7/10/2014

Airline
Introduction

Airline Learning Objectives

Airline Learning Objectives

Airline provides the opportunity to:

Strategy Formulation:

Experience strategy formulation and implementation in a dynamic

environment.
Learn about group and organizational processes.
Understand the financial implications of operational, marketing and
management decisions.
Improve decision-making skills under ambiguous circumstances and
time pressure (not easy!)
Experience the fun and challenges of running a business.

How will you meet your objectives?

Requires that you understand your company and environment.
Set measurable goals and objectives that are aligned with the
vision and mission of the organization.
INTERNAL ANALYSIS
STRATEGY
(How the firm intends to
meet its objectives)
EXTERNAL ANALYSIS

VISION AND MISSION

(Purpose of organization)

GOALS AND OBJECTIVES

(Measurable)

7/10/2014

The Airline process

Startup Decision

Your team will enter decisions each period.

Naming your airline:

You will be managing a regional airline that will be competing with up

to a maximum of 12 other teams in your industry.
At startup, your team leader will enter and finalize a business name.
After the startup decision is finalized, your team will then enter its first
set of quarterly decisions.
Your instructor will advance the simulation according to a schedule
that he/she has established for your class.
The simulation will be run for a set number of periods.

One of the most important decisions.

Descriptive? Pony Express vs. Trans-Continent Airlines
Service? Luxury Air vs. DWT Air
Is the name Distinctive / Catchy / Memorable?
Restrictive? Paris Airlines vs. Air France?

In Airline, your airline will be referenced in two ways:

First, by company number (e.g. 1-12) which never changes.
Second, by the name you give it.

Let's begin
5

Decisions Menu

Importance of Strategic Alignment

In this computer simulation, you will make decisions in the areas of:

Strategic Decisions:

Fares
Marketing
Compensation
Fleet

Routes
Corporate
Financing
Special/Incidents

Price Positioning (Discount, Normal, Luxury)

Route Expansion / Contraction
Fleet Acquisitions / Financing
Business Definition ("Who are we?")

Operational Decisions:
Price point, service levels, marketing
decisions, fuel, maintenance,
compensation, corporate, etc.
In alignment with strategic choice

To succeed in Airline, your team must

make good strategic and operational decisions.

("Given who we are, how can we do it better?")

7/10/2014

Fares & Service Decisions

Marketing Decisions

Three Decisions:

Advertising and Promotion Budgets

Media, target markets, type: all selected based on your

Price Positioning (Discount, Normal, Luxury)

Exact Fare within that positioning

route / fare decisions

More important when entering new markets / routes?

Note, price is an overall price per mile that applies to all your routes

In-Flight magazine

Cabin / Food Service Level

Cost $500 / aircraft per quarter

Several choices from none to meal service, drinks, hors doeuvres

Salespeople
Call on travel agents to expand presence
$12,000 per quarter, plus $3,000 one-time hiring cost

Consider:
Impact on overall revenue / load rate?
Impact on costs?
Alignment with your strategy?

Cargo Marketing Budget

$10,000 minimum per quarter, additional goes into sales
reps and cargo advertising

Takes 2-3 quarters to establish a presence

9

10

Compensation Decisions

Fleet Decisions

Three Decisions:

Three Decisions:

Training Budget
Compensation Plan and Wage Increase

Maintenance: Standard, Mid-level, High

Fuel: 100% Spot, 50/50, or 100% Contract
Aircraft: Acquire (buy or lease) or Dispose of (sell or discontinue lease)

Consider:
Impact on service and efficiency of
operations.
Setting of expectations for the future (are
increases sustainable?)
Once a quality program is started, it should
be continued indefinitely.
Stock bonuses cost approximately $5000 per
aircraft per quarter and shares outstanding
will also increase.
11

Aircraft Type / Name

Cost
(M)

Seats

MPH

Cabin
Class

Type

Lease

Notes

Beechcraft 1900
(own 3)

$ 2.0

19

268

No

propjet

80,000

min. headroom; no toilet; does not require flight attendant

British Aero 31

$ 2.2

18

253

Yes

propjet

82,000

standing room; toilet; does not require flight attendant

Embraer Brasilia

$ 3.1

30

294

Yes

propjet

132,000

standing room; toilet; requires flight attendant

Saab 340

$ 3.4

34

272

Yes

propjet

144,000

standing room; toilet; requires flight attendant

Canadair ERJ135

$ 4.3

37

400

Yes

jet

184,000

standing room; toilet; requires flight attendant

Aerospatiale ATR42

$ 4.4

46

300

Yes

propjet

185,000

standing room; toilet; requires flight attendant

Canadair ERJ145

$ 5.8

50

450

Yes

jet

240,000

standing room; toilet; requires flight attendant

12

7/10/2014

Routes Decisions

Financing Decisions

Expand or contract markets / routes

Financing options are primarily concerned with making sure

you have sufficient cash to manage your operations, or if you
have excess cash, what to do with it.

# of routes available depends on # of competitors

Expand or contract flights / day per route

Optionally offer fare sales by route, to vary price by route

Preliminary scheduling of aircraft

Additional Sources of Cash:

Do you have sufficient capacity to serve your markets/routes?

Short and long-term loans, selling stock

If insufficient cash, automatic overdraft (2x interest rate)

Market
Type

R-T
Miles

Description

600

From your mini-hub to a medium city with light manufacturing and service businesses.

400

Service between two medium cities; one with a large number of service businesses, other with a military
base.

340

From you mini-hub to a regional hub with a large number of manufacturing firms.

360

From your mini-hub to a medium city with major university & extensive services. Halfway stop at small
growing tech. cluster.

400

From your mini-hub to a medium city with a new and growing industrial park.

420

From your mini-hub to a foreign city not too far from the border with diversified industry and tourist trade.

600

From your mini-hub to major resort/recreation area.

Additional Uses of Cash:

Dividends and CDs

13

14

Special Decisions

Analysis Menu

Examples of some special decisions that

may become available:

The Analysis menu contains

the following tools:

Diversification
Hiring Practices
Safety Issues

Market Profitability
Aircraft Scheduling
Financial Analysis

Dual Designation
Purchasing Policies
Distribution Channels...and more

Full incident descriptions are

presented in both video &
text formats.

Your projected Passenger

Load% is displayed here.

15

16

7/10/2014

Company Menu

Industry Menu

Each quarter, the following company reports*

will be updated:

Dont forget to read the Newsletter

and purchase Industry Research reports*

Income Statement
Balance Sheet
Cash Flow

Operating Statistics *
Demand Forecast $
Compensation $

Operations
Sales Report
Fleet Status

Fares $
Sales $
Marketing $

* Operating Statistics report is free; others must be purchased

*Use these reports when making your decisions.

17

Airline Logistics

Organizational Considerations
Team Organization:

Opportunity for you to experience organizational

challenges personalities, roles, integration, conflicting

goals and opinions, etc.

One possible approach is shown below, but up to

your team to decide.
SUGGESTED DUTIES FOR TEAM MEMBERS
President

18

Overall coordination, encouragement, peacemaker, strategic planning; sets lead times, and assures that deadlines are met.
Reviews financial ratios for insights for opportunities for improvement.

Vice-President
of Finance

Financial analysis & control; managing cash flow, lease/purchase analysis; fuel purchase (spot or contract) and financial decisions
(loans/CD's).

Vice-President
of Marketing

Recommends marketing budget and fares, cabin service, research studies; analyzes strategies of competitors. Researches new
route opportunities and expansion or contraction of current routes, potentially working with the VP of Operations.

Vice-President
of Human
Resources

Recommends compensation, quality and training budgets, crew training and retention; tracks reliability trends. Works with the VP
of Operations to review.

Vice-President
of Operations

Analyzes all markets and service to those markets for potential improvements in efficiency; makes recommendations to changes in
existing routes. Recommends aircraft procurement and disposal. Maintenance level and fuel purchases.

19

All decisions are saved on the server, so you must be

online.
Everyone on the same team shares ONE decision
file, so when one person makes a change, the whole
team makes that change. In addition, when one
team member purchases a report, the whole team
purchases the report. In other words, organize your
decision process!
Please print out decision summary for your
reference.
Decisions must be completed on time.
Results will be available according to schedule.

20

7/10/2014

Final Considerations
Your strategy drives your decisionsmake sure you
have one!
Focus on how to best serve your customers through a
total offering operations, service, marketing, and
price
Importance of team organization HR
Use the research and tools for insights
Manage your margins understand financial
implications of decisions.
Understand fixed and variable costs
Long term vs. short term
How best to finance fleet acquisitions

Try new approaches apply concepts experiment

have fun!

21