Business Report
The report on Virgin Trains reviews the company’s core business segments and its future competitive advantage as a leader in UK rail transport franchise. A major private partner and investor in Britain’s rail transport infrastructure, the Virgin Group and its wholly owned subsidiary Virgin Trains in partnership with the UK Government, regional and municipal transport oversight and its stakeholder entity, Stagecoach (49%) controls much of the nation’s commercial rail franchise, including scheduled delivery of services to North Wales and Scotland.
The foregoing Porter’s competitive analysis of Virgin Trains’ offers insights in consumer and investor confidence in the brand’s current market monopoly in the UK, and its potential as a force in emerging market rail transport franchise. Regulation and rail franchising guidelines to the expansion of Britain’s transport capacity in coordination with private partners contributes to the study.
Virgin Trains, the United Kingdom’s rail transportation company owned and operated by Virgin Group and Stagecoach has provided service to passengers by way of the InterCity West Coast franchise since 1997 (Stagecoach 2013, Virgin Trains 2013). Virgin Trains also operates the nation’s long distance passenger services on the West Coast Main Line between London, Wales and Scotland (Virgin Trains 2013).
The public CrossCountry rail franchise contract was awarded in 1996, operating InterCity/Express services across the mainland UK. Two years later the rail contract resulted in competitor, Stagecoach purchase of a 49% of the company’s shares. In 2005 Virgin introduced its first 125 mph train timetable, followed by the rollout of the its Very High Frequency timetable upgrade of the UK’s West Coast Main Line schedule (Virgin Trains 2013). By 2000 Virgin Trains launched its first 140 mph tilting Pendolino train (Virgin 2013).
Virgin’s reputation as a lead global investment group and recognised brand in a number of market segments, including rail transport is the outcome of Sir Richard Branson’s vision for a world advanced by technology. The Virgin Group’s initiation as a record selling and music producing business in the 1970s has grown to a virtual empire of products and services across communications, financial services, health and wellness, music and travel. The company currently employs a near 50,000 dedicated staff in thirty four countries who contribute to the equity and value of the global brand and its revenues. In 2011, the Virgin Group’s total reported earnings were approximately £13bn (USD $21bn) (Virgin 2013).
Social responsibility is a significant measure attributing “value for money, quality, innovation, fun and a sense of competitive challenge” to the Virgin Group’s continuous performance model (Virgin 2013). Core business forces to solving resource problems begins in the UK with the company’s commitment to programmes and campaigns surrounding climate change, conservation, economic empowerment and health issues.
The organisational culture behind the Virgin brand’s presence as a global force in capitalisation is generated by way of investor networking and a change management focus in step with Richard Branson’s personal style of conducting business and the ‘commonwealth’ of shared ideas, interests, goals and values (Virgin 2013). The obligation to Virgin staff ensures sustainability in all working operations, and this includes the success of the Virgin Train venture into the future.
Passenger service at Virgin Trains is one example of the company’s approach to value added partnership with all stakeholders. Knowledge sharing and skills collaboration are key mechanisms to Virgin partnerships, with operational expertise at the forefront of the company’s success in public-private partnership in the transportation sector. One of the most experienced train companies in the history of the UK, the expansion of the Virgin Train franchise is consistent with the Group’s strategic growth approach to a sustainable planet.
Porter’s Competitive Analysis
Virgin Trains employs a competitive model that reflects Differentiation Strategy with it products and services concentrating on the High End, Traditional, and Low End segments. Due to the public infrastructure franchise of the company’s operations as the service provider of the UK’s commercial rain transport, there is very little competition. New market positioning of the rail company’s products and services in a new franchise market would require additional strategic analysis to assess projected performance.
This may include emerging markets such as India in the future. According to Porter (1980), emerging markets are affected by a variety of competitive forces; not all consistent with those found in developed economies. Government policy is an important driver to the success of the rail business in any market. Virgin Trains is beholden to UK Government Department for Transport rules and regulations as well as a host of other consumer and safety regulations.
Threats to Virgin’s leadership in the UK’s commercial rail market are constrained by national transport contract, and by the London Commission for Connectivity (2010) recommendations for meeting market demand (London Commission for Connectivity 2010). Porter’s competitive analysis of Virgin’s potential outside of the UK market is guided by six (6) barriers to entry competencies (Table 2).
The intensity of rivalry between Virgin Trains and its competitors in the public rail transport segment is low. In spite of the vast demand, Virgin Trains holds a virtual monopoly on standard business unit distribution and market expansion in the UK rail transport market. With Stagecoach participation as a voting shareholder, there is little pressure from substitute products or services at this time.
Bargaining power of buyers and suppliers is significant. Volume purchases will be a “particularly potent force [where] heavy fixed costs characterize the industry” raising the stakes for competitors exhibiting less liquidity to build and retain capacity (Porter 1980, p. 24). Suppliers also exert bargaining power over cost and service on transaction services contracts. Regulatory control of activities and taxation/tariffs adding full cost to Virgin Train operations will have much to do with the future of the company’s ability to capitalise on franchising.
Consumer association of the Virgin brand with its partner, Stagecoach supports a narrow market segment, yet is essential to investor confidence. Analysis of the Virgin Trains value chain offers blueprint to benchmark performance modeling of the Company’s activities. Isolation of product segment leadership from the position of both operations and cost to end point service delivery contributes to the company’s competitive advantage. Business activities and supply chain processes are part of the scope of value chain operations; defined by profitability, customer service and rail schedule performance.
Virgin’s position in the consumer rail market in Britain has been advanced through the exploitation of ‘change’ as both a concept, and as a technological end point value in service and maintenance. Continued leadership in the UK’s public rail sector will be reliant on the company’s growth model. Potential opportunities in foreign franchise of Virgin Trains in emerging markets will be subject to the barriers reviewed in the Porter’s competitive analysis.
Virgin Trains capacity building strategy is one of diversification and franchise expansion, but is also limited by public infrastructure contract, and competitor substitution of at time of contract renewal. The company’s competitive advantage is primarily sourced in supply chain management and brand identity as a fast moving company with a high level of technological integration at all levels of operations. This includes consumer products in music and other rail service gratuities expected for the price of a ticket.
Performance Model
The performance model deployed by Virgin Trains is based on a continuous 4-week assessment period, and flexible model of incremental decision designed to conform to the company’s goals and objectives in operations, service and financial results. The company’s Public Performance Measure (PPM) “combines punctuality and reliability into a single performance measure” (Virgin Trains 2013).
The PPM measures the individual performance by Virgin Trains in according to scheduled timetable. Punctuality is value and is expressed as proportionally in relation to number of 'on time' arrivals in comparison with other trains in the group. The definition of ‘on time’ within PPM calculations is computed according to train arrival within a 10 minute (i.e. -9 minutes and 59 seconds). Reliability in testing is assured by measure of the percentage of trains cancelled or not able to complete scheduled. Additional inspection criteria inform PPM reporting; conducted for quality assurance in nine operational areas (Table 1).
Customer Equity
Excellence in service at Virgin Trains is outlined in the company’s Passenger's Charter. The Charter defines the organisation’s commitment to ‘safe, high quality service’ (Virgin Trains 2013). Customers “have the right to expect”: 1) reliable and punctual train arrivals; 2) hygienic and safe carriages and stations; 3) a Virgin Customer Service team member offering assistance to passengers; 4) refreshment service on longer distance trains; and 5) advanced seat reservations (Virgin Trains 2013).
Social Responsibility
Part of the Virgin Group’s social responsibility platform, the Virgin Train strategic programme of environmental and sustainable transport is a leader in the UK’s transformation as an emissions reduction market invested in creating global impact by way of “carbon emissions to air quality, and affordability to security” (Virgin Trains 2013). Signatory to the Kyoto Protocol, the UK is invested in minimising global greenhouse gas (GHG) emissions through reduction of coal and oil burning transport.
Virgin Trains participation as a public transportation partner adds value to the overall influence of the company as a social responsibility leader. Driven to “solve problems and deliver innovative solutions” Virgin’s sustainability approach includes: rail improvement activities to reduce the carbon footprint of transport while increasing energy efficiency; sustainable stations; safety and security provisions; waste and recycling targets; and employee engagement and empowerment programmes in service to the community (Virgin Trains 2013).
Strategic Growth Prospectus
In 2011, the London’s Connectivity Commission published its report on ‘London, Britain and the world: Transport links for economic growth’ to establish framework to franchise of rail transport (London Connectivity Commission 2011). The Commission’s hearings on detailed discussions with members and stakeholders involved in the UK’s economic and air, rail and road transport process sought the conditions to improve the nation’s infrastructure to meet the growing demand of the population and to overcome risk resultant from overcrowding of those public resources (London Connectivity Commission 2011).
Private participants in the process are important to the future of Britain’s competitiveness in attracting foreign direct investment (FDI), and for sustainable labour development. Virgin Trains is a key stakeholder in this process as London increases capacity in sustained investment in the regional rail network, as well as long distance rail links. International rail link growth is at present constrained by cross-jurisdiction connection limits (London Commission on Connectivity 2011).
Conclusion
Summary of Virgin Trains competitive strategy for rail transport growth in the report is defined by franchise opportunities offered in public sector tender bid. The activities of Virgin Trains as part of Britain’s rail infrastructure is one characterised by market maturity and sector evolution in technological and financial factors significant to sustained growth in the segment. Virgin Trains current contract to run the West Coast line of the country’s rail system follows the decision by the Department for Transport to deny previously awarded rail franchise to First Group (BBC News 2013). The company is pursuant of the nation’s East Coast line at this time.
When Richard Branson first envisioned Virgin Trains, the potential for a new market system of rail transport was just emerging. The transformation of the company as part of the Virgin Group and its escapades in transport, including privateering in the space rocket and satellite sectors has furthered the brand presence and efficacy of the rail organisation’s role as a market leader and social force.
The future of British rail franchise is of keen interest to the UK Government, as the country looks to neighbouring, developed and emerging markets for potential expansion (Burns 2013). ‘The Brown Review of the Rail Franchising Programme’ (2013) presented to Parliament by the Secretary of State for Transport by Command of Her Majesty is prefaces this decision (UK Government 2013).
Virgin Trains promises perhaps the most competitive advantage in the consumer rail transport segment and also offers the experience in public-private partnerships in one of the world’s finest rail markets. The sustainable strategies deployed by Virgin Trains support progressive international regulation aligned with environmental legislation currently underway abroad. At the forefront of this trend in deeper carbon and risk management regulation, Virgin is equipped to respond to near and far future challenges.
References
Burns, Simon MP, 2013. Rail franchising is not broken, it just needs an injection of new thinking. The Telegraph 24 April 2013. Available at: http://www.telegraph.co.uk/finance/newsbysector/transport/10013563/Rail-franchising-is-not-broken-it-just-needs-an-injection-of-new-thinking.html
London Connectivity Commission, 2011. Available at: http://londonfirst.co.uk/wp-content/uploads/2012/09/London_First_Connectivity_Commission_report3.pdf
Porter, Michael, 1980. Competitive Strategy. New York: Free Press.
Rail Franchise Bids, 2013. Stagecoach. Available at: http://www.stagecoach.com/about/our-companies/rail-franchise-bids.aspx
‘Rail Franchising: Ministers to Restart’, 2013. BBC News. Available at: http://www.bbc.co.uk/news/uk-21933080
Transport Scotland, 2013. ‘Rail Franchise’. Available at: http://www.transportscotland.gov.uk/rail/rail-franchise
Virgin, 2013. Available at: http://www.virgin.co.uk
Virgin Trains, 2013. Available at: http://virgintrains.co.uk/
UK Government, 2013. ‘Rail Franchise Schedule’. Available at: https://www.gov.uk/government/publications/rail-franchise-schedule
UK Government, 2013. The Brown Review of the Rail Franchising Programme. Available at: http://www.official-documents.gov.uk/document/cm85/8526/8526.pdf
UK National Statistics, 2013. Topic Guide: Rail. Available at: http://www.stagecoach.com/about/our-companies/rail-franchise-bids.aspx
