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Members:
Groups 1 & 6
Charisse Jollins Ang
Jan Paul Francia
John Paulo Pineda
Aerolyn Gindap
Edmond Reyes
Gabriel Sison
Submitted to:
Dr. Arnel Uy
given that no obvious single course of action leads to fulfillment of that goal, managers
must choose a specific course of action and develop plans and controls to pursue that
course. Because planning is future oriented, uncertainty exists and information helps
reduce that uncertainty. Controlling is making actual performance align with plans and
information is necessary in that process. Much of the information managers use to plan
and control reflects relationships among product cost, selling prices and sales volume.
Changing one of these essential components will cause changes in other components.
This case focuses on analyzing how cost, volume, and profit interact with one another.
environment. Before, they were enjoying the monopoly status on all domestic routes but
with the upcoming change in the government administration, the airline might be
privatized and be open to competition. To keep up with the change, the CEO is thinking
to either expand the international market or focus on improving the local services.
B. Company Background
republic. Domestically, TransGlobal operates out of a primary hub in the capital city
(SOF) and two subsidiary hubs in PLO and VAR. The company serves six international
destinations, four large domestic cities (including the two subsidiary hubs), and five
small regional cities from SOF. There is direct service between PLO and VAR. In
addition, there are six small regional cities served from PLO and four regional cities
served from VAR. The company is operating with three major market segments namely
international routes, large-city routes, and regional-city routes. Though the company
was operating in a nominally democratic government set up; the country was ruled by
the same president for more than 40 years, During this time, stringent controls were
placed on all aspects of the economy. Furthermore, the country’s wealth was focused in
the hands of few powerful supporters of the president. Due to these circumstances, the
economy slowed down, basic infrastructures fell into despair which resulted in violence
and protest. In light of these, the president announced his retirement. Several political
parties have been organized for the position. All of the major parties agreed that
opening the country to competition is necessary for the country’s financial recovery.
means that they are splitting the cost per market segment by allocating operating to
For this case, the group will take the point of view of “The CEO” which was given
the task to reshape the current organization for the upcoming changes that will take
place once the airline is privatized and becomes open for competition.
How will Transglobal Airlines remain competitive and profitable with a potential
open/competitive market?
IV. Objectives
V. Areas of Consideration
AIRLINE INDUSTRY
● International – 130+ seat plane capacity which can produce $1billion of revenues
● National – 100-150 capacity with revenue ranging from $100 million to $1 billion
● Regional – short distance flights locally and generates less than a $100 million
revenue.
In the industry, the usual factors they have to weigh in are airport capacity, route
structures, technology and the costs to lease or buy aircrafts. The huge costs for their
day-to-day operations are from fuel consumption and labor. According to the Air
Transportation association, labor and fuel expense are the first and second expense of
There are 3 Key ratios for evaluating service of the airlines, these are:
Available seat mile = (Total seats available for passengers) x (Miles flown during
period
during period)
For their revenue, airlines consider business travelers as their most reliable source. As
this kind of passengers are the ones to travel frequently, many services are dedicated to
them. Compared to leisure travelers who are price sensitive and will usually decline in
According to Michael E. Porter, there are five competitive forces that affects every
industry, and helps determine their strengths and weaknesses and these are:
These forces determine the level of competition in the industry, and the stronger the
1. Threat of new entrants – although the entry to the airline industry is costly,
availability of bank loans and credit must be considered. If borrowing is cheap, then it
may be possible to enter the industry. With new airlines in the market, it becomes
saturated. It is therefore important to establish brand name, as this can play as a huge
advantage.
2. Power of Suppliers – there mainly two supplier of aircrafts, Boeing and Airbus. Due
to this, they have strong bargaining powers, they can either demand higher selling price
or provide low quality materials, which can affect the company’s services and costs.
3. Power of Buyers – in this industry, the power of buyers is quite low as there very few
factors to consider on what airline to choose besides the price they can offer.
4. Availability of substitutes – for international flights, there is no available substitute,
however for regional, the use of other modes of transportation can only be from trains or
long drives.
5. Competitive Rivalry – competitive industry yields low returns, as such the company
PRIVATIZATION OF AIRLINES
A similar case has happened to Kenya Airways. According to Ochieng and Ahmed,
transformations in air transport.” Kenya airways was incorporated in 1977, owned by the
government and their flag carrier. Over the last decades, the airlines suffered financial
losses. To ensure continued operations, the government decided to privatize the airline.
The study of Ochieng and Ahmed focused on the financial performance of Kenya Airways
before and after privatization. In their findings, the liquidity and debt ratios highly
improved, their financial efficiency leading to improved services. “It was found that
profitability and financial efficiency increase after privatization.” However, the study also
indicated decline in employment after privatization. The study pointed out that generally,
and better financial efficiency, and increase in capital expenditure. (Ochieng & Ahmed,
2014)
Strengths Weaknesses
Opportunities Threats
By allowing the ‘beyond rights’ on international routes, TransGlobal can also serve more
than one city in a country. Since international routes has 2.34% of revenue prior to
privatization of the company, TransGlobal may expect more revenue if they are able to
TransGlobal’s international aircraft will significantly increase and improve its profitability
in international destinations.
Advantages
● There will be more international routes to serve, increasing market base for
international passengers.
● Locals may opt to take direct flights internationally with TransGlobal rather than
Disadvantages
● Due to the history of TransGlobal of low customer satisfaction, big changes might
● Few improvements on local flights might make some customers to choose other
airlines
also opens up the current tightly held domestic market to other foreign airline
carriers.
improving their services here to ensure loyalty of the locals. TransGlobal can implement
and customer inconvenience. This way, locals will prefer TransGlobal since they are
more familiar to its services rather than the new airlines that will enter the market. On
the regional-city route, TransGlobal may opt to terminate routes that are not able to
make break-even sales or negotiate for government subsidies as these routes promote
economic development.
Advantages
● TransGlobal may expect bigger revenue with their improved service locally, and
● Does not require high capitalization as proper activity scheduling will improve
Disadvantages
The decision criteria and weights below aims to serve as a basis in choosing the
best option with regards to the case. This serve as a guide in determining the most
appropriate course of action that the company may adopt in order to achieve the
objectives mentioned above.
Total 100%
Increases profitability 3 4
Market Feasibility 3 4
Total 3 4.3
market. This will leverage their established company name and familiarity with the local
customers. This course of action will be more cost efficient as it is more expensive to
acquire or capture a competitor’s market share versus retaining your current consumer
base. Since the company has established ties with the government and airport
authorities, they can also negotiate for subsidies to cover expenses especially for small
regional locations as this service improves the economic conditions of the area. They
can also adjust the pricing for regional locations with limited market potential to achieve
X. Implementation plan
X. Annex
Appendix A:
Aircraft Costs
Fuel
98.50 18.20 158.1
41.40
Aircraft
44.4
Depreciation 30.00 12.50 1.90
Flight
Personnel
Costs
Pilot Crew
24.8
12.60 8.00 4.20
Cabin Crew
17.7
12.00 4.80 0.90
Ground Costs
Gate Rental
0.70 2.1
1.50 0.60
Corporate
Costs
General
17.4
Administration 7.90 5.41 4.09
Appendix B:
Number of seats 25
Appendix C:
1. Investopedia. (n.d.). The Industry Handbook: The Airline Industry. Retrieved from
Investopedia: http://www.investopedia.com/features/industryhandbook/airline.asp
2. Jurevicius, O. (2013, may 27). Porter's Five Forces. Retrieved from Strategic
five-forces.html
3. Ochieng, M., & Ahmed, A. (2014, January). The Effects of Privatization on the