AIRLINE

AIRLINE:A Business Strategy Simulation

The ultimate pedagogy for experiential learning, a

“Learning by Doing”Teaching Style

Overview of a Simulation

• Teams make a set of business decisions for a simulated (3 month) period and these are evaluated against decisions made by competitors who are other class members.

• Decisions are entered into a program on a personal computer.

• The program acts as the purchaser of the product, compares the relative "merit" of the decisions made by all teams, and computes the sales for each firm.

• The program then computes the values for a quarterly financial report for each team. The reports may be printed by the instructor or by student teams with the AIRLINE Student software.

• The teams analyze their results and prepare another set of decisions.

• This is continued for a number of quarters.• Upon the completion of play, teams usually give a

short report of their strategy and the administrator debriefs the teams.

AIRLINE was written by Professors Jerald Smith andPeggy Golden after being introduced to the President of a commuter airline. His invitation for an extended visit to his headquarters to obtain data was like food for a hungry soul for these two avid pilots. It became the first industry-specific, service industry-oriented simulation game. Both Professors Smith and Golden are at Florida Atlantic University .

The Smith-Golden team have 8 business simulations published and used in the U.S., and in 11 foreign countries.

OBJECTIVES

• Team Building• Communications• Cross Functional Understanding• Sales Planning• Budgeting• Business Strategy• Controlling and Evaluation of Operations• Managing under uncertainty and change• Consideration of Business Ethics

The Airline being Simulated

• The industry is highly competitive, filled with uncertainty.

• The firm has been a Mom and Pop operation with only 3 aircraft.

• The industry is composed of a few large firms and many smaller regional operators.

• The new management team will have the task of making the airline profitable through the purchase of newer, more modern aircraft, opening new routes, and convincing the public they are safe.

The Airline’s Market

• The Airline brings passengers from smaller towns and cites to larger cites and hubs where passengers can connect with larger carriers.

• It also has some direct city-to-city service

• An opportunity exists for entering the package cargo business and/or to diversify into auto rental.

• It may also dual-designate with a larger airline

Teams are ranked by

• Total profits

• Profit trends

• Return on sales and return on assets

• Flight on-time reliability

• Quality of Service

• Stock price and dividends

• Cash management

• Corporate citizenship

Major Decisions That Are Made

• Overall fare strategy and promotional fares

• Level of Cabin/beverage service

• Promotion and marketing budgets

• Number of salespersons

• Employee compensation plans

• Quality Management Budget

• Maintenance Strategy/policy

• Forward fuel contracting

Decisions (Continued)

• Cargo Decision and Budget

• Corporate Social Responsibility programs

• Common Stock sold

• Short- and long-term loans acquired

• Dividends

• Purchase CD’s

• Aircraft Purchases/replacements

• Market research studies

• Markets to enter and withdraw

Decisions (continued)

Financial Decisions

• Dividends

• Loan Addition or Payment

• In addition, for each decision period there is a (mini) case on which a decision must be made.

Fines for Stock Manipulation The Airline is to be operated strategically. This

does not include stock manipulation (Buying stock, EPS goes down, stock price goes down, team buys it back.) A Large Fine will be assessed. Another thing the instructor looks for in the last quarter is if a team redeems all stock, using a large loan to do so. This runs the EPS up much higher than before and makes the company look better than it really is (with a large loan and high interest payments).

“Healthy, going concern?” We think not!

Student’s Program Menu1. Enter Decisions

2. Print a Copy of Decisions, once entered(Teams often try to print the decisions BEFORE they enter them!

3. Print the Quarterly Report (after

the administrator has given back the DATA file.)(Teams Often try to print the results immediately after entering decisions!)

ADVICE

1. Each team member is expected to participate and cooperate with their team.

2. Most instructors do a mid-term peer evaluation using the $ bonus form and and an ending peer evaluation using the other peer form. Both are in the student manual.

3. Buy Market Research and compare your team to Everything your competition is doing.

Is your price too high, too low? Do you have too many flights or not enough?

ADVICE

4. Have you gone past the point of diminishing returns by certain budgets being too high? How do you budgets compare (from market research) to the average budget per aircraft?)

5. Do you have too many types of aircraft to maintain?

6. Are your loans too high, and interest is devouring your profits?

ADVICE

7. If your load factor is low in a market, is it because the market has not had time to develop (2-3 quarters)?

8. Someone on your team should be calculating and comparing loads in each market each quarter. (Do not complain to the instructor if your loads are lower than a competitor. Many other factors affect the load factor.)

ADVICE9. If you are out of ideas in pulling your company

out of a tailspin, consider seeking the consulting services of a of a successful team on a fee basis. Of course, they should not be in the same markets as you. Or perhaps even merge with the other team. Your instructor will use other expenses to debit and credit the fees.

10. Merging is strictly “on paper” as the program has no method of merging the assets of each company. However, there are some ideas in the student manual about merging and the benefits that accrue.

ADVICE

11. One particularly upsetting event for teams occurs when there is an unforeseen event of no fault of the team or its decisions. As in the real world, fate is ever present. Ask the new car buyer who gets no further than a mile away from the dealer when the car quits!

These events are spread evenly over the teams so no team is put at a profit disadvantage.

ADVICE

12. “How can we tell how we are doing?”

Stock prices are relative indicators of ranking, with a confidence factor of + or – 75%.

13. WARNING: Do not “end play” the simulation or your ranking will be lowered. The administrator wants a “healthy, going concern” at the end, not a firm that has been stripped in the last quarter to look better. This especially applies to a large dividend payment!

Final Thought

• Keep your airspeed and spirits up! And don’t forget to lower the wheels before landing.

• The first few quarters are the most difficult. Then each quarter becomes easier.

The authors wish you well as you embark on your management adventure with

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