Flights & Fights

In the video Flights and Fights: Inside the Low Cost Airlines, we recognized the main themes of two airlines, Ryanair and EasyJet. Low costs, low fares and efficiency served as the base for daily operations through means of tactful branding, setting the ignition price, and forecasting for targets.

Stelios, EasyJet’s biggest shareholder found that by utilizing the pantone 02iC orange color on their Airbus would attract and secure its mark in the airline industry. His idea of selling tickets, cutting out commission of the traveling agent, and cutting out all the accounting tickets would save the airlines 20% B., & F. (2013).

O’Leary focused on running a low-cost airline by setting the ignition price for Ryanair to be reasonable while still allowing for air travel room for a 6-pound passenger profit. His core marketing strategy was to spend as little funds as possible for advertising by keeping majority in house and relying on lots of free publicity B., & F. (2013).

Reducing costs and increasing profits were the motives for both airline companies, Ryanair and EasyJet. What set the two apart wasn’t much. Focusing enplanements at airports that were smaller and out of the way was Ryan Air’s approach. Catering to such airports made the airlines mores competitive and profitable. A method Ryan Air used to turn a cost into a profit was a local orange juice company that paid the airlines to be featured and served on flights to passengers.

We have seen how low cost airlines have revolutionized the way we fly. Low cost airlines bring business, jobs, and boosts the economy. Sticking to the formula of no assigned seats, snacks only, more flights and cheap fares can look simple. None of this could be possible without the proper techniques and implementation of economic order quantity and Just-in-Time inventory management.

A key balance between shortage costs, holding costs, and ordering costs can better regulate airlines budgeting process and price that determines the demand Hilton, R. W., & Platt, D. E. (2016). Keeping ahead in inventories for fuel, plane tires, de-icing solutions, snacks, aircraft, etc. can all benefit a sound inventory policy. Knowing when to order, keep safety stock, or even placing prompt orders to avoid stock outs can all minimize cost resulting in reduced costs and increased profits Hilton, R. W., & Platt, D. E. (2016).

Operating a low fares airline can be challenging yet rewarding. Like EasyJet and Ryan Air, your airlines too can have an efficient system to guarantee a quick turnaround and reap profit.

Resources:

E. (2017). EasyJet. Retrieved April 7, 2017, from https://www.easyjet.com/en/Hilton, R. W., & Platt, D. E. (2016). Managerial Accounting Creating Value in a Dynamic Business Environment (11th ed.). New York, NY: McGraw-Hill College

B., & F. (2013). Flights and Fights: Inside the Low Cost Airlines. Retrieved April 7, 2017, from https://erau.instructure.com/courses/60672/pages/3-dot-2-video-flights-and-fights

Variable Costs & Fixed Costs

Identifying activity variable costs and fixed costs can be challenging. Many times, managers and accountants require an in-depth analysis to manage costs. According to the video: Classifying Costs for Decision Making, there are several costs such as electricity, that are difficult to tie accurately to a product K. (Director). Once managers determine these correlations between cost and product, they can then anticipate and create models to forecast activity levels that impact efficiency and profits.

Being able to predict the impact of changing costs is cost management K. (Director). Decision making for cost management must encompass relevant information. Categories for costs include, fixed and variable costs, differential cost, opportunity cost, sunk cost, direct and indirect costs. Allocating funds for changing costs due to rising and falling of certain activity is part of accounting systems and decision making. Normally, decisions are made that focus on covering relevant “fixed costs”.

SoloFlight a professional flight training school located in Houston, TX utilize Ellington Airport for flight operations. This aviation firm offers cutting edge technology in both aircraft and simulators to help you learn to fly WELCOME TO SOLO. (2012). Their costs driver is students flown/trained. Fuel costs are variable with respect to solo miles flown. Flight time sold is also a variable cost which determines how much staffing/pilots are needed for peak seasons.  Fixed costs include use of facilities and structure; renting the air hanger space, contracted cleaning personnel and simulator maintenance. Variable cost also may include utility expenses, air simulator repair, and electricity to run simulators.  

Management is interested in cost behavior within the company’s relevant range, the range of activity within which management expects the company to operate R. W., & Platt, D. E. (2016). Weather forecast (an uncontrollable variable) depicts business efficiency as well. Regardless of how well a business is running, fixed costs do not go away. Advertising & promotion on websites such as Groupon deals and creating gift bundle packages are all part of discretionary costs for SoloFlight.

As activity at SoloFlight increases so do the instructional pilots. This expense is categorized as step-variable Costs. Understanding the relationship between cost and activity is cost behavior. Since SoloFlight’s cost driver is students flown/trained available funds are given priority to the step-variable costs of instructional pilots.  The company normally experiences a cost pattern or a flood of clients needing to reach deadlines for military applications or FAA private pilot certifications and instrument ratings in the spring and summer seasons. Their plane inventory, a Diamond Star DA40 and Cessna 150 correlate as sunk costs that can’t be changed. Planning for future operations shouldn’t be hard for this firm due to the identified sunk costs and defined cost driver to cover direct period costs.

Resources:

K. (Director). (n.d.). Classifying Costs for Decision-Making [Video file]. Retrieved April 13, 2017, from https://erau.instructure.com/courses/60672/pages/4-dot-3-video-classifying-costs?module_item_id=3121940

R. W., & Platt, D. E. (2016). Managerial Accounting Creating Value in a Dynamic Business Environment (11th ed.). New York, NY: McGraw-Hill College

WELCOME TO SOLO. (2012). Retrieved April 13, 2017, from http://www.soloflighttraining.com/

Southwest Airlines Successful Marketing Strategies

One means to developing organizational strategies is to focus on the directions the organization can take in order to grow (Peter and Donnelly, 2013 p. 12). There are three organizational strategy approaches that are discussed by Peter and Donnelly (2013): (1) strategies based on products and markets, (2) strategies based on competitive advantage, and (3) strategies based on value (p. 12).  

Southwest Airlines use to implement a cost leadership strategy; a firm would focus on being the low-cost company in its industry (Peter and Donnelly, 2013 p. 14), however according to Bachman (2014), “It’s no longer the industry’s low-cost leader”(para. 2).

Bachman (2014) noted:

The true low-cost airline leaders are not Southwest but the ultrabudget Spirit Airlines and Allegiant Travel, carriers that squeeze more seats onto their planes by not letting seats recline. (para. 5)

         Southwest is continuing to seek new ways to expand it business. Their recent strategies encompass market development and product development. Peter and Donnelly (2013) describe market development strategy as, “Pursuing growth through market development, an organization would seek to find new customers for its present products” (pg. 13).  The company is seeking expansion into other countries looking to offer flights to Cozumel and Cancun Mexico as well as other central and South American countries.

          The product development strategy is when, “an organization seeks new things to do” Peter and Donnelly (pg 14). In the case of Southwest, it is probably rumor but a Southwest employee John Doe, expects for Southwest to repaint their entire fleet of aircraft for re branding. On Southwest Airlines (2014) website they explain that:

We’re charting new territory! Southwest will soon be operating flights to international destinations in the Caribbean. We’ve highlighted key differences between traveling domestically vs. internationally on Southwest, so you’ll have the full scoop before you book and fly. (n.p.) 

           New airfares and rebranding (painting of Southwest aircraft) are all apart of Southwest Airlines product development strategy.  According to Bachman (2014), “Southwest Airlines rolled out a corporate rebranding and new paint jobs for its fleet on Sept. 8, part of a freshening up to coincide with its integration with AirTran Airways-the largest acquisition in Southwest’s history-and the launch of international flights” (para. 1).

             In all Southwest Airlines uses both the market development strategy and product development strategies to meet the needs of the growing international business and commercial aircraft market. These two strategic approaches shall prove very successful in providing a competitive advantage for Southwest Airlines.   

Resources:

Bachman, J. (2014, September 11). Southwest Hangs Up Its Low-Cost Jersey.Bloomberg Businessweek. Retrieved October 23, 2014 from http://www.businessweek.com/articles/2014-09-11/southwest-airlines-no-longer-the-low-cost-leader

Peter, J. P., & Donnelly, J. H. (2013). Marketing management: Knowledge and skills (11th ed.). New York, NY: McGraw-Hill.

Southwest Airlines. (2014). International Travel. Retrieved October 23, 2014 from http://www.southwest.com/html/air/intl/?clk=GSUBNAV-AIR-INTLTRVL

Embraer- Four State Of The Art Aircraft Designed For The 21st Century

The marketing concept goes beyond the idea of selling a product or service to customers, it’s about building customer relationships that are sustainable over time. –Dr. Patricia Ryan.

Building customer relationships is big in an industry such as aviation. However, before a firm can engage in building customer relationships they must first have a mission statement that addresses current and future customer’s needs. Peter and Donnelly (2013) agree that, “Effective marketing starts with the recognition of customer needs and then works backward to devise products and services to satisfy these needs” (p.4).

Embraer has achieved this concept with their, “four state of the art aircraft designed for the 21^st century” (Embraer, 2013). Embraer pitch its current products (product orientation) latest 2013 fleet of E jets to attract an even more broad class of customer needs (customer orientation).  In a market where satisfaction is needed to current customers; pilots, passengers, flight attendants, airlines, airplane maintenance mechanics.  This is Embraer main focus for their 4 models of the 70-110 size aircraft.

Embraer (2013) states some of their business strategies around the principal of E; Engineering (state of the art), Ergonomics (superior), Efficiency (outstanding), Economics (highly impressive).

According to Peter and Donnelly (2013), “The marketing concept means that an organization should seek to make a profit by serving the needs of customer groups” (p.4). Embraer makes this possible by, “staying competitive right now”, meaning their main focus on profitability relies within their consumer’s wants. Embraer still stays true to its long term goals refreshing the principal of “E” in its overall vision to compete effectively in the future.

Reference

Embraer. (2013, May 29). The Philosophy of E. Podcast retrieved from http://www.youtube.com/watch?v=BhHtYtRWXRw

Peter, J. P., & Donnelly, J. H. (2013). Marketing management: Knowledge and skills (11th ed.). New York, NY: McGraw-Hill.

Interview with Lagarde, Managing Director of IMF

Financing to members in economic difficulties, policy advice, and working with developing nations to help them achieve macroeconomic stability and reduce poverty are some of the ways the International Monetary Fund (IMF) supports its members (IMF, 2014). On June 16, 2014, Christine Lagarde, the managing director of the IMF talked with Fortune’s Magazine Geoffe Colvin. Covering a wide range of topics such as, research that the IMF has conducted on the association between income inequality and low economic growth, the issues of corruption as it relates to economic growth such as with tax havens, and an aid program that the IMF has developed for Ukraine (Colvin, 2014).

 

During this interesting interview Colvin asked Lagarde, about how income inequality and low economic growth are associated with each other, and which causes which (Colvin, 2014)? Lagarde answered by stating that, with income inequality “We believe that it tends to increase financial risks if you have too much disparity in income distribution…rising inequality is not supportive of sustainable growth. There are countries showing very strong signs of rising inequality, and that is the case in the U.S. ”

 

Colvin continues by talking to Lagarde about the danger of the developed economies finding themselves in a low-growth trap and asking what’s the policy prescription? Lagarde replies, “ It has to be country-specific. What works in some European countries …will not necessarily work in the United States. My own belief is that the first way to deal with inequality is to make sure that everybody has a job. You start with that one. Second, make sure that public spending is focused on those policies that will reduce inequalities, such as good health services for all, including the poorest, and access to education, including to those who are not well-off. And then you have the redistributive policies that can be applied, provided they're well calibrated and not excessive, because if you set marginal [tax] rates too high, they are clearly disincentives to perform and create growth” (Colvin, 2014). At the moment the U.S. is considering of raising its minimum wage.   

 

Colvin later compares to Lagarde about the late euro-area crisis with Greece and the “nucleus of a crisis” of Ukraine. “Now there is one additional interconnection that is present in the Ukraine case that did not exist in the Greek case or in the Thai case, and that's the energy factor. Ukraine is a transit country through which a lot of gas is channeled from Russia to other European countries. The alternatives farther south are not yet available, the LNG [liquefied natural gas] terminals are not yet built, and there is that degree of uncertainty, which clearly could cause problems going forward” (Colvin, 2014).

 

Despite this crisis and “the world's slow climb out of the financial crisis, the world still saw 3% growth last year, a 3.6% forecast this year and 3.9% next year.” However, Lagarde added “this is not a full potential and certainly not enough for some regions of the world to absorb the unemployment that we have in many, many corners, but it is recovery underway.”

 

References:

Colvin, G. (2014, Jun 16). Fortune. 6/16/2014, Vol. 169 Issue 8, p123-126. 4p.

 IMF. (2014, Aug 20). What We Do: International Monetary Fund. Retrieved from International Monetary Fund: http://www.imf.org/external/about/overview.htm

My research has shown Lagarde to be accurate when speaking of countries and "understanding of the interconnectedness, whether through trade, through foreign direct investment, and, more important, through financial channels" (Colvin, 2014). Lagarde's decision supports the founding principles of the IMF  and "lending which is a core responsibility of the IMF" (Peng, 2014, p. 216).  A great example was when the IMF made headlines when it extended a $17 billion aid program to Ukraine after Russia annexed Crimea. Due to disorder between Ukraine and Russia a lot of capitol that was once invested is now being removed leaving Ukraine unstable. "Ukraine from, a transit country which a lot of gas is channeled from Russia to other European countries" is now being aided by decisions like Lagrade's of the IMF.  Although the IMF whose the "Lendor of last resort to help member countries out of financial difficulty" are sometimes the only solution to problems posed such as Greece (Peng, 2014, p. 216).
References:

IMF (2011, April 12).  An Introduction to the IMF [video].  Retrieved from http://digital.films.com/play/MAJSFD

Peng, M. W. (2014). Global business (3 ed.). Mason, OH: South-Western, Cengage Learning

International division organization structure v. Geographic area organization structure

We all have seen these top brands in markets both local and abroad. But have we asked ourselves, what makes them a success? The success of a firm is a function of the organizational structure for that firm. Many firms organize themselves with one of the four organizational structures: 1. International division 2. Geographic area 3. Global product division 4. Global Matrix.


Firms that expand abroad typically take the International Division structure. According, to the textbook these international divisions, "often engage in a home replication strategy" (Peng, 2014).  MNEs that are organized according to different geographical areas (countries and regions) have a Geographic Area structure. The geographic area structure is organized with a localization strategy; a "focus on a number of foreign countries/regions, each of which is regarded as a standalone local (domestic) market worthy of significant attention and adaptation" (Ping, 2014).


Both structures include foreign subsidiaries and parent companies. However, subsidiary managers in the international division structure have a limited voice whereas, managers that are in the geographic area structure carry a great deal of weight. Managers at subsidiaries of geographic area origin have autonomy in their region since they're held accountable for their own performance. The decentralized leeway is also offered to the geographic area structure managers for better local responsiveness. In a international division structure, a centralized control system limits silo by making foreign subsidiaries mandatory to report to the CEO of parent company. Communication between representatives of the different business functions is much more personal in a geographical organizational structure (Ingram, 2014).


When Wal-Mart entered Japan, their home replication strategy seemed to not fully work. This was due in fact to their lack of local responsiveness to the local customer preferences. Customers in the region consumed more rice and fish in their diets. As a result Wal- Marts in the region had to quickly transition into the Japan market by transitioning their foreign subsidiary to become more decentralized. Japan subsidiary managers created a direct farm program, that allows customers to buy local fresh produce, and the Wal-mart also offers a wide fish market to accommodate to the mass local responsiveness in the region (Sugiyama, 2010).


Avon, a leading global beauty products company is noted in the textbook Figure 13.3 as a Geographic Area structure example. Each geographic area represented by Avon Products is standalone. The regional managers in China or South America have as much voice and power as those mangers in North America or Europe, Middle East, and Africa (EMEA).

References:


Ingram, David. (2014). The Advantages of Geographical Organizational Structure. Retrieved from: 

http://smallbusiness.chron.com/advantages-geographical-organizational-structure-717.html

Peng, M. W. (2014). Global business (3 ed.). Mason, OH: South-Western, Cengage Learning

Sugiyama, Yoshihito. (October, 2010). Walmart Japan: Direct Farm Program. Retrieved from:

https://www.youtube.com/watch?v=vEO2-yHqwEI

*Photos retrieved from Google Images

Challenges Facing the EU

It was in 1951 that, Belgium, France, Germany, Italy, Luzembourg, and the Netherlands signed the European Coal and Steel Community (ECSG) Treaty, which was the first step toward what is now the EU.

 

 

“Today’s EU is an economic union, the EU blends their economies into a single economic entity”(Peng, pg. 243) (The 17 EU members use the euro while the other ten use other currencies). While some countries such as France believe that the EU's, "economic union should inevitably evolve toward a political union, through which Europe speaks as one voice", different views like Britain look at the EU as "primarily an economic union, which should focus on free trade" (Peng, 245). 

The two challenges that press the EU are: 

Internal Divisions  v.  Enlargement Concerns

*Should the EU be both  an economic and political union or just an economic union.

*Should the EU expand or limit enrollment.



Internal Divisions

The EU encompasses 27 member countries, 500 million citizens, and contributes about 26% of the world's GDP (Peng, 2014). The EU portrayed itself to be an economic union when it introduced its common currency; the Euro initially in 12 EU countries. Second the EU created the Euro zone which to use the euro currency. The EU has also removed most of its internal trade barriers and made the aviation market a single one making, "All European carriers  compete on equal terms across the EU" (Ping, 2014).

With so many operations in each of these countries structure and order is needed to keep the EU intact. The EU acts as a political union when it enforces its European Council. There are 3 main institutions involved in EU legislation; European Parliament, Council of the European Union and European Commission (Europa, 2014).  Together these three institutions produce through the "Ordinary Legislative Procedure" the policies and laws that apply throughout the EU.

In 2010-2012 bailouts to rescue Greece, Ireland and Portugal have intensified the the debate whether the EU should be an economic and political union, or just an economic union" (Peng, pg. 245). In the Greece bailout, Germany "demanded that the EU-wide "economic goverance" be strenghened and that insolvent countries have to lose some of their economic sovereignty by having their budgets approved (or vetoed) by the EU"(Peng, 245).  

Enlargement Concerns


With low economic growth and high unemployment throughout the EU, many EU citizens are sick and tired of taking on additional burdens to absorb new members (Peng, pg. 246). Back in 2004 with the EU's biggest expansion the event proved both a political triumph but also an economic burden. It is expected that if Turkey joins the EU its population will put it as the "most powerful member by commanding the most significant voting power" and also pose a concern to the predominantly Christian EU due to its large Muslim population (Peng, 2014).



I agree with Christine Lagarde (managing director of the IMF) that a common vision must be implemented for EU to have a solid foundation to tackle these challenges. 

References:



Peng, M. W. (2014). Global Business. (3rd Ed.). Mason, OH: South Western Cengage

Learning.

Europa (2014). EU Institutions and other bodies. Retrieved from: http://europa.eu/about-eu/institutions-bodies/index_en.htm