Forecasting and route analysis Abstract

16

Forecasting and route analysis

Abstract

The headquarters for Virgin Atlantic is Crawley in West Sussex,England. This region is found 28 miles south of London, 18 milesnorth of Hove and Brighton, 32 miles north east of Chichester andcovers an area of approximately 17.36 square miles. The area has beeninhabited since the Stone Age period and developed as a centre foriron working. The town has been developing slowly as a market townand has been serving surrounding villages in Weald.

On the other hand, Gatwick airport, which is one of the busiestinternational airports in Britain, was opened in 1940s. The airporthas seen massive industrial and commercial growth. The Britishgovernment has continued to plan the movement of people and jobs fromLondon to other new towns. New residential, civic, industrial andcommercial areas are still being established. The area is currentlyexperiencing rapid population growths.

This paper is meant to promote the Virgin Atlantic airline route forthe flights between Gatwick to Cayman Islands by Virgin AtlanticAirline.

London Gatwick airport is amongst the single mostefficient runway in the world and the second largest airport in UK.Around 45 airlines operate from Gatwick. The airport providesconnectivity from the regions in London with considerable number ofpassengers travelling on easyjet, Aurigny and Flybe. The majoraway-based airline operations allowed include Airberlin, Norvegianand Ryanair. The major haul leisure operations include VirginAtlantic and British Airways. Gatwick serves the most destinations inUK and welcomes around 38 million passengers flying to around 200destinations.

On the other hand, a flight to Cayman Islandallows one take a pick from the three idyllic islands that offerexceptional diving and snorkeling, the fascinating natural wondersand paradise beaches. A person can easily explore the underwatershipwrecks that team with the marine life or the hike through theserene forest trails. The opportunity is a lifetime and theexperience unforgettable.

The distance between Cayman Island and LondonGatwick is about 7742kilometres equivalent to 4810 miles. There havebeen no airlines that travel directly between the two locations. TheVirgin Atlantic and Cayman Airways fly between London Gatwick CaymanIslands making a stopover in Havana on Montego. Cayman Airwaysoperate from Cayman-Havana/Montego on 733 and Virgin Atlantic operatebetween London Gatwick and Havana/Montego on 744.

This implies the need to promote the route betweenthe two London Gatwick to Cayman Island without making a stopover inMontego, Havana or any other destination. Some of the major factorsthat contribute to the promotion of this route have been reviewed inthis paper.

Business Environment

The business in the new route comprises of various dimensions in thecontext of broader society that influences firms and industrieswithin. The dimensions can be described in terms of six environmentsegments of global, technological, socio-cultural, legal/political,economic and demographic(Conklin 2006, p. 101).

When compared to other global firms, most of the externalenvironments are characterized by turbulence and complexity.Nevertheless, for Virgin, the major external difficulties can beexperienced only when trying to understand and predict the generalenvironment due to differences in industrial set-up. Furthermore, therisks vary based on the type of industry. To increase theunderstanding of the general environment, the external environmentalanalysis remains critical. This analysis entails assessing,monitoring, scanning and forecasting the business environment(Ferguson 2012, p. 103).

The objective of understanding the business environment is throughidentification of threats and opportunities. In this case, anopportunity can be described as a condition in the generalenvironment which can be exploited and is critical in enhancingcompetitiveness of an organization. It is from this route that famousbusiness men like Richard Branson diversified the business fromrecording music to other high-end businesses like rail and airtravels (O`Connell and George 2011, p. 32).

Demographics

Due to the increased success of financial service industries andtourism, Cayman Island have been a main attraction to countlessinternational businesses and extensive immigration. As of 2009 censusreports, the largest number of the expatriates hailed from Jamaica(8320), United Kingdom (2,392), United States (2,040), Canada(1,562), Honduras (873). Additionally, there is an approximately3,300 residents from other countries. While the government does notrestrict foreign land ownership, it strongly enforces the immigrationlaws. Business are supposed to allow access to new job openings,first to the Caymanian citizens, then to immigrants. For one to beallowed to work in Cayman a foreigner must have a job offer beforeimmigrating. The projected mid-year population for 2015 is 59,200(Medium Fertility Scenario 2012)

Geographic Distribution

The Cayman Islands is made up of three main islands Grand Cayman,Little Cayman and Cayman Brac. The area is located at 19o151and at 19o131North latitude and at 79o441andat 81o271 West within the tropical zone. TheIslands have a total are of 100 square miles with the highestelevation at 60 feet above sea level. the Island do not have riversor streams due to absence of valleys and the porous rocks. Lack ofwater and the sediment run-off into the sea accords the Islandsamazing clarity of the waters around them

Ethnic Mix

The ethnic mix in UK and Cayman Island has been changing and is stillchanging. The ethnicity of cities and states vary significantly. Thisaffects the sensitivity of Virgin Atlantic as a major airlinebetween the two locations The changes in ethnic mix tend to affectthe workforce composition (Alamdari and Simon 2005, p. 377). IncomeDistribution

The studies on income distribution suggest that although thestandards of living in Cayman Island have improved over time, thevariations within nations still exists (Alamdari and Simon 2005, p.378). This is reflected through the economic segment. Economicenvironment depicts direction and nature of economy where a firm maycompete or is already competing. Various nations have beeninterconnecting in the global economy hence indicating the need toforecast, assess, monitor and scan the health of the economiesoutside London. For Cayman, the economic factors have been a majorconcern in influencing the economic decisions (Benady 2009, p. 78). Amajor factor also is that Cayman Islands are a major internationalfinancial centre hence acts as a major motivator for flying.

Key Business Links and Growth for Tourism

The area around Cayman Island is characterized by numerous touristattraction sites, Hotels and other sceneries. The various hotelsaround the area are renowned for providing directions to little knowndestinations and various landmarks. The hotels also help in securingreservations at the finest restaurants or even obtain tickets for themost exciting attractions.

Also, the area has numerous leisure centres that presents the modernstate-of-art leisure centre that has over 40 activities and sports onoffer, inclusive of 50metre climbing wall and swimming pools (Benady2009, p. 79).

Other hotels and tourist sites include the Southern Cross, CarribeanClub, Pirates Point Resort and Cotton Tree amongst others. Most ofthe sections at area comprises of the most beautiful national parks,South Downs with most of the Sussex countryside presenting a joy andbeauty to behold. The homes are stately elegant, colourful gardens,cultural connections and fairytale. The area is full of Bloomsburyartists and the intellectuals who have intertwined their loves andlives(Wensveen 2005, p. 90). In a normal weekend, most of the touristattractions in the area are open throughout the year.

The route maps for hotels and tourist attraction sites can easily beaccessed through the map guides that show opening times for theconvenience of the customers. The even guides can also be browsedover Internet. The tourist sites vary from those that can bepreferred by families, couples or even groups. For instance, QueenElizabeth Botanic Park is very ideal for family visits. The TinyLittle Cayman is a perfect place for solitude, extraordinary divingand tranquillity.

The area has wide range of racecourses and casinos where people canmeet dance or celebrate with families and friends. Almost every placein the area has numerous coffee shops, restaurants and bars designedin various styles cuisines and budgets. Also, the retail therapyfilled with flea markets provides a beautiful space to mooch aroundwith uncountable independent shops that are filled with clothing,nice things and gadgets (Wensveen 2005, p. 91).

Accommodation in the area is perfect. This implies that a day in thearea can be easily extended to the second, third or several days.Luckily, the area comprises of array of inns, B&ampBs, hotels andother types of accommodation that help one in extending the stay aswell as enhancing it.

If any person is willing to travel to Crawley, the immigrationstatistics may be vital. The statistics depict socio-economic factorsthat are worth comparing. The statistics are as shown below. CaymanIsland has an elaborate immigration department that handles all theissues related with immigration. This makes it easier for touristsand other non-Cayman natives to live and work in the area (Greene2011, pp. 68).

Current passenger flow and Trends

Rundate

Reporting_period

Airport_name

This_year_pax

This_year_total_pax_UK_airports

Last_year_pax

Last_year_total_pax_UK_airports

4/23/2015

201502

Heathrow

73,497,419

240,324,175

725,802,45

2.3E+08

4/23/2015

201502

Gatwick

38,383,069

240,324,175

35,732,151

2.3E+08

From the table above, Gatwick takes approximately 38,383,069passengers annually for all the airports in UK. From theintroduction, Gatwick airport have around 45 airlines operating fromit to over 200 destinations. Since Cayman is in UK and due to theincreased demand for tourism, leisure and financial development fromCayman, it can be estimated that a direct route to and from Gatwickwill have an approximately 10 percent of the passengers. This isequivalent to 3,838,069 passengers.

Passenger Trends in Gatwick

It can be seen that the period between 2012 and 2014 has beenexperiencing rise in the number of passengers. This implies thatthere is high likelihood of the number of passengers increasing from2015 onwards.

ASK, RSK and Load factor

In FY2013, the ASKs went up by 2.1 percent, the number of passengersup by 3.5% with the load factor increasing by 1.2 ppts to 78.7percent (Balmforth 2009, p. 34). This reflected the second successfulASK growth after the three previous annual decreases in capacity.This reflected a welcome return to the rise in the load factor trendsafter years of volatility. The load factor is approaching the AEAoverall average level that is 9.2 percent though it remains wellshort of AEA long-haul average of 82.9 percent. The high load factorsare the priority though the new domestic routes may be having thedilutive impacts.

According to the data from CAA, the FY2014 saw the growth in ASKs of1.8 percent with a load factor fall of 0.4 ppts. Nevertheless, it isanticipated that the ASKs will grow by approximately 2.4 percent inthe year ending February 2015 and increase in load factor by 0.8ppts.

Moving Averages

&nbsp

Gatwick

Gatwick-Cayman (Predicted 10 percent)

&nbspMoving Average

Year

Number of Passengers

Number of Passengers

&nbsp

2000

32,068,540

3206854

&nbsp

2001

31,181,770

3118177

&nbsp

2002

29,627,420

2962742

&nbsp

2003

30,005,260

3000526

&nbsp

2004

31,466,770

3146677

&nbsp

2005

32,775,695

3277570

&nbsp

2006

34,163,579

3416358

&nbsp

2007

35,216,113

3521611

&nbsp

2008

34,205,887

3420589

&nbsp

2009

32,392,520

3239252

3086995

2010

31,375,290

3137529

3101138

2011

33,674,264

3367426

3160774

2012

34,235,982

3423598

3272548

2013

35,444,206

3544421

3356561

2014

38,103,667

3810367

3375076

2015

&nbsp

&nbsp

3347068

2016

&nbsp

&nbsp

3337281

2017

&nbsp

&nbsp

3317679

2018

&nbsp

&nbsp

3342445

2019

&nbsp

&nbsp

3456668

2020

&nbsp

&nbsp

3536453

Cost Analysis

One of the major dimensions for competitive advantage in airlineindustry is the unit cost. A low unit cost results to increasedprofitability at low fares. Nevertheless, the unit costs tend to varybased on the length of the trip. Generally, costs involved inproducing seat-kilometre falls with the increase in average sectorlength since fixed costs are normally amortized based on increasedkilometre travel with variables like fuel costs becoming moreefficient as the length of the flight increases(Greene 2011, pp. 69).Plot of Cost per Available seat Kilometre (CASK) against the lengthof the sector allows a visual comparison of various airlines. This isshown in the figure below.

The figure above shows that the unit costs for Virgin Atlantic islower the other legacy carriers and since the average trip length islonger than any one of them, the unit cost is supposed to beconsiderably lower. The CASK for Virgin Atlantic is above the trendline meaning that the Virgin Atlantic is a cost-efficient operatorfor the ultra long-haul.

AircraftOperating Efficiencies 2014

Aircraft operating efficiency measures for Emirates, IAG and VirginAtlantic: 2012

&nbsp

Emirates

IAG

Virgin Atlantic

Ave of Emirates and IAG

Ave trip length km

4,788

3,223

7,194

4,006

Ave. daily departures per aircraft

2.2

3.2

1.5

3

Utilisation hours per day

13.55

12.2

13.73

13

Ave. seats per departure

309

155

333

232

Passengers carried per aircraft per day

548

397

392

473

Source: CAPA – Centre for Aviation analysis, Airline Monitor

An over-arching feature of Virgin airlines in the unit cost advantageagainst other European legacy carriers is the operating efficiencies.The long-haul business model applied by Virgin airlines is inherentlyefficient. This implies that each of the aircraft flies an annualtotal distance that is similar to those of IAG and Emirates. Onaverage, the Virgin Aircraft average seats per departure areapproximately 101 more than the average for Emirates and IAG. Also,the utilization hours per day are comparatively higher than theaverage of IAG and Emirates. Another major factor that makes VirginAirlines outstanding is the Average trip length per kilometre, whichis overwhelmingly higher that the average of AIG and Emirates(Wensveen 2005, p. 94).

The high number of seats per departure reflects the wide body-onlyfleet strategy used by Virgin Airlines that contributes to its unitcost advantage against Emirates and IAG. This affects all the costcategories and reflects a factor that is more crucial than the‘unfair subsidies’.

Conclusion

From the analysis, it can be seen that Virgin Atlantic is idealthrough route for flights between Gatwick and Cayman Islands. Thebusiness environment along the Virgin Atlantic route seems to beproductive with numerous tourist attraction sites, hotels andrestaurants and rich cultural integration due to high-levelimmigration. While evaluating the demographic segment, the mean ageis approximately 41 years for all the areas along the Virgin AirlineRoutes. The immigration greatly influences the ethnic mix. As such,Virgin has extremely high number of immigrants. This means that thearea is ethnically sensitive and responsive as a destination fordifferent communities. This is especially critical since the ethnicmix in UK has been changing significantly.

The area long the virgin airline route is characterized by numeroushotels, restaurants and tourist attraction sites. Some of therenowned hotels and tourist attraction sites make the area idealdestination for various communities.

From the analysis of the current passenger flow it was clear that thetwo ends Gatwick and Virgin have experienced increased passengerturnover since 2011 to date. The forecasting of these values presentsan increment in trends reflecting the increase in number ofpassengers over the years. This is an indication that the route isperfect in terms of increased profitability with increase inpassenger turnover.

The evaluation on the number of connectors revealed that Heathrow hadbeen having the highest number of connections in thousands. Thisindicates that Virgin Atlantic will be an ideal connector of the longhaul between Gatwick and Cayman Island. Since Heathrow had thehighest number of connections, the airline routes via Virgin Atlanticneed not be direct but can use other hubs. However, from theanalysis, Gatwick has very high number of passengers meaning that itwould be more profitable to use the direct route rather than useother hubs.

The analysis of costs revealed that Virgin Atlantic is profitable interms of CASK, airline operating efficiencies and labour productivity(Greene 2011, pp. 65).

Therefore, it is evident that Virgin Airline will serve the purposeas the most ideal route for the long haul between Gatwick and CaymanIslands.

Reference list

Alamdari, F, and Simon, F. (2005). Impact of the Adherence to theOriginal Low‐cost Model onthe Profitability of Low‐costAirlines. Transport Reviews 25(3), pp. 377-92.

Balmforth, J. (2009). Virgin Atlantic. Hersham: Midland.

Benady, D. (2009). Trouble in the Air for Virgin (airlines).Strategic Direction 25(3).

Commercial Aviation: (2004). Legacy Airlines Must FurtherReduce Costs to Restore Profitability: Report to CongressionalCommittees. Washington, D.C.: U.S. Government Accountability Office.

Conklin, D.W. (2006). Cases in the Environment of Business:International Perspectives. Thousand Oaks: Sage Publications.

The Feasibility of Maintaining Regional Airline Access toCongested European Airports. (2009). N.P.: Cranfield U.

Ferguson, J. (2012). A Methodology for Evaluating Economic andPolicy Impacts on Airline and Passenger Behaviour.

Greene, J. (2011). Design Is How It Works: How the SmartestCompanies Turn Products into Icons. London: Portfolio Penguin

Macleod, D. J, Harding, C. and Matthews, S. (1990). Discussion. TrackTransit System, Gatwick Airport. ICE Proceedings 88 (4), pp.715-16

O`Connell, John, F., and George, W. (2011). Air Transport in the21st Century: Key Strategic Developments. Farnham, Surrey,England: Ashgate.

Wensveen, J. G. (2005). Wheels Up: Airline Business PlanDevelopment. Belmont, CA: Thomson/Brooks-Cole.

Appendix

Moving Averages

Moving Average, y = a (1+b^t)

Where a – passenger number, b – growth (5% – 0.05) from where you are flying t – time in years where you are starting from

&nbsp

Gatwick

Gatwick-Cayman (Predicted 10 percent)

&nbspMoving Average

Year

Number of Passengers

Number of Passengers

&nbsp

2000

32,068,540

3206854

&nbsp

2001

31,181,770

3118177

&nbsp

2002

29,627,420

2962742

&nbsp

2003

30,005,260

3000526

&nbsp

2004

31,466,770

3146677

&nbsp

2005

32,775,695

3277570

&nbsp

2006

34,163,579

3416358

&nbsp

2007

35,216,113

3521611

&nbsp

2008

34,205,887

3420589

&nbsp

2009

32,392,520

3239252

3086995

2010

31,375,290

3137529

3101138

2011

33,674,264

3367426

3160774

2012

34,235,982

3423598

3272548

2013

35,444,206

3544421

3356561

2014

38,103,667

3810367

3375076

2015

&nbsp

&nbsp

3347068

2016

&nbsp

&nbsp

3337281

2017

&nbsp

&nbsp

3317679

2018

&nbsp

&nbsp

3342445

2019

&nbsp

&nbsp

3456668

2020

&nbsp

&nbsp

3536453