Airline Report.docx

Corporate Success As we start off the simulation in quarter 0, our reliability is set at 92, quality at 68 and stock price at $20.00. With three total aircrafts, our net income is at $22,234 and revenue at $1,490,761. In making a strategy and further decisions, our main focus was to increase these numbers so that the company will be in a better position for future success. We were able to make slight increases on each category during the first quarter. In this same quarter, we also leased a Beechcraft 1900 and purchased a Saab 340 which plummeted our net income to $-95,577 in the second quarter because of these investments. With the drop in net income, investors did not purchase stock which resulted in a drop of stock price. We kept a total of five planes for the third and fourth quarters. After increasing our net income in the third quarter and then dropping once again in the fourth quarter, we decided to end our lease on the Saab 340. We saw success with our current planes which brought our income up to $296,319. We then decided to purchase one more Saab 340 and added additional routes to our scheduled offers. By doing this, we were able to steadily and continuously increase our numbers in all categories leaving our company, “Time Flies” with a reliability of 99.2, quality of 99, net income of $303,366 and cumulative net income of $1,924,555. Our stock price at this time was at $40.55 and revenues were $3,849,362. At this point, we were in a much better position than we started out with by doubling our revenues, net income, stock price and cumulative net income (see appendix A). This gives us the opportunity to expand our company into even more

routes and continuously grow at a steady rate showing dependable success to our customers. The evident increase in our company value provides us with secured interest from investors.

Strategy Our corporate strategy from the beginning was to institute a process where we could decide what the three major attributes of our airline were and where we wanted to focus our resources. We were informed at the beginning of the airline simulation that we were all starting out as equal businesses with the same start-up capital which established a nice baseline for us all to develop as we saw fit. Our team wanted to establish our airline as a leading competitor in the airline industry that had a sustainable cash flow which would allow us to keep our operations and mechanical maintenance processes above average standards. This would enable us to earn the trust and respect from our market base while maintaining a quality product and service that potential clients would find attractive. Accountability, teamwork, and a positive image were what we wanted our airline to stand for and our decisions were centered on those three focuses. The first decision on our agenda in becoming a competitive airline in the industry was to have a conservative airline fare, allowing for a modest level of accommodation without having to spend too much money on a ticket. Along with low cost fares we offered customers free beverages to help their experience with Time Flies be a more pleasant trip. Free beverages are a simple addition but seem to make passengers feel more at ease during the trip and make them want to be a repeat customer. The second

decision we made was to invest capital into the promotions and advertising for our airlines to guide its future growth and gain an early competitive advantage. Since all the airlines started at the same level, we wanted to get our name out there and generate as much media presence early on as possible. The third decision that was made was to compensate all workers evenly with a small increase in salary and stock bonuses. Our team assumed this type of pay compensation strategy would instill positive behavior, that employees would be motivated, and that a certain level of job satisfaction would be achieved through the increase in pay across the board. The fourth decision was to decide what type of airplanes we wanted to use with the routes we have available to us. We chose to focus the placement of bigger planes with larger routes (distance traveled) and smaller planes with shorter routes. “Accountability” was deemed the term we wanted our customers to use when speaking of our airline because of the fair prices and positive airline staff to assist with their needs and wants. The last decision was to hold off on expensive expansion projects and taking out loans, we instead used our initial startup capital and waited to see how our first couple quarters went.

Knowledge Growth There are many definitions of success and different ways that it can be measured, so we chose to define our success as making continual improvements and responding quickly to situations that could potentially threaten our goals. Throughout the simulation there were many contributing factors to our success but our main ones fell into the categories of adaptability, quality control, and establishing a strong media presence using an aggressive marketing and advertising campaign. When unforeseen

issues did occur, (such as unscheduled maintenance or inspections,) our airline’s accountability and quick response allowed it to rectify the issues and prevent them from happening in the future. Initially, we did not allocate many resources to our quality and training budget, and as a result suffered multiple fines and quality-related issues such as plane failure. The ensuing negative backlash from the media and market base caused us to rethink our policies and implement controls to prevent them from happening again. We quickly determined this was our priority and quality was necessary to the survival of our business. Our high investment in marketing and advertising helped us to be successful in the long run but only really showed gains when we finally got quality and reliability under control. Without those, the significant amount of resources invested into marketing and advertising seemed to actually harm the company; perhaps it seemed like we were trying to cover up safety issues by throwing money at our advertisers to change public opinion. Once we were able to cement our foundation as a reliable airline with reasonable prices with the general public, our marketing and advertising efforts, coupled with our increased donations to charitable causes, increased public attention. This allowed us to sell stock in the company and use that capital to expand our business ventures. As mentioned previously, our team was at a loss for where to start when the simulation first began. For many of us this was the first time we had to make any decisions regarding capital allocation for budgets, inventory, expenses, etc. Although we knew that our goal was to make a profit, the steps themselves were unclear and it seemed that we had so many options to tinker with. We could not really comprehend the long-term results of the decisions that we had made, so we simply hoped for the

best. We purchased some planes and assigned them to routes without taking into consideration the lack of seat fill on other routes and our ability to leverage them instead of purchasing more planes. In later quarters upon inspection of why we had such a high negative net profit, we were able to determine that we were wasting valuable resources (seats and available flight miles) on routes that were only filling to 30% capacity. We realized that instead of trying to increase our capacity, we need to maximize use of existing resources so that we would not waste capital on investments that were not generating profit for the airline. Along the same lines, we started to push our airlines to utilize their maximum total daily miles but calculated the mileage incorrectly. This mistake cost us over $10,000 in fines so we quickly learned to double check the calculations to prevent future violations. Another relationship we discovered was between stocks sold in the present time to potential stock sold in the future. We initially started selling stock as a way to raise money but quickly realized we could capitalize on our increases in stock prices by offering dividends to current stockholders which also incentivized other potential buyers. This strategy allowed us to steadily raise capital through stock sales as well as develop a loyal following of customers, both external and internal. However, the most interesting relationship our airline witnessed had to be in regards to marketing and advertising. Throughout our simulation, we continuously increased our marketing and advertising budget as well as our charitable donations and consequently were the focus of many magazine and newspaper awards and criticisms. It seemed when the press was favorable we saw great gains in stock price and net profit; however when it was negative stock prices plummeted and net profit decreased. The aggressive marketing and advertising campaign definitely worked in our favor, but

only when we had potential safety issues under control thus preventing negative press. It would appear that the companies that are in the public eye definitely attract more attention, both negative and positive attention. Our team was able to get a firm grasp on running our airline with a focus on accountability, teamwork, and positive media attention. However, some concepts remained slightly confusing and we were not able to determine how to approach them. The biggest issue we had during the entire simulation was determining which routes to add onto our flight schedule. Although we were given information about how each letter represented a route equidistant to other routes with that same letter we were never able to determine which were more accessible, under/over served, or had no flights servicing it currently. This lack of understanding of one of the key fundamentals to running an airline definitely impacted our company and ultimately, our accumulated net profits. Without being able to identify new opportunities for growth and calculate the cost of entering into different markets, we were less likely to expand into different areas namely because we had no clue what we would be getting ourselves into. Our team believes that if we had been able to analyze the route structure and options more thoroughly we would have been able to capitalize on route opportunities and generate even more market share and profit for us and our stakeholders. We also never used any of the available reports for purchase that would have allowed us to compare our ratings/decisions with those of our competitors. It was not due to a lack of understanding of the benefit of being able to compare ourselves to other airlines; we merely thought it was an unnecessary cost for our business. We strived to measure our success not relative to other companies, but in reference to continual and steadily

increasing stock prices, market share, and profit. Looking back however, we probably would have been able to learn more about our decisions by observing other companies and the results of their actions and applied it to our business. This in turn would most likely have allowed us to become even more efficient and lower our costs even further while allowing us to allocate resources to areas that other airlines are lacking in.

Teamwork For every decision we made, we would take the time to look over the reports from the previous decision. Getting an idea of what decisions we made that ended up being a good choice as well as which decisions were not as beneficial to the company, coupled with getting an idea of what the other airline companies were doing at the time, helped us to develop a game plan for the next decision we had to make. For decision number one, we had to just do what felt right since we had nothing to really look back on to support our choices. However, for the remainder of the simulation it was very helpful to be able to look at the past performance of our company to be able to see exact places so that we could make more educated decisions. Before making our next decision, we would also read any messages we had for that round. This was a necessary part of the simulation that we would use to try to keep our company out of avoidable trouble. For example, for one decision round we learned through our messages that our workers were threatening to unionize. With this information at hand, we decided it would be best to increase their wages to keep them happy and also so we would avoid any negative attention from the media that could ensue.

Once we got more comfortable with our decisions and how the simulation worked, we felt more confident in what we needed to be doing for our company and this is when we began to see improvements in our overall quality. If we had the opportunity to start the game over from the beginning we would have stayed more on top of our decisions in the early rounds. We were missing opportunities that could have been beneficial to our overall success. While our company did well in the long run, these changes still could have greatly affected our outcome. While not every decision we made ended up being exactly the right move, looking back, our team had a very good strategy overall, so that is something we would keep in large part the same if we had the opportunity to do it all again.

Real World Implications In the real world, it is important to have a plan before venturing out into any business. We began confused and without a plan. We knew our goal was to make money and we had a strategy, however, we did not know how to go about it. For instance, we wanted to position “Time Flies” as a reliable, safe airline to travel with. However, in the first few quarters we did not use our budget to ensure maintenance was at its best and received negative media coverage. We also lost an early advantage in the beginning by not planning our routes and schedules efficiently in the beginning. It is equally important to try to prevent negative things from happening whenever possible. Although we made considerable gains in stock prices and net income, our stock prices were not as high as that of many of our competitors. This may be attributed to negative media coverage and a low reliability ranking in the beginning. Once a customer is lost,

they may never return, especially in the airline industry where safety is a matter of life or death. It is important to do the right thing and to do it well. For example, when we received negative media coverage, we wasted thousands of dollars increasing our marketing and promotions budgets by large amounts and barely increasing maintenance. From this, we learned we should always fix the root of the problem instead of trying to mask it. When bad or unexpected things happen, managers need to be adaptable. We were able to adapt well when we were losing money due to bad decisions on the routes. We recognized when we needed to eliminate a route and sometimes it is necessary to take risks. We ventured into new markets and this paid off sometimes and other times we had to eliminate a new route. We experimented with different models and leased them until we discovered whether or not the new plane was a good investment. Taking risks and being able to adapt to the outcomes allows any business to gain advantages that other competitors lose out on. Most important is teamwork, no business can prosper without it. Everyone has something to bring to the table which is why we implemented everyone’s ideas; some worked, some did not. It is important to try everything; if it does not work you know not to do it again. This makes a company more adaptable because there are multiple theories being contributed to the company strategy.