summary             A number of strategic issues affect the European low-cost airline industry but the issues affecting the industry in the short to medium term is the rising oil prices and protectionist response of flag carriers that made the competition and the competitive environment fierce. The competition operates two-fold with low-cost airlines competing with large flag carriers and among themselves. Ryanair is a leader in the low-cost airline industry in Europe. However, these issues may require the company to improve its competitive strategy. Changes in the low-cost airline industry affect the tourism industry in terms of tourist traffic. This means the need to establish collaborative strategies to ensure mutual benefit for the low-cost airline firm and the tourism industry.         Contents Page   Executive Summary. 2 Contents Page. 3 Introduction.. 4 Strategic Issues in the European Low-Cost Airline Industry. 5 Competitive Environment of the Low-Cost Airline Industry. 9 Competitive Strategy of Ryanair 14 Conclusion.. 18 Bibliography. 19         Introduction             The airline industry comprises a sustainable economic sector even with constant bouts with the industry’s business cycle. This is because air transportation has become an important part of the global economy supporting other industries such as tourism and trade (Kuller 2007). The resilience of the industry depended on its experience with a number of challenges resulting to changes in the strategies of individual airline companies and the competitive environment. Factors that significantly affect the airline industry include economic factors, new market structures, marketing strategies, human resource management, and technological innovation. The sustainability of the aviation industry does not mean it is free from difficulties since aviation is one dynamic industry. The most recent change experienced by the aviation industry is the rise of low-cost airlines applying mass-marketing strategy to draw the largest market segment and support entry into the aviation industry dominated by large firms. Low-cost airlines operate through three factors such as no frills, low operations cost, and mass market positioning. Source: (Mercer Managing Group 2002)             The emergence of low-cost airlines had a two-fold impact. One is on the business model employed by industry players and the other is on the aviation market. Prior to low-cost airlines, the business model of existing players focused on quality-based differentiation so that airlines developed first class luxury airplane amenities but at higher costs (Morrell 2005) but with the entry of low-cost airlines the business model is cost-leadership by offering basic and convenient air transportation services at lower costs. (Doganis 2001; Iyer & Muncy 2005) This caused existing large airline companies to introduce low-cost airline services alongside their existing services that increased the number of players. The effect on the market is the provision of consumer choice because of the different service values as well as many airline companies from which to choose. As such, the number of travellers for business or tourism increased in many regions such as Europe. Strategic Issues in the European Low-Cost Airline Industry             The competitive environment of the European low-cost airline industry is again changing as the industry experience competition from more players as well as difficulties in stringent and protective regulation in different European countries. Since 2004, there are now more than fifty low-cost airlines serving the European market. (Rowe 2008) The ease in market entry resulting in many players made cost as the basis of competitive advantage for low cost airlines. The ability to draw consumers depends on the delivery of basic air transportation services at the lowest cost and least inconvenience to passengers. Profit earning at low service costs depended on the ability to draw the greatest number of regular passengers or frequent flyers. (Kuller 2007) For a time, the low-cost industry experienced growth with Ryanair, easy Jet, and Virgin Express emerging as the top players in the cost-based competition. As much as growth meant profit for low cost airlines, this also implied the saturation of the European market. This means that the industry needed to focus on maintaining loyal customers to prevent brand shifting and expansion into new routes and destinations. However, low cost airlines also needed to expand to other markets requiring the need to establish new routes to reach new markets.             In addition, strategic issues also arise within the characteristics of the low-cost industry. First characteristic of the low-cost industry is deregulation. This is a process, which refers to the elimination of airline restrictions particularly the limitation of carriers in serving specific routes. (Dempsey & Goetz 1992) Deregulation has a number of implications. One is the ease in entering the international market resulting to the internationalisation of competition. Another is the greater integration of industry players in order to pool market and resources as well as ensure competitiveness. However, the intensified competition among low-cost airlines resulted to the need to devise a more effective strategy still based on cost leadership but augmented by other value offering to ensure customer loyalty and retention. The business model of low-cost airlines is similar so that flyers can shift from one airline to another depending on their routes and available destinations. Although Ryanair augmented its low cost strategy with functionalities while other airlines augmented their low cost service with emotional values, there is still need to establish these differences in order to draw consumers. In addition, the widespread operation of low-cost airlines posed a challenge to the different large airlines.             Recently, a challenge to low-cost airlines is the stricter regulation of Italy in allowing other airlines to enter Italy as part of its route or destination. Italy has a flag carrier that controls most of the routes in its territory. The stricter regulation in allowing entry to other airlines meant that the government is trying to protect its flag carrier from the expected impact of unfettered entry into the market. Ryanair is fighting back by appealing to the European Low Fares Airline Association to make a move to address this anti-deregulation practice. (Gesar 2007) Other countries especially those with flag carrier airlines also have the tendency to act in a similar manner especially with the entry of low-cost airlines sharing in the market or even pulling customers away from the traditional flag carrier airlines.             Second characteristic of low-cost airlines is the heavy reliance on strategic alliances (Dempsey & Goetz 1992; Kuller 2007). This is necessary to facilitate entry into the international market as well as share routes. Not all airlines gain access to routes so that alliances for connecting trips are necessary to gain access to more customers and market segments. An example is a low cost airline wanting to service customers coming from Europe and going to Asia. However, the low-cost airline is unable to gain permission in the Asian country considered as the destination. The low-cost airline has the option to seek alliances with other airlines with destination routes in Asia to provide a connecting flight from the limit of the route of the airline and bring passengers to Asia. As such, the low-cost airline is able to gain customers going to Asia.             The strategic issue is determining significant alliances and sustainable trade routes (Domanico 2007). Although low-cost airlines follow a mass-marketing business model so that they experience the need to reach the widest possible market, they also need to identify sustainable routes and strategic partners to maintain cost effectiveness. Entering new markets involve costs and the inability to establish a market would mean losses that would affect the cost structure and eventually the price of service. Losses mean the possibility of raising prices or incurring additional cost for marketing and promotional activities to draw more consumers to gain revenue to augment the losses. Strategic partners are also crucial to successful market entry. Low-cost airlines highly depend on cost-cutting activities so that effective partners are airlines that allow the airline to cutback on cost in terms of routes and marketing activities requiring alignment between the business goals of the airline and its partners.             Third characterisation is dependence on cost effectiveness (Dempsey & Goetz 1992). This makes low-cost airline sensitive to factors affecting cost. In Asia, the SARS outbreak led to a slowdown in passenger traffic resulting to the failure of many airlines to meet basic operating costs leading to the decrease in the number of fleet. In Africa, political and civil unrest also affect the cost structure of many airlines. In all regions, the threat of terrorism affected operations because of fear and security concerns among passengers. Recently, the continuous increase in fuel prices also affected the cost structure of low-cost airlines. These factors challenge the cost-based marketing strategy of low-cost airlines especially since these factors comprising the external business environment of low-cost airlines does not afford them control. Low-cost airlines need to rethink the low-cost strategy and determine ways of decreasing cost as well as establishing means of justifying increases in cost in case this becomes inevitable.             Fourth characterisation is access to Internet technology in reaching out to consumers (Kuller 2007). Technological innovation can contribute to cost-effectiveness by providing a widely accessible and cheaper means of communicating with actual and potential consumers as well as linking business partners in arranging the itinerary for passengers. While many low-cost airlines including Ryanair have fully embraced the Internet as a tool, the possible benefits of the Internet have yet to be exhausted.             In the short to medium term, low-cost airline industry in Europe needs to contend with two strategic issues. One is the challenges to its low-cost structure especially low price hikes. Another is the heightened protectionist stand of countries towards the entry of low-cost airlines in favour of their flag carriers. Competitive Environment of the Low-Cost Airline Industry             Low-cost airlines compete with each other as well as with large airlines, particularly with national carriers likely to respond defensively to the entry of low-cost airlines. Competition is due to the growing number of business players because of the limited barriers to for the low-cost industry so that there are now more than 50 airlines operating in Europe. The current competitive environment reflects the response of current players to the threat posed by the new market entrants.             As mentioned earlier, the case of Italy expresses the intensified competitive environment in Europe because of the growing number of players and the saturation of the market. The response of the aviation department of Italy is to protect its flag carrier by enforcing restrictions in granting route access to low-cost airlines. (Gesar 2007) Low-cost airlines pose a threat to traditional or full service airlines, especially flag carriers because of the differences in business model and strategies as shown below. One difference is the low-cost model of low-cost airlines that allows these competitors to reach a wider market segments. By operating on a business model of high cost, national carriers limit their market segment. With rising prices of fuel and recession in major economies such as the United States that also affected Europe to a certain degree, the middle-income groups or even the lower rung of the upper income group are likely to sway towards low-cost airlines resulting to decline in their markets.   National Carriers Low-Cost Carriers Business Model High Cost Low Cost Network Global alliance Point-to-point alliance Fleet Different planes Standard planes Product Full service Self-service Sales Policy Sales departments, global distribution system (GDS) Direct sales (customer service & online) Source: (Keller 2002)             Another difference is the purpose and scope of networks. National carriers establish global alliances to reach different destinations worldwide while low-cost carriers slowly spread their routes outward depending on perceived demand and performance by establishing point-to-point alliances to bring passengers to these destinations. This means that national carriers are likely to concentrate on destinations with the highest traffic while low-cost carriers concentrate on areas that could create high traffic. This provides low-cost airlines with a promising potential for market expansion that threatens the market of national carriers.             Still another difference is the manner of reaching out to consumers and handling the point of sales. National carriers operate through sales departments as well the global distribution systems (GDS). As such, flag carriers only have contact with passengers during actual transit resulting to the reliance of these large airlines on activities to ensure satisfaction. Low-cost airlines communicate to passengers directly through its customer service as well as direct booking system. There are more points of contact between low-cost airlines and passengers so that even if these airlines only offer basic services, these airlines are able to draw sufficient information to know the no frills services that consumers are likely to demand.             Due to the perception of large firms and national carriers towards low-cost carriers as threats, these apply aggressive strategies making it difficult for low-cost firms to continue making market breakthroughs. In effect, the competitive environment involving large firms and national carriers with low-cost carriers is fierce. The map below shows the extent of penetration of Europe by low-cost airlines.                         The highest percentage of penetration of low-cost airlines is in the United Kingdom followed by other Western European Countries such as France, Germany and Switzerland. Thee extent of penetration also reflects the strategy of low-cost firms of expanding inside out and since the leading low-cost airlines were established in the United Kingdom, the spread outwards is towards other Western European countries and then towards Eastern European countries. In addition, the penetration of Western European countries is also due to the privatization of the flag carriers resulting to lesser regulation for new entrants. In most Eastern European countries, flag carriers remain government owned and controlled resulting to protectionist policies towards new entrants.             Competition within the low-cost airline industry has also intensified for a number because of a number of reasons. One is the entry of many low-cost airlines in Europe including the American low-cost airlines Southwest Airlines that is one of the first to operate within the low-cost framework. Another is the need for the top performing low-cost airlines in Europe to enhance market distinction from the other leading low-cost airlines. This is necessary to ensure clear communication of service or brand value and build brand equity in the market. Otherwise, the market can just select one low-cost airline over the other without considering brand equity and service value in consumer decision-making.             Currently there are 63 low-cost airlines (Kuller 2007). There could have been more but many airlines have closed because of the inability to penetrate markets as well as to maintain low costs to support lower prices. As the fuel prices reach record level highs in 2008, many low-cost airlines may no longer be able to sustain low cost resulting to the possible decrease in the number of low-cost business firm through mergers or closures.             The rising fuel prices and the increasing pressures of competition (Gesar 2007) seem to have affected the performance of the stocks of two of the leading low-cost airlines in Europe, Ryanair and easyJet. The graph shows the performance of the two airlines in the last year and the shares of both companies are at a downward trend. This means that the performance of these companies have dwindled in the past year and expected to remain so until the end of 2008. If the two leading low-cost firms are experiencing declines in performance, so would the other low-cost airlines because the greater challenge in maintaining the low-cost business model amidst rising operating costs.               Source: (London Stock Exchange 2008) Competitive Strategy of Ryanair             Ryanair is the leading low-cost airline in Europe. It reached this position because of the aggressive leadership practice of O’Leary in identifying profitable routes and defending these from regulatory challenges and competition. The business strategy of Ryanair revolved around simplicity, efficiency, optimisation and performance. As a result, Ryanair has multiplied its number of passengers from 700,000 in 1991, to 9 million in 2001, and 42.5 million in 2006. The number of passengers should reach 70 million by 2012. (Ryanair 2008) By 2005, Ryanair adopted a ticket-less system so that all reservations or sales are made over the Internet. Ryanair expanded into other markets and locations by banking on the responses of different local communities in subsidizing the airline in exchange for bringing people into the these regions. This strategy linked the air transportation and tourism industries.             Ryanair has changed its competitive strategy moving from a purely low-cost strategy to an integrated strategy to adjust to the changing competitive environment. The table below compares the initial strategy of Ryanair with three other leading low-cost airlines in Europe, which are easyJet, Virgin Express, and Buzz that also applied the low-cost structure in an attempt to establish a point of distinction to establish a regular or even loyal customer base.     Ryanair     easyJet   Virgin Express     Buzz     SIMPLE PRODUCT/NO ‘FRILLS’ HIGH • Genuine no-frills offering HIGH   • Genuine no frills offering   LOW   • Hybrid operating design (low cost wet lease and charter) HIGH/MEDIUM • Use of KLM lounge, provision of reservation services   LOW OPERATING COSTS HIGH • Services secondary airports •homogeneous fleet • Minimum cost base HIGH/MEDIUM • Services major airports resulting to higher turnaround cycles and fees   MEDIUM • Services major airports resulting to higher turnaround cycles and fees MEDIUM • Services major airports resulting to higher turnaround cycles and fees • 2 kinds of planes POSITIONING HIGH •Straight-forward, aggressive low-cost positioning HIGH/MEDIUM • Low-cost position, except for major airports LOW • Unclear position: low cost, code share SN, charter MEDIUM • Major airports • Bulk customers • Business focus Source: (Mercer Management Consulting 2002)               The low-cost business model involves three operating considerations, which are the simplicity of product, low operating cost, and clear positioning in the market as a low-cost carrier. Of the four leading low-cost airlines, only Ryanair was able to receive high ratings for all these three factors. This means that it was able to implement fully the low-cost business model by offering a no frills service to consumers in a cost effective manner and has been able to establish and sustain its operations by living-up to the low-cost model. The other players implement the low-cost strategy in part or by developing hybrid versions.             Full adherence to the low-cost business model enabled Ryanair to gain an edge over its competitors. One, it was able to provide the lowest cost for the no frills services similar to its competitors and the ability to drive down cost is one measure of a successful low-cost competitive strategy. Another, Ryanair was able to establish to consumers the company as a low-cost airlines as part of its marketing strategy. As such, it experiences the benefit of having to claim the ability to offer the lowest cost relative to its competitors. The aggressive competitive strategy and widespread market reach of the company resulted to its reaching a leadership status.             However, with the entry of new players, cost leadership strategy alone was not sufficient to support competitive sustainability. New entrants provide options to consumers making it more difficult to offer low cost value alone especially in meeting the different demands of the target consumers. In addition, factors such as terrorist threats has affected demand and with a large supply of low-cost aviation services results to a limited or highly saturated market making it challenging to operate through a low-cost structure alone. As such, Ryanair shifted to the strategy of integrating cost leadership with functional benefits such as efficiency and punctuality. This is different from the strategy of other low-cost airlines of integrating low cost with emotional benefits. This indicates the effort of Ryanair to integrate low-cost with differentiation strategy. The differentiation strategy applies because of the determination of low-cost value augmentation that is different from its competitors. While its competitors considered emotional benefits such as the design and color of airplane seats and walls or the manner of interaction between personnel and employees, Ryanair went beyond these value offerings to focus on timely service to bring passengers to their destinations on time at low costs. At present, Ryanair is maintaining its low-cost structure augmented by functionality values while seeking out possible ways of augmenting its service as fuel prices continue to rise and the European economy experience a slowdown.             Based on these developments and expectations of future changes in the competitive environment in the next years, a future competitive strategy for Ryanair is still to maintain its low-cost operating structure. The increasing fuel prices mean that the company’s operating expenses is increasing. In the short-term, the company may have to assess its routes and alliances to determine possible cancellations or stoppage to enable the company to maintain its cost leadership. In addition, it has to determine other ways of decreasing its operating costs but ensuring the provision of no less than the no frills service augmented by functionality values.             In addition, the airline also needs to augment this with more differentiating values to keep the airlines in the leadership position in terms of low cost service while at the same setting the airlines apart from other low-cost airlines. Additional areas comprising augmentation for its low-cost structure include the establishment of promotional and reward activities for its passengers such as on the spot discounts for randomly selected passengers or discounts for frequent flyers. The airline needs to create closer links with its consumers to ensure satisfaction and ensure loyalty. The serious business-like tone of the no-frills service may not be sufficient to support patronage of the firm. This serves as a security measure in case fuel prices continue to increase.             Furthermore, Ryanair also needs to prepare to service the routes vacated by the airlines that would close because of rising fuel prices and competitive measures. The statement of O’Leary that there would only be two low cost airlines by 2008 has not come about and not likely to come true because this would be contrary to the low-cost business model and the low-cost industry remains to be a viable industry regardless of the challenges that it faces. Nevertheless, Ryanair needs to consider possible industry players likely to close and fill the vacated routes or merge with these firms to continue the service. It also has to continue establishing partnerships with local communities engaged in tourism activities to bring tourists to these communities in exchange for referrals and booking arrangements with Ryanair. Conclusion             The European low-cost industry is changing because of changes in rising fuel prices, protective regulatory response of national carriers, and market saturation. These changes are influenced by tourist traffic in the same manner that the low-cost airline industry has affected tourist traffic. As such, negative developments in the low-cost industry would also have an effect on the tourism industry. As such, there is need for collaboration between the two industries to ensure positive outcomes for both industries. (Word Count: 3, 598) Bibliography   DEMPSEY, P. S. & GOETZ, A. R., 1992. Airline Deregulation and Laissez-Faire Mythology. Westport, CT: Praeger/Greenwood.   DOGANIS, R., 2001. The Airline Business in the Twenty-First Century. London: Routledge.   DOMANICO, F., 2007. The European Airline Industry: Law and Economics of Low Cost Carriers. European Journal of Law and Economics, vol. 23, no. 3, pp. 199-221.    GESAR, A., 2008. Company Watch-Ryanair. Airguide Online. Available from http://findarticles.com/p/articles/mi_m0QXQ/is_2007_August_13/ai_n27348922 [Accessed 22nd July 2008]   IYER, R. & Muncy, J. A., 2005. The Role of Brand Parity in Developing Loyal Customers. Journal of Advertising Research, vol. 45, no. 2, pp. 222+.   KELLER, P., 2002. Introduction: Air Transport and Tourism: Strategic Issues. Air Transport and Tourism, vol. 44., pp.13-23.   KELLER P. & BIEGER T., 2002. 52nd AIEST Congress. Air Transport and Tourism, vol. 44, pp.245-274.   KULLER, E., 2007. E- Marketplaces in theAviation/Airline Industry. eMarket Services. Available from http://www.emarketservices.com/clubs/ems/prod/E-marketplaces%20in%20the%20aviation%20industry.pdf [Accessed 22nd July 2008]   LONDON STOCK EXCHANGE LTD. 2008. Share Price Performance Chart: EASYJET PLC ORD 25P v RYANAIR HOLDINGS PLC ORD EUR0.00635. Available from http://www.londonstockexchange.com/en-gb/pricesnews/prices/Trigger/genericsearch.htm?bsg=true&ns=EZJ [Accessed 22nd July 2008]   MORRELL, P. (2005). Airlines within Airlines: An Analysis of US Network Airline Responses to Low Cost Carriers. Journal of Air Transport Management, vol. 11, no. 5, pp. 303-312.   ROWE, C., 2008. Could European Airlines See Bumpy Skies Ahead?. Fox Business. Available from http://www.foxbusiness.com/story/markets/industries/transportation/european-airlines-bumpy-skies-ahead/ [Accessed 22nd July 2008]   RYANAIR. 2008. About Us. Ryanair.com. Available from http://www.ryanair.com/site/EN/about.php [Accessed 22nd July 2008]

Case study in international tourism management

The European Low-Cost Airline Industry By: Course: Instructor: ...