Is Virgin Australia’s long term strategy secure?

26. April 2018 16:50 by Selina Stewart in

 

                                                

On a regular basis we review the strategy and direction of businesses. It is not a financial analysis, but a review from a strategy perspective. In this blog we will review Virgin Australia (the domestic premium airline wholly owned by Virgin Holdings Ltd). Virgin is holding its own, but is it due to good strategy or is Virgin just lucky?

The Australian domestic airline industry has been a profitable market, not necessarily due to its size, which is quite small by global standards, but more because the number of competitors has historically been limited. Currently the premium end is serviced by Qantas and Virgin Australia, while the low cost niche is serviced by Jetstar and Tiger. Some argue that we have for many years really had a duopoly, and as both the low cost airlines are owned by the premium parent, this technically hasn’t changed.

 

Has Virgin Australia been lucky with its profit improvement or is it clever strategy? In my view it has been a bit of good luck in a big reduction in prices of inputs such as oil and a lack of competitive rivalry rather than great strategy. For example, recently Qantas and Virgin reduced capacity and airfares increased.

In the following analysis I rate their Mission (Purpose), Vision, Sustainable Competitive Advantage and their current strategic focus.

Business Mission /Purpose – Why do we exist?

The Mission/Purpose states the businesses reason for existence. It gives focus to the employees, customers and the wider market what a business does and doesn’t do.

Virgins Australia’s stated Mission (Virgin call it their strategic objective) is to “Become Australia’s best customer led organisation.”

If this is Virgins mission it is too broad, lacks focus and could apply to any organisation. Maybe a better one could be, “We ensure Australia travelers arrive at their destination safe and happy every time.”

What would that mean? – No delays, quality food, newest planes, happy staff and so on.

Business Vision –What is their aspiration?

Virgin Vision to 2017 is to become Australia’s favourite airline group. (Source Virgin Australia media - 2014)

“Over the next three years, the Virgin Australia Group will focus on six key areas: capitalising on growth business opportunities, driving yield enhancement, implementing a new cost program, optimising the balance sheet, setting a new standard in customer experience and developing our people to their full potential”, (John Borghetti)

The Vision passes the “stickability” test. “To become Australia’s favourite airline group” is simple and memorable. It is something to aspire to.

What is Virgin Australia’s Sustainable Competitive Advantage?

This is where I think Virgin is lost. They started in Australia as the low cost airline. Their SCA was clear. They eliminated services such as meals and charged a lower price than Qantas. It worked well. Then Jetstar arrived, and Virgin was caught in Death Valley. They were dearer than Jetstar and so got caught in the middle. They were no longer the true “low cost” carrier, nor were they the full service airline which attracts the business market like Qantas. John Borghetti is trying to reposition Virgin as a premium airline, and if you look at their tactics, they have introduced business lounges and free snacks and meals on all flights to try and compete with Qantas. So what is the problem?

The problem for Virgin is getting Qantas customers to switch. With history from the low cost days still around such as Melbourne’s Virgin terminal (Which is very dated and looks like a low cost terminal) Virgin are sending mixed signals to the market.

 

Three way strategy test

 

I have a three way test to see if a strategy is working.

  1. Is your strategy externally consistent? – Virgin is trying to show the Australian travellers that they are now a premium airline; however evidence suggests that externally they are inconsistent. For July for example their cancellations were higher than Qantas, and their on time departures were not as good as Qantas. Melbourne terminal for Virgin is very dated, and their “Free” meals and snacks are not on a par with Qantas.  To really challenge Qantas, Virgin need be the best, otherwise why would travellers switch?
  2. Is your strategy internally consistent? – This test is checking if internally, they are consistent to their strategy. That is working on the right issues, employees are consistent and processes are consistent. It appears that they are working on the right issues, but as an outsider it is hard to tell.
  3. Is there dynamic consistency with your strategy?  - This test is to see if the strategy fits with the ever changing external market place. Virgin is fortunate that Australia has a history in many industries of two major players. Think food retailing of Woolworths and Coles, Packaging, Amcor and Visy.  Our small market size in many industries deters interest from new entrants to come into the market. At the premium airline end of the market we have Qantas and Virgin. There will always be room for two, and so Virgin should survive. However, like in the supermarket industry, if a new entrant like Aldi came in, Virgin could be more vulnerable being the weaker of the two airlines
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How To Negotiate With The IRS When You Have A Large Debt

17. April 2018 16:49 by Selina Stewart in

A lot of hardworking taxpayers don’t think it’s possible, but you can actually negotiate with the Internal Revenue Service (IRS) if you happen to have a large debt. The IRS’ sole existence is not to ‘get’ you. Many times, they are looked at as the bad guy—the villain who’s out to take all of your hard-earned wages.

What are Taxes for Anyway?

The fact of the matter is, if you like your living conditions, the way the streets are paved for better transportation—if you value the convenience of public transportation and things like your trash and recycling getting picked up, if you can appreciate the technology of the traffic lights (depending on where live in the country, maybe not), or maybe you’re just thankful for brave servicemen like firefighters and law enforcement patrolling the streets to make you feel safe, then you might want to start feeling OK with paying taxes!

How Does the IRS Determine How Much Taxes You Pay?

Now, we realize the actual problem comes when you discover that you owe and your annual income doesn’t seem like it’s enough to make ends meat—so how is it that you ended up owing Uncle Sam?

Well, there are a couple of reasons why you may owe the IRS a lot of money. Perhaps you didn’t fill out your W4 employment form right and you’re not getting enough taken out of your check during the year. Are there any unreported wages? There could be a mistake in your filing. One transposed number can throw everything off.

Don’t Try to Cheat the IRS

Don’t assume that the IRS will see an error on your right away. That’s what audits are for! And maybe, just maybe the IRS made an error. It happens.

Whatever the reason is for you owing the IRS, be encouraged that all is not lost. The IRS is reasonable and will work with you. All you have to do is call them and let them know that you understand that you owe, but you would like to negotiate a payment plan. Now, there are a few ways you can go about this.

Working Out a Deal

You can actually negotiate your tax debt to less than half of what you owe depending on whether or not what you owe is substantial. For instance, if you owe $1,000, the chances are pretty slim that the IRS will reduce that amount. At the very least, they may compromise with an affordable monthly payment for you to make. If this is the case, take it! The terms are strict though. One missed payment—even if you are late, then the deal is off and you’re back to owing $1,000 in full. If you’re late, then interest and late fees build on this amount, increasing the total amount you originally owed.

Sounds scary? It is. But it doesn’t have to be.

We have been in the business of alleviating taxpayer’s debt for over 30 years. We know what we’re doing.

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Auto Repair Shops Continue to Fight Dealers

8. February 2018 17:59 by Selina Stewart in Auto

Dealers hope you aren’t concerned enough to complain about their computer overrides, disallowing independent repair shops from repairing vehicles.

Now, two or three times per month, his computerized diagnostic equipment shows unknown codes when hooked up to an auto with a problem.

"The scanner gets codes, but no translation comes up, meaning the information hasn’t been released," Danneman said.

Manufacturers aren’t allowing shops access to some of the information they need to repair today’s computerized automobiles. They aren’t allowing independent’s to include the information in diagnostic tools that can be used on many different types of vehicles.

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Grand Vitara Offers Distinctive Experience

22. December 2017 17:59 by Selina Stewart in

If you’re looking for a stylish SUV that won’t break the bank, the Suzuki Grand Vitara may fit the bill. From the base price, at just under $20K to the luxury model at around $25K this car is affordable for most people and the gas mileage is affordable as well. And, with impressive underhood horsepower, even the car enthusiast should be pleased.

The Grand Vitara incorporates a unibody chassis and adds a ladder frame construction for more rigidity. The exterior hood is sloped atop dual projector headlamps. Fender flares and built in fog lamps give the impression of a much larger SUV. The swing open rear door is right hinged for easy loading but it opens the wrong side for curb access.

The 2.7-liter power plant is adequate, producing 184 pound feet of torque. It features a dual overhead cam with a self-adjusting timing chain, not a replaceable belt. Variable induction intake increases low speed torque for more power. One downside of the Grand Vitara during test week was its fuel mileage. I averaged just below 16 miles per gallon in city and highway driving with lots of hilly terrain. Four cylinder engines are not available this year.

The Grand Vitara offers an extended powertrain warranty of 7 year, 100,000 miles as a standard feature. This new Suzuki SUV is bound to be a powerful sales pusher. Look for the Suzuki Grand Vitara to hit dealerships in 2016.

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Timing Strategies Could Become More Power In 2017, Depending On What Happen With Tax Reform

12. December 2017 18:22 by Selina Stewart in

Projecting your business income and expenses for this year and next can allow you to the time when you recognize income and incur deductible expenses to your tax advantage. Typically, it’s better to defer tax. This might end up being especially true this year, if tax reform legislation is signed into law.

Timing strategies for businesses
Here are two timing strategies that can help businesses defer taxes:

1. Defer income to next year. If your business uses the cash method of accounting, you can defer billing for your products or services. Or, if you use the accrual method, you can delay shipping products or be delivering services.

2. Accelerate deductible expenses into the current year. If you’re a cash-basis taxpayer, you may make a state estimated tax payment before December 31, so you can deduct it this year rather than next. Both cash- and accrual-basis taxpayers can charge expenses on a credit card and deduct them in the year charged, regardless of when the credit card bill is paid.

Potential impact of tax reform

These deferral strategies could be particularly powerful if tax legislation is signed into law this year that reflects the nine-page “Unified Framework for Fixing Our Broken Tax Code” that President Trump and congressional Republicans released on September 27.

Among other things, the framework calls for reduced tax rates for corporations and flow-through entities as well as the elimination of many business deductions. If such changes were to go into effect in 2018, there could be a significant incentive for businesses to defer income to 2018 and accelerate deductible expenses into 2017.

But if you think you’ll be in a higher tax bracket next year (such as if your business is having a bad year in 2017 but the outlook is much brighter for 2018 and you don’t expect that tax rates will go down), consider taking the opposite approach instead — accelerating income and deferring deductible expenses. This will increase your tax bill this year but might save you tax over the two-year period.

Be prepared

Because of tax law uncertainty, in 2017 you may want to wait until closer to the end of the year to implement some of your year-end tax planning strategies. But you need to be ready to act quickly if tax legislation is signed into law. So keep an eye on developments in Washington and contact us to discuss the best strategies for you this year based on your particular situation.

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Why do businesses need to develop and implement good strategy?

16. October 2017 11:48 by Selina Stewart in

 

Seems like an easy question, yet when I ask business leaders this question there is a long pause followed usually by a discussion around how they develop a strategy in their business and not why.

So why is it important to ask the why question? There is no legal requirement to develop or implement the strategy. I was recently talking to a business leader at a networking function who proudly told me he had never done a business plan and his business had been quite successful. My response was to wish him well, but if you are going to use luck and hope, they will run out eventually.

In this blog, we examine the three key reasons why developing and implementing strategy is important.

Key reason #1 - The business remains competitive

A strategy is all about positioning. If we don’t nail a unique position, then we are just one of the pack. To position a business well, we need to be clear about two things. Firstly, who are our competitors, and how well does our positioning beat them and secondly does our positioning provide a clear value proposition to our customers.

If you can answer yes to those two questions, congratulations your business has a competitive advantage in your chosen market. If you can’t answer yes, then the market will decide what happens to your business, and not you. You would then rely on the strategy of “good luck” to survive. Good luck with that one!

Key reason #2 – Your business will be fit to deal with any dark clouds that could destroy the business

You know what we mean by dark clouds. We have all dealt with them. Losing a major customer, a product or service loses its market attractiveness and sales drop, cash flow crises caused by external events. The list goes on. One of my favorite questions, is “How could I destroy your business?”

Developing strategy allows us to identify both looming threats and be “match fit” to deal with them. A company that failed to do this, and now, no longer exists was the Australian airline Ansett. In the 1980s it was one of the best airlines in the world. By 2001 after 9/11 it had collapsed. Those responsible had no real strategy for a cash-strapped business for a number of years, so when external threats such as the 9/11 airline shutdown actually occurred, Ansett was highly vulnerable and collapsed. It wasn’t fit.

Key reason #3 – Your business needs to identify its strategic opportunities to grow and prosper

In 2016, the life of a viable, robust business model is getting shorter by the day. Previously in strategic planning, business could look 3, to 5 to 10 years out with a bit of confidence. Most business leaders I am talking to are only going out three years as the world is changing so rapidly.

We need good strategies to understand where the next growth opportunities are going to come from. Are there new markets we should be chasing, either geographic or demographic? Are there any innovative opportunities either with new products and services or for operational improvement?

Finally, with change occurring more quickly, businesses need to not only identify these opportunities but also ensure they are rapidly implemented.

Key reason #4 – A well-documented strategic direction unites a team

It’s important that a team is united on where a business is headed. A disparate team working on disparate issues leads to a confused business. Adelaide Steamship was an Australian company that had over 50 different interested ranging from freight through to departments stores to food processing. There was a long-held view when the banks stepped in and began liquidating assets in 1991, that the company had too many fingers in too many pies and lost its focus. On the contrary, the global packaging giant Amcor has always had a clear plan, focus, and direction, and for decades has continued to provide a good return to shareholders in a very competitive market.

Key reason #5 – A clear strategy provides a good filter for decision making

Every day, business leaders are faced with many decisions to make. What do we say yes to/ what do we say no to? Without a clear strategy, everything is up for grabs. We run the risk of saying yes to everything and becoming at best an average business.

We can use a clear strategy as a great filter in decision making giving business leaders absolute clarity in what to say yes and no to.

The Disney Corporation was a great example of this. There were some a potentially hostile takeover offer by Columbia studios in 1982.  The Disney board felt that the company would lose the founders purpose “to bring happiness to millions” if it sold out.

The board said no and the rest is history.

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