SIMULATION REPORT

 

Executive Summary

The changes that have occurred in the global market have made a massive shift in the global view of businesses and has led to rapid improvements in the innovation to enable it to sustain itself and have a better competitive advantage (Al BAdi, 2015). It is, therefore, the role of the management team to make the necessary changes to improve it and come up with a better style of gaining a better market share. This is achieved by having better strategies and putting all the operational activities of the business running to enable it to attain better productivity and be more competitive in the market.

            This report gives performance analysis of the Savitar Air (SA) which is a regional airline carrier. Some of the important issues that have been examined in this report if the finance, operations, marketing, and human resource. All these have been put in place to support the vision of the airline and to establish a good strategic plan to be developed and be implemented.

            However, the achievement of better competitive edges needs the employees to unleash their full potentials and also have a better understanding of the advantages and benefits they can achieve through it (Mukerjee, 2016). It was also necessary to have the necessary knowledge concerning the competition that is present in the air industry and the actual competences of the company (Bieger and Wittmer, 2011). There have been challenges in the finance which have significantly resulted in low reliability, decrease in the quality and thus put the airline at higher risk of unsustainability.

            The airline have been put in the better position which was greatly influenced by the new management that came up with better strategies and a good business plan which has facilitated the airline in attaining its vision in reliability, quality and also in leadership. The marketing-focused in achieving better market penetration. The operation of the airlines was limited to regional until the period that the airline can attain better financial stability

             In the end, the airline achieved good improvements in the net profit, quality and also raised the stock price. The airline has therefore attained a better position in the market. The management should, therefore, continue to apply the strategies that have been put in place and also consider entering into the international market when they are in a better position to do so. Upgrading also of the current fleets is also necessary and acquiring more fleet.

Introduction

             It is the aim of all business to have a better competitive advantage in the market. Due to that, factors such as the finance, the human capital, technology, cost, innovation and also in the products delivery has been the key things that have put in the strategies to place the business in the better place (Ionescu and Dumitru, 2015). The motivation of the workers to needs to be highly considered because the success of the chosen strategies depends on the attitude and the role each worker plays to achieve the set goals (Barnett and Weidenfeller, 2016). In the airline industries, evaluation is vital in determining the efficiencies in the operations and also its competencies.

             The changes that have occurred in the airline industries mainly brought in by the increasing technology have made it necessary for businesses to become more innovative and also reduce the cost of their services. This has been greatly influenced by the rising competitions as different airlines are aiming at dominating the market.

            Therefore, the simulation was conducted to manage the operational activities of the Savitar Airline over twelve quarters to improve operational efficiency, human capital, financial structure, and the market share for its growth (Al BAdi, 2015). The organizational vision usually directs the goals and objectives of any organizations. It is for this that the airline seeks to establish itself to become the best airline, better quality, reliable and improve its market share.

            This report will analyze the performance of the Savitar airline which occurs in a very competitive environment and also highlighted the influence of the environment on its business strategies. The report will further determine the performance objectives of SA and will also highlight the vitals strategies that were undertaken to realize its success. The future projection and even the effectiveness of the management team will also be looked into. Finally, the report will give the important lessons learned during the simulation process.

Strategic Vision and Mission

According to Beiger and Wittmer, the vision of the organization is very important in directing the organization and enabling them to move towards the goal. This enables it to attain the necessary profits it needs, and therefore it plays a role in the strategic management process. Involvement of the team members in the setting of the goals usually brings a sense of belonging and self-motivates them because they need the goals to be achieved as they are part of it (Bieger and Wittmer, 2011). It simply enables the organization to attain sustainability in the most important areas such as finance, marketing, human resource, and operation management must be managed well for better outcomes in performance.

            In this regard, Savitar Air’s vision is to become the leading airline in the region by offering the best service in terms of class through provision of highly competitive rates together with safe and reliable service that will be valued by the customers. It was therefore, important for the company to have a vision which was clear and which will act as the center of all the operations the airline. The mission statement gives a link concerning the current organization business activities and the purpose of it. The strategies to put in place can come from the organizational visions and also the findings from the SWOT analysis. This provides for the development of the goals and objectives because it showed the strength, opportunities, threats and the weaknesses of the company (Gürel and Tat, 2017). A focus in this situation is put in on the current strength and opportunities that it has in the market and thus take advantage by use of the strength it has. This placed the organization a better position from the competitors

Environmental Analysis

• SWOT

The Savitar Air’s SWOT analysis in the quarter 1 of the simulation allowed the identification of the SWOT in the appendix 1 which highlighted that the Savitar airlines strength such as having good experience in the industry, offering of services in areas that were less attractive to other airlines, presence of good infrastructure and also having a framework for strategic planning (Jenkins and Williamson, 2015). Opportunities in the market were also present such as chance to increase fleet to allow more revenue to the company, offer of services in new markets foreign and resort as well as entry into new region to explore new routes and presence of flight magazine to promote brand loyalty (Gürel and Tat, 2017). Both the strengths and the opportunities gave the company an advantage as well as indicated better areas to invest in to allow for more revenue into the company.

The SWOT analysis also allowed for the identification of weaknesses that the company had such as less number of aircraft, existence of old aircraft from 1950s, high cost of maintenance less locations served by the airline and low passenger load factor. Threats identified by the SWOT analysis include high degree of competition, lack of brand awareness, low salaries and wages compared to competitors. The identified weakness and threats allowed the company to come up with ways to address the problem (Jenkins and Williamson, 2015). This was aimed to reduces the negative influence to the organization and promote growth.

 

Porter’s Five Forces

            There was high competitive rivalry, this resulted from presence of other lost cost airlines in the industry which thus resulted in the increased competitions. It was also easy for non-loyal customers to easily switch between airlines with a lot of challenges in exiting the market (Jenkins and Williamson, 2015). The customers also have that power because they are sensitive to the prices being offered by other airlines. There is also threat for substitution as there are also presence of other forms of transport which are less expensive and can provide the same service, in fact, there are also airlines that lower cost below that of high speed train. This is thus increases the chances of substitution.

            There is also rise in the fuel prices with major part of the airline cost going to the staff and labor accounting more than 40% this can lead to lower profitability which is then worsened by the little barriers for new airlines to enter into the market.

The main goal of the SA is to achieve its mission/vision through a well-defined and executed strategic plan to enable it attain the competitive edge in the airline industry. However, to attain this, there must be a good knowledge base and understanding of the nature of the competition in the industry, where they can compete well and their weaknesses (Magretta, 2011). A good understanding of this enables the business to have a good plan in goal attainment.

There was an exploration of more routes in the region which was enabled by the available financial support to acquire fleet. Marketing strategies through necessary promotion were instituted including fare sales, and this was important in enabling the company have a better position in the market share in meeting the individual needs (Jenkins and Williamson, 2015). The Savitar Air Porter’s Five Forces analysis revealed the need for frequent revision of the competitive strategies to facilitate the performance and reduces its high operating cost running at 78.8% during the beginning of the simulation

 

Corporate Strategy

The airline focused in proper management of the resources such as the finance by ensuring that they are used well for example in the maintenance, wages and acquisition of new products as well as management of the companies returns. It establishes the safe point for business and better strategies for the operation which will have a good effect on the final performance of the organization (Fraj, Martínez and Matute, 2011). It was therefore important for the Savitar airlines to implement important strategies to promote its growth and maintain sustainability.

            The Ansoff Matrix was applied in that the company focused in increases the sales of the existing services, this was done by the Savitar Air through promotions and advertisements. There was also introduction of the cargo services to the market which indicates development of the services offered (Baxter, 2019). There was also a focus in the market development which was done by the airline through introduction of new routes where there was use of the old fleets for short distance and for introduction of new and comfortable fleet. This strategy involves utilization of the available resources which were available in the airline and was effective as the benefits such as increased market penetration, improvement of the available product and development of the market for the services (Baxter, 2019). Savitar Air adopted market penetration through diversification by the introduction of the cargo services and also increasing the fleet and also increasing the number of routes (Hong and Zhang, 2010). This was important for its market.

Performance Objectives

            The main performance objective for the Savitar airline was to provide a service that is flexible, of good speed, quality, dependable and cost effective. This, therefore, required the setting of the SMART goals which gives the employees opportunity to set up competencies, build strong team dynamics and also promote support of the organizational vision to enable the airline attain this.

Marketing

                        The main aim for marketing was to increase the sales and also promote the airline brand together with creating awareness of its operations and services it offers. The strategy for marketing implemented mainly focused on the current market and expansion of the routes to put the organization in a good share of the market (Al BAdi, 2015). The decision to introduce the cargo service was made in the 3rd quarter, and it made a massive increase in the net profit over the remaining nine quarters (Baxter, 2019). The airline also remained in the regional market, and thus it gave it a better position to improve its position in the market and therefore allowed it to improve its market share. The decisions were made due to the fact that making a rapid expansion with the low-profit-margin would put the business at higher risk for collapsing just in case profits were not realized (Fraj, Martínez and Matute, 2011). Important factors such as promotion, fare sales, and reduction of the operation cost where highly considered.

            Savitar Air highly invested in promotions as a market strategy and also opted in use of the online platform. This was agreed upon, and the decision was to partner with popular web and reduces the flight charges by giving discounts. There was a need to rapidly expand the market and make it easier for the clients to get tickets; therefore, the use of popular websites was a good strategy because it had more potential to reach a larger market.

During the simulation from the 1st to the 12th quarters, the fare was increased from 38 cents to 40 cents per mile. Product provision was enhanced through the introduction of the level two snacks in the cabin service. This was introduced as there was room for accommodation without actually causing a change in demand and supply (Mayr and Zins, 2012). Addressing the basic needs of the clients improves satisfaction and also increases the chances of the client to be loyal to the airline. 

There was also an increase in the budget allocation and also for advertisements; this was done to create the demand for the routes which had low passengers load factors. The immediate impact was not realized until the 3rd quarter when the number of flights to different routes, and also there was a decrease in flights in some routes such as 1E2 which in the 3rd quarter has 5 flights but decreased to 4 flights.

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Operations

            A proper and more effective operational and process are important in achieving the performance goals and the overall growth. It also creates a window to gain a competitive advantage (Mukerjee, 2016). Savitar airlines aim to achieve and provide service of high quality, reliable, flexible and also make good profits.

            With the focus to penetrate the market to attain competitive edge, Savitar airlines initially used it 13 TP300 normal aircraft and later leased 4 of TP340. Maintenance was also kept low, and it also catered for other services for the flight. Other costs that was incurred were unavoidable as there was a need to maintain reliability and also considering security was very necessary. In the 4th quarter the airline also upgraded to the fleet by leasing 6 of normal RJ-350E and disposal of 2 owned normal TP-300 this resulted to a massive decrease in the net profit to $33996 but the profit increased in the 5th quarter.

            The company was able to come back to its normal operations by entering into new routes and also the allocation of the more comfortable TP340 and RJ350E on the long routes and the TP300 were allocated to the shorter routes. Flexibility on fuel was also considered on the procurement based on the contract purchases and spot (Baxter, 2019). The scheduling of the routes was also based on the passenger load factor; this reduced unnecessary flights and reduced expenses. The strategies reduced the cost of the operation which was mainly on the fuel, flight operation and maintenance services.

Human resource

            The human resource management is involved in the development of policies, practices and also other activities that can influence the way an employee behaves, performance and also the attitude. Presences of a good relationship between the employee and the human resource management place the organization at a better place for success (Loewenberger, 2013). It worth to note that, employees cannot come up with a good performance where there is no motivation, this can be in the form of rewards, social satisfaction and also satisfying the basic needs before moving to the next need.

            The airline aimed for a well skilled and competent individual who would be able to provide the best service for the company. It invests in the provision of training which it allocated budget and also offering an increase in wages (Loewenberger, 2013). This is part of the human resource, and it acts as the source of motivation to stuff. This promoted the reliability of the airline. Reward and recognitions acted as the most essentials in the human performance that are more likely to be long term solution for the employee’s satisfaction and on the other hand, promotes a more stable approach towards the market

Finance

            The prices of the fare per mile were increased from 38cents to 40 cents and kept constant throughout the 12 quarters. This is in line to provide a low-cost flight to facilitate and improve the market share for the flight this also places the airline a good competitive environment with others (Hamza, Mutala and Antwi, 2015). All businesses aim to have a good profit and attain sustainability which was also the case of Savitar airline. The aim in achieving profitability and realization of the investments done through the returns from investments. If more returns are desired, then there is a need to invest more, this is what the airline simply did.

            Savitar airlines made significant reduction in profit reduction in the profit during the 2nd, 4th, 6th, 7th and 11th quarter and it is mainly linked the cost of leasing of flights however it focused on maximizing the revenues by reducing avoidable cost in the fuel and also in maintenance (Hamza, Mutala and Antwi, 2015). At the initial start of the simulation process, the airline decided to use the available which lead to little net profit, but during the first quarter the company leased 4 normalTP-340 flight, this increased the expense it resulted decreased in the net profit.

            At the beginning of the simulation, the net profit of the airline was low at $5,253, but at the end of the simulation, it has significantly risen and attained a net profit of $255,164 this show rapid shift in profits with the highest percentage growth. The stock price increased from $20.00 to $32.94, earning per share increased from $0.04 to $1.70, and cumulative net profit was at $5,253 and increased to $1,316,842. This growth represents good management of the finances. The financial growth was achieved based on the growth of the net profit figures

Team Collaboration

             The decision-making process in the Savitar airline is deeply guided by the leadership. The servant leadership approach was adopted by the airlines to ensure that all the relevant activities or all the task that is supposed to be were performed within the necessary time (Barnett and Weidenfeller, 2016). Besides, engagement in collaboration was applied in the making decisions and in addressing other necessary functional issues in the company (Nam Nguyen and Mohamed, 2011). It was, therefore, necessary to appreciate the leadership style because of the ability to strengthen collaboration and also to play a huge role in the decision-making skills necessary for each in the team.

Future of Savitar Air

            The airline has a bright future with the current and continued implementation of the good strategies to help its growth. Initially, the airline net profit was low and this limited in the acquisition of resources to help in its operations. Currently, after the implementation of the strategies, the net profit greatly increased, and at certain quarters it became the leader in reliability and delivery of quality services. It is therefore important to note that a reliable airline has a very high demand especially on the issues of cargo services (Mukerjee, 2016). Therefore Savitar Air has bright future expansion and growth. The increase in the finances can also enable it to expand and explore other routes because it has the resources get other fleet and improve and improve on their services to ensure customer satisfaction

            The stock market price increased from $20 to $32.94, and this will highly attract investors and therefore will act as another source of capital. The capital generated can be invested to increases the number of available resources and generally expand the company. This will, therefore, put the company with a greater market share and will enable it to gain a better competitive age. The future for Savitor Air is thus bright.

Important Take Away

• A rapid expansion of an organization can cause negative growth if it is not stable financially; this is noticed in the areas where SA leased flight, and it leads to a massive decrease in net profits.
• The most important thing in giving direction for the attainment of the organizational goal is the vision of the organization. It is the one that directs how things should be done, but it must be supported by the financial, corporate and operational strategies which can be offered in good leadership.
• The human resource is a key function in an organization as it acts as the center for developing policies and addressing matters related to the employee to facilitate the attainment of its goals.
• Investment in the right resource can have a good positive impact on achieving organizational objectives. Better decisions are key to get the best outcomes.
• Investment of training has a positive impact on the reliability and quality of service offers by the employees. Savitar invested in the training of the employees which saw its net profit growth and also an improvement in the reliability making it become the leader during various quarters.

Conclusion

            This study was conducted to determine the effectiveness of strategies in business and to look into the challenges that come out during the decision making that was carried out by the Savitar Air. The aim was to enable the company to meet its goals in service and product delivery. The good leadership team and implementations of the necessary strategies involving finance, marketing and also in corporate made the airline attain better levels and even become a leader in the delivery of quality service and reliability. It also led to an increase in the value of the stock shares and rise in the net profit thus putting proper strategic plans as the solution to achieving organizational goals.

            The success in financial achievements has been marked by the ability to penetrate the market with slight changes in the pricing of the products. It can also be related to the promotions, fare sales and also upgrading the fleet to enhance the client comfort and improve satisfaction. The utilization of the SWOT analysis enabled the company to determine its strength to enable do operations in a highly competitive sector. It also showed the opportunities that were present to enable it to take advantage of and use it to attain its organizational goals.

Recommendations

            The Savitor Air realized a remarkable growth after the implementation of the strategies which therefore shows that the strategies that were employed were effective. However, some recommendations can help the organization attain better success. The first is a review of the strategies, continued reviews of the strategies enables the organization to come up with better strategies or improves the existing ones to enhance effectiveness. Acquisition of their website and proper marketing to enable them to sell more tickets and reduce the third party involvement

             Increase in the budget allocation on the promotion while help in improving the sales and thus profitability. The company should also consider the use of long term aircraft acquisition financing as opposed to the leasing this will increase the asset base and reduces the overhead cost and increase in profit. Continue with staff training to offer better services. Implementation of the performance appraisal system such as the 360-degree feedback for rewarding of employees who have performed well.

 

References

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APPENDIX 1: SWOT ANALYSIS

Strength ·         Provide air service to areas that are unattractive to large carriers ·         Good in-flight experiences ·         Good infrastructure and equipment ·         Framework for strategic planning exists within the organization	Opportunities ·         Increase fleet to allow more revenue ·         Offer service in new markets foreign and resort ·         Enter new region to explore new routes ·         In flight magazine to promote brand loyalty
Weaknesses ·         Less number of aircraft ·         Existing aircraft from 1950s ·         Spare parts requires allot of financing ·         Less locations served ·         Low passenger load factor	Threats ·         High degree of competition ·         Lack of brand awareness ·         Low salaries and wages compared to competition

 

APPENDIX 2: Porter’s five forces analysis

Competitive rivalry

• The levels of the competitive rivalry has become high resulting from low cost airlines
• Barriers of exit are high
• Customers who are not loyal can easily use different airline
• There is intense rivalry in the between the airlines as each one of them tries to achieve the leadership status.

Buyer power           

• Most of the customer are sensitive to fare changes
• The power of the buyer is raised by the presence of the online system for booking

Threat of New Entry

• The barriers that exist for entry of new airlines in the market is low
• Bureaucracy plays a role in establishment of new airlines
• Economies of scale

Threat of Substitution

• Presences of other forms of transport such as the road
• The cost involved in changing to the rail is lower
• The low cost airlines can offer prices which are less even than the fast trains

Supplier power

• The cost of labor and staff can be more than 40% of the total airline cost
• The power of the supplier is enhanced by the presence of Airbus and Bowing
• There is also minimal control over increasing prices of fuel with no substitutes of the oil