Theory into Practice 1

Master of Business Adminstration

Theory into practise Module
Report on
Airline simulatoin game
Company number 5
Kingfisher Airlines


Submitted by
Abhishek Bysani Mallikarjun
1127559


Question 1
In this simulation you chose a sector to operate in (budget, midrange or
luxury). What have you learned about these sectors as a result of your
experience in this simulation? What would you have done differently at the
beginning of the simulation and why? What would you have done
differently to be more successful during the simulation and why?


2 Theory into Practice


We choose luxury airlines to serve in a normal price range strategy as we
were given normal range airlines to start off with. As we entered into luxury
airlines we mainly focused on advertising and promotion and we were
maintaining good employee turn over as we paid extra bonus and employee
compensation to all employees and managers including pilots. Not only the
above programs helped is gaining profits its was also due quality and training
program. By doing all these we were into profits from the initial stage.

We choose to run our flights in a new market and we were monopoly in the
new market, we invested more in market research and this investment reaped
good profits in the all the quarters.

We knew that investing in luxury airline requires more investment and its too
risky to handle and sustain in the current market, by taking more risk we
invested in cargo in the initial quarter which gave us profits from 4
th
quarter.

Through decision-making we changed the market type to E R F and D as
these required cabin service and served with free drinks as complimentary to
maintain our good service we choose level 3 for maintenance with 40% for
parts and every month washing and thus keeping good quality service. And
we leased C type aircraft to run in resort market, which requires cabin service.
We in less loss due to low maintenance and ran more miles and there was a
engine failure and FAA fines us.

Thinking differently what we have done is changing the sector to luxury airline
service because no one in the simulation game took luxury and we were
monopoly. And we entered cargo in the initial quarters.

Kingfisher airline was in profits through the quarters as we applied porters
five-force theory, which helped us to gain profits.




1. Bargaining power of the buyer:

The buying power basically depends on the customer purchasing of air ticket
and depends upon the pricing but customers may tent to change the company
as they may charge less price. But quality is important as we serve a luxury

Theory into Practice 3

airline and we cannot compromise on quality. Kingfisher is the only company
with narrow market and buying power, which can cut down the switching
customers.

2. Bargaining power of suppliers:

As we had less suppliers we got supplies like fuel, cabin service, air engineers
etc.. as we purchased 50% fuel in contract and 50% on market price and in 1
st

and 2
nd
quarter we took cabin service flights on lease and we had hired
sufficient staff and employees and engineers. The power to by fuel in open
market is risky as there are many suppliers and it is easy to switch to contract
basis and it all depends on the company situation.

3. Threat of substitutes:

As the word says KINGFISHER like royal treatment and we were only airline
in luxury market and monopoly, and hence we did not have any tough
substitutes.

4. Threat of new entrants:

In this simulation we were only airline with luxury service and if any other
company wanted to join or change to luxury market they will have to invest
more in advertising and promotion, require more employees and need cabin
service facility and they will have to make heavy investments, which they
cannot bear with it.

5. Competition or rivalry between the firms:

We enjoyed being luxury from the beginning and earned profits in all the
quarters except 4
th
quarter. As we were monopoly in the market we had less
substitutes, no new entrants. As we entered into cargo market in 1
st
quarter
and earned profits from 4
th
quarter and we entered into new business in 5
th

quarter and started earning profits from 6
th
quarter due to wrong calculation of
miles we ran more in 4
th
quarter so went to loss and we paid penalty to FAA.

Question 2
What were the KPIs you used in running your airline and did they
change? Critically appraise the value of the information you had
available to you in the results packs during the simulation. How did you
use this to affect your decision-making?

The Key performance indicators were used in the simulation through value
chain process, which made our company a successful in the simulation, and
we kept on using KPIs through out the game, which made us bringing profits
in all the quarters.

Well-being:
4 Theory into Practice


As we are serving luxury airline we should make sure that quality and service
is given at our best thats is why we maintained level 3 as maintenance with
40% spare parts and every month wash, so that the safety is ensured. And we
dint have much engine failures or technical problems.

Deals:

We mainly focused on quality and training program for the employees and
thus we had good service, we were luxury airline running in normal fare
pricing strategy and provided with cabin service including free soft drinks and
snacks to the customers, in this game we had maximum number of seats
occupants this was increased quarter by quarter, we had even low fares for
two quarters to attract customers and our planes were flexible.

Simplicity:

Our company was simple and we did not waste more money on advertising
and promotion this helped us through market research as we invested in
market research, as we were in luxury airline we cannot compromise in quality
and service, but our fares were normal range.

Financial status:

As we invested in many thing that reaped profits at a later stage our operating
cost was high through the quarters. As we had a good share price around 42-
43 in the seventh quarter and our shareholders were also happy as we
declared dividends in quarter 6 and 7. This helped us in maintaining the
financial enactment of the shareholders.




Customers service:

We had a good customer rating and seat occupancy was about 70-80% as we
changed the market type and we were monopoly in the new market in the
beginning we had competition and there was a dip in market, later by our
quality and service kingfisher was leading. Our service and safety towards
customers was good and we still improved every quarter and we had
repeated and common customers this was due to our quality and service
given to customers and we got 84-85% in quality index. The success will
come from customer recommendation.

Advertising:

As we had minimum budget for advertisement and maintained till 4
th
quarter
but later due to competition we had to raise more and thus lead to more
operating cost. And due to high investment in advertisement we gained more
profit

Theory into Practice 5


Promotion:

As promotion leads to advertisement and we got profit in promotion through
market research and market research is very necessary to any airline.

Market research:

Market research is very necessary and is a main key function in
understanding the market situation and it figures out what we went wrong and
we made corrections in the next quarters and we spent maximum amount on
market research, at the end we got good results.




















Question 3
Giving due consideration to theory, evaluate how a merger or acquisition
might have changed your outcomes and the way you operated during the
simulation? What additional implications would there have been for your
company?

Merger or acquisition will depend on the companys position and its
circumstances. In an merger means both the company shares will merge and
new shares will be released. And acquisition means taking over the company
with all its shares and buys the company and this could be a friendly
acquisition as this could reduce competition between the markets and thus
leads to monopoly. This is done for expansion of the business and to reduce
the risk and cost.
In middle of the game I was asked to merge or acquisition with any other
company or running the airlines with their name but management was taken
care of kingfisher airlines so we refused to do it. In this simulation game if I
had a taught to merge I could have merged with company 7 as they using
6 Theory into Practice

almost same as our strategy but they could not overtake us in profits.
Company 7 was doing well and had few profits and losses and they were into
cargo business but could not make much profits but their pricing strategy was
quite good and maintaining their share price. We did not take any decision
about merge with it, it was just an idea we do not know what will happen in the
upcoming quarters as we were in massive profits we did not tent to take any
risk by merging.

If we were into acquisition we could have acquired company 1 as they had
more flights and did not utilize well and they were running only in A B and c
market type so if we could have acquired we could have set different routes
and give some quality service and increase the maintenance level.

The over all suggestion of our company is we wanted to merge or acquisition
with any airlines we wanted to stay as what we are because we were in profits
from the beginning and did not want to loose the name the market and could
not say what will happen in the next quarters, we want to stay what we are.

When we use the term "merger", we are referring to the merging of two
companies where one new company will continue to exist.

The term "acquisition" refers to the acquisition of assets by one company
from another company. In an acquisition, both companies may continue to
exist.

REF: (Kamal Gosh Roy Mergers and Acquisitions: Strategy, Valuation and
Integration, Prentice Hall of India, New Delhi)






This is analyzed by using LYNCH matrix
1. Internal development-inside the company:

In the beginning of the simulation the fare was .35 and .40 till quarter 4 later
from quarter 5 it was decreased to .39 till the end. Advertising and promotion
budget was raised up to $65000, we started investing in cargo from 1
st
quarter
and the we started getting profits from 4
th
quarter, and we also invested more
on market research from the beginning, so all these made us getting more
profits

2. Merge with outside company:

Kingfisher airlines was not willing to merge with any other company as we
were reaping profits in all the quarters so dint want to do any thing just stay as
it is our stock price had drastically increased from 21.17 to 43.36 in the 7
th

quarter. Mainly we had to reduce the operational cost which was very high

Theory into Practice 7

and in some quarters we could not utilize the miles properly. As discussed
with our group mates no one wanted to merge as we were in more profits.

3. Acquisition- home country:

As said above we were in profits from 1
st
quarter and in between we could not
manage our miles and ran more miles. We took loan to pay off our over draft,
and to manage the operational costs as it was very high.

4. International merger and acquisition:

As kingfisher was a normal airline serving in a luxury and flew international
and resort market, making profits through out the quarters. As we were luxury
airline we concerted more on resort market and industrial park.
As company internal market was only domestic and thinking of international
acquisition does not work out.


















Question 4
Appraise how successful your company was in your industry. Was your
relative success or failure due primarily to your analysis and diagnosis or
the choices and decisions you made? Which models and theory did you
consider when participating in the game and how did this help you?


The main cause of success of the company was we mainly focused on the
following

Advertising
Promotion
Cargo
Market research
Maintenance level
Quality and training programs
8 Theory into Practice


Kingfisher Company was in profits from starting and we were in minor loss in
4
TH
quarter rest all we were in massive profits and our profits increased
quarter by quarter.

The main reason for getting more profits were, we mainly focused on
advertising and promotion and more on quality and training programs and in
the beginig the investment was less and quarter by quarter we kept on
increasing because to reduce the employee turn over and this gained more
quality, which brings the customers for filing the seats. As we were running
luxuary airlines we cannot compromise on quality and we were loyal to
customers and employees by paying them extra bonus of 20% out of profits
and paid dividends in quarter 6 and 7, we almost had profits in all the
quarters. So after taking all into consideration I came to know that the
decisions we dicussed and applied were good.

The main advantage of our company was we statting investing more on corgo
and advertising and promotion in the quarter 1 and this starting reaping profits
from 4
th
quarter, We started investing in cargo in the intial stage and we knew
it will be into losses for about 3 quarters and finally we got more profits from
4
th
quarter, And totally we earned 157104. There was less technical problems
as we choose level 3 as maintance level and we were aiming at customer
satisfaction due to this maintance we got 82 quality index in the last quarter.

There were only few draw backs and failed to implement the statergies in the
fiels of calculating the miles and we ran more miles in quarter 4 so we were
fined by FAA and we were in loss and the loss was coverd upto 80% as we
had profit in cargo, there was more operating cost all over the quarters.

We did not buy any new aircrafts we only leassed two aircrafts because to
buy an aircraft was costing more so we planned to lease. And totally we
hired12 sales persons to serve the customers royally as we are luxuary
airline. And the maintance of the aircraft was done every three months to
serve better. Our company choose to run a normal airline by giving good
quality service to customers. We used porters generic strategy to analyse the
compators. And the decisions what we made was good and helped to devolop
the company




Theory into Practice 9


Reference: Michael E. Porter: Competitive Strategy Techniques for
Analyzing Industries and Competitors, The Free Press, 6th edition, 1980


Cost leadership:

Kingfisher fisher airline was a normal airline, which served as a luxury airline
by giving good quality service and the fares was also normal fare staring from
.35 as we started in quarter 1 and this could provide cost leadership, so from
5
th
quarter the fare was .39 to .40 until quarter 7 and this gave a good result in
customer demand.

Differentiation:

In order to create a difference we could have done by changing the fare type
from level 1 to level 2 and reduce the fare sale to budget fares this could give
us more customers and it is benefit for customers and we get more passenger
load, this could create competition in the market.

Cost focus:

In the beginning we focused on A B and C type market. Later we changed the
markets to E F and R type market, which served the resorts, and industrial
park which was growing in a high rate. As we were monopoly market in E F
and R, and did not change the markets through the quarters thus we made
profits.

To conclude by saying kingfisher was in profits in almost all the quarters
because we entered the cargo market in the beginning and invested in quality
and training programs, and focused more on advertising and promotion, we
10 Theory into Practice

tried applying PESTL analysis but porters generic strategy gave us a clear cut
vision for the success of the company.



References:
Johnson G, Scholes K, Whittington R, 2008. Exploring Corporate Strategy.
5th ed. London: Prentice Hall
Grant , Robert , 2003. Contemporary Strategy Analysis. 4th ed. United
Kingdom
Lynch, R, 2009. Strategic Management. 5
th
ed, United Kingdom: Pearson
Publications
Value chain
(http://www.beds.ac.uk/research/bmri/researchstudents/phd-
mphil/bisc/chain)
A strategic management simulation 4
th
edition-Jerald R. Smith Peggy A.
Golden