In this simulation you chose a sector to operate in (budget, mid-range or luxury). What have you learned about these sectors as a result of your experience in this simulation? What would you have done differently at the beginning of the simulation and why? What would you have done differently to be more successful during the simulation and why?”
In this sector we operated as Emirates Airlines in mid-range as a view that there is a huge population in the sector and even if circumstances favours even budget and luxury passengers would opt for mid-range. In this sense during the start we sold 3 flights which we had as it doesn’t had head room and toilets and leased three flights for the operation. We started 1st quarter selling tickets for 35 cents and it’s a mistake that we changed to luxury airline selling for 48 cents right after the 1st quarter. As this would have changed our target customer and all the operation should also been changed accordingly. We incurred heavy expenses on Promotion and advertisement which hadn’t created any impact. There were complaints from customer for poor food services which we realised and started allocating cost for quality and services. High concentration would have been made on maintenance and market research which is the important factor in competitive industry like Airline.
There are certain factors which can be focused and done differently at the beginning of the stimulation:
Strategic Approach: we did not have any strategic approach when we started our simulation. And that is the reason we had made unreasonable decisions like shift to luxury and sales of aircraft. if we had a strategic approach we would have sold the flights when there is huge profit and avoided lease payment to be added in the expenses. Also we would have shifted to luxury at least after the 4th quarter when we had a good customer base and market. Hence instead of having a single strategy, it would have been better if we had followed a mixture of strategies in terms of pricing, marketing and services.
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Systematic Approach: there is no systematic approach at the beginning of the simulation. We blindly sold the flights without ascertaining the financial position and brought new flights during 6th quarter which we wrongly numbered and resulted in the purchase of another 3 flights when the company is already in a loss and thereby realised and sold a flight at 7th quarter. The fuel, flight operation and maintenance cost got drastic increase and because of the increase in the number of passengers we did not suffer huge loss. Hence if we had a systematic approach from the beginning we would have reached a good profit.
Pricing: A price cue is defined as any marketing tactic used to persuade customers that prices offer good value compared to competitors’ prices, past prices or future prices (Rao, 2010: 150); at first we sold the tickets for 35 cents as mid-range airline and suddenly hiked the price to 48cents as luxury airline. We did not have idea about the impact and did not take steps to offer service according rather invested in promotion and advertisement. We realised it as mistake and felt that the pricing is an important factor in attracting customers only during 5th quarter and reduce the price to 40 cents and only after that we were about to increase the number of customer. Hence if the pricing factor has given significant importance on the start of the simulation, the company would have escaped from losses.
Actions would have been taken during the stimulation for success:
- Proper maintenance of aircraft in order to avoid fine from FAA.
- Good system for customer reservation system to be flexible, fast and user-friendly.
- Strong investment in market research to enable sales forecast and market situation analysis.
- Proper training and quality to make the customer feel satisfied and get the luxury in food and other services.
- Good systematic maintenance of accounts in loan interest repayment, lease payment, depreciation in order to have a clear view of the actual profit.
- Strategic allocation of expenses on promotion and advertisement, sales forecast and social performance
- Strategic approach on pricing and increasing the number of sales person according the number of flights operated.
What were the KPI’s you used in running your airline and did they change? Critically appraise the value of the information you had available to you in the results packs during the simulation. How did you use this to affect your decision making?”
The below are the Key Performance Indicator we as a team of Emirates Airlines believed at the beginning of the simulation which we tried following throughout the quarters but some were forced to reframe it due to company’s situation and response. Thus once an organization has analyzed its mission, identified all its stakeholders and defined its goals, it needs a way to measure progress toward those goals. Key performance indicators are those measurements which help to define and measure progress towards organizational goals (Geoff, 2009: 419)
Flight Operation: The important KPI we followed is in terms of flight operation. We believed that achieving 80% of maximum mileage per day would definitely yield a profit. As flights can be flew only with the maximum passenger and also includes the number of flights used. Hence it can achieve all in one KPI. We achieved this until quarter5 reaching 70% in each but it got changed due to purchase of 3 more flights without knowledge which made the company to focus on the reduction of expenses and deviated from the miles operating.
Promotional and sales forecast: Emirates Airline team believed that high investment in promotion, advertisement and sales forecast can lead company’s success. In terms of sales forecast, our KPI was in a correct way. But in terms of promotion and advertisement we changed and reduced the level of expense as the company started to incur loss.
Financial Perspective: we thought revenue is an important factor for an airline company to be successful as there will arise uncertain circumstances due to weather or fuel price, hence had a KPI to increase the revenue through Fares. We started a s mid-range and attracted maximum customers and shifted to luxury charging huge fare as a KPI of increasing the revenue. We are badly affected till 5th quarter because of this factor and then reduced the pricing.
The information we got through the value packs and incident feedback was very helpful in refining our performance and take corrective measures. Not only in terms of finance but also in terms of flight operation and service, the index feedback gave us the measures for improvement. The company was in a tough situation after the shift to luxury airline, where the incident feedback helped us to identify what was going wrong. The below are the some changes we effected from the information we got through the value packs,
Increased the number of flights and number of flight routes.
Decreased the ticket fares in order to increase the number of passengers.
Concentrated on cabin services to increase the quality service to the passengers and reduce complaints.
Taken measures and allotted funds on aircraft maintenance to avoid accidents and escape from fine.
Got knowledge that the huge loss of the company is due to the purchase of 3 additional flights resulted from mistake in numbering in the software.
Came to know that a flight was unused hence sold the flight to avoid maintenance expenses.
We felt the importance of passenger service and allotted more fund towards it.
Giving due consideration to theory, evaluate how a merger or acquisition might have changed your outcomes and the way you operated during the simulation? What additional implications would there have been for your company?”
Merger and Acquisition are often used inter-changeable concepts while merger is the combination of two companies in order to form a new company and Acquisition is a company’s purchase of another company where there is no formation of new company (Scott C. Whitaker, 2012). Merger and acquisition have a common goal of attaining synergy.
There are certain factors that should be taken care while going in for merger or acquisition as it results in cultural risk, business, employees and customer retention risk. These risks may not be applicable if Emirates would have planned the merger or acquisition in the initial stage that is before 4th quarter but if it is after that the above said risks should be taken care of. Hence it is evident that the nature of company to which going to be merged or acquired should be taken into account that it should be similar in business and should be stronger in operation as emirates are operating in a tough situation.
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There are many advantages for company to go in for a merger or acquisition. We as a emirates airlines can merge or acquire a financially strong airline whereby we become economically strong and can reduce the cost of capital (Donald M. DePamphills, 2009). In emirates during 5th quarter, we had a NIL balance of cash flow after the overdraft loan hence during such situation merging with company with good cash flow will be a potential decision. Also there will be a positive impact on the stock price especially for companies like emirates where we had our stock price in negative numbers. Not only in financial terms, merger and acquisition also helps in terms of operation synergy. For e.g., if we Emirates team go for a merger during our mid-quarter with a company which is technologically strong we would have had a chance for competitive advantage and fast growth platform (Scott C. Whitaker, ). We would have not made a mistake of unsystematic approach in buying a flight during our 6ht quarter by which we suffers a heavy loss. There are major operating cost involved in terms of Airlines they are fuel, maintenance, interest expenses, lease amount, promotional activities, market research, taxes and so on. These costs would have been spread between two companies after merging.
Merger and acquisition are also helpful to use the assets and skills of the other companies merging or acquiring with. We as Emirates team lacked in terms of allocation of expenses and proper maintenance of aircraft. Hence merging with a managerial strong company would have helped us to move in the right path. It helps in improving the operating efficiency with a combined activity of the merging firms thereby can enjoy the market power. This is called market power theory. With this the company can have a control on the pricing and suppliers and also can have customer base.
As a team of Emirates Airlines only in the 1st quarter we were able to make a profit. It may be because of the sudden shift to luxury airlines which made us to suffer from continuous losses till 6th quarter. Our stock price also went on negative price. Hence merger or acquisition during the mid-quarter would be the better decision as it would have reduced the cost and share the total cost. We also had a reduction of pricing on 5th quarter which can be avoided when we had merger with our competitor. We lacked in many operation areas like customer satisfaction, aircraft maintenance and proper allocation of expenses, hence merger and acquisition would have been potential at early stage.
Appraise how successful your company was in your industry. Were your relative success / failure due primarily to your analysis and diagnosis or the choices and decisions you made? Which models and theory did you consider when participating in the game and how did this help you?”
Planning, executing and monitoring are the key aspects for a company to be successful. And in industry like Airline where there are ample numbers of risks, it is important that the firm follows a strategic approach. We as a team started to operated Emirates airlines as mid-range where in the first quarter we are able to have a good level of passengers and thereby revenue. We did not have a view on the level of risk in shifting to luxury range all of a sudden in the second quarter and increased the fare at a higher rate. Only during fifth quarter we came to know the importance of price factor and reduced the fare. The team did not understand that shifting to luxury range should be accommodated with high quality service to be competitive. We felt its importance from the incident report at the time when the company is already in loss. To my knowledge the company started off well but faced tough situations and failures and also attained the survival stage where it can reach a decent profit in the next quarters. We had a systematic approach to some extent and made many innovative measures like online reservation system which is a success to us, but the decision what we made to buy a flight when we were in deficit lead to failure. Also we are not managerial approach as we wrongly numbered and the software bought additional 3 flights which added to a further loss. We had a clear view in allocating resources for aircraft maintenance, but because of the above mistakes we made during the simulation, we were unable to allot adequate resources for maintenance which lead to engine failure and fine from FAA.
At the beginning of the simulation we used resource dependency theory (Aldrich, 1977) where we believed the company can be affected to some degree with its external environment. Hence we took measure to influence the environment. Our external environments are customers, public and the airline industry. We thought investing heavily in promotion and advertisement would definitely create competitive advantage and a brand image among the customer where a hike in the fare will become a hidden factor. Hence during the second quarter we allotted $40000 on advertisement and shifted to luxury airlines with fare of 48cents. But only during the subsequent simulation we felt that there is no relation between the promotion and competitive advantage in a highly completive airline industry and understood the importance of cost and service factors. Hence we reduced the price and concentrated on quality and training. We also started concentrating on cabin services and passenger services with the rise of customer complaints which came to our knowledge through incident feedback.
We as a team felt the importance of strategic approach during the simulation. During the end of the quarter we were clear about the strategies to be followed and we were sure that our company will make a good profit if it has another two quarters as we could find the changes in stock price with our corrective measures. The simulation gave us a vast experience about the concept of risk management, strategic approach and resource allocation. We also felt the importance of group dynamics in running a successful business.
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