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Management Practice Assignment One Business Report On Simulation
Management Practice Assignment One Business Report On Simulation
Assignment one
UoB ID : 2016736
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Royal Luft Business Analysis Report
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Executive summary
This business analysis report is regarding the appreciation of how well the new management
has taken strategic decisions in order to increase airline performance and profitability, in the
three years of journey (Q1 – Q12). Corporate, business and functional level strategies were
analysed and discussed in this report.
The new management of Royal Luft used strategic tools and theories, firstly, to perform an
environmental analysis by incorporating SWOT and PESTEL, secondly, Porter’s five forces
analysis to determine the competitive environment, thirdly, corporate strategy was
developed by combining Ansoff matrix to position the company goals, fourthly, Porter’s
generic strategy was used in developing the business level strategy and positioning in the
differentiation level, where the new management offers unique and high priced services to
the high end customers as a luxury operator in the competitive market.
The new management team was able to secure key objectives which are aligned with the
new vision and mission statements. However, the management team could not smooth the
operating cost as it is always above the industry average. The author has provided feasible
recommendations in order to further sustain and in line with the new vision of “We aspire to
be the best”.
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Table of content
List of figures 04
1.0 Introduction 05
2.1 Rebranding 06
2.2 Vision, mission, core values and key objectives of Royal Luft 07
3.3.1 Operations 12
3.3.3 Marketing 14
3.3.4 Finance 15
4.0 Conclusion 16
5.0 Recommendations 16
References 17
Appendix 1 – SWOT 20
Appendix 2 – PESTEL 20
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List of figures
Figure 5 – Reliability 11
Figure 6 – Quality 11
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1.0 Introduction
The global commercial airline industry has sustained more than 80 million jobs and it has
contributed up to 8 percent of the gross domestic production, moreover, air transportation
delivers more than 30 percent of all global trade of value and roughly 60 percent of tourists
travel by air prior to the virus pandemic (Lange, 2020). However, according to Lange (2020),
with the pandemic an intense and sustained drop has caused in air travel demand, whereas,
in 2020 two third of the global aircraft fleet was grounded and more than 90 percent of
operations were stopped. According to Lange (2020), global air travel is expected to rebound
to 2019 levels between 2023 and 2025 with regards to current forecasts. However, when this
rebound happens, the airline industry is likely to be more turbulent in the next 30 years,
whereas, technology and geopolitics can have a major impact towards air travel (International
Air Transport Association & School of International Futures, 2018).
Before handing over to the new management, the airline operated for a couple of years as
a small regional carrier to thousands of small communities in a single region after being
abandoned by a larger carrier in the simulation. According to the case study the airline had
small losses and small profits, repetitively. The main reasons for this unattractiveness in the
region was caused by lack of airport facilities, short-haul flights, use of less efficient and high
maintenance aircraft and reduction in passenger traffic relative to other larger markets. Since
air transportation operates in a highly competitive environment, the long-term viability of the
organisation can have a major impact due to this dynamic presence. At the point of new
management takeover, the airline was operating only in region 2 and consisted of three TP-
300 aircraft, which can carry 30 passengers each, two of them were purchased and the other
was leased. Furthermore, the airline had a high employee turnover rate, low stock price per
share, minimum marketing budget and finances were held negative. A broad variety of
infrastructure, training, human resource management and capacity building initiatives are
involved in aviation development (International Civil Aviation Organization, 2021). The main
aim of these developments are to ensure safe and efficient air travel, which harmonise with
standard and recommended practices given by the International Civil Aviation Organization
(ICAO) and strategic objectives for the worldwide air travel network while adhering to the
mandatory United Nations (UN) sustainable development goals. As the COO of the team, the
author and the team took this challenge, as the new management, to invert the business
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model to achieve profitability through sustainability, while considering the logics and ethics
to align with the new management strategies.
The main aim of this report is to critically appreciate the theories in the MBA toolkit, in order
to build corporate, business and functional strategies to run the airline simulation for 12
quarters to turn around the organisation to profitability.
The report is compiled with five chapters, which discuss introduction, company overview,
strategic analysis, followed by conclusion and feasible recommendations in order to provide
more clarity to the reader.
In the beginning time, the airline was able to facilitate transportation from 10,500
passengers to 37,000 passengers in the last quarter, before handing over to the new
management. Furthermore, the airline was averaging 60 percent in the last quarter as their
passenger load factor. The new management paved a long-term strategic path to make the
airline more profitable.
2.1 Rebranding
Names, symbols, words and designs which distinguish a certain merchant’s goods and
service are called brands and new market models which are unique from the competitors
(Kotler and Keller, 2012). According to Muzellec, Doogan and Lambkin (2003), rebranding is
defined as the technique of creating a new name that represents a unique stance in a
stakeholder’s mind and separates identity from rivals. Hence, the airline was rebranded as
Royal Luft as the author and the team decided to invert the business model and serve as a
luxury operator to compete in the market after analysing the micro and macro environment.
In order to perform an external and internal analysis, the author and the team used SWOT
analysis (Appendix 1) and PESTEL analysis (Appendix 2) as SWOT analysis is a most popular
approach to determine micro environment, whereas, it helps to position an organisation’s
resources (Samejima, M et al, 2006) and PESTEL framework is used to map out the external
environmental behaviour in decision making, whereas, it inspire organisations to rethink long-
term objectives, furthermore, to select sustainable and innovative business investment
strategies (Sandberg, A. B et al, 2016; Stuiver, M et al, 2016). The new name for the airline,
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Royal Luft was derived from combining two simple words from two different languages,
whereas, ‘Royal’ from the English language, meaning that we serve as an aristocratic in the
airline industry as a service provider for high-end customers and ‘Luft’ from the German
language, meaning for air.
The airline logo, shown in figure 1, consists with a crown and two angel wings which
symbolise that the airline offers royally and heavenly services in air travel to the customers
and the airline motto “Luxury Travel Redefined” signifies that, in order to redefined the luxury
travel the airline has taken huge measures to increase its quality, reliability and safety
standards. The author and the team have selected two colours to build the logo. The golden
colour is linked with status concept, which signifies others’ admiration and respect as well as
a sense of entitlement, prestige, and exclusivity (Anderson, Hildreth, & Howland, 2015; Drèze
& Nunes, 2009), whereas, the black colour signifies the power, confidence, strength and
stability (Singh, 2006).
2.2 Visio, mission, core values and key objectives of Royal Luft
According to Kantabutra and Avery (2010), a compelling vision statement can have a
substantial impact on customer satisfaction as well as staff satisfaction, furthermore, it will
directly affect the business bottom line and the vision statement can show some
characteristics of conciseness, clarity, future orientation and stability etc. According to
Bratianu and Balanescu (2008), an organisation’s mission is derived from its social aims as an
assumed duty which helps to transform an organisation’s vision to a tangible existence.
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However, a mission statement combines the organisation’s social objective with the
foundation for achieving a competitive advantage, which differs from the vision statement.
And a good mission statement will help an organisation to sustain and prosper while
managing stakeholders and responding to various constituencies. Bratianu and Balanescu
(2008), argued that values play a significant guiding role in every decision making process.
Furthermore, values can help to deal with uncertain, uncontrollable and difficult
environments (Schein, 2004). Royal Luft vision, mission and core values can be found in the
figure 2.
Objectives can affect an organisation’s values, whereas objectives are measured with time
(Kotler and Keller, 2012). The author and the team used SMART concept to set feasible, time-
bounded and relevant key objectives to achieve at the end of 12 quarters, which is shown in
figure 3.
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Figure 3 – Key objectives
Source: Group work (Group C)
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According to Johnson, Scholes and Whittington (2008), there are three levels of strategy;
corporate, business and functional level of strategy.
According to Johnson et al (2017), corporate-level strategy looks into the issues of business
units and diversity of products and services, furthermore, it helps to utilise the resources
between various parts of an organisation. The new management applied the Ansoff matrix
(Appendix 4) tool and initially identified diversification as the best strategy to establish as a
competitor in the market by providing unique and quality service as a luxury operator.
Afterwards, the new management decided to penetrate the market by flying daily to all routes
in region 2. However, the new management later approached to regions 2 and 4 in Q2, region
3 in Q3 and expanded to all regions in Q5 as a market development strategy, which these
strategies aid to move the airline forward. This was supported by Kotler’s (1997) argument,
finding new customers can be achieved by shifting geographical locations resulting in market
development. New product development can be a high risk strategic decision (Calantone,
Garcia, & Dro, 2003). However, the new management decided to focus on product
development by introducing cargo services in Q2 and advanced seat selection and baggage
services in Q8 which aided the total revenue of US$ 360,949 and US$ 4,755,967 at the end of
third year (Q12). Moreover, the airline further diversified as a luxury operator by introducing
the auto rental in Q4 and air ambulance services in Q11 which provided a revenue of
US$ 179,549 and US$ 19,585 at the end of third year (Q12).
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from 50 cents to 51 cents fare per mile. Moreover, the new management offered level 3 cabin
food and beverages services, inflight magazines and all the aircraft were configured in luxury
seating. The implemented business strategy aids the new management to exceed customer
satisfaction, which results in achieving one of the new management objectives of achieving
more than 90 percent of reliability and quality (Figure 5 & 6).
Figure 5 – Reliability
Source – Interpretive airline simulation (2021)
Figure 6 – Quality
Source – Interpretive airline simulation (2021)
Mergers and acquisitions can help to achieve economies of scale through enhancement in
mutual infrastructure and other operational methods, however, uncertainty will rise in all
levels regarding efficiency and sustainability among the airlines (Nolan, Ritchie, and Rowcroft,
2014). When Royal Luft was offered a merger with Omega airlines, the new management
team rejected the offer as the level of uncertainty was high, moreover, the rebranded airline
started performing well and safeguarding the newly built airline brand image.
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3.3 Functional strategy
According to Johnson, Scholes and Whittington (2008), the functional strategy involves how
an organisation’s constituent elements, which are resources, operations and individuals,
successfully aid to achieve the corporate and business level strategies in an organisation.
Operations, human resource management, marketing and finance strategies implemented by
the new management are discussed in this chapter.
3.3.1 Operations
According to Camilleri (2018), airline scheduling is effectively arranging the airline fleet and
other resources according to advanced planning of the company operations to meet future
projected long-term business goals and demands. In line with the differentiating business
strategy, Royal Luft scheduled its fleet to attract high end customer routes in the markets.
Furthermore, seasonal variations, route distance and utilistion under the recommended daily
flying miles were considered in scheduling as an action to safeguard the aircraft and the
operation standards. Passenger load factor plays a major role as a key performance indicator
in the airline industry (Jenatabadi & Ismail, 2007). Throughout the twelve quarters Royal Luft
managed an average passenger load factor of 61.74 percent and at the end of the third year
the passenger load factor was 56.0 percent, a slight achievement of new management
objectives. The new management team decided to disposing the current fleet of TP-300
aircraft and replaced them with three leased RJ-350E aircraft with luxury seating
configuration, which are more fuel efficient, cost less in maintenance, have more daily miles
and incorporated noise reduction turbo-fan engines. At the end of the third year, Royal Luft
owned one RJ-350E aircraft and leased sixe RJ-350E and one RJ-500 aircraft, a total fleet of
eight aircraft serving two aircraft each in all four regions. Furthermore, the management
decided to utilise level 3 maintenance which helped to keep the aircraft health in optimum
level. The fuel contract was changed from contract to spot, while considering the industry
news and seasonal variations, whereas, it derectly affects to the total operating cost. As a
luxurious operator, the airline’s total operating cost was above the industry average cost
(Figure 7).
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Figure 7 – Total operating expense
Source – Interpretive airline simulation
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Figure 8 – Employee turnover rate
Source – Interpretive airline simulation
3.3.3 Marketing
Customer satisfaction can be enhanced through effective marketing strategies (Muala &
Qurneh, 2012). In order to achieve a competitive advantage in the market, the airline’s new
management team decided to move towards differentiation, which operates as a luxury
airline (Bowman and Ambrosini, 1997). Thus, the differentiation strategy aids the airline to
diversify the products and services from rivalries by adding high value and providing unique
services. The author and the team have done a STP analysis (Figure 9) in order to target a
specific market and cater to that market expectation. After the STP analysis, the author and
the team decided that the suitable customer market is the leisure and business travellers,
who expect high quality and unique services.
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Initially the promotion and advertising budgets were set on a lesser value and after
rebranding the new management decided to increase the total marketing budget to
US$ 98,740. Furthermore, a max amount of US$ 99,999 for promotion and advertising budget
was initiated to attract more customers, thus helping to develop the airline’s total revenue.
However, the cargo market revenue was under 1 percent of each quarter total revenue, even
though the chief marketing officer allocated a budget ranging from US$ 10,000 to US$ 60,000.
At the end of the third year marketing budget was divided equally for all regions by an effort
of 25 percent each. Another initiative of marketing and advertising was done by introducing
a website and a Facebook page. Details can be found below.
3.3.4 Finance
Figure 10 – Stock
prices
Source –
Interpretive airline
simulation
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4.0 Conclusion
The airline rebranded as Royal Luft to operate in the luxury category after studying the
micro and macro environment. After analysing these environments, the new management
team redesigned the vision and mission statement, core values and set new objectives to
achieve by the end of third year (Q12). Corporate, business and functional level strategies
were developed in line with the new vision, mission and key objectives. By the end of Q5 the
airline expanded its operations to all four regions, furthermore, at the end of Q12, the airline
owned one RJ-350E aircraft and leased one RJ-500 and six RJ-350E aircraft, expanding the
fleet. Financials being agile, however, the company achieved its objectives in Q12, by
increasing net profits and stock prices. Human resources management strategy enabled the
company to lower the employee turnover rate, furthermore, achieving above 90 percent
ratings in quality and reliability. However, operating cost was above industry average cost and
further attention needed in scheduling and fare pricing. Marketing strategy helped to identify
the targeted market and to provide services accordingly, whereas, it helped the company in
profit making and sharing profits with stakeholders to achieve a sustainable future.
5.0 Recommendations
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Appendix 1 – SWOT (Group work – Group C)
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Appendix 3 – Porter’s five forces (Group work – Group C)
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Appendix 5 – Porter’s generic strategy (Group work – Group C)
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