Case Study: Four Is a Crowd (Virgin Australia)

Case Study: Four is a Crowd (Virgin Australia)

Question 1 - Outline the major drivers of demand for air services

The major drivers of demand for air services include:

* Economic Growth – led to rapid increase in disposable income allowing people to travel more regularly, however the economic downturn such as the Global Financial Crisis and natural disasters also affected demand.

* Increased Competition - pushed for low-cost carriers, which resulted in lower fares that allowed people to travel more often. For example: it was cheaper to fly from Brisbane to Melbourne than catch a taxi from one side of the city to the other

* Increased Air Travel – There has been a massive growth in air traffic and the amount of people travelling for things such as business, holidays and leisure, especially in the domestic market. Which has led to the large amount of domestic flights available in Australia, which has risen by 80% in the past decade.

* Fluctuating Oil Prices – Oil prices have increased by 400% in just 4 years, which has increased the price of fuel. As fuel became more expensive, fares also become more expensive as they introduced baggage fees, which made flying more expensive.

Question 2 – Explain how an airline like Virgin Australia can manage the service characteristics of perishability in its product offering

Perishability is the inability to store services for use at a later date. Virgin has to balance supply and demand in such a way that they are able to maximize profitability between the peaks and troughs of demand by offering flexible cheap fares. Marketers have a number of strategies to improve demand such as:

Stimulate Demand –Virgin has to stimulate demand when they have excess capacity to deliver services. Virgin has responded to this by trying to attract a new segment of the market ‘the business traveller’ as well as offering cheaper flights midweek, and have taken advantage of the Internet to promote price discounts...