Blue Skies

Airline Simulation Report

Introduction
The team =has taken over the management of a small regional airline. Air transportation, a
highly competitive industry, can be segmented based on the type of service offered. Cargo
airlines transport goods, usually light freight that needs to be delivered in a timely manner,
while passenger airlines primarily transport people, though they may offer limited cargo service
on passenger flights. Passenger service can further be divided into international, national, and
regional service. Major carriers tend to serve the national and international markets, leaving
routes connecting medium-sized and small cities to the regional airlines. In the regional
markets, flights are relatively short and traffic, light compared to routes connecting major
cities. This, combined with limited facilities at local airports, makes regional routes unattractive
to the larger carriers. The smaller airlines serving regional routes tend to use turboprops and
regional jets seating 20–75 passengers to keep operating costs low. The airline you will be
managing has been in operation for several years and is well known to thousands of people
living in small communities scattered throughout one of the regions in the simulation.
However, the long-term viability of the firm is in question due to changes in the competitive
environment. To insure its survival, you will have to make critical strategic decisions as well
as maintain an efficient operation. This case provides important information about the firm and
the industry in which you will be competing.

Industry Analysis
Airline
Although there is considerable freedom in setting fares and deciding which routes to serve,
your airline and the industry as a whole tend to be heavily regulated in several areas. Aircraft
that have more than 30 seats require special certification. Safety regulations require a flight
attendant on almost all aircraft used in regional service. Minimum equipment maintenance
schedules are specified and monitored by government agencies. Some airlines choose a
maintenance program exceeding regulatory requirements to decrease unplanned out-of-service
time and to increase safety. This can improve perceived quality, which may be important for
airlines catering to higher-end customers. Minimum levels of pilot training are mandatory and
become a cost of doing business. Some small airlines provide training beyond the minimum
level to increase pilot effectiveness, while others fear that extensive training results in the loss
of a greater portion of their pilots to larger airlines. Regulations require extensive record
keeping. The paperwork to document compliance with all these regulations can result in
increased staff size. Compliance with regulating agencies is costly to the airlines in terms of
staff needed, paperwork required, and direct costs incurred.

Strategy Formulation
 The business index for this quarter was 102. The forecast for the next 4 quarters is 104, 103, 101 and
99. Click here to view the graph.
 The last spot price for fuel decreased by -2.4% to $2.04. The negotiated contract price for fuel
decreased by -0.5% to $2.06. Click here to view the graph.
 The economic outlook for the next quarter has the prime rate at 7.5%, the long-term loan rate at 9.0%,
and the CD rate at 5.0%.
 VLZ AIRLINES (Company 3) had the largest movement in stock price this quarter with an increase of
$30.82.
 Bad weather caused flight delays this quarter.

 You’ve made 10 flights this period for the congressman. Income and expenses netted out even. You
have been promised a military flight contract which should be profitable, but the local press is asking
questions.
 Many potential resort flyers are looking for a better deal. Consider offering fare sales in the resort
market.
 Other Revenue includes income from the ambulance service.
 You have entered one or more new markets this quarter. Each market entry adds an additional
$10,000 to your passenger service expense.