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6-1 Milestone Two: Performance Analysis
November 17, 2021
“Situation Analysis of Transglobal Airlines (Parent Company)”
“Internal Environment”
Culture: “Transglobal airlines’ culture” is based on effective communication, innovation, and teamwork among relevant stakeholders. The company is also focused on promoting excellence in its employee base, which entails forty thousand individuals. Having first started its operations in 1951, the organization transitioned into a competitive airline that required teamwork, tactical thinking, and management to attain excellence. Additionally, particular focus is paid to the core values at the company, including stewardship and safety. After almost a year of surveys, focus groups, and other data collection forms, the airline’s management established the values. At the company, the workforce is aware the top management cares about their needs. Besides, the employees are offered tools and guidance that would enable them to conduct their duties efficiently. There also exist specific initiatives within the company to ensure equality and inclusivity are promoted. Finally, the company also caters to cultural differences between the employees and even customers to encourage inclusivity.
Leadership: On the leadership aspect, the company entails a leadership constitution that entails a board which is publicly held, a president of the entire organization, a “Chief Executive Officer,” a “Chief Financial Officer,” “Chief Operating Officer” a vice president in charge of sales, among others. The airline’s top management is focused on offering the best luxury airline services across the entire industry. Besides, the leadership has adopted a “customer and employee-centric” tactic in improving the organization’s business ventures. Based on the comprehensive plan named “TransGlobal 2030,” the company’s leadership is focused on safeguarding the planet, innovating new travel experiences, and giving its employees the chance to steer “Customer service.” Finally, its leadership is fixated on a diverse workforce to ensure it acknowledges its worldwide customers, serving them better.
Internal Processes: The airline is constantly discovering approaches to better its client-facing platforms. Such platforms entail updates to reservation systems and applications within smartphones (Chung et al., 2016). The main objective is to incorporate smartphone applications that use other facilities, including ground transportation, lodging, and other services. The company also has various systems and processes to be used by its vast workforce. Additionally, there is a training system that assists each worker in conducting the necessary training, such as the obligatory two-hour “FAA SAS training.”
Human Resources: TransGlobal Airlines has an estimated forty thousand employees globally. This is a significant employee base that requires a robust human resource department to manage them. The company’s main branch is located in Miami, Florida. The company’s human resources department initiated a training program for the workforce, including the obligatory “FAA SAS training.” However, there exists one key issue linked to the company regarding the training’s availability. There are no sufficient opportunities for the workforce to widen their knowledge and acquire more insights into the company and the aviation industry. Such movement is influential in equipping the workforce with more knowledge and skills, ensuring profitable business.
Nevertheless, the company also has competitive remunerations, salary packages, and benefits to its vast employee base. Such competitive packages aim to ensure employees are attracted to the company and stay motivated and committed throughout their employment tenure. By 2030, the company intends to be among the top ten best workplaces globally.
Operations: The company contains flights globally. TransGlobal Airlines has more than one thousand aircraft linked to its fleet. Based on statistics, the average years of service of the aircraft is approximately thirteen years, with the company focused on bringing in new aircraft with each passing year. The company is also researching how to alleviate its carbon footprint entirely by 2075. To facilitate this ambitious goal, the company is engaged in projects to magnify carbon offset procedures hand in hand with the research and development of “fuel-saving” aircraft. TransGlobal Airlines is also pursuing specific projects that would improve the airline’s safety, thus reintroducing the “MAX 737,” which was considered quite unsafe. The company’s operations currently revolve around improving its fleet’s safety and augmenting revenues.
Financial Performance: Based on TransGlobal Airlines’ financial performance, it contains an annual gross revenue of “$20.7billion” while the annual net income is approximated at “$2.099billion.” The company has witnessed a rise in net profits from 2017-2019. The profits could be linked to an increase in revenues from the company’s increased operations across the world. However, revenues from the Pacific sector have experienced a significant decline. Thus, to increase these revenues, the company is focused on bringing about improvements within its “reservation systems.” Additionally, establishing more brand awareness as well as customer loyalty would also help increase revenues and profits.
External Environment
Competitive: TransGlobal Airlines has numerous competitors. It is worth noting that both domestic and international airlines are considered competitors to the company. TransGlobal airlines are second after “American Airlines,” which ranks first based on the global share. On the American market share, the company is also rated second after “Southwest Airlines.” The company is working on new initiatives and projects to ensure the aircraft continues to edge out the competition and ensure the customers are satisfied with the services offered, thus increasing revenues and market share. Such projects include upgrades on the company’s fleet.
Market: The company has a significant stake in the worldwide aviation industry. Presently, the company’s fleets go to over two hundred and forty destinations in fifty-two nations worldwide. Besides, TransGlobal airlines are focused explicitly on first-class and luxury flights and regular business and economy class flights.
Regulatory: TransGlobal Airlines has to operate within specific regulations and limits from its numerous flight destinations. The pilots and crew are tasked with knowing the “Federal Aviation Administration” rules and directives. However, it is vital that other staff members also become knowledgeable of these regulations and regulations through training to avoid breaking them.
Customers: The company’s fleet has flown across the world, covering approximately two hundred and seventy-eight billion miles. Besides, “TransGlobal Airlines contains a customer retention rate of 80% with a growth rate of 27% for the new customers.” The company’s goal is to ensure every client is treated respectfully. The company is also focused on innovating to ensure customer loyalty and thus establishing significant relations with the target market.
Suppliers: TransGlobal Airlines depends on numerous suppliers. However, among these suppliers, the ones considered most significant are the “fuel distributors.” Minus the fuel, the flights would not occur. Additionally, the company also heavily depends on the suppliers of quality food, beverage, and luxurious items that enhance customer experience during the flights.
“Balanced Scorecard Analysis of Company A”
“Opportunity Cost”
In acquiring company, A, TransGlobal Airlines would have to consider several aspects, including costs and disadvantages. For instance, the company has annual net sales of approximately twenty-eight million dollars, with its earnings set to grow by up to 21% by the final months of 2021. The net sales also increased to an estimated thirty million dollars. With these figures and trends expected to remain constant, the net profit is also set to increase by a margin of 25%. Hence if TransGlobal airline decided to purchase this company, it would acquire relatively positive income and thus profits. However, the purchase costs of the company are higher than the annual revenues meaning the investment would be pretty costly.
Thus, the benefits that TransGlobal airlines might gain from acquiring company A will entail the number of aircraft that would now be available and the air routes used by the company and its customers. By bringing in this company, TransGlobal Airlines’ market reach would be significantly increased. The benefits are also from the business’s internal processes, which are all steered by the corporate culture focused on exceptional consumer services. Based on the over 20% present value, TransGlobal Airlines is focused on reinforcing its operations and creating a sustainable strategy shift bringing in more benefits. The company is fourth in terms of market share within the Caribbean, so it also plans to increase it to 25% from the previous 19%. Averagely, Company A’s annual customer growth rate is estimated at 22%, with an above-average retention rate of 66%. Besides, each company A flight is usually approximately 74% filled. The company is also focused on a 20% fuel efficiency increase.
Risk
The risk of acquiring this company mainly revolves around the repercussions TransGlobal Airlines could face if the projected acquisition outcomes failed to suffice. This being the case, the company’s financial aspect poses the most significant risk (high-risk), considering this aspect is tied to other vital elements. In the case that economic forecasts are delayed, TransGlobal Airlines might be in danger of sustaining losses. Additionally, the acquisition also poses a medium risk to TransGlobal Airlines’ cultural and operation settings. The airline is an already established and profitable company that can demonstrate its presence for its personnel should any cultural issues arise during the acquisition. Thus, it is feasible to maintain an excellent culture (Vickerman, 2017). Since significantly high operational forecasts also exist, a slight change in culture and operation processes would not considerably affect TransGlobal Airlines. The research report presented the lowest risk considering the acquisition will not alter all the fifteen customer destinations and the current market segments containing a customer retention rate of 66%. Regardless, the acquisition is expected to increase TransGlobal Airlines’ fleet size and the daily trips it would be conducting. Besides, the investment will entail a considerable impact among competitors since TransGlobal Airlines would be having increased market access and “customer reliability.” Based on the effect of this acquisition, the market is considered the least risk.
“Balanced Scorecard Analysis of Company B”
“Opportunity Cost”
Acquiring “company B, which has current annual revenue of $ 26-27 million, will necessitate a value close to that.” Based on the generated revenues and profits, the value is not considered an issue. The acquisition costs are also linked to the projected results and growth of company B. Based on these predictions, the company is expected to “increase its cash position,” annual revenues, and profit margin. The “opportunity cost projected in the acquisition of this company” entails a different margin of 2.5% in value and another 1% margin in growth based on the subsequent years successively. Besides, Company B’s portfolio and projections which should the investment be executed would be considerably costly, are principally focused on augmenting the customer segment by a margin of 1% annually from the current 62%. Besides, the organization contains excellent estimations for the internal processes to be implemented.
Risks
The risks associated with acquiring company B mostly revolve around the significantly low profits. Nevertheless, the profits made from this company would take a significant amount of time to have compensated the acquisition’s value. Therefore, the acquisition risk for company B entails the financial setting for the money used up in the addition and the overall acquisition outcomes. Considering the “operating and cultural context, there exists medium risk in the acquisition of company B.”
Based on the acquisition, there would be a considerable change in operating patterns and culture, reducing the risk to medium compared with TransGlobal Airlines. However, “the lowest risk will be depicted on the market considering Company B has eight key destinations” for its customer segment, including those focused on business, those taking vacations, and others. This company’s customer retention rate is 40%, while the average number of seats occupied in each flight is approximately 62%. The market would not alter the costs, with TransGlobal Airlines expected to acquire a larger market size from this acquisition.
Conclusion
Based on the balanced scorecard analysis of Company A and B, focusing on both opportunities, cost, and risk, essential points were noted. First, considering the cost-effective analysis, acquiring company A will bring about increased investments and risks. However, there is also the prospect of significant profits from this acquisition. On the other hand, acquiring company B will mean using reduced investments amounts and risks. However, this would also mean low yields beyond what the company would expect. Therefore, I recommend that TransGlobal Airlines acquire company A as this is the only worthwhile investment.
References
Chung, S. H., Ma, H. L., & Chan, H. K. (2016). Cascading Delay Risk of Airline Workforce Deployments with Crew Pairing and Schedule Optimization. Risk Analysis, 37(8), 1443–1458. https://doi.org/10.1111/risa.12746
Vickerman, R. (2017). Beyond cost-benefit analysis: the search for a comprehensive evaluation of transport investment. Research in Transportation Economics, 63(1), 5–12. https://doi.org/10.1016/j.retrec.2017.04.003