Custom «Corporate Finance» Essay Paper
The Indian and Chinese aviation industries are among the fastest growing aviation businesses in the world. Various overseas markets have already staked claims on this profitable market. The wealth generated by these two economies means they will make up a huge majority of airline tourists (Renga and Mentges, 2010). Demand in domestic air travel will quickly be followed by demand for international flights. Inward investment from other nations of the world will count for a big section of the revenue increase that will be witnessed in the near future. International business tends to gravitate around major cities that have among other things, good transport networks. Booming economies being experienced in China and India are set to continue. This means that in the next few years means their governments will begin to focus on improving the air industry. To cut costs and expand Dan Air’s revenues at the same time, it is important, for all the direct overseas flights be conducted only from Manchester, which is where the headquarters of Dan Air is (Shaw, 2007). Dan Air flights from other U.K. airports consume avoidable expenses and can cause confusion among the passengers. We want Dan Air to be easily identifiable whether by its locality or first class service.
Dan Air’s U. K. passengers originating from other U. K. airports must also connect via London. They can also use other airlines that with direct services. To cater to the tastes of an increasingly cosmopolitan clientele, Dan Air needs to carry out improvements in the arrangements within the planes too. Gone are the days when flying through the ‘third world’ countries meant that standards could be compromised, and no complaints would be raised (Morrel, 2007). Those with the capacity to afford air transport in India and China are individuals who expect quality for their money’s worth. The interior of the planes, especially the Business Elite Class, should sport the most novel luxury. New materials will enable the employ of translucent walls and ceilings, deluging the fuselage with usual light. The sitting locations should be attractive, roomy and filled with interactive equipment. When flights are running at less than full capacity, unneeded seats should be moved to the rear. There they are out of sight and should be utilized in other ways. The remaining seats should then be redistributed so that every client has the maximum possible legroom.
These seats should also be created with materials which are both durable and accommodating. That way, they will be able to alter to fit passengers’ bodies. Travelers will be reenergized with vitamin and anti- oxidant enriched air, mood lighting, aromatherapy and acupressure treatments. The center of the plane will be a high tech zone offering a range of activities. Virtual golf, conference facilities and bar and lounge settings, are just some of the improvements that can be effected (Salerno, 2010). Though it seems a drastic move to ensure comfort of the travelers while they are in our care, it will pay in huge dividends. Word of mouth, if not advertisement, will ensure that an experience on Dan Air is recommended to people who have the means to afford our services. The wealthy hobnob within their class, and a good reputation in a few of their member’s estimations cannot compare with millions invested in advertising gimmicks.
As more Chinese and Indian households acquire disposable earnings in surplus of their requirements, a considerable share will be depleted in touristic travel. In 2006, 34 million Chinese went abroad. In the first quarter of 2007 alone, 9.7 million Chinese visited another country. Domestic travel for various purposes ahs also risen dramatically (Morisson and Winston, 1995). The Chinese Spring fiesta is usually a peak touring phase with citizens visiting their homes and other sightseer destinations. In the past, markets such as India and China have been highly regulated and have kept out the foreign carriers. This is slowly changing as their economies liberalize. The Chinese government in the past has shown interest only in developing small aircraft with 50 to 70 seats in regional flights. Tibet, Inner Mongolia, and other locations around them pose great opportunities for other carriers because they are not properly covered by present Chinese airlines.
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Future Demand for Air Cargo
With the projected growth rate of many third world economies in the future, cargo services will form just one of the many services they will require. It is important for agreements to be sought with the governments of all these economies with emphasis on India and China. Though Dan Air currently has no cargo aircraft capable of long haul transoceanic services, it is important to expand the role of airfreights in our airports. In reference to bigger airlines that have invested in nations such as India and China among others would probably allow limited points, predetermined capacity and limited intermediate points. With increased contact, more elasticity as to steering and supplementary faculties for all cargo flights may be incorporated in the bargain. To this end, sufficient resources should be placed aside for the employ of a number of aircraft loadmasters.
Aircraft Replacement within the industry
To reduce operating costs, improve compliance, enhance performance, and cycle times, Dan Air should consider outsourcing procurement of air pars and planes. There are companies in the market, which while achieving dramatic cost reduction, and increasing productivity, will help identify the right outsourcing approach that maximizes efficiency (Vasigh, Fleming and Mackay, 2010). They enable clients to achieve and maintain a competitive edge over others by proffering specialized outsourcing of aircraft parts purchasing services to provide lower costs. Such offers also ensure faster turnaround and improved quality. These companies have state of the art computer soft ware, information technology equipment, and global communication services that facilitate a highly efficient supply management system. It is advisable that Dan Air utilize the services of such companies in procuring parts. These will be needed to improve the overall quality of our staple of aircraft.
Managerial Style of Dan Air
Good management of employees is a key factor in determining if the airline will be a success or not. It can be measured in terms of efficiency and confidence. Efficiency refers to the usefulness of each member of staff in carrying out his or her allotted task and even surpassing the requirements to deliver spectacular results. It is characteristically calculated in traveler miles per airline employee. It calls for a manager to encourage his workforce to go beyond their expected routine to give good service. This can be implemented by offering rewards for the hardworking employees, as well as promotions (Haines, 2004). Morale is more difficult to quantify as it refers to the overall satisfaction of airline employees. Poor morale shows on an employee’s face and can result in apprehensive customers, cancelled flights and thus lost revenue. It is important to have a human resources department that will efficiently address the concerns of employees whether they are work related or not. An issue in the home should not be assessed as unimportant since it affects the capacity of the worker to operate at their best.
It is important for our airplanes to maximize the use of each plane and the revenue it generates. This can be achieved having many seats at cheap prices. Alternatively, after considerable improvement of the décor of the plane, we can charge higher prices for each seat. A higher ticket cost permits proficient task force administration without the need for all voyages to be filled. The following graph demonstrates the roughly calculated expenses of implementing all these changes along with others not here mentioned. It is more than is currently being used at Dan Air, but with the mentioned improvements, significant profits will be realized by the airline.
Start Up Expenses
Legal and Consulting 200,000 dollars
Route and Market Study 100,000 dollars
Office Supplies and Stationary 10,000dollars
Brochures and Marketing Materials 30,000 dollars
Design Consultants 60,000dollars
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Corporate Insurance 20,000dollars
Office Rent 50,000dollars
Software and Systems development 100,000dollars
Expensive Equipment and Office Furniture150,000dollars
Nine Expensed Vehicles 1 20,000 dollars
Public Relations and Advertising 80,000dollars
Crew, Staff Training and Manuals 80,000dollars
Other 30,000 dollars
Total 1,010,000 dollars
The construction of a new passenger terminal is a project that will add the airline’s profitability and should be considered. This will include an aircraft apron, entrance roadway, and vehicle parking area. Passengers will have a larger seating area with concessions such as restrooms and passenger amenities. It will be an energy efficient construction streamlining passenger screening and adhering to the code upholding disabled people’s rights.
Cost Cutting Measures
In order to ensure the continued profitability of Dan Air, there are unpleasant changes that have to be effected. We need to reduce 20% of our workforce as well as realign our current domestic route system. There are European routes that are currently not yielding the desired results and they need to be abandoned (Doganis, 2002). Pilots may have to agree to pay cuts to boost the overall revenues for an extended period of time. Accelerated fuel costs, an aging fleet badly in need of replacement and intense domestic competition have proved to be the Achilles heel of Dan Air. It also has to struggle with the fact that terrorism has led to fear in the masses. The majority of citizens began to avoid travelling via flying due to the shocking events of September 11, 2001.
On that material day, all flights were temporarily halted. Even though, they were back in action the next day, they hardly conducted any business. People stayed away, and those who had to travel urgently chose to take their cars or use public buses (Crans, 1996). As countrywide fear of flying receded, it was replaced by inconveniences brought about by security measures that proved cumbersome and time consuming. For the majority of airlines, they just meant that more capital would have to be used just to stay in the running. Long lines and inevitable delays were characteristic of every airport. Severe measures were taken soon afterwards to ensure that Dan Air survived the crisis. We formed alliances with other carriers to ensure that their customers had easier connections while our seats remained filled. The ensuing trouble with the union of pilots saw several weeks of unproductive negotiations. This translates to lost revenue. Other airline workers began to demand increases in salary while refusing to work overtime in one of the airlines busiest season.
Dan Air was forced to cancel 1500 flights. In this period, more workers had to be released for Dan Air to keep afloat. Taking into consideration the recession, hiked fuel prices, and war in the Middle East, the vast majority of smaller airlines at that time were hardest hit. They did not survive whereas we came out battered and bruised but still functioning. Dan Air weathered industrial troubles relatively well during that period. It was also affected by the failure of a well-known airline in which it had a significant portion of routes.
Dan Air’s consistent growth in times of hardship can be attributed to the stock of leaders that it has kept (Banfe, 1992). At first, dictatorial men who did not consider the opinions of the board of directors even as the company went into a slump headed it. Most of these pioneers were majority stakeholders who did not want to share power with others. They also did not believe in preparing potential successors to take over their positions when they retired. This led to a situation where every time there was a change in the top hierarchy, things would stagnate for a period while the new man in office got his bearings. He had to learn what running an international airline constituted of while in the office. Major decisions would not be made. The management did not feel able to dictate how the airline would be run if they were not the final authorities. There were the inevitable delays and grumblings from dissatisfied customers. They began identifying Dan Air by this unexplained hiatus of inactivity every time there was a change in management.
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Soon, without being told, the other stakeholders began to understand what caused the delays and sought to improve their choices of managing directors. This simple change led to a spike in the growth of Dan Air’s revenue. Such leaders are now needed that will effect painful but essential changes to the structure of this airline. The new heads also have to find ways of instituting change that will lessen costs but not necessarily influence security. Southeastern European carriers have a reputation of operating at a lower level of service than is customary in Western Europe. Purchasing airplane parts or entire crafts from these nations, though cost effective, is inadvisable. They are perceived as less comfortable, less safe, and less reliable. These observations are often correct.
The operating costs of such planes tend to be higher than those crafts that are built in the Western. The comfort, reliability, speed, and safety of a new aircraft will allow it to be the airline of preference for all governmental, business and organizational travelers. Most leisure travelers will also prefer it. State of the art navigational facilities allow the plane to operate under a wide range of climate and visibility conditions. This means that the plane will be able to undertake more trips. Safety issues will not be a deterrent due to the high technical expertise employed in the plane’s construction. This will translate to more profits for Dan Air. It will also reduce the incidence of flight cancellations and delays due to compulsory servicing procedures. Because of new technology and renovations, the airline will be able to charge high prices without its customers feeling conned. Local competition, unless it spots the same expert technology arraigned in the new models, will not be much of a threat.
Airlines should set these requirements as a genesis for the running a successful airline as they are sure to benefit whichever industry implements them.
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