AIRLINEstudent Manual PDF

Airline
The Strategy Simulation
Jerald R. Smith, Florida Atlantic University

Peggy A. Golden, Florida Atlantic University
Michael Deighan, Interpretive Simulations
Charlottesville, Virginia, USA
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Discover a Better Way to Learn. Active Learning through Business Simulations.

Copyright 19862007 Jerald R. Smith and Peggy A. Golden; Copyright 20082012 Interpretive Software, Inc.;
All rights reserved. Printed in the United States of America. No part of this book may be used or reproduced in any
manner whatsoever without written permission of Interpretive Software, Inc.
Graphics used in manuals and incident videos BigStockPhotos, iStockPhotos, and GettyImages. Footage used in
incident videos iStockPhotos. Aircraft photos used in simulation software: British Aero Jetstream 31 photo
2005 YFB at en,Wikipedia; Beechcraft 1900, Brasilia, Saab 340, and Aerospatiale ART42 BigstockPhotos. All
rights reserved. ERJ135 and CRJ100 photos are in the public domain.
TABLE OF CONTENTS
Introduction ................................................................................................................................................. 1
Overview of Airline................................................................................................................................... 1
Key Simulation Objectives ........................................................................................................................ 2
Team Organization ................................................................................................................................... 5
Peer Evaluation ........................................................................................................................................ 5
The Strategic Planning Process ............................................................................................................... 5
The Airline Manual................................................................................................................................... 7
Section 1: The Airline Case ....................................................................................................................... 9
Section 2: Airline Operations Guide ...................................................................................................... 25
Detail of Menu Choices .......................................................................................................................... 27
STARTUP .......................................................................................................................................... 28
DECISIONS ....................................................................................................................................... 32
ANALYSIS ........................................................................................................................................ 46
COMPANY ........................................................................................................................................ 50
INDUSTRY ........................................................................................................................................ 57
Section 3: The Strategic Planning Process ............................................................................................. 65
Analyzing an Industry ............................................................................................................................. 65
Establish Goals and Objectives .............................................................................................................. 66
Organizing Your Team ........................................................................................................................... 67
Record Keeping ...................................................................................................................................... 69
Functional Decision-Making .................................................................................................................. 71
Finance ............................................................................................................................................... 71
Marketing ........................................................................................................................................... 81
Human Resources ............................................................................................................................... 83
Operations / Planning ......................................................................................................................... 84
Appendix .................................................................................................................................................... 89
Guide to Common Costs and Values ...................................................................................................... 89
Worksheets and Analysis Forms ............................................................................................................. 92
Glossary................................................................................................................................................ 107
Index ......................................................................................................................................................... 111
Print Date 3/20/2013
ABOUT THE AUTHORS

Dr. Peggy Golden is currently Professor of Management and International Business at Florida
Atlantic University teaching graduate and doctoral courses in Strategy and the Environment of
Business. She has also taught courses on global competition in Spain and to computer industry
executives in Asia. Prior to her arrival at FAU, Golden taught at the University of Louisville for
five years in a variety of areas including the management of information systems. All courses
are taught through extensive use of cases, experiential exercises, and simulation experiences to
reinforce the learning process.
In addition to teaching college courses, Dr. Golden has also conducted numerous workshops in
the development of competitive strategy, general management principles, special topics for
women managers, time management, decision-making, and team-building. Consulting activities
include strategic planning, systems analysis and design, and management of change.
Dr. Golden is an active researcher and writer. She is currently studying corporate reputation and
the interaction of corporate governance on top management team pay disparity. She has
published seven management simulation games and numerous articles and papers in the area of
strategy formulation and implementation, and simulation development and use. Visit Dr.
Golden's homepage at http://professorgolden.net
Dr. Jerald Smith is Professor Emeritus of Business Strategy and Policy at Florida Atlantic
University. He is the author of eight simulation games spanning many interest areas in
Management and Marketing. He has taught a broad range of courses at the undergraduate,
masters, and doctoral level. He was one of the first to teach a course on the Internet as a host for
professional MBA's who are on the go. Dr. Smith has consulted for Fortune 100 companies in
diverse areas such as ethics training, supervision, and has helped formulate strategic initiatives
for these companies. He is the author of numerous articles. Visit Dr. Smith's homepage at
http://www.fau.edu/~jrsmith
Michael Deighan is a co-author on the new web-based editions of Airline, Entrepreneur, and
HRManagement. His expertise, insight, and creativity proved invaluable and made it possible to
convert these models to their current web-based versions. Michael joined Interpretive
Simulations in 1989 as lead software developer, and is now Chief Technology Officer. He is coauthor on a number of Interpretive simulations: PharmaSim, AutoSim, BizCafe,
StratSimMarketing, StratSimManagement, StratSimChina, ServiceSim, CountryManager, and
MarketShare. In addition to developing software, he has been teaching computer programming
classes at Piedmont Virginia Community College, in Charlottesville, Virginia, since 1990.
Michael received his B.A. in German and Economics from Washington and Lee University, and
an M.A. in German from the University of Virginia.
ACKNOWLEDGEMENTS
Simulation games such as Airline: A Strategic Management Simulation becomes realities only
because of the cooperation of many people and organizations. We wish to acknowledge some
of the individuals and groups that gave their time and expertise in the development of this
simulation.
Special thanks go to many kind people. Bryce Appleton, former CEO and owner of Midstate
Airlines, for his willingness to teach us the commuter/regional airline business.
A special thanks to the management team at Florida Atlantic University's College of Business
and Graduate School of Business for encouraging simulation technology including Dean
Dennis Coates.
We also appreciate the many professors in the academic field who believe in the unique
benefits of learning through simulations, including Thomas Hudson, Joseph Peyrefitte, Mark
Meckler, Peter Goumas, Joe Wolfe, Bernie Keys, Marshall Schminke, Howard Feldman,
Wayne Koprowski, Herman Wassons, Ron Ryan, Jenniver Ettling, Chunyan Yu, Ron Spense,
Steve Harrington, Miguel Hidalo, Douglas Marshal, Jaou Merkt, Tina DeBrass, Margaret
O'Rouke-Kelly, Pierre Louis Agnes, Jerry Terrell, David Ackerman, John Myhre, Virginia
Smiley, Ronald Levy, William March, Cliff Ingari, Chris Graham, J. Bakki, Seema Pissaris,
T. K. Hudson, Risa Morimoto, Stephan Tvorik, Ron Ryan, C. Daniel Prather, Eric LAU,
Ann Lombardi-Butt, Joseph Cacciola, P. Jegede, Pinky Au, Dave Swanson, Kim Milnes,
Michael Wright, Tim Rogers, Guido Harling, Sharon Frank, Jennifer Malarski, Dave
Swanston, Laura Hart, John Cipolla, Edward Conrad, Tim Bliss, Chad Depperschmidt, Lars
Askholm, Keith Mew, David Klein, Tara Radin, Robert Govers, Carole Bonanni, and Curt
Moore.
There are many others whose names were lost when we lost some files during one of Florida's
hurricanes. We are sorry and will add youjust let us know.
Most adopters of a simulation are a special breed. They understand the benefit of "learning by
doing" and are willing to suffer the pain as the authors try to get everything "right." They
know that a simulation is never finished but is a project in constant change and tuning.
Usually by the time we get everything "right," it is time to start on a revision to update the
information. This is very true in the airline business as new aircraft and strategies are in
constant change.
Special thanks go to Marshall Schminke who is our best critic and loyal fan, giving us many
corrections and suggestions down through the years, Vivek Patel for his technical assistance,
and Michael Forte for his expertise in the field.
INTRODUCTION
Welcome to the exciting world of simulation! Unlike most education
and training exercises, this simulation provides you and your team the
ability to practice managing all the aspects of running a business, in this
case, a regional airline carrier. You will have the unique opportunity to
make decisions, see how the decisions work out, and then try again.
Thus, you will get a "hands on" experience with manipulating key
strategic variables in a dynamic setting.
In Airline, you will

have a "hands on"
experience of
manipulating key
strategic variables in a
dynamic setting.
In this simulation, we have attempted to illustrate the strategic

challenges facing an airline in the real world, but simplified somewhat
to make it a manageable task. Each simulated quarter, your decisions,
along with all of your competitors decisions will be modeled along
with changes in the environment to reveal how your company performs
in this dynamic marketplace. The relative success of each team's
decisions will be displayed in the simulation newsletter and in the many
reports furnished each decision quarter.
Overview of Airline
You will be managing a regional airline that will be competing with
other teams (up to a maximum of 12 total teams). This browser-based
application will give you the opportunity to design and implement a
strategy, make decisions in a team environment, and learn business by
experiencing it first-hand. It is strongly recommended that you
approach the simulation as if you were managing a regional airline in
the real world. In the real world, managers must make decisions
without perfect information, under conditions of uncertainty, and within
time constraints. Of course, it is also important that you understand the
rules of the simulation.
Each team will manage their own firm in the simulation. Typically, the
team's organization is left up to the members of the team. Teams are
expected to establish objectives, plan their strategy, and then make the
decisions dictated by these plans. Decisions are entered on-line in the
simulation. After all teams decisions are made, the simulation is
advanced, and all of the reports and research are updated. This process
is done for several decision periods. Airline has up to 12 possible
decision periods (simulated quarters). Your instructor will inform you
of the number of periods in your particular game.
IntroductionPage 1
It is recommended that you not use the "stab in the dark" method of
making decisions but rather to think carefully about the variables you
change and their particular impact. A thoughtful process will allow you
to better determine which elements are more effective in obtaining
desired results. Do not rely on information gathered from others who
have competed in the simulation in the past, as your instructor can
change the simulation environment for each class. All teams will make
a few mistakes throughout the simulation but mistakes happen in the
real world, too. Remember to keep your enthusiasm and competitive
spirit high and do not allow a few setbacks to affect your play.
Key Simulation Objectives

Your team's performance might be judged against the goals you have
formally or informally set, or ones set by your instructor. However,
remember that at the end of the day, an airline must eventually make a
profit, have positive cash flow, and create a positive return for investors
in order to stay in business. As in the real world, your firm will not
have enough funds to implement every available option. You will have
to make strategic choices regarding investing limited resources.
To understand the general process of the Airline experience, please
review the approach outlined on the following pages.
Page 2Airline Student Manual
Read Section 1
of the Manual
Learn How to
Operate the
Simulation
Develop Goals and

Strategic Plan
Implement your
Strategy
Section 1 (Case) of this manual presents a description of your

firm and your industry's current situation. A thorough
understanding of your firm, its current situation, and the
general operating environment will help your group decisionmaking process. The case provides a great quick start
overview of the simulation.
Section 2 (Operations Guide) provides detailed information on
how to use the simulation and each menu option. In order to
quickly learn the functions of the menu commands and
become familiar with operating the program, it will be helpful
to have access to your simulation as you work through this
section.
Industry market and competitive reports are available for
purchase to improve your decision process. Here, your firm
will find comparable performance measures for all the airlines
in your industry, future demand forecasts for your airline
based on business conditions, compensation packages for each
competitor, competitive fares, sales by company and route,
and relative advertising, promotional, and sales force
decisions. From this information, you will devise and
implement an appropriate strategic plan for your company and
gain insight into how other firms in your industry are
performing and positioned. Just as in real life, however, some
information and reports will prove more useful than others.
Part of your decision process will include deciding which
information is most useful to your firm.
After reviewing information about your firm, the
environment, and the competition, your team will decide how
to manage your company in light of your strategy. This
management must be translated into a set of decisions each
periodthe implementation. In the words of management
guru, Peter Drucker, The important decisions, the decisions
that really matter, are strategic . . . but more important and
more difficult is to make effective the course of action
decided upon. In other words, having a good strategy is
essential, but the real challenge is implementation.
Implementation is what often separates a successful firm from
the rest of the pack.
IntroductionPage 3
Enter Decisions
Advance to the
Next Period
Review Results
Repeat
NOTE:
You may find it helpful to print out some
reports and step back from the computer
from time to time. Analyzing information
and determining an integrated strategic plan
is a complex task. It is important to take
time and reflect on the information,
especially when working in groups.
As you enter your decisions, they are automatically

saved, so there is never the need to upload them to the
server.
When you are finished entering your
decisions, please review the decision summary to
check for errors.
The simulation will be advanced at a specified time
according to your course schedule so that everyone
competing in the industry will have a chance to enter
their decisions. Make sure your decisions are entered
before the deadline as once the simulation is
advanced, it is impossible to go back and make
adjustments.
Once the simulation is advanced, information will be
updated, and your firm will have access to the
updated results. Compare your results with those of
the entire industry and consider how well your
strategy is working.
Repeat the decision-making process until all periods
have been completed. At the end of the simulation,
you will be able to see how your firm performed over
the entire game and view comparative results with
other teams.
Competing firms will be following their own

strategies and reacting to your decisions. The
simulation always starts from the same position, but
each game will proceed on a unique course depending
on the strategy that each team chooses. This will
allow competitive comparisons and illustrate how
businesses can evolve differently.
Team Organization
Getting off to a good start is critically important in managing a firm or
participating in a simulation. Your team should be organized as soon
as it is formed. Specific duties should be assigned with each person to
be held accountable for his/her responsibilities. It is recommended that
you assign a "lead" person to head up the team, perhaps with the title of
President or CEO. This position could be assigned on a rotating basis
to give everyone an opportunity to take a leadership role.
If you do decide to operate as a self-managed work team, you should
consult your course textbook or other resources in order to learn how to
make it work. Picture your team functioning as a team, rather than as a
"group"can you visualize the difference?
Peer Evaluation
Your instructor may ask you to complete a written or online peer
evaluation either at mid-term and/or at the end of the semester. When
duties have been clearly assigned at the beginning, a peer
(performance) evaluation will be easy to accomplish. This evaluation
is to be completed without consultation with other team members. You
should be very honest in evaluating the performance of your team, as
your instructor will have insights from observing your team processes.
The Strategic Planning Process

Planning is the process of preparing for the future. While thoughtful
and detailed planning does not ensure success, the vast majority of
successful organizations practice good planning and strategic analysis.
Of course, a firm can do too much detailed planning and not be flexible
enough to react to environmental changes and opportunities. On the
other hand, operating without a plan also has its drawbacks; if an
organization doesn't know where it's going, how will it know when it
gets there?
There is a hierarchy to the planning processfrom the broad and
general direction set by top management to the detailed planning
required at the operating level. The outline that follows indicates this
process.
IntroductionPage 5
THE STRATEGIC PLANNING PROCESS

I.
II.
Establish the Purpose (mission, master strategy) of the Organization

Analyze the Firm's Environment
a) The External Environment (termed industry study)

Environmental Threats
Environmental Opportunities
b) The Internal Environment
Organizational Strengths
Organizational Weaknesses
III.
List all Possible Courses of Action
IV.
Select Best Course(s) of Action
V.
Establish Goals and Objectives Which Will Accomplish the Desired Course of
Action
VI.
Prepare an Action or Strategic Plan that Describes How the Objectives Will be
Accomplished
VII.
Establish Policies, Standard Operating Procedures, and Methods Which Will

Expedite the Accomplishment of the Objectives
VIII.
Establish a Control and Feedback System to Keep the Organization on Track with
the Strategic Plan
In narrative form, the outline answers these questions:
Where are we now?

Where could we go?
What could we do?
What is the best thing for us to do?
How are we going to do it? Who is going to do what parts?
How are we going to measure our progress?
The Airline Manual

The remainder of this manual is divided into three sections:
Section 1: The Airline Case
This section presents the information about the overall operating
environment in a form similar to a business school case. This will
also serve as an introduction to the current situation at the start of the
simulation.
Section 2: Airline Operations Guide
This section outlines the operational aspects of using Airline,
including how to get started, the menu and help systems, and a
detailed description of each report and decision screen.
Section 3: Decision-Making in Airline
.
This section provides guidance on how to analyze information and

create a strategic framework for making decisions.
Appendix
The Appendix includes sample incidents (special events in the
simulation), several forms, and a glossary of terms used in the
simulation, and an index.
IntroductionPage 7
SECTION 1: THE AIRLINE CASE

This section presents the case of a firm that was used as a model for the simulation.
The case was written after extensive research into this real commuter airline.
History of the Airline

The regional air carrier you are taking over is well known to thousands
of people living in small communities near your current hub. Like
other regional or commuter airlines, the company has been providing
air service to cities and towns that were unattractive to large carriers
because of the population size or the limited facilities at the local
airport.
Analyzing the airline

industry and this case
will help prepare your
team for the internal
and external
environmental factors
in the simulation.
When the Federal government deregulated the entire airline industry,

all companies were able to compete for passengers by creating
competitive fare structures and competitive routes. One response by
major carriers was to diminish service to the less profitable markets and
create hubs in large cities. Regional airlines jumped in to fill the
service vacuums left in many medium-sized and small cities,
establishing their own mini-hub operations in these smaller markets.
Your airline was originally established as a "mom and pop" business
when NC Airlines stopped serving your local region. The company
grew from a fledgling carrier that transported 2,700 passengers in its
first year, to a regional airline that was carrying 20,000 passengers last
year. Though steadily growing, the airline has had a cyclical history of
profitability, ranging from small losses to small profits as shown in the
operating history table below.
OPERATING HISTORY (Preceding 8 Quarters)
Qtr.
#
0
-1
-2
-3
-4
-5
-6
-7
Revenue
Passenger
Miles
4,259,321
3,976,427
3,492,145
2,897,566
2,680,345
2,344,965
2,202,798
1,983,388
Available
Seat
Miles
8,147,200
8,147,200
7,465,400
7,465,400
7,465,400
5,320,650
5,320,650
5,320,650
Yield per
Revenue
Passenger
Miles
0.350
0.375
0.389
0.464
0.500
0.415
0.437
0.486
Yield per
Available
Seat Miles
0.183
0.183
0.182
0.180
0.180
0.183
0.181
0.181
Load
Factor
%
52.3%
48.8%
46.7%
38.8%
35.9%
44.0%
41.4%
37.2%
Net
Profits
$22,234
$8,450
$3,520
($205)
$5,872
$2,156
$435
($6,310)
Fuel
Spot /
Contract
.96/.96
1.01/.93
.99/.94
.98/.96
.94/1.01
.92/1.00
.93/1.00
.95/.96
The Airline CasePage 9
Markets and Routes
DECISIONS
MENU
In the world of Airline, there are seven market types designated by

letters (AF, R). These market types each have their own unique set of
associated characteristics in terms of geographic location, flight
distance, population base, etc. In addition to the market type, there are
also routes, which are numbered from 1 up to a maximum of 52. These
routes represent a unique airport-to-airport flight. Thus, market / route
designation "A1" represents a unique route (#1) to a market type A.
*Generally, demand is
an expected firm
average under normal
economic and
competitive conditions.
As more companies
come to market with
different pricing /
schedules / amenities,
these averages will
probably hold. At some
point the market may
become saturated.
You'll want to monitor
this as companies enter
new markets.
In addition to having unique market characteristics, each market type

starts with a different level of competition. Market types A-D all start
with 2 competitors. Each market type E only has one firm serving its
population (a temporary monopoly position for a firm). Finally, market
types F and R are not currently served by any firm, and are open
markets. However, it is important to note that because of deregulation,
any firm can now enter any of markets AF and R.
The table below provides a helpful description of these market types,
estimated demand (passengers per day), and the level of competition at
the start of the simulation.*
MARKET CHARACTERISTICS
Market
Type
Qtr. 0
Daily
Seat
Demand
per
Firm
Qtr. 0
Number of
Competitors
in Market
Round
Trip
Miles
18
600
From your mini-hub to a medium city with light manufacturing and

service businesses.
36
400
Service between 2 medium cities. One has a large number of service

businesses and the other a military base.
18
340
36
360
36
400
3060
420
2030
600
Description
From your mini-hub to a regional hub that has a large number of heavy
manufacturing firms.
From your mini-hub to a medium city that has a major university and
extensive business services, with a stopover halfway out from the hub at
small but growing technology cluster. For simplicity, fares are the same
to either destination.
From your mini-hub to a medium city that has a new and growing
industrial park.
From your mini-hub to a foreign city not too far from the border that has
a diversified industry and tourist trade.
From your mini-hub to major resort/recreation area.
Regional airlines generally fly routes that terminate in larger cities that
have major airline connections. Passengers prefer nonstop flights at
convenient times and this factor can stimulate demand. However, since
the demand may be small at any particular stop, regional airlines will
often provide direct service (on the same plane) to a hub city, making
one or more stops along the way. Please see the generic route system
below to help you visualize the available markets and their
relationships.
ROUTE MAP FOR AIRLINE FIRMS
Regional Hub
C
600 MILES
600 MILES
340 MILES
Your Mini-Hub
360 MILES
420 MILES
400 MILES
400 MILES
D STOPOVER
Flight Scheduling
The number of flights per day is a crucial factor to the success of an
airline. Too few flights prompt prospective passengers to drive to the
nearest competing hub and too many can be too costly to maintain.
With the exception of the resort and foreign runs, it is not practical to
fly only one or two round trip flights per day into a market; there would
be no passenger loyalty and the cost to maintain a station there would
be prohibitive. The careful balancing of flights and seats in a market is
an important decision for your firm as the passenger load percentage
(number of paid seats divided by total seats) is a major driver of
success. At current prices, the breakeven point for a flight is 45 to 55%
load.
NOTE:
One Beechcraft 1900
aircraft can cover
approximately 1800
miles per day.
When entering a market for the first time, your management team
should recognize that there is a certain "lag" effect of developing that
market. It may take one or more quarters to fully develop a market.
You will find that customers are NOT very "brand loyal" and look for
attributes such as frequency of service (which also translates into
number of seats provided in a market per day), and, to a lesser extent,
price of the fare.
You can differentiate yourself in individual markets by your frequency
of service (flights per day in a given market), seats flown per day in
that market, aircraft choice for that route, and fare sales (when desired).
Three or more round trip flights per day in a market is typical while two
round trip flights is minimally acceptable. The exception to this rule
are the Resort (R) and Foreign (F) markets; you may successfully serve
these markets with only one flight per day.
Airline Equipment
Your airline competes with other commuters as well as some national
airlines for modest numbers of passengers departing from a location.
This smaller market is reflected in the type of equipment flown. The
available aircraft range in size from 19-passenger propjets to 50passenger fanjets. Although some of the equipment dates back to the
1950's, newly developed commuter aircraft contain state-of-the-art
technology in materials, fuel efficiency, noise abatement, and
nonflammable cabin materials. Since there is an abundance of preowned equipment available as other, larger and more profitable airlines
traded up, the airline has a large choice of aircraft to choose from if
they decide to expand. The present fleet consists of three 19-passenger
Beechcraft 1900s.
Since there is no perfect aircraft for all markets, airlines have the
discretion of selecting from a variety of aircraft types. Smaller aircraft
work well on shorter routes, providing the convenience of multiple
flights per day, which is important in the AE markets. Larger, faster
aircraft are better for the longer routes, especially the resort and foreign
markets. While discount passengers are willing to fly in the
Beechcrafts, luxury customers insist on cabin-class service (i.e.,
standing head room, toilet, and a flight attendant on longer flights), and
have a preference for jets.
NOTE:
The composition of the
fleet of any airline
should reflect
corporate strategy.
In addition to the impact aircraft selection will have on customer

demand, keep in mind the cost of replacing your existing aircraft. The
additional revenues generated by an expanded fleet may be offset by
the higher cost of equipment, speed, fuel efficiency, or other variables
that affect the cost of operating and maintaining the equipment. Thus, a
successful commuter/regional airline may have a fleet that includes a
mix of equipment, including smaller craft.
Refer to the table below for aircraft specifications and costs.
Aircraft Type / Name
Cost
(M)
# of
Seats
Cruise
MPH
Cabin
Class
Max.
Daily
Miles
Type
Quarterly
Lease
Beechcraft 1900
(Firm owns 3)
$2.0
19
268
No
1800
Prop
Jet
$80,000
Min. headroom; no toilet; no

flight attendant. required
British Aero 31
$2.2
18
253
Yes
1800
Prop
Jet
$82,000
Standing room; toilet; no flight

attendant required.
Embraer Brasilia
$3.1
30
294
Yes
2000
Prop
Jet
$132,000
Standing room; toilet, requires

flight attendant.
Saab 340
$3.4
34
272
Yes
1800
Prop
Jet
$144,000

flight attendant.
Embraer ERJ135
$4.3
37
400
Yes
2400
Jet
$184,000

flight attendant.
Aerospatiale ATR42
$4.4
46
300
Yes
2000
Prop
Jet
$185,000

flight attendant
Canadair CRJ100
$5.8
50
450
Yes
2400
Jet
$240,000

flight attendant.
Notes
Note: You start the simulation with 3 Beechcraft 1900s.
Airplanes do not generate revenues when they sit on the ground.

Therefore, utilization is a variable that can affect successful operations.
A typical aircraft can be flown for 10 to 14 hours a day, which allows
for overnight maintenance and an average of 10 to 12 legs per day.
This calculates at 1800 miles flown per day per aircraft (for the airlines
current fleet of Beechcraft 1900 aircraft).
Financing Assets
Your company has several types of fixed assets: airplanes, ground
equipment (i.e., ground power units, tugs, de-icing equipment, baggage
carts, and trucks), maintenance hangars, office facilities, and
computers. In addition, preventive and corrective maintenance require
an inventory of spare parts that may include extra engines. This
inventory can tie up significant amounts of cash. Some fluctuation
occurs based on the size and the composition of the fleet.
Assets are financed through several channels. Aircraft may be leased
for a period ranging from 1 to 15 years. Leasing provides advantages
to an airline that does not have cash available for a loan down payment,
does not have sufficient collateral, or wants to use a specific type of
equipment for a limited period of time. Airplane leases may be either
operating or capital leases. Operating leases do not appear as assets on
the balance sheet and do not increase the value of the company to its
owners. A capital lease appears as an asset and as a long-term liability
on the financial statements.
Other financing options available to the airlines include conventional
loans, lines of credit, and stock issues. Loans require down payments
plus some assurances to the lender (collateral) that the payments can be
made. The typical loan period is 10 to 12 years.
Fledgling airlines frequently need a line of credit to finance current
assets and meet ongoing expenses (working capital). This is usually
handled by a line of credit (demand notes) that ranges upward from 2%
over the prime interest rate. As with other businesses, an inability to
meet current expenses can be the downfall of an otherwise solvent
commuter/regional airline. The risks in acquiring all of the necessary
funds are higher but a well-managed company may be able to finance
purchases for a lower cost of capital by issuing stock.
Fares
Airline fares are one of the more complex pricing systems in the free
enterprise world. All airlines post a standard fare for each portion of a
route in the Department of Transportation listings; this is known as the
"Y" fare. These fares are set artificially high and are used as a baseline
for discounts and to calculate portions of tickets that are issued in
conjunction with other airlines. In addition, airlines develop
promotional fare packages from time to time to introduce new service
or offset sluggish demand. In Airline, fare sales can be offered for one,
two, or three months. Promotional fares stimulate demand but reduce
revenues, sometimes creating a loss in that market. The competitive
market is very reactive to fare changes; thus fare reductions tend to be
copied by competitors and the benefits to a single airline are shortlived.
Approximately 75% of
the tickets sold are
booked through travel
agents or through
internet travel sites.
Fare prices must also align with a companys overall strategy. Thus,
pricing as a low-cost airline may help stimulate demand, but one must
also watch expenses very carefully. Pricing as a luxury / high-end
airline may improve your margin, but only if the service provided is
seen as enough of a benefit to be able to charge a higher price without
hurting demand. Positioning your company to provide improved
service will also require an upgrade to your fleet as customers will not
see your small Beechcraft 1900s as a luxury flying experience
(insufficient seating, no toilet, no cabin service).
Ticketing
Although many airlines maintain independent ticketing services,
approximately 75% of the tickets sold are booked through travel agents
or through internet travel sites. The fee for this service averages 10%
of the ticket price, and therefore it is common practice to forecast net
revenues at an amount that is 90% of the sales forecast for the coming
financial quarter.
Your company also subscribes to multiple airline listing services. This
results in the imposed additional variable cost per ticket of
approximately 1%.
As a member of the Airline Reporting Corporation (ARC) and by virtue
of bilateral agreements with major carriers, your airline currently has
interline ticketing and baggage arrangements with all major carriers.
The agreement allows you to issue tickets to any destination

atcompetitive rates and to offer the convenience of baggage checked
through to the final destination.
Advertising and Promotion Budgets

Airlines spend a significant amount of money to attract passengers. A
unique aspect of this industry, however, is that much promotional
activity is directed toward online travel services, travel agents, and
other specialists who dispose of extra seats. These sources are
responsible for 75% of the tickets sold.
Last quarter, your firm spent $2,500 on promotional and $2,500 on
advertising activities; this is a very minimal amount. As your fleet
increases and you expand into new routes, you will need to budget
substantially more. Promotions include packaged vacations, incentive
plans for travel agents (who sell large numbers of tickets), frequent
flyer programs, familiarization (FAM) trips for travel agents, etc.
NOTE:
Advertising and
Promotion budgets are
crucial to a firm's
strategy and are a
reflection of each firm's
target market.
Airlines advertise through a variety of media: billboards, magazines,

television, radio, and newspapers. Firms trying to attract the business
traveler will use different media than those that target the casual
traveler. Some firms participate in customized "in-flight" magazines
placed on board the aircraft to enhance and promote their image. Your
firm has not been producing an on-board magazine for your passengers;
the cost for this would be $500 per aircraft per quarter in addition to
your normal advertising budget.
Sales Personnel
Your firm does not have any sales force now due to its small size.
However, as you grow you may want to add salespersons. The cost of
each salesperson is $12,000 per quarter, which includes the employee's
salary, travel allowance, and fringe benefits. You will also incur an
automatic $3,000 fee for each sales person hired to cover hiring
expenses. Airlines employ a sales force to act as a go-between to
promote business with corporations and travel agents. One advantage
of building a sales force, in addition to increased sales, is the possibility
of greater volume of direct sales to corporations and tour promoters,
thus lowering the amount paid as commission to travel agents.
Organizational Chart
PRESIDENT
(also pilots a flight when necessary)
Chief Pilot
Chief of Maintenance
Accountant
Manager of Station
Operations and Passenger
Service
Dispatcher
Organization
Your airline is organized into five small
departments: operations, flight, maintenance,
passenger service, and administration. There is little
overlap between the areas, and employees must have
specialized training as required by regulatory
agencies.
These departments handle all functions, including
marketing, ticketing, and computer information
services.
Creating an efficient organization is
difficult for regional operators, as well as costly in
terms of personnel. Those airlines that are dual
designators with major airlines may receive services
such as ground operations or computer information
systems as part of the agreement. Remaining
autonomous is costly in terms of organizational
design as well as in attracting passengers.
Human Resource Development

Currently, your company has 81 employees. Because of its small size,
the salaries and wages of employees have been below the "market" for
airline employees of national and major airlines. Station personnel are
frequently paid minimum wage; this salary differential holds true for
pilots and ground crews. Thus, they have become a training ground for
the larger airlines, with relatively high employee turnover (15% or
more) causing additional expense to the airline. Strategies used by
other regional airlines to counteract this problem:
Your employee
compensation has an
effect on retention as
well as your ability to
attract the optimal
work force for your
airline.
a) Encourage a sense of ownership in the company through stock

options and profit- sharing. Employees are called "managers" of
the position they hold. (e.g., a ticket agent becomes a customer
service manager).
b) Job design of ground crews includes rotation through several types
of positions.
c) Development of clearly defined "career paths."
The relationship between salaries and turnover is not clear, since the
major airlines are thought to have higher status. This may diminish the
effect of increased remuneration. Historically, your company has been
passive about the turnover problem and views it as a cost of doing
business. In some small cities, the airlines success in ground crew and
station personnel retention has been a function of the available job
markets in those locations.
Financial Statements
Each quarter your team will receive an income statement and balance
sheet, as well as cash flow, operations, and fleet status reports. Your
firms last quarterly income statement and balance sheet are provided
below for reference. There are quite a few line items on each report,
but here we will focus on a few of the most important issues.
NOTE:
Any remaining short- or long-term loan balance will
be shown on the current Balance Sheet.
.
Income StatementRevenues
Gross revenues equals the total revenue passenger miles flown
multiplied by your price less any fare sales offered in the previous
quarter. This represents all of the ticket proceeds from your
passengers. Below the gross revenue figure are two cost of sales items
commissions and refunds. Commissions represent the amount paid to
travel agents and internet travel sites. Refunds are the amount repaid to
passengers who are unable to fly due to equipment problems, weather,
overbooking, etc. The reliability factor represents the percent of
revenues that are unaffected by refund related issues. Net revenue is
calculated by subtracting commissions and refunds and adding interest
income to gross revenues. This is the total amount of revenues
generated from the last quarter of operations and what you have to run
your airline.
Income StatementExpenses
Airlines are expensive to operate. The largest portion of expenses is
direct flight expense which includes flight operations, fuel,
maintenance, and passenger service. Historically, direct flight expenses
represented approximately 65% of gross revenues, so these four items
are clearly very important to monitor. These expenses are directly
related to miles flown and currently average about twelve cents per seat
mile as shown in the table below.
ITEM
CENTS per SEAT MILE
Flight Operations
Fuel
Maintenance
Passenger Service
Total
3.60
2.74
3.25
2.41
12.00
% of TOTAL
30%
23%
27%
20%
100%
Flight operations include crew cost, dispatching and weather services,

baggage/mail/cargo handling, and aircraft handling on the ground.
Maintenance is the cost associated with servicing the planes. Passenger
service includes the cost of the reservation and ticketing service, ticket
counters, terminal baggage service, and rent of terminal passenger
areas. There is a one-time cost of $10,000 to open a new market, and
that cost is added to passenger service expenses in the quarter the
market is entered. Employee compensation expense is allocated
between flight operations, maintenance, and administration line items
on the income statement.
Fuel is also one of the most unpredictable expenses incurred in

operations. Fuel can be purchased either on the open market (as needed
at various airports) or on a three month contract that holds a fixed rate.
The contract price can either be somewhat higher or lower than the
"spot" price at the time the contract is negotiated, depending on the
forecasted price of fuel for the next quarter. Your fuel has been
purchased on the open market in the past. (Note: Fuel prices in the
simulation will not equate to prices in the "real world" due to the
variability of prices there. They have been set in relation to other
simulation variables.)
Fuel costs are one of

the largest line items in
the expense statement.
There are two other major expense items to discuss. First is the cost of
owning / leasing the planes. This cost will show up as either a lease
payment or depreciation (and dont forget about interest on the loan if
youve financed the planes using that approach). The second major
expense item is administrative expense. As fleets become larger, costs
increase incrementally as management, support, personnel,
administrative space, and maintenance facilities are required.
Administrative expense varies based on the total number of seats in
your fleet. While these costs may change, the cost at the beginning of
the simulation is as follows:
NUMBER OF SEATS
076
77102
103134
135168
169199
200230
231279
> 279
ADMINISTRATIVE COST PER QUARTER

$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
$400,000
$450,000 + $1,700 per seat over 280
Balance Sheet
The balance sheet is where you will find the current book value of your
assets (primarily your plane and accounts receivable) and your
liabilities (primarily your accounts payable and loans). One of the key
issues with cash flow is that only 60% of your gross revenue each
quarter flows to your balance sheet as cash in. While 40% remains as
accounts receivable. Similarly, 70% of your expenses are paid each
quarter, and the remaining 30% shows up in your accounts payable on
the balance sheet. The following quarter, the remainder of accounts
receivable and payable is processed.
Conclusion
The owners of the Airline believe that they are at a crossroads. In the
new environment of increasing competition in their own routes and the
opportunities in new markets now available, there was no question that
their business was about to change dramatically. Staying on the same
course was unlikely to a path to success. While they do have access to
capital markets for either a loan or issuing stock, they are concerned
about the risk associated with taking on debt or the dilution effects of
selling stock on shareholder value.
The decision was important enough to get some advice from a
consultant, Dr. Peggy Golden, who was a certified pilot and had been
the CEO of a small but successful commuter operation. After several
days of studying the situation, Dr. Golden met with Jerald Smith,
current President of your airline to report her findings. (Editorial
remark: Later these two wrote the simulation and subsequently were
married.)
The Options
"I have studied your flight operations, finances, and marketing
strategies and can find strengths and weaknesses in each area. My
greatest concern is that your aircraft are not the best type for the 600
(round trip) mile markets and that you are not taking advantage of some
markets that are wide open," commented Dr. Golden.
Smith replied, "I am aware of this but the FAA has had us under
scrutiny lately. Our oldest Beechcraft needs updated instruments and
radios. In addition, one aircraft is 18 years old and all were purchased
"used." The oldest one is beginning to be more costly to maintain at
this point. You can see how maintenance problems with their
associated costs and the weather have kept us from flying at an optimal
level. We have cash problems that are exacerbated by overhead costs.
We need a certain level of support personnel to maintain a three-aircraft
fleet; however, we could add two more aircraft at little or no additional
overhead cost."
The president continued, "There are markets that are not currently
being served in our area and I think we could lease a couple of new
aircraft. But it takes from 6 to 12 months to get to the breakeven point
in a new market, and we just don't have the working capital for that. I
suppose that if we tightened our belts and tried to get some short-term
credit at a couple of banks in the small cities we serve, we could do it.
We can't grow because of our slim profits, and because we can't grow
we can't improve our profit picture. It seems like a vicious circle."
"I have evaluated the two options that are available to you," said Dr.
Golden. "Taking out a significant loan has the potential to provide
enough cash to improve your maintenance program and add a
substantial amount to your working capital. This would make your
firm much more attractive to a leasing company and you would be able
to lease some additional aircraft.
In fact, there are aircraft
manufacturers who have gotten very aggressive lately in order to sell
pre-owned aircraft that have been traded in for new planes; I think they
would be able to offer you good leases. Right now the going rate for a
pre-owned, newly refurbished British Aero 31 is $2.2 million and the
quarterly lease is $82,000."
Smith responded thoughtfully, "Yes, having a few hundred grand
would sure get us out of the hole and we would be able to take
advantage of some markets that are opening up. Giving up some
ownership position through selling common stock just sticks in our
craw a bit. On the other hand, there would be no interest payments to
make each quarter, which would lower financial risk and improve
profitability.
"If we keep the airline, what kind of strategies would you suggest?"
asked the president.
Golden responded "The possible strategies are about the same
regardless of who owns the Airline. The crucial thing is to maximize
the use of your equipment and serve markets that will provide you with
a greater than breakeven load. You may have to give up some markets
for which you have an emotional attachment because you have served
them for such a long time.
"The airline can remain small and the owners can have fun and some
sense of satisfaction out of it. You are both in your mid-50s and in
excellent health. You do have a positive cash flow and are making a
decent living. On the other hand, there is potential for growth in the
industry at this time. If the airline expands, the organization will have
to change in order to accommodate this new strategy; this would adhere
to the strategic-planning principle of creating a structure that aids in

implementing a new strategy. Some commuter airlines are looking
outside their traditional business for new ways of generating revenues.
Package freight services and junkets to ski resorts provide revenue
beyond passenger service."
Smith replied, "Although we are using our Beechcraft 1900s in a 300mile market, there are better planes for the longer routes. In addition,
passengers on junkets and vacation runs prefer more luxurious aircraft
than you currently own."
"That is correct," Golden pointed out. "Some of the new ideas might
require larger aircraft, such as the Canadair CRJ100, Saab 340, or
Embraer Brasilia."
Smith looked out the window of his office at a plane being serviced and
replied, "Well, thanks for taking a look at our operation and giving us
your opinion. Theres a lot to consider."
Golden gathered her papers from off the desk and said, "It was nice
meeting you. Good luck on whatever direction you decide to go."
SECTION 2: AIRLINE OPERATIONS GUIDE

Simulation Navigation
Airline is designed to be easy to use and is compatible with most
Internet browsers. This chapter contains the information needed to
make the decisions for each quarter and an interpretation of the results
found on the analyses and reports. This section will give an overview
of the decision-making process of Airline.
Each page of the Airline site contains an easy-to-use menu system
consisting of three parts: (1) specific menu options and links to
decision-making tools and input screens, found on the left side of the
Airline browser window; (2) green navigation and general control
buttons across the top; and (3) pull-down menu to show the current
period in the upper right-hand corner.
Sample Screen
Navigation buttons
Change the
Period # view
Firm name
and user info
Menu system:
six categories
& choices
Airline screen
display
Airline Operations GuidePage 25
SIMULATION
NAVIGATION
The left-hand menu is divided into six

parts: Startup, Decisions, Analysis,
Company, Industry, and Simulation. Each
part includes menu links that correspond
to different reports, decisions, or actions.
For example, under Startup there are links
for Case and Startup Decision. The menu
system is expandable and collapsible. For
instance, click on the button to the left of
Startup, and the Case and Startup
Decision will collapse back into Startup.
NOTE:
Until you make your

startup decisions, no
other menu options will
be available.
The navigation and general control buttons found at the top of the
simulation screen are: Back, Home, Print, Spreadsheet, Help, and
Logout. The Print button applies to the report currently on the screen.
For instance, if you click on the Print button when viewing the
Balance Sheet, the report will be sent to your default printer.
Clicking on the Spreadsheet button will allow you to download data
to a spreadsheet. Clicking on the Help button will open the
operations guide. The Back button lets you reach the last page you
visited and the Home button brings you to the homepage of the
simulation.
The box in the upper right-hand corner of the simulation screen has a
pull-down menu that lets you choose which quarter you would like to
view. It will automatically default to "current quarter" unless you
change it. Changing this will show you your results for previous
quarters once the simulation has been advanced. This can be helpful
for reviewing historical information.
Role of the Team Leader in Entering Decisions

When playing Airline as a team, one member will be designated "team
leader". The team leader is ultimately responsible for gathering the
various decisions made by the team, making sure the decisions are
entered correctly. In addition, the team leader may exercise the option
to "lock" out other team members from entering decisions. Thus, it is
important that the team leader be carefully chosen by the team and that
they be a capable leader and accessible by the members of the team
and by your instructor. The team leader must finalize the startup
decision at the beginning of your simulation event.
Making decisions is the culmination of your analytical process. It is
important to realize that some of your decisions will have more of an
immediate impact, while others may have longer-term implications. In
any case, they should be part of an integrated strategic plan that is well
thought out and appropriate in the competitive environment.
Detail of Menu Choices

The links on the left of the Airline window lead to all the information
and tools you will need to analyze your current position, plan a
strategy, and input your decisions. These links are divided into six
categories: Startup, Decisions, Analysis, Company, Industry, and
Simulation. One of the easiest ways to find out more about an option is
just to try it out. If you need more information, use the on-screen
[HELP] button to consult the student guide. All of the menu links may
be expanded or contracted. For instance, after entering your firm name
(under Startup), you can click on Decisions to expand that menu to see
all the different decision areas for your decision process.
STARTUP MENU
The Briefing provides a
quick introduction to the
Airline simulation.
Read the Case for a

more in-depth
description of your
company and the
industry.
Briefing
This option on the STARTUP menu will open a flash file that
summarizes a conversation between the previous owner of your airline
and a consultant who was brought in to assess the current situation.
The consultant has been brought in to offer for a fresh perspective on
the current situation facing the airline.
Startup Screen: Briefing
STARTUP MENU
The Case provides
background information
you will need to help you
read the reports and
make decisions.
Read the Case before
making your Startup
Decision.
Case
Under the STARTUP menu you will find a copy of the Airline Case.
The case presents information on your firm in a form similar to a
business school case and also serves as an introduction to the situation
at the start of the simulation. Remember that not everything discussed
in the case is immediately available to you. For example, you may not
be able to enter a decision in response to an incident unless your
instructor has activated that option. Please make sure to carefully read
the case before making any decisions.
Startup Screen: Case
Analyzing the airline

industry and the case
will help prepare your
team for the internal and
external environmental
factors in the simulation.
NOTE:
The Authors strongly recommend that you read the Airline Case before entering any
decisions. Based on a small Midwestern airline that was faced with a "grow or go"
decision for their firm, it provides the environment for this simulation.
STARTUP MENU
Aircraft
The Aircraft report

provides information
about the aircraft
available in the
scenario.
This report gives detailed information about each aircraft available for
acquisition, such as purchase and leasing costs, number of seats,
cruising speed, and cabin class.
Click on an aircraft
name to view a brief
description and a photo.
Data shown on the
report (including the
cost to purchase or
lease) will not change
during the simulation.
Clicking into an aircraft name will open a detail report with a brief
description and photo of the selected aircraft.
The data and prices shown on this screen will not change during
simulation play
Aircraft Information Screen
STARTUP MENU
Be sure to read the Case
before making your
Startup Decision.
It is important to select a
name that could stand
the test of time and
perhaps even be
adaptable to a new
strategy should you later
decide to change your
strategy.
While any team member
can enter the company
name, only the leader
can finalize the decision.
Startup Decision
One of the most important decisions a company makes is naming the
business. It is important to select a name that could stand the test of
time and perhaps even be adaptable to a new strategy should you later
decide to change your strategy. In the simulation, once you have
selected a name and finalized your decision, you will not be able to
change it, except if your firm undergoes major restructuring and your
instructor allows it, so choose your firm's name carefully at simulation
startup.
When your team has thoughtfully agreed upon a name, the team leader
will need to enter the company name into the simulation decision
screen. When this has been entered and finalized, all remaining
simulation menu items will become accessible.
Startup Decision Input Screen
Once the startup

decision has been
finalized, you will not be
able to change it.
Enter your company's name.
Finalize and then submit your

decisions.
The Glossary provides a

list of important terms
used in the simulation.
Click the link to access
the glossary document.
Glossary
The Glossary option provides a list of important terms (and their
definitions) for strategic management and competing in Airline. The
Glossary also appears in the Appendix of the student manual.
NOTE:
All costs that are quoted in this operations guide are
the costs at the beginning of the simulation. Demand
in a particular market may change at any time. Costs
are not fixed; they may increase or decrease without
notice, as the simulation progresses.
DECISIONS MENU
Decisions
The Decisions menu is where your team will enter its decisions each
period before advancing the simulation. The decisions will include
financial decisions, such as budgets for marketing and promotion, as
well as wages and financing acquisitions. If you fail to enter decisions
during a period, the automatic default will leave everything in place
from last period (same fare, same advertising and promotion budgets,
etc.).
If your instructor has selected this option, you will also make decisions
regarding incidents that are typical to the airline industry.
After you have formulated or revised your strategic plan, and analyzed
your previous results and the current state of the industry, enter your
decisions for the current period, using the links found here.
DECISIONS MENU
Fares
Select a fare structure

(discount, normal, or
luxury) and set a fare
price of cents per seat
mile).
In the Fares decision screen, you will need to select the fare structure
(discount, normal, or luxury) and set a fare price (cents per seat mile
flown). Each fare structure has an appropriate corresponding fare
price range. Last quarter, the firm charged 35 cents per seat-mileflown for its fare but the airline is not very profitable at that level and
managers believe that fares could be increased one or two cents
without much decrease in demand. While the 35 cents fare has
generated enough revenue to cover the costs associated with the
current small fleet, as you purchase or lease additional planes, your
firm may require an increase in fares.
The fare price applies to

all flights, but you can
offer fare sales by route.
Choose a level of
cabin/food service that is
appropriate for your
target customers.
To estimate the cost of
cabin service, multiply
the cost for the option
selected by the Total
Revenue Passengers on
the Operations report.
The team leader may
optionally lock decisions
to prevent additional
changes this period.
Cabin / Food Services refer to your choice of food and beverage(s)

served on flights. Your choice here applies to your entire fleet. In
other words, whatever level of cabin service you choose becomes a
blanket policy for all your routes. For non-cabin type aircraft, food
and beverages would be provided to each passenger as they board
since no flight attendant is on duty. Remember the simulation
assumes round trip tickets, the cost of cabin service will be two times
the number of seats sold.
Whichever fare group you choose to represent, it is suggested that you
make fare changes one or two cents at a time and observe the demand
difference. A large change in price structure usually ends in
unsatisfactory results.
NOTE:
Fare price is an average
of all types of fares your
airline may have on a
"Seat Miles Flown"
basis.
Select Fare Structure

and enter Fare Price
(cents per mile).
Select Cabin Service.
DECISIONS MENU
Marketing
Increase your promotion

budget to pull in new
customers and
encourage travel agents
to sell tickets on your
flights.
Marketing decisions include: promotion and advertising budgets, a

cargo marketing budget, sales personnel hired or fired, and whether or
not youd like to offer an in-flight magazine.
Advertise to let
customers know about
your company and
services.
If you offer an in-flight
magazine, the cost each
quarter is $500 per
aircraft.
Sales personnel help
expand your companys
presence by calling on
travel agents. Each
salesperson costs
$12,000 per quarter.
To fire a salesperson,
enter a negative value.
You may not hire or fire
more than four
salespersons per
quarter.
To enter the cargo
business, set a cargo
marketing budget of at
least $10,000.
You may enter the cargo
business at any time, or
not at all.
The team leader may
Examples of promotions include: packaged vacations, incentive plans

for travel agents selling large numbers of tickets, frequent flyer
programs, familiarization (FAM) trips for travel agents, etc.
Airlines advertise through various media: billboards, magazines,
television, radio, websites, and newspapers. The particular choice of
ad placement and media reflect the market routes and fare structure
selected.
You may choose to enter the cargo business at any time, or not at all.
To enter the cargo business, you will need to establish a cargo
marketing budget which includes advertising as well as additional
overhead costs associated with entering the cargo segment. Budget
$10,000 for overhead, plus an additional amount for marketing
expenses such as cargo sales reps and advertising. Once you begin to
build up your cargo business, keep your cargo budget intact as it will
take a few quarters to begin making profits.
Salespersons are generally trying to expand your companys presence
by calling on travel agents. Sales personnel cost $12,000 each per
quarter you may not hire or fire more than four salespersons per
quarter. To fire a salesperson, just enter a negative value. There is a
$3,000 one-time cost for each salesperson hired.
You will incur an automatic $3,000 hiring cost for each new passenger
sales person acquired (you do not need to enter a budget amount for
this).
To indicate you want to produce an in-flight magazine, select the InFlight Magazine "Yes" check box. The cost for the magazine is $500
per aircraft per quarter.
DECISIONS MENU
NOTE:
Advertising and
Promotion will be an
important part of
developing new markets.
Enter amounts for

Promotion and
Advertising Budgets.
Add in-flight magazines
to your flights.
Enter # of Salespersons
to Hire or a negative
number to Fire.
Enter $ amount for
Cargo Marketing Budget.
DECISIONS MENU
Use the quality &
training budget to
improve employee
productivity and provide
customers with a better
experience
Be sure to increase the
quality & training
budget when expanding
your fleet.
Increasing compensation
decreases employee
turnover and attracts
better skilled workers.
You may provide
additional compensation
of 1-7% above
prevailing wages for all
employees or select
groups of employees.
Compensation
Compensation decisions include a quality and training budget and
adjusting wages and employee benefits by employee class. If you
wish to add a benefit only (with no wage increase), enter 0% into the
wage % increase box and select the appropriate radio button. Once a
given level of additional employee compensation is begun, you should
make every attempt to maintain it, since employee morale would be
hurt by increasing compensation one quarter and lowering it the next.
The quality & training budget amount provides additional employee
training beyond the legally required training of flight crews and
maintenance personnel. Average training and development costs are
$40 per employee per half-day workshop. In addition, you may
initiate quality programs on a department-by-department basis ($5,000
per quarter per department) or all at one time (which would be
considered a Total Quality Management system) at a minimum cost of
$20,000 per quarter. If you want to emphasize quality even more, you
may budget more than this amount. Once you start a quality program,
you should continue it indefinitely.
Other compensation
options include a stock
bonus and profit
sharing. While the stock
bonus does not affect
cash flow, it will add to
the shares outstanding
and may affect your
stock price.
The team leader may
If you wish to pay

additional wages,
start modestly and
increase pay as your
profits increase (for
example, increase by
only 1 or 2%).
DECISIONS MENU
Fleet
Increase maintenance
level to improve
reliability and your
passengers' in-flight
experience.
Fleet decisions are focused on issues having to do with acquiring,

maintaining, and fueling your fleet of aircraft. Fleet decisions are
probably the most important part of your operating strategy. It is
important that the type and number of aircraft in your fleet are aligned
with your markets / routes decisions.
Luxury passengers
expect higher levels of
cleaning and
maintenance.
A fuel contract ensures a
fixed rate. Check the
Operations report for
spot and contract rates.
Acquire new aircraft to
expand into new routes.
A successful regional
airline will have a mix of
aircraft. See the STARTUP
Aircraft report for
equipment descriptions.
First select your policy on aircraft maintenance. Level 1 is the

minimum required maintenance and permits you to fly with some
assurances of dependability. This provides a good level of safety at no
additional charge and many airlines operate at this level. Higher levels
(2 or 3) can increase reliability somewhat as well as improve company
image.
Level 2 cost: $2,500/aircraft/quarter; Level 3 cost:
$3,500/aircraft/quarter. (NOTE: These amounts are in addition to
regular maintenance costs.)
Next, choose your method of fuel purchase. You may switch from one
type of fuel purchase to another from one quarter to the next with no
penalty for doing so.
You may make 2

acquisitions of up to 4
aircraft each qtr.
The acquisitions button allows you to purchase or lease any of the

seven types of aircraft available. You may make two acquisitions
(purchase or lease) per quarter, and each acquisition may be for up to 4
of the same type aircraft. Remember to sell stock and/or take a loan to
provide cash to purchase aircraft.
Sell stock and/or take

out a loan to purchase
aircraft. Leases should
be funded by increased
revenue.
If you wish to downsize your fleet, click the "Change" button adjacent
to the specific aircraft you wish to terminate the lease or sell. When
the "dispose" input screen opens, make the appropriate selection from
the drop-down menu (keep, sell, terminate lease, etc).
Cost to sell an aircraft:

1% of book value. Cost
to break a lease:
$50,000 / aircraft.
The team leader may
NOTE:
The cost to sell an aircraft: 1% of book value; the cost to break a lease: $50,000 per
aircraft. If you want to convert a leased aircraft to a purchase, talk with your
instructor and he/she may refund the $50,000 lease disposal fee. Note however, that
any payments you have made while under the lease agreement will NOT be applied
toward your purchase.
DECISIONS MENU
Select a Maintenance Level for your fleet.
Select type of Fuel Purchase.
To Acquire Aircraft, click the "Edit Acquisitions"

button and then select: the Aircraft type from
drop-down menu, Quantity (04), and type of
Acquisition (Purchase or Lease).
To dispose of aircraft, select the specific

aircraft by clicking into the adjacent "Change"
button. When the "Disposal" input screen
opens, use the drop-down menu to make the
appropriate selection (Keep, Sell, etc.).
NOTE:
NOTE:
The contract price for fuel can be either somewhat

higher or lower than the "spot" price depending on the
forecasted price of fuel for the next quarter.
Do not acquire large capacity aircraft until you have

built up customers in a market.
DECISIONS MENU
To add or remove flights
on existing routes, or
offer fare sales, use the
"change" button.
Use the Market
Profitability Analysis to
project the effect of fare
sales on revenue.
All fare sales except
resort & foreign markets
revert to regular fare the
next qtr.
Total seats on a route is
the number of flights
multiplied by the seats
on the aircraft used.
To abandon a market,
cancel all flights for the
route.
Add a route to expand
into a new market. Be
sure to acquire aircraft
to serve additional
routes.
Each new route entered
costs $10,000 and is
charged to Passenger
Service Expense on the
Income Statement.
Use ANALYSIS Aircraft
Scheduling to review
your decisions. Be sure
not to fly your aircraft
beyond their capacity, or
leave them underutilized.
The team leader may
Routes
The routes decision screen is where you will enter all decisions related
to the markets / routes you serve and whether or not to provide a sale
fare for a particular route. In addition, to help estimate the fleet
capacity necessary to serve these routes, you will be asked to also
select the number of daily flights to provide by choosing particular
aircraft for each flight. Using this information, the program will
calculate the total number of seats available to each market. Your
entries will also be used as the basis for aircraft scheduling provided in
the analysis menu (discussed later in the operations guide).
To enter changes to number of flights or seats offered daily, or to
promote your airline through a sale on fare prices for a particular
route, click into the "Change" button for that Route. Use the
dropdown box to select a fare sale. All fare sales except resort and
foreign markets revert to regular fare the next quarter. Therefore, if you
want to continue a fare sale for more than one quarter, it must be
entered EACH quarter.
To increase flights (and therefore seats) available to a market, choose
an aircraft from the list at the left and click on the Schedule button.
This will add an additional flight. You may cancel a scheduled flight,
by selecting the aircraft under scheduled flight and click on the
Remove button. To abandon a route completely, just cancel all
flights. As you adjust your decisions, at the top of the screen, the total
flights and available seats will be updated appropriately.
Enter a new Market by clicking the "Add a New Route" button. Click
on the drop-down menu and choose a new route. If adding more than
one Route, click back into the drop down menu and make your next
selection, repeating as desired. Remember that each new route entered
costs $10,000 and is charged to Passenger Service Expense when the
simulation is advanced.
If you have zero flights and zero seats available in a Route, when the
simulation is advanced, the Route will automatically be deleted from
your active Routes list.
(Continued on next page)
DECISIONS MENU
To add a new
Route, click the
"Add a New Route"
button. Select the
market you wish to
add from the dropdown menu.
Select the Route to enter

your changes. Then
Schedule or Remove
Aircraft (to change the
number of flights & total
seats) and select the
type of Fare Sale, if you
wish to promote a sale.
1 TO 3MONTH AVERAGE TICKET REVENUE FROM FARE DISCOUNTS

Sale Type
NOTE:
The chart at right
describes each sale
type and what their
effect would be on
the ticket price of a
400-mile flight.
Regular Fare
1-month Sale
2-month Sale
3-month Sale
Fare Based on 35 cents per mile

No sales this quarter; usually used in
developed markets. (Fare = 0.35 per mile
x 400 miles)
1/3 off the regular fare for one month.
The next two months the fare would be
the normal $140.00 rate.
1/3 off the regular fare for two months and
then reverts to the regular fare for the third
month.
1/3 off the regular fare for all three months
of the quarter.
Avg.
Ticket
Revenue
Discount
%
$140.00
0%
$124.44
11%
$108.92
22%
$93.33
33%
Critical Note on Over- and Under-Flying Your Maximum Mileage

If you enter more flights than your aircraft can fly in a day (maximum
varies per aircraft: from 18002400/per day), the maintenance
program will suffer, and your aircraft could experience serious
mechanical problems. In addition, the FAA will issue a substantial
fine to your firm for lack of required maintenance. All costs of flying
the aircraft (maintenance, flight operations, fuel, and overtime for
passenger service personnel) will also increase.
DECISIONS MENU
Corporate
Add to the social

responsibility budget to
support the communities
in which you do
business.
To establish a Social Performance Budget, enter an appropriate dollar

amount in the decision input screen and select the radio button next to
the social responsibility category you would like your funds to
support. You may budget any amount in even thousands, with a
$1,000 minimum.
You can select the social

responsibility category
you would like your
funds to support.
The team leader may
Social responsibility is an important aspect of any business. A firm

has a responsibility to many "publics" (employees, suppliers, creditors,
competitors, government, the local community, ecological
environment) in addition to its stockholders. While it would be
difficult to ascertain a cost benefit for this budget item, many firms
believe strongly in supporting the communities in which they do
business. Many believe that a "strong community is good for
business" in the long run.
Enter a
Performance
Budget amount (in
even thousands;
$1,000 Minimum).
Select the Social
Performance Area
to direct your
Budget funds.
DECISIONS MENU
To fund expansion, sell
stock or borrow against
your loan.
Sell stock by entering the
dollar amount you want
to raise, not the number
of shares you are selling.
Financing
Stock Sold: To sell stock, enter the dollar amount in the entry field;
funds become available immediately. You may never have less than
150,000 shares (your starting amount), as required by your corporate
charter. Maximum redemption per quarter is $500,000 or 10% of your
outstanding shares, whichever is less. You may repurchase stock
(starting in Quarter 4) by placing a minus sign before the dollar
amount you want to redeem.
Your short-term loan is

an interest-only loan.
Draw on the loan by
entering a positive
amount, or pay down the
balance by entering a
negative amount.
Short-term Loan: Enter loan amount in the entry field. This 90-day
loan automatically renews each quarter unless you enter the full
repayment amount as a negative number. The interest rate at
simulation startup is 10% per annum or 2.5% per quarter.
The long-term loan has

a lower rate than the
short term loan;
automatic repayment is
2% of the balance each
qtr.
Long-term Loan: Enter the loan amount in the entry field. To make a
payment (beyond the 2% automatic payment), enter that amount as a
negative. If you want to obtain a new loan AND pay off an old loan,
enter the net value. For example, old loan balance = $500,000. New
funds required: $750,000. Enter the difference, of $250,000. Longterm loan interest remains at 9% per annum or 2.25% per quarter.
Starting in Qtr. 4 (Qtr. 5

decision) repurchase
stock by entering a
negative dollar amount;
restrictions exist on the
amount you may redeem.
92-day CD: Enter the dollar amount you wish to invest. Cash placed
in CDs will not be available for other transactions during the quarter in
which CDs are purchased. CDs expire the first day of the next quarter.
Interest paid on CDs is 5% per annum or 1.25% per quarter.
Pay a dividend by
entering a dollar amount
and/or declaring a 5%
stock dividend. Cash
dividends are not
permitted if you have
negative equity.
Dividends Paid: Enter the dollar amount in the entry field. In

addition to a cash dividend, your firm may declare a 5% stock
dividend. This grants 5% more shares to each shareholder without any
direct cash cost to the firm. To enter this decision, click on the stock
dividend box.
Funds invested in a 92day CD earn 5% and

will be unavailable for
other purposes next qtr.
The team leader may
(Continued on next page)
DECISIONS MENU
Financing Decision Screen
NOTE:
When you acquire new
aircraft, you must enter
the appropriate stock
and loan value(s) into
the Financing input
screen to finance this
purchase. The
simulation will not do
your financing for you.
Enter a dollar amount for:

Short- and/or Long-term
Loan(s), Stocks Sold,
Dividends Paid, and/or CDs.
Select the "5% Stock Dividend"
checkbox, if desired.
Note: Your Available Line of
Credit is shown in this input
screen.
DECISIONS MENU
Special: Incidents
Each quarter your team

may have to deal with a
special problem, or
"incident." The problems
change each period and
you will not be able to
modify your decision for
an incident once the
Each quarter has a mini-case, which is termed an Incident. Your team

will need to debate the issues being presented by the Incident and enter
the appropriate response here. If you don't like any of the choices, you
must still select the one closest to your opinion. An Incident response
is a required decision and is not optional. Incidents represent a
"window of opportunity" for you, and due to simulation constraints, an
incident will only be available during the quarter in which it is offered.
Any costs will be automatically charged against your budget and will
appear in your company financial reports
Read the incident minicase, watch the video,

and discuss the issues
with your team before
making a decision.
Some incidents may not
offer a choice that you
like; select the one
closest to your opinion.
Your response to an
incident may or may not
have an effect on your
firm's sales or costs.
Check for feedback on
your choice in the
Industry Newsletter after
the simulation has been
advanced.
Read the full Incident by clicking Read Incident, and the text will
open. Additionally, you may watch a brief movie about the incident
by clicking the Watch Video link.
Your response to the Incident may or may not have an effect on your
firm's sales or costs in the current or subsequent quarters. Once the
simulation is advanced, feedback on your response will be reported in
the simulation Newsletter, in addition to an announcement about the
current quarter's Incident.
The team leader may

NOTE:
There is no absolute
right or wrong response
to most incidents
although there may be
some responses that are
more correct than
others.
DECISIONS MENU
Decision Summary
Use the Decision

Summary to review your
current quarter
decisions. Be sure to
check this report at the
end of your decision
process to make sure all
your choices have been
entered and saved
correctly.
Refer to the Decision summary to review your current quarter

decisions. In addition, select a different period to review former
period decisions. It may also be worthwhile to print this out for your
records, though you may always view previous decisions by selecting
a quarter (number) from the drop-down menu at the top right of the
screen. This printout condenses information from each decision input
screen for the period, all in one place. Displayed are the following
decision categories: Staffing, Wages, Benefits, Training, Programs,
and Special.
Select a different period

in the toolbar above to
view previous decisions
You can change your
decisions as often as you
like until the simulation
is advanced.
IMPORTANT: Remember to check the DECISION SUMMARY

screen at the end of your decision process to make sure all your
choices have been entered and saved correctly. Also note that you can
change your decisions as often as you like until the simulation is
advanced.
ANALYSIS MENU
Analysis Menu
The Analysis menu consists of links to resources that will help you
analyze the current situation and predict the effects of decisions under
consideration. The Market Profitability, Aircraft Scheduling, and
Financial Analysis screens all display data which should help you
evaluate the results of your strategy.
ANALYSIS MENU
Market Profitability
The Market Profitability

analysis calculates a
break-even point for a
particular market / route
based on your cost and
fare inputs.
The Market Profitability analysis calculates a break-even point for a

particular market / route based on your cost and fare inputs. Select the
market / route using the drop down menu which automatically adjusts
the round trip miles. Next, enter the total number of available seats
(found on the Routes decision summary screen). Your cost per seat
mile displays automatically (you can adjust this figure if you wish).
Combining these inputs will calculate your total estimated operating
cost for a particular market / route.
Selecting a market /
route automatically
adjusts the round trip
miles; the operating cost
is calculated using your
current cost per seat
mile
Enter your fare per mile
and select a fare sale to
calculate revenue per
seat and the break-even
passenger load.
Use the analysis to
project the effects of
your pricing decisions.
Your fare (cents per mile) automatically displays along with the
estimated revenue per seat. If you wish to experiment with a fare sale,
click into the Fare Sale drop-down menu and make a selection
(Normal, One-Month Sale, etc.). Adjusted figures will automatically
be displayed. In addition, if you wish to experiment with an increased
fare price, you may enter a revised fare (cents per mile) and click
"Calculate."
Finally, your total operating cost is divided by your revenue per seat to
calculate the number of passengers necessary to cover your costs
(breakeven) on this particular flight.
You can also compare

results of the analysis
with the Sales Report to
identify underperforming routes.
ANALYSIS MENU
Aircraft Scheduling
The Aircraft Scheduling

report can assist you
with your routes
decisions (scheduling
aircraft by market /
route).
The aircraft scheduling report can assist you with your routes
decisions (scheduling aircraft by market / route). For optimal
efficiency, each aircraft should fly as close as possible to its daily
maximum number of miles. Some aircraft may be a few miles over
(100) as long as other aircraft are a few miles short. Use this analysis
screen to ascertain the total miles per day you may fly.
For optimal efficiency,

each aircraft should fly
as close as possible to its
daily maximum.
This report can also be a helpful planning guide for quickly seeing
which markets are being offered the most flights and seats daily.
While some aircraft can

be up to 100 miles over
the maximum if others
are under, exceeding the
maximum miles flown by
too much can disrupt
maintenance schedules
and lead to fines.
Pay attention to
feedback about
scheduling problems,
and revise your
decisions as
appropriate.
This report also provides
a quick overview of the
markets you plan to
serve next quarter.
ANALYSIS MENU
Financial Analysis
This analysis shows the

various cash sources
and uses for the coming
quarter.
This analysis will show the various cash sources and uses for the
quarter. In the interest of space, some items are combined (e.g.,
Commissions and Refunds). Note that depreciation is not included in
the Cash Flow Analysis (Outflow). This is due to the fact that
depreciation is basically an accounting entry for tax purposes and does
not impact cash at the time.
Make sure you are

providing adequate
funding for aircraft
purchases. Sell stock or
get a new loan if you do
not have enough cash
for your acquisitions.
Experiment with the
projected passenger
load to calculate the
effect on cash flow.
60% of revenue next
quarter flows in as cash;
the other 40% will be
posted to accounts
receivable.
70% of operating
expenses next quarter
will flow out as cash; the
other 30% will be
booked to accounts
payable.
Note that depreciation is
not included in
operating expense
because it is just an
accounting entry, not a
cash outflow.
Enter your anticipated load factor % and click the "Calculate" button
to display your projected cash balance. Keep in mind that your actual
Cash Balance may be lower or higher than the balance shown here but
this analysis will help you estimate your financial needs for the next
quarter. Please refer to the financing decisions to review the different
methods available for raising capital.
Enter your
anticipated
Passenger Load
Factor % and
click "Calculate."
Your Projected
Cash Balance is
displayed here.
Keep in mind that your

actual Cash Balance
may be lower or higher
than the balance shown
here.
COMPANY MENU
Company Reports
The simulation begins in Quarter 0. The COMPANY Menu contains
financial statements, revealing the financial condition of your firm.
You take over the airline at the beginning of Quarter 1. The reports
you receive each quarter consist of an Income Statement and a
Balance Sheet, along with Cash Flow, Operations, and Fleet Status
reports. The format of Quarter 0 reports is identical to the reports you
will receive each successive quarter during simulation play.
You are purposely not given more past performance data than the last
quarter because the simulation represents a "new beginning" for your
airline. Major carriers are pulling out of markets and changing their
markets served daily, thus presenting new opportunities that were not
in the past.
COMPANY MENU
The Dashboard provides
a graphical
representation of
performance measures
You can access the
report from the
Company menu or by
clicking the stock price
in the upper right
quadrant of the
simulation screen.
Use the drop-down menu
to select a variable to
graph from an array of
graphing variables.
Dashboard
The Dashboard becomes available after the simulation has been
advanced one period and provides a graphical representation of
performance measures. Use the drop-down menu to select the
graphing variable you wish to view, such as: return on sales, return on
marketing, customer satisfaction, unit sales, revenue, cost of goods
sold, etc.
You can access the dashboard in either the COMPANY menu, or by
clicking the dashboard image in the upper right quadrant of the
simulation screen.
Drop-down menu
COMPANY MENU
Income Statement
The Income Statement

shows the revenues,
expenses, and net profit
of your company for the
quarter.
The COMPANY Income Statement lists all income generated, i.e.:

Gross Revenues and Interest, less Commissions and Refunds. It also
lists all expenses incurred during the quarter. The expenses are
subtracted from net revenues resulting in your firm's quarterly net
profit (or loss).
The percentages show

the percent of gross
revenue for each line
item; they can help you
compare results over
time and identify
problems.
In subsequent quarters, you will be able to access a "year to date" view

of the income statement, as well as the current quarter.
The Other Expense line

contains extraordinary
items, such as aircraft
disposal fees, fines for
flying too many miles
over the maximum, and
costs from incidents
The Other Income line
shows extraordinary
income, typically the
result of incident
decisions.
Starting in quarter 1,
you will be able to view
year to date figures for
the income statement.
Quarters 1-4 are the
first year, 5-8 are the
second, etc.
COMPANY MENU
Balance Sheet
The Balance Sheet

provides a summary of
your financial position:
assets, liabilities, and
equity.
The COMPANY Balance Sheet includes a summary of your assets,

liabilities, and shareholders equity. Assets include cash, short-term
investments, accounts receivable, and your aircraft (less depreciation).
Liabilities include accounts payable, short-term loans, and long-term
loans.
Assets include cash,

short-term investments,
accounts receivable, and
your aircraft (less
depreciation)
"Facilities / EquipmentNet" is the original value
of equipment less
quarterly depreciation of
$5,000.
The net amount of the fixed asset "Facilities/Equipment" value is

minus depreciation of $5,000.
Total assets should be equal to total liabilities plus equity; however,
due to rounding errors the two totals may be off slightly.
Liabilities include
accounts payable, shortterm loans, and longterm loans.
Equity includes common
stock and retained
earnings.
Common stock on the
balance sheet shows the
value of the stock when
it was issued. It is
different from the market
value, which is the stock
price multiplied by
shares outstanding.
Total assets should be
equal to total liabilities
plus equity; however,
due to rounding errors
the two totals may be off
slightly.
COMPANY MENU
Cash Flow
Shows the various

sources and uses of
company cash for the
quarter.
The COMPANY Cash Flow Statement will show the various cash
sources and uses for the quarter. In the interest of space, some items
are combined (e.g., commissions and refunds). Note that depreciation
is not included in the cash flow analysis. This is due to the fact that
depreciation is an accounting entry for tax purposes and not an actual
cash outlay.
Only 60% of gross

revenue flows in as cash
in the current qtr; the
other 40% is posted to
accounts receivable.
The previous quarter's
accounts receivable
shows as a cash inflow
this period.
70% of operating
expenses flow out as
cash in the current
quarter; the other 30%
shows as accounts
payable.
The previous accounts
receivable is a cash
inflow this period.
Depreciation is not
included in operating
expense because it is an
accounting entry, not a
cash outflow.
If net cash is negative,
an overdraft loan is
automatically extended
to bring the cash
balance to zero.
NOTE:
The entry "70% of operating expenses" on the Cash Flow statement is 70% of
operating expenses LESS depreciation, since depreciation is not a cash expense.
COMPANY MENU
Use this report to review
and analyze your firm's
overall performance.
Operations
Available Seat Miles is

the seats available per
flight times the route
miles times the number
of flights in the qtr.
The COMPANY Operations Report displays detailed data of your

firm's daily operations. It includes items such as: Total Aircraft Seats,
Total Revenue Passengers, Daily Miles Flown, Passenger Load Factor,
Cost per Available Seat Mile, etc. Use this report to review and
analyze your firm's overall performance. This report also provides the
number of total employees, employee turnover percent, and employee
resignations.
Revenue Passenger
Miles is the total
passengers on each
flight times the route
length times the total
flights each qtr.
The public's perception of your firm, in terms of quality, will be

published each quarter as a "Quality Index" and displayed on your
Company Operations Report as well as in the Industry Operating
Statistics Report. Your actual quality may be higher than this Index,
but it represents how the public perceives your airline.
Yield per Passenger

Mile is calculated by
dividing Gross Revenue
(on the Income
Statement) by Revenue
Passenger Miles.
Operations Report
Yield per Available Seat

Mile is Gross Revenue
divided by Available
Seat Miles.
Cost per Available Seat
Mile is total operating
costs (including
commissions & refunds)
divided by Available
Seat Miles.
Quality Rating is a
measure of the public's
perception of the quality
of service provided by
your airline. (50 is poor,
100 is excellent.)
Line of Credit is the
maximum total loan
balance (short- and
long-term) your firm can
carry.
COMPANY MENU
Sales Report
The Sales report shows

the number of seats sold
daily in each market you
serve.
This report shows the total number of seats sold daily in each of your
market / route combination and the corresponding fare sale, if any. In
addition, the number of flights daily, number of available seats,
number of seats sold, and the passenger load for each market / route
are displayed. This report is a good place to start when analyzing the
performance of routes and fare sales. The seats sold and passenger
load can be used when working with the Market Profitability Analysis.
This report is a good

place to start when
analyzing the
performance of routes
and fare sales.
Use the numbers on this
report with the Market
Profitability Analysis to
determine if a route is
profitable.
This report provides a

summary of your current
fleet of aircraft by serial
number.
Use it to help you make
decisions about
acquiring and disposing
of aircraft.
Fleet Status
This report provides a summary of your current fleet of aircraft by
serial number, along with information on their book value, quarterly
cost, and accumulated depreciation if applicable. Depreciation is
calculated at 1.75% of the cost of an aircraft and is applied to
purchases and to any aircraft acquired through capital lease agreement.
Aircraft depreciation is
calculated at 1.75% of
the purchase price per
quarter.
INDUSTRY MENU
NOTE:
The reports in the first
quarter have been prepurchased; you will see
the charge from these on
your company income
statement when the
Industry Reports
Most airline industry research focuses on counting passengers and
reading timetables. However, there are certain studies that can be
more useful for planning purposes. The reports found under the
INDUSTRY menu include: Demand Forecast, Compensation, Fares,
Sales, and Marketing. Their costs vary from $1,000 to $16,000 and
are updated each quarter as conditions change. You may purchase any
or all of the reports. If you purchase all 5 reports, the total cost would
be $31,000. Costs for any report purchased will appear on your
Income Statement next quarter.
Most teams do not order enough market research to keep informed
about competitor's strategic moves. In a research study by the authors,
the data showed that the teams who do better on the simulation usually
bought the most market research.
INDUSTRY MENU
Newsletter
Cost: None
Cost: None
The Newsletter provides

information about
business conditions for
the industry, as well as
activity by competitors.
The INDUSTRY Newsletter provides the business conditions forecast

for the upcoming quarter. A message may appear here announcing
various types of economic activity in certain markets which may
necessitate adding flights or beginning service in these markets.
Analyzing your existing and potential markets is a key element in
managing your airline.
Some messages are

factual, while others will
be industry rumors.
Look for messages
specific to your firm;
they will give you
guidance in making
better decisions.
In addition, messages to your firm will be reported here, alerting you

to potential cause-and-effect relationships that your team will want to
respond to with corrective action. Other messages may require no
action on your part as they may pertain strictly to an accident of fate in
operating an airline. Some messages on your team's newsletter will be
factual, while others will be industry rumors. Your team will need to
discuss the importance of the messages and discern which is which.
INDUSTRY MENU
Operating Statistics
Cost: None
This report provides multiple financial measures for your firm

compared to the industry average. Comparing company results with
the rest of the industry can help identify areas where the firm is doing
well, and where improvements can be made. For example, a current
ratio that is too low (below 1) indicates a problem with liquidity. See
the STARTUP Glossary for definitions of each of the measures.
This report provides

multiple financial
measures for your firm
compared to the industry
average.
At a company level, you
can compare available
seats, number of
aircraft, revenue, net
profit, and stock price
for each airline.
The report also provides company level details, allowing you to

compare the number of aircraft, available seats, revenue, net profit,
and stock price for each airline. These numbers allow you to identify
competitors that are doing well, and by comparing yourself with other
firms implementing similar strategies, can provide insights on how to
improve your results.
See STARTUP Glossary

for ratio definitions.
INDUSTRY MENU
Demand Forecast
Cost: $1,000
This report provides the business conditions for the next four quarters.
Quarter 0 demand index is based on a starting index of 100. Future
forecasts of demand may be obtained by purchasing this report in
subsequent quarters. Remember that a forecast is a forecast, not a
certainty. Demand forecasts are updated each quarter and a new fourquarter forecast is made.
This report provides the

business conditions for
the next four quarters.
Quarter 0 demand index
is based on a starting
index of 100.
If the current demand is
100 and forecasted
demand the next quarter
is 110, this would
indicate a 10% increase
in overall industry
demand.
Remember that a
forecast is a projection,
not a certainty.
Unexpected events will
affect results.
The reports in the first
quarter have been prepurchased; you will see
the charge from these on
your company income
statement when the
Overall demand is affected by several factors, including general

business conditions, availability of flights, fare structures, the
optimism of the traveling public about economic conditions, and
whether vacation plans via air are in order. Therefore, do not assume
you can purchase a demand forecast once every four quarters and have
up-to-date information.
If the current demand is 100 and forecasted demand the next quarter is
110, this would indicate a 10% increase in overall industry demand. If
additional flights are added to a market, there can be some demand
stimulated as travelers switch from ground to air transportation. A
fare sale should add demand in a market but it is not a certainty. As is
the case in the real world, many marketing strategies are trial and
error.
INDUSTRY MENU
Compensation
Cost: $2,000
Use this report to compare your quality training budget the industry
average. You can also compare your additional employee
compensation to that paid by each competitor. Keep in mind that the
type of service you offer will affect how much you should be spending
on quality. For example, a quality training budget that slightly below
industry average may not be a problem for a discount airline, while it
could be a sign of trouble for a luxury carrier.
This report displays the

Average Industry
Quality / Training
Budget along with the
Employee Compensation
plan for each airline.
Compare the pay
approach and training
with your relative
performance.
If you are lagging
behind your competitors
in both pay and
performance, perhaps
these are related.
INDUSTRY MENU
Fares
Cost: $4,000
Fare structure is an important factor in demand for airline services.

This report shows the average fare for the industry, along with the
normal fare and level of cabin/food service for each airline. You can
use this report to get an idea of the level of service
(discount/normal/luxury) being offered by competitors. When
combined with information from the Sales report, it will help you
identify other airlines offering similar levels of service to yours, and
how successful they are in their pricing strategy.
This report displays the

average fare for all
airlines and the fare and
cabin / food service
policy for each airline.
Compare your fare and
service with your
competitors. Then
compare your sales with
your competition in
similar routes. Do you
think your fare structure
is driving the difference
in sales?
INDUSTRY MENU
Sales
Cost: $8,000
The Sales report is essential to help identify market opportunities as

well as understand problems with low passenger load on your routes.
Looking across for each route, you can see which markets are crowded
and which are under served. Looking down for each company gives
you an idea of how much competitors have expanded, and which kinds
of markets they are serving. The report shows the number of flights
and seats sold in each market on a daily basis. It also shows which
competitors are offering fare sales and on what routes.
This report shows the

total number of seats
sold daily in each
market / route for each
airline and the
corresponding fare sale,
if any.
As an example, 2/18/N
means two flights daily,
18 seats sold, and no
fare sale.
This report, when
combined with the Fares
report, may provide
some insight into how
fares affect demand.
The default report does not show the routes which are not served. To
view this information, use the "Change Report Options" button and
select "Show all markets". This report is an extremely important
research item and should be purchased each quarter. Comparing this
report with the Fares report may provide some insight into how fares
affect demand.
By default, only markets

with competitors are
shown. If you want to
view all markets, use the
Change Report Options
button.
INDUSTRY MENU
Marketing
Cost: $16,000
This report displays the average promotion and advertising budgets

among all airlines, the number of salespeople for each airline, plus a
list of airlines in the cargo business. Industry averages are shown at
the bottom of the report. From the report, you can see how much
competitors are spending on marketing to support their strategy. Keep
in mind that different strategies require different levels of spending, so
you may want to focus on competitors using a fare structure that is
similar to yours, and compare their spending with revenue and profits
on the Operating Statistics report to see what levels yield the greatest
return on marketing.
This report allows you to

see how your marketing
compares with the
competition.
Keep in mind that the
number of routes and
type of fare structure
will have an impact on
marketing budgets.
The report also provides
a list of airlines in the
cargo business.
SIMULATION
MENU
Logout
To end your session, simply click the Logout link (visible on all
screens) to exit the site.
SECTION 3: THE STRATEGIC PLANNING PROCESS

Airline gives your team the opportunity to design, implement, and refine your strategy in a
dynamic context where the environment and competition are always changing. The purpose of
this section is to provide your team with some direction as to how to create a strategic plan,
discuss one possible approach to organize your team and assign tasks, and finally, to explore in
more detail than the operations guide, some of the decisions and analysis for each of the
functional areas.
In this manual, we are using a fairly generic approach to strategic planning; however, your
instructor may have a preferred method or format other than the one suggested below. No
matter what method you use, one is generally trying to discuss and answer the following
questions:
Where are we now?

Where could we go?
What could we do?
What is the best thing for us to do?
How are we going to do it?
How are we going to measure our progress?
Using more standard strategic language, a visual diagram of this process is provided below. As
the diagram illustrates, a strategic plan must combine internal and external analysis in the
context of the vision and mission of the company. The plan is then implemented through a
companys management team. As the plan is implemented, the strategy may be refined based
on changes in the underlying assumptions or in how the plan is accepted internally (by
employees and stakeholders) and externally (by partners and target markets).
VISION and MISSION
INTERNAL ANALYIS
STRATEGY
(Purpose of the
Organization)
(How the firm intends to

meet its objectives)
GOALS and OBJECTIVES
EXTERNAL ANALYSIS
(Measurable)
Format for a Strategic Plan

With that general framework in mind, the following format may be useful to your team as a
guide for preparing your strategic plan. Of course, your instructor may provide a somewhat
different structure, and if so, please follow that format instead.
The Strategic Planning ProcessPage 65
I.
The Internal Environment

a) List the strengths and weaknesses of the organization. Areas include:
Relations with and strengths in dealing with competitors, customers,
employees, and suppliers; financial strength; physical facilities and
equipment; employee and manager expertise, morale, and training.
II.
The External Environment / Environmental Scan / PESTEL Analysis

a. List the opportunities and threats found in the environment
b. List the specific factors in the external environment that pertain to this industry
and company. Examples include:
Social Forces; Social Structure and Change
Political Influences and Forces
The Legal Environment and Governmental Regulations
Economic Factors and Trends
Energy and Raw Material Costs
Technological Development and Change
Industry Atmosphere and Trends
Competitive Structure, Atmosphere, and Trends
Consumer Desires, Changes, and Values
Financial Environment
NOTE:
The internal and external analysis answers the question, "Where are we now?" and establishes the foundation for
looking toward the future in preparing goals and objectives. The outline below can be used for the remainder of
the strategic plan.
III.
Overall Purpose or Mission

Denotes what the firm should be doing and why it exists. It answers the question
"What business are we in?" in terms of market needs.
IV.
Objectives or Goals
Specifies what the firm is striving for, what it wants to achieve. It is highly
desirable that targets be established that are quantifiable and measurable. There
are ten areas for which objectives should be established:
Market Standing
Productivity
Worker Performance
Physical Facilities
Stockholder Responsibility
Profitability
Innovation
Manager Performance and Development
Public (or Social) Responsibility
Financial Targets
V.
The Action Plan for implementing the objectives and goals
VI.
Policies to aid in implementing this objective or goal
VII.
Standard procedures
(Methods or operating plans that need to be established to implement the
objective/goal.)
VIII. Methods of control and feedback
Simple Strategic Plan (sample)

Purpose or Mission: To transport cargo by air.
Objective: To attain a 20% of total market share in 10 markets, within 18 months.
Strategy: Increase the sales force to two full-time salespersons and increase advertising by
25%.
Policy: Fly the first 200 pounds of cargo for a new customer, free of charge.
Standard Procedure: Upon receipt of a new customer contract:
1. The salesperson will ascertain that all details and agreements are executable.
2. A credit check will be made before the goods are shipped.
Organizing Your Team

Generally your team will determine your initial strategy as equals with general knowledge.
However, after your team has formalized your strategy, the task now becomes how best to
operate your business and complete quarterly responsibilities and tasks. Your team should
discuss the various strengths of its members and the academic and work background of each.
This will allow each team member to assume a position in the airline that matches his or her
experience and/or knowledge. The organization chart below indicates some of the key positions
one might find in a small commuter airline.
If there are fewer than five people on your team, you will need to double up on some of the
duties. In particular, the president may want to assume the duties of the VP of Human
Resources. In a simulation, the president does not have veto power or the final word. Of
course, your team may make any rules it wishes, but if the president is too heavy-handed, team
members may become frustrated. Another approach is to rotate the duties of President among
team members.
SUGGESTED DUTIES FOR TEAM MEMBERS

President
Vice-President of
Finance
Vice-President of
Marketing
Vice-President of
Human Resources
Vice-President of
Operations
Overall coordination, encouragement, peacemaker, strategic planning; sets

lead times, and assures that deadlines are met. Reviews financial ratios for
insights for opportunities for improvement.
Financial analysis & control; managing cash flow, lease/purchase analysis; fuel
purchase (spot or contract) and financial decisions (loans/CD's).
Recommends marketing budget and fares, cabin service, research studies;
analyzes strategies of competitors. Researches new route opportunities and
expansion or contraction of current routes, potentially working with the VP of
Operations.
Recommends compensation, quality and training budgets, crew training and
retention; tracks reliability trends. Works with the VP of Operations to review
Analyzes all markets and service to those markets for potential improvements
in efficiency; makes recommendations to changes in existing routes.
Recommends aircraft procurement and disposal. Maintenance level and fuel
purchases.
The president should be chosen carefully. Choose someone who can provide the team with time
discipline and keep everyone working. The president must take the lead in planning meetings,
delegating work assignments, and other leadership duties. If the president is not working out,
the team may gently suggest a change. If someone tries any position and does not like it, the
team should be open to switching positions. In fact, if the accountant in the group takes the role
of financier, others won't learn some of the areas of accounting and finance that may come in
very useful later in their careers.
Airline is a sophisticated interactive simulation and should not be taken lightly by your team.
Success in the game, both in terms of the learning experience and company profits, is directly
related to the degree of organization and cooperation among company (team) members. Game
results are directly correlated to well-thought-out analysis and strategic planning in the decision
process. An early and complete familiarization with the contents of the student manual will
increase the chances of success; knowledge of the proper use of analysis forms (or the same
work accomplished on a personal computer spreadsheet) is imperative if one is to stay abreast of
the game.
Record Keeping
Your instructor will tell you which of the following organizational assignments will be required:
1. Organization Chart:
Prepare an organization chart to include your team members' names and include what
you think would be the next lower level of personnel on your chart (i.e., who would
report to each of your officers).
2. Corporate Strategic Plan:
Each company should prepare its objectives and goals; implementation strategy; and
operating plans and procedures for the firm. You may follow the format presented
earlier in this section or use one provided by your instructor.
3. Company Logbook:
Each company should keep a logbook of the important data accumulated while playing
the simulation. Logbooks are analogous to the written records that firms maintain during
the course of normal operations. All data, information, charts, copies of forms that were
turned in, graphs, and narratives should be included. Your instructor will inform you
whether this is to be turned in at the end of the simulation or be available during class
periods for spot checks.
4. Comparative Charts and Graphs:
It is often very helpful to have historical information organized so managers can spot
early trends and trouble spots. The following list is not all-inclusive but is offered as a
reference point of departure.
a) Cash position each quarter
b) Mileage flown as a percentage of maximum mileage available
c) Fare and industry average
d) Earnings, dividends paid, and stock price
e) Sales forecast and actual sales (by total passengers, dollar sales, and revenue
passenger miles)
f) Passenger load factor (this is a key indicator of success)
g) Yield per revenue passenger mile, cost per available seat mile, and yield per
available seat mile
h) Employee compensation, training expenditures, and turnover
i) Various expense categories should be carefully monitored against some
meaningful performance standard. Examples include: maintenance cost per
mile flown or passenger service cost per passenger handled; marketing
expense per sales dollar; administrative expense per passenger or per revenue
passenger mile.
j) Tracking competitor behavior in markets served can be extremely useful

information.
k) Seats sold in each market as a percentage of the total (this requires purchasing
the relevant market research study)
l) Quality expenditures and quality rating
m) Various standard financial ratios (forms provided in this manual.)
Minutes of Company Meetings

Your instructor may make this a requirement to be handed in or kept in your company logbook.
In either case, the minutes should be recorded when the meeting occurs, not re-created from
recall later.
Minutes do not need to be written following Roberts Rules of Order but rather should indicate
the rationale of the key decisions that were made; minority views should be indicated as well as
those of the majority. Discussion that may be considered relevant should be recorded; in all
cases major decisions and the rationale behind those decisions should be recorded. Examples
include: fare changes; aircraft purchases and why a certain type of aircraft was chosen; changes
in cabin service; major shifts in advertising, promotion, or training budgets; major changes in
employee compensation and why one alternative was chosen over others; which method of
acquiring and financing new aircraft was chosen and why (lease or buy, bank loan or stock
issue). The "Airline Decision Log" (see: Analysis Forms and Worksheets) can be used to record
your meetings and rationale for decisions.
Understanding Differences in Sales Totals between Teams

Often a team will declare to the instructor that they cannot understand why they are not selling
as many seats in a given market as a competitor. The factors that determine a given team's
demand in a given market are very complex and would defy a simple explanation by your
instructor. The reasons may include some or all of the following factors: Number of quarters in
the market, type of aircraft flown (some passengers do have a preference), number of flights in
the market by your firm versus your competitor, total flights in the market, relative advertising
and promotion budgets, reliability, cabin service differences, a pleasant workforce, a reputation
as having excellent quality in aircraft and waiting areas, and clean aircraftboth interior and
exterior. One other factor that may affect demand is the financial health of the airline. If given
the choice of flying with a financially healthy airline versus one which was having financial
problems, one might choose the financially healthy airline based on the assumption that its fleet
is more up to date and maintained beyond the minimum legal standard. Some of these
differences may be the direct result of a particular decision, whereas others may not be so easy
to discern.
Functional Decision-Making
Now that youve organized your team, let's discuss decision-making in each of the functional
responsibilities in more depth. These sections should be reviewed by the appropriate team
members to make sure they are thinking through all the dimensions of their responsibilities.
Other team members (especially the President) may also want to review these sections to better
understand how to integrate the different perspectives.
The Finance Function

The manager of the finance function should be focused on understanding the financial
implications of decisions. For example, what will be the impact on net income and cash flow of
the purchase of a new plane, and what are the ramifications of lease versus outright purchase?
The finance function should understand the key ratios and measures that would be important to
shareholders and creditors. The manager of the finance function should also fully understand
the income statement, balance sheet and cash flow statement, all of which were briefly explained
in the case and operations guide, but a few more items are discussed here.
Lease / Buy Decision
Aircraft acquisition options available to your firm are lease and purchase. This choice applies to
each individual plane. For example, you may acquire one aircraft through leasing and two
through purchase. If purchasing, you can finance your purchase through loans, cash, issuing
stock, or a combination of these.
Leases in Airline cover only aircraft financing costs; they do not include staffing or maintenance
costs. An operating lease requires no immediate financial outlay and the aircraft reverts to the
lessor at the end of the lease. Under a capital lease,* the aircraft value will appear as an asset on
your COMPANY Balance Sheet and a depreciation deduction is claimed (similar to a purchase
agreement). Under operating leases, the aircraft do not appear on the balance sheet as an asset
and no depreciation expenses can be claimed. Leases will be granted for an indefinite period,
but there is a $50,000 fee to cancel the lease and return the aircraft to the lessor. The firm does
not have any aircraft under lease at the current time. Your present fleet is financed through a
combination of debt and equity; their values and accumulated depreciation are reflected on your
quarterly COMPANY Balance Sheet and Fleet Status Reports. Lease payments are displayed in
your COMPANY Income Statement and represent the amount due for all leased aircraft.
NOTE:
*Your lease will be an operating lease unless your instructor has allowed the option of a capital lease. Teams
may terminate their lease and purchase a new aircraft. Normally, there is a fee for the termination of any lease, but
if the same aircraft is purchased in that period, the instructor can choose to waive the termination fee. There is
nothing for the team to do, the fee will be charged or waived automatically by the model.
Below is a reference table that summarizes many of the key cost and cash flow issues with the
lease versus purchase decision. This table is based on relatively simple calculation and does not
take into account the present value of money nor future income streams. It assumes a 12-year
loan. A spreadsheet program (constructed by you) could give a more explicit comparison.
Leasing is a straightforward approach to acquisition. One benefit of purchasing is that you are
building assets on the balance sheet. However, this also requires obtaining extra capital to pay
the principal each quarter. The repayment of principal has no effect on profit and loss but does
require additional capital acquisition.
AIRCRAFT LEASE/BUY CALCULATIONS: Part 1
Col. 1
Col. 2
Col. 3
A/C TYPE
Quarterly
Lease Cost
(000)
Annual
Lease Cost
Col 1 x 4
(000)
Purchase
Price
$million
Beechcraft 1900
British Aero 31
Embraer Brasilia
Saab 340
Embraer ERJ135
Aerospatiale ATR42
Canadair CRJ100
80
82
132
144
184
185
240
320
328
528
576
736
740
960
2.0
2.2
3.1
3.4
4.3
4.4
5.8
Col. 4
Annual
Interest
Cost
Col 3 x .09
(000)
180
198
279
306
387
396
522
Col. 5
Annual
Depreciation
Col 3 x .07
(000)
140
154
217
238
301
308
406
Col. 6
Total
Interest &
Depreciation
Col. 4+ Col. 5
(000)
320
352
496
544
688
704
928
AIRCRAFT LEASE/BUY CALCULATIONS: Part 2
A/C TYPE
Beechcraft 1900
British Aero 31
Embraer Brasilia
Saab 340
Embraer ERJ135
Aerospatiale ATR42
Canadair CRJ100
After-Tax
Annual
Lease
Cost
Col 2 x .60
(000)
192
197
317
345
441
444
576
After-Tax
Interest +
Depreciation
Cost
Col 6 x .60
(000)
192
211
297
326
413
422
557
Lowest
First-Year
Difference:
Lease (L) vs.
Buy (B)
(000)
Equal cost
L by 14
B by 20
B by 19
B by 28
B by 22
B by 19
Asset Base
being
built each
year if
purchasing
aircraft
140
154
217
238
301
308
406
You need to
calculate
additional
cash flow
required if
purchasing
Managing Cash Flow

In a capital intensive business such as airlines, managing cash flow is essential. If you choose to
purchase aircraft rather than lease, you will need to make sure you have sufficient funds
available to purchase the aircraft needed for successful operations. Both the cash flow statement
and the financial analysis will be helpful tools available in the simulation.
Sources of Cash
Should your decisions require obtaining additional capital, you have several options available,
including selling stock and obtaining a short or long-term loan.
Selling and Redeeming Stock
Your company may choose to raise capital by issuing common stock; it will be sold at the
closing price from previous quarter with funds becoming available immediately, during the
quarter in which the stock is sold.
If you have more cash than you can use for capital expenditures, you can also buy back shares of
stock starting in Quarter 4 (Quarter 5 decision). Maximum redemption is $500,000 per quarter
or 10% of your outstanding shares, whichever is less. The purchase price will be the closing
price from the previous quarter.
Keep in mind:
The market price of your stock is posted on your quarterly Operations Report and is the price
at which your stock will be bought or sold.
You may never have less than 150,000 shares (your starting amount) as required by your
corporate charter.
Your bank requires that you have no greater than a 3:1 debt-to-equity ratio as a condition of
your loans. Buying back stock may reduce your line of credit.
Stock price can be very volatile from quarter to quarter, so do not be discouraged by
temporary setbacks.
Do not make decisions with the single goal of increasing your stock price. You will be
"chasing" the stock price the entire duration of the simulation and not applying your strategy
in operating the firm. If you stay focused on your operating strategy, profits should follow.
Remember that the Earnings per Share figure (see: Operations Report) is affected any time
additional stock is issued. This is termed "dilution of stock value" but can be overcome with
improved earnings in future quarters.
If you give shares of stock to employees (Compensation Decision: Benefits), the number of
shares of stock will increase by the number required to make the stock-bonus payment.
Line of Credit (For Short-Term and Long-Term Loans)

Your bank has granted your firm a line of credit, which includes both long-term and short-term
loans. This line of credit is posted on the quarterly Operations Report. Normally, the line of
credit is equal to three times the total equity of the firm, but may be less for firms with negative
income. To calculate your available line of credit in a given quarter, subtract any outstanding
loans from the line of credit shown on the Operations report.
Long-term Loans
For the purposes of this the simulation, long-term loans will be issued at 9% interest for an
approximate 12-year term for the purchase of aircraft. This interest rate is fixed for the duration
of the simulation; with 2% of the balance is automatically deducted from your cash balance each
quarter. Your long-term interest rate will be posted on your Operations Report each quarter.
An example of financing an aircraft:
Cost of Aircraft
Sell Stock for 20% of the New Loan
New Long-term Loan Required
$2,200,000
+ 400,000
$1,800,000
NOTE:
The bank will lend UP TO 80% of the value of an aircraft being purchased. Thus, you may borrow less than 80%
of the price of an aircraft, obtaining the balance through the sale of stock or cash on hand.
Short-Term Loans
Short-term loans are based on a 90-day demand note. You may expect the bank to renew ("roll
over") these notes every 90 days automatically. However, during certain "tight" fiscal
conditions, a bank may "call" the demand note for payment. For this reason, firms should be
very careful about borrowing long-term capital needs on a short-term (demand) note basis.
Repayment of short-term notes is your responsibility, i.e., the loan will automatically renew
each quarter unless you place the desired repayment amount in the decision input screen. Your
short-term interest rate will fluctuate with your firm's overall financial condition; it will be
posted on your Operations Report each quarter. Quarter 0 short-term loan annual rate is 10%.
Automatic Overdraft Loans
Any time the cash outflow is greater than cash income, the bank will automatically issue an
emergency loan for the exact amount of the overdraft; adding to the short-term loan balance
already in existence. The interest charged will be twice the usual short-term rate (20 to 22%) for
one quarter. The rate then reverts to the current short-term rate.
The interest will be charged the first day of the next quarter. You can determine quickly if you
have had an emergency loan issued because your cash balance will be zero. You are not
required to make a separate decision screen entry to pay off an overdraft loan, as it becomes part
of your current short-term loan. However, you can pay all, part, or none of it as your cash
position allows.
Uses of Cash
As mentioned previously, the largest potential use of cash is the purchase of aircraft; however,
cash may also be necessary to sustain operations, especially if operating at a loss. Two
additional uses of cash discussed below are dividends and purchase of a CD.
Dividends
The firm paid its shareholders $2,000 in dividends last quarter. A dividend payment will be
adjusted based on the amount of quarterly profits if the payment exceeds the profits OR if the
firm has negative retained earnings.
In addition to a cash dividend, your firm may declare a 5% stock dividend. This grants 5% more
shares to each shareholder without any direct cash cost to the firm. The number of shares
outstanding will be adjusted on the firm's quarterly report. By law, if you have negative retained
earnings (no profit), your dividend will be canceled. Remember that declaring a stock dividend
will increase the total number of shares and can dilute the earnings per share.
It should be noted that the shareholders are the owners of the firm and expect dividends as
soon as it is prudent.
A dividend payment request will be cancelled if the firm has negative retained earnings or
the firm has a loss.
Do not declare a large dividend at the end of the simulation to make your firm "look good."
Your instructor will be looking for such end-gaming tactics.
92-Day Certificates of Deposit

If your firm grows and becomes profitable, it may have extra funds that should be invested in a
Certificate of Deposit that pays interest at 3% less than the prime lending rate (5% annual).
Although some portion of your cash must be set aside for current expenses incurred but not yet
paid (i.e., accounts payable), excess cash can be used to generate some investment income.
These CDs expire on the first day of the coming quarter and the cash used to purchase the CDs
will NOT be available as cash during the quarter in which CDs are purchased. Thus, if you have
a cash flow problem, it is possible to need an emergency overdraft loan while you hold a
certificate of deposit. Since the cost of a loan is greater than the interest paid on a CD, it is not
wise to borrow funds just to purchase a CD. Another alternative for using excess cash is to pay
off any short-term and/or long-term loans. You should not finish the simulation with a large
cash balance AND bank loan balances.
Additional Items on the Income Statement
Please refer to the case for the most important issues regarding these financial statements.
However, for the finance function (and possibly others), it may be important to understand some
of the other items as these can add up and be the difference between running the business at a
profit or loss.
Revenue Details:
If other sources of income become available during the simulation, the net income after
expenses will be shown under the category "Other Profits or Losses" on the Income
Statement. If you have more than one additional source of income in a quarter, both will
be totaled in this figure.
The winter quarter is particularly difficult to keep an airline on schedule; you may expect
your usual reliability to be reduced about 2 to 4% during the winter quarter (Quarters 4,
8, and 12).
Commissions paid to travel agents are 10% of the ticket price; however, not all tickets
are sold through agents so the commission expense will be calculated at about 9% of the
gross revenues (at the beginning of the simulation).
Refunds must be made when passengers are not able to fly as a result of equipment
problems, weather, overbooking, incorrect ticketing, employee discourtesy, or baggage
problems. This airline has a reliability factor of about 92%, which means that about 8%
of its flights are affected in some manner. The reliability for the quarter will be printed
beside the "Refunds" figure on your firm's Income statement each quarter. Following is
an example of the method used to compute the reliability rate:
(100% - Reliability of 92% = 8% refunds) x gross income, e.g., $1,490,761 x 8% = $119,260
Expense Details:
Flight Operations include crew cost, dispatching and weather services, baggage/mail/cargo
handling, and aircraft handling on the ground.
Passenger Service expenses includes the cost of the reservation and ticketing service, ticket
counters and terminal baggage service, and rent of terminal passenger areas. The $10,000 cost
associated with opening a new market is charged to passenger services.
Insurance costs are based on the total seats in the fleet and the size of the aircraft. The cost of
$10,260 is based on simulation startup figures using following calculation: 3 aircraft with 19
seats each = 57 seats x $180 (at startup) per seat per quarter = $10,260. Larger-capacity aircraft
have a higher insurance rate. Any aircraft in the fleet with more than 30-seat capacity are
charged $300 (at startup) per seat per quarter. Insurance costs can change at any time during
simulation play.
Marketing Expenses include Advertising and Promotion Budgets as well as the salaries for
outside Salespersons at $12,000 per quarter. All three of these items will be included in the total
for "Marketing Expenses" on the Income Statement.
Hiring/On-the-Job Training Costs
The total cost of replacing an employee due to turnover is $3,000. This amount includes the
cost of termination of the former employee; selection, interviewing, and hiring costs; on-the-jobtraining (OJT) costs; and the cost of lower productivity by the new employee during the early
quarters of employment. Three factors will affect employee turnover: additional employee
compensation, training, and reliability.
Interest Expense is the cost of your short-term and long-term loans. Interest is calculated on
loan balances. If an overdraft loan was needed, its interest cost will appear the quarter after the
loan was required. The reason for this is the loan was granted on the last day of the quarter and
is due to be paid off in the following quarter along with all interest due.
The total interest expense shown on the Income Statement and will consist of:
Short-term loan interest
+ Previous Quarter's Overdraft loan interest
+ Long-term loan interest__
= Total Loan Interest Expense
Lease Payment represents the amount due for all aircraft that are leased. If you obtain
operating leases, the aircraft will not appear on the balance sheet as an asset (as it will under a
capital lease agreement).
Depreciation is the total current depreciation calculated at 1.75% of the cost of each aircraft
owned per quarter. This seemingly low rate takes into account the salvage (resale) value of the
aircraft at the end of any given number of years of use. In addition, the facilities and equipment
account is depreciated at $5,000 per quarter.
Other Expenses refers to expenditures that may occur from time to time but do not fit into other
categories. This includes the brokerage fee when selling an aircraft or the fee to break a lease
and other costs associated with your Incident response selection. There is often more than one
item making up the "other expense" total.
Taxes are calculated at 40% of profits. If a firm has losses, the tax credit will carry forward in
the amount of the losses. Therefore, a quarter in which you use up all your tax credits may show
less tax expense than usual, as the 40% rate will apply to the non-sheltered profits only. While
the 40% rate may appear high, it includes not only income taxes, but property tax, licenses, and
VAT in the areas where that tax is in effect.
FINANCIAL RATIO ANALYSIS

Prepared By ________________________________________ Industry ___ Co ____
The following pages provide you with forms to help you calculate a number of financial ratios.
These ratios can be tracked both against previous quarters performance as well as against the
industry. The industry ratios are provided in the Operating Statistics Report of the simulation.
Your instructor may ask you to calculate financial ratios several times during the simulation.
CURRENT RATIO
Total Current Assets
Divide by: Total Current Liabilities
RETURN ON EQUITY
Net Profit
Divide by: Total Equity
RETURN ON SALES
Net Profit
Divide by: Gross Revenues
RETURN ON ASSETS
Net Profit
Divide by: Total Assets
DEBTTOEQUITY
Short-Term Loans
$
Plus: Long-Term Loans + $
Total Debt = $
Total Debt
Divide by: Total Equity
DAILY SEAT PRODUCTIVITY
Total Revenue Passengers
Divide by 80 (80 Flying Days per Quarter)
Divide (Amount from Line Above) by: Total Seats
INDUSTRY
/
=
$
$
INDUSTRY
/
=
$
$
INDUSTRY
$
/ $
=
INDUSTRY
/
=
$
$
INDUSTRY
/
=
$
$
INDUSTRY
/ 80 =
/
=
YIELD PER AVAILABLE SEAT MILE

Gross Revenue
$
Divide by: Available Seat Miles /
= $
INDUSTRY
ADDITIONAL MEASURES
Prepared By ________________________________________ Industry ___ Co ____
Your instructor may ask you to calculate these additional measures as well. There are no
industry numbers available in simulation reports for comparison.
ASSET TURNOVER
Gross Revenue
Divide by: Total Assets
DEBTTOASSETS
Net Profit
Divide by: Gross Revenues
GROSS MARGIN
Gross Revenue
Less: Commissions
Less: Refunds
Less: Flight Operations
Less: Fuel Cost
Less: Maintenance Cost
Less: Passenger Service
Sub-total Gross Margin:
NET WORKING CAPITAL
Total Current Assets
Less: Total Current Liabilities
/
=
$
$
$
/ $
=
$
$
$
$
$
$
$
$
$
$
= $
Marketing
The marketing budget, airfares and cabin service have been covered previously in the case and
operations guide. However, it is worth revisiting a few issues regarding analyzing current
market served and adding (or exiting) a market. These decisions will often be done working
with the manager of operations who often has insights on operating efficiency and load factors.
Analysis of Markets Served
Your overall strategy will be reflected in your decisions regarding which markets to serve, and
how many flights to schedule with which size aircraft. You may "mix" the types of aircraft
serving a market. For example, you may schedule two flights with a 19-seat aircraft and two
flights with a 30-seat aircraft for a total of four daily flights and 98 daily seats in market number
X (19+19+30+30 = 98). This is easily accomplished using the simulation by selecting the
aircraft for a particular market / route combination.
Adding a Market
In addition to your current markets (A, B, C, D, and E), you may begin service in any market in
the simulation at any time. The cost to open a new market is $10,000. This cost is
automatically charged to Passenger Service Expense on your quarterly Income Statement. The
new market is opened immediately; there is no waiting period. The $10,000 charge is processed
when the simulation is advanced to the next period; therefore you incur no cost should you
change your mind and add no flights in that market before the simulation is advanced. Your
aircraft are currently flying at their maximum mileage so if you want to add one or more
markets, or increase the number of flights in a current market, you must acquire more aircraft.
NOTE:
It takes two to three quarters to develop a new market and build a passenger base. Advertising and sales
promotion will be an important part of developing new markets.
Abandoning a Market
Your team may abandon a market at no cost. However, once you have abandoned a market and
want to reenter it, it will take the usual three quarters to again build up demand in the market.
There is no carry over effect. You will be charged $10,000 for opening the market again.
Operating Outside of Market Region
Due to longer distances involved when a firm operates out of its usual geographic region, there
may be slight additional costs of serving those markets. These costs include overnight expenses
for the crew, maintenance runs to airports without maintenance facilities, and purchasing fuel at
the destination regardless of the price at that location. Thus, direct flight expenses may be
slightly higher for markets served outside your region. While the additional expense is not
prohibitive, you should be aware of this possibility.
As the length of the flight increases (termed "stage" length), the average seat mile cost declines;
thus it is more efficient to operate aircraft over longer stage lengths. However, to simplify
financial reports, all of these factors are taken into consideration and an average cost per seat
mile is calculated. At the beginning of the simulation, each firm's region is assumed to be those
markets on the line corresponding to each firm's company number as shown in the MARKETS
SERVED table (below).
MARKETS SERVED (Quarter 0)
Markets (ABCDEFR) and Routes (1-51)
Served by each firm at simulation startup
Firm
#
1
2
3
4
5
6
7
8
9
10
11
12
Miles
Market Routes with

Existing Competition
Served
A
10
11
12
21
22
23
24
30
31
32
33
38
39
40
41
47
38
600
48
39
400
49
40
340
50
41
360
Market with
no Existing
Competition
E
5
7
13
15
18
25
27
34
36
42
45
51
400
The Closest
Foreign Market
Route no one
is Serving
F
6
8
14
16
19
26
28
35
37
43
46
52
420
The Closest
Resort Market
Route no one
is Serving
R
17
17
17
17
20
20
29
29
29
44
44
44
600
Fare Sale
One last note on fares. A fare sale stimulates demand but reduces revenues. The competitive
market is very reactive to fare changes; thus fare reductions tend to be copied by competitors
and the benefits to a single airline are short-lived. Teams should be very aware of the large
losses that could occur if the sale on fares is used in all markets during the same quarter.
Charter flights by tour operators keep the pressure heavy in Markets F and R thus fare sales are
expected by the public. Cabin Class aircraft and fare sales should be utilized in these markets.
While no airline is flying in the resort markets now, it is thought that demand can be developed.
Human Resources
The HR function is responsible for compensation decisions, quality and training budgets, crew
training and retention, and also should track reliability trends. Weve provided a little more
explanation of each below. The HR function may also be tasked with some of the record
keeping tasks for the group and other team process responsibilities.
Wage Increases and Additional Benefits
Wage increases are easy to enter in the simulation, but it is also important to understand the
implications of these increases. Several examples are provided below to illustrate the impact of
wage increases.
Quarter 0 quarterly wages are
computed as follows:
The following example shows the cost of a

5% wage increase given to managers and
pilots in Quarter 1:
If ALL employees are to be given an

additional wage %, base the total wages on
$140,000 per aircraft operated. Example of
4% increase to all employees:
NOTE:
Minimum levels of
on-the-job training
for flight crews and
other employees are
mandatory and
become a cost of
doing business.
$40,000 (pilot)
+ $60,000 (manager)
= $100,000 (combined quarterly wage cost)
3 (aircraft)
x $100,000 (pilot and manager wages)
= $300,000
x
0.05 (5% wage increase)
= $15,000 (added cost per quarter)
x
=
x
=
3
$140,000
$420,000
0.04
$16,800
(aircraft)
(wages per aircraft operated)
(total wages for 3 aircraft)
(0.04% wage increase)
(added cost per quarter)
Additional Training and Quality Programs

Some airlines provide training beyond the minimum level to increase
pilot effectiveness and find increased employee competence, customer
satisfaction, and employee commitment to high-quality service.
However, the commuter/regional airlines that provide extensive training
lose a great portion of their pilots to larger airlines who can provide better
compensation. A direct benefit of employee (and thus organizational)
development activities is that they seem to be related to retention of
personnel, which can also affect the reliability of your airline.
Quality programs cost $5,000 per quarter per department. There are four
major departments to consider: Customer Service, Aircraft Servicing,
Maintenance, and Administrative. Thus, starting a program for the entire
company would cost a minimum of $20,000 per quarter.
Stock-bonus Plan
The cost of the stock-bonus plan cost is set at $5,000 per aircraft operated. Employee
Compensation is charged for the cost of this stock. In addition, the "Stock Sold" amount on the
Cash Flow Statement shows the sale of the stock to the employee stock fund. The shares of
stock outstanding will also increase due to the sale of this stock.
The profit-sharing plan is based on 20% of the previous quarter's profits and the actual cost is
charged; if there are no profits, nothing is to be distributed, and therefore there is no cost.
Operations / Planning
The Operations and Planning function is responsible for analyzing all markets and service to
those markets for potential improvements in efficiency. This function will also be involved with
new route planning and aircraft procurement and disposal.
Scheduling and Aircraft Issues
Your existing fleet of three Beechcraft 1900s is serving several markets. Cabin service is not
provided; it is not practical on this type of aircraft, as it does not have enough headroom for
stand-up serving. The major advantage of this aircraft is its bullet-shaped fuselage; it has a
higher cruise speed than most of its competitors. While the current fleet of three 19-passenger
aircraft is serving the airline at the present time, increased demand will place a strain on your
fleet. Please review the case for a summary of the various aircraft options available to you in the
simulation.
The maximum mileage is calculated on a fleet basis; therefore, if the total mileage scheduled is
somewhat less than the maximum, you may be able to squeeze out one more flight. The
simulation will optimize your daily aircraft schedules and your schedule overall. It is your
responsibility to make sure the overall flight capacity is sufficient.
While there may be a slight decrease in maintenance costs if you fly less than 100% of the time,
if you exceed the aircraft's maximum number of miles (varies according to aircraft type: 1800
2400 per aircraft per day), you will be fined by the FAA. You may also expect additional
maintenance costs and "downtime," with the accompanying loss of passengers as flight
schedules are canceled. Use the Aircraft Scheduling report in conjunction with your routes
decisions to properly utilize your available aircraft. A small amount of additional mileage will
be accommodated to allow for minor mathematical errors on your part. Keep in mind that it is
good strategy to fly the maximum miles in order to more completely utilize your fleet.
Aircraft Acquisition
At the start of the simulation, you own three Beechcraft 1900, 19-seat aircraft. All aircraft
available for purchase are pre-owned but are in excellent condition. The key to aircraft selection
is in matching equipment to the market. This does not mean that you can't use aircraft above or
below their optimum mileage but the costs will be slightly higher if you do. All simulation
aircraft have very acceptable safety and maintenance records and there is no attempt in the
simulation to suggest that one aircraft that is "better" than another.
Aircraft with more than 30 seats require a special certification by the FAA and are required to
have a flight attendant. The paperwork to document compliance with these regulations can
result in increased staff. Compliance with regulating agencies is costly to airlines in terms of the
staff needed, the paperwork required, and the direct costs incurred. The labor cost of a flight
attendant is included in the operating cost of the larger aircraft available in the simulation.
Because there is a sufficient number of manufacturers of commuter aircraft, delivery time is
very short; you may order an aircraft for either purchase or lease and expect to put it into service
immediately. Used aircraft are selling very well and you can expect to sell your used aircraft
quickly, obtaining the cash in the same quarter in which they are sold. Some aircraft
specifications and guidelines are given in the table below.
NOTE:
The composition of the fleet of any airline should be in alignment with your corporate strategy.
AIRCRAFT SPECIFICATIONS
Beechcraft 1900
British Aero 31
Embraer Brasilia
Saab 340
Aerospatiale ATR42
Embraer ERJ135
Canadair CRJ100
British Aero 31
Embraer Brasilia
Saab 340
Embraer ERJ135
Aerospatiale ATR42
Canadair CRJ100
British Aero 31
Embraer Brasilia
Saab 340
Embraer ERJ135
Aerospatiale ATR42
Canadair CRJ100
Beechcraft 1900
Optimum Round-Trip Range: 280 420 Miles.
Optimum Round-Trip Range: = or > 400 Miles.

May be used for Luxury Service but with poor passenger acceptance.
Must be used for Luxury Service. Operating cost includes the additional
labor cost of a flight attendant.
May be used for Foreign Markets; headroom facilitates walking upright in

aisle; ability to serve food and drink.
Should not be used in Market F or in Market R.
NOTE:
Most manufacturers advertise that the breakeven load for their aircraft is in the 4555% range; this covers all operating costs but not fixed costs.
Firms should attempt to match markets, demand, and amenities with the type of
aircraft placed into service.
Disposal of Aircraft
Although it is somewhat costly to dispose of an aircraft that your firm has purchased or leased,
you should do so if the aircraft no longer fits your strategy. You may dispose of up to three
(leased or owned) aircraft per quarter. The cost to dispose of a leased aircraft is $50,000. An
owned aircraft will be sold at book value (cost less accumulated depreciation). A brokerage fee
of 1% of the book value of the aircraft will be assessed. The disposal costs will be shown as
"Other Expenses" on your quarterly Income Statement.
Aircraft Maintenance
Due to federal safety requirements, minimum equipment maintenance schedules are specified
and monitored by government agencies. In addition, each manufacturer provides a required
maintenance schedule based on the maintenance record of each model of aircraft. This requires
extensive record keeping. In addition, some airlines choose a maintenance program in excess of
Federal requirements to decrease unplanned, out-of-service time and to increase real and
perceived safety and reliability. Extra maintenance provides the same marginal benefits to the
company that an insurance policy might; it is difficult to determine the most cost effective level.
The fewer types of aircraft you have, the lower your maintenance costs will be. As different
types of aircraft are added, a greater number of parts must be stocked, mechanics must be
trained to work on a new type of aircraft, and specialized tools and equipment must be procured.
The Quality rating is a measure of how others perceive your firm and will be impacted by your
maintenance and HR decisions.
It should be noted that Level 1 is a very safe level of maintenance. Many airlines adhere to this
level and have very good safety and reliability records. However, other firms believe that higher
levels of maintenance enhance their overall reliability record and customer image. Recent
articles in aviation periodicals suggest that consumers are affected by the overall appearance of
the craft, including both aircraft exterior and cabin cleanliness. The firm has been operating at
Level 1.
Maintenance levels are described in the table on the following page.
AIRCRAFT MAINTENANCE (Level Descriptions)

1. Legal minimum maintenance; aircraft interior cleaning; exterior cleaning every 9
months; reasonable parts inventory.
There is no additional
cost.
2. Legal minimum maintenance; some additional interior cleaning; exterior cleaning of

the aircraft every 6 months; additional 20% spare parts inventory, which should result
in less downtime for repairing aircraft.
Cost at simulation
startup: $2,500 per
aircraft per quarter.
3. Legal minimum maintenance; frequent interior cleaning of the aircraft; exterior

cleaning every 3 months; an additional 40% of spare parts in inventory, and a full
preventive maintenance program.
Cost at simulation
startup: $3,500 per
aircraft per quarter.
Items to keep in mind:
Each aircraft type has a maximum daily mileage (from 18002400 per aircraft per day).
With the exception of resort and foreign markets, you need to fly more than one flight a day
in each market to provide reasonable connections.
Each market has a limited number of passengers; check for declining passenger load as you
add flights.
Total Miles Flown-Daily is a reflection of all of your trips in all of your markets. Whereas,
the "Maximum Mileage-Daily" is the number of miles your fleet may fly safely and
efficiently.
Your airline operates 80 days per quarter, which includes 5 weekdays and more limited
service on weekends. The Maximum Number of Seats in any market/route combination is
around 200.
It takes two to three quarters to develop a new market and build a passenger base.
A 2- or 3-month fare sale is expected in resort markets (Type R).
Finally, remember that costs are relatively fixed in the airline business (e.g., it costs nearly
the same amount to transport one or nineteen passengers between two points). Sometimes
the difference between a profit and loss is one additional passenger per flight per day.
A GUIDE TO COSTS AND COMMON VALUES

FINANCIAL ITEMS
Commissions
(Paid to Travel
Agents)
10% of the value of the ticket on 80% of gross revenues which calculates to
8% of gross revenues.
Insurance Cost
Based on the # seats in plane. If the number of seats in plane is 20 or less,

the cost is $180 (at startup) per seat . (Total insurance cost = $180 x # of
seats.) If the number of seats in plane is greater than 30 seats, the cost per
seat rises to $300 (at startup) per seat. (Total insurance cost = $300 x # of
seats.) Insurance costs can change at any time during simulation play.
Hiring / On the
Job Training
Cost
$3,000 per each new employee hired.
Marketing
Expenses
Depreciation
Advertising + Promotion Budgets + $12,000 (for Each Salesperson).

1.75% per Quarter per Aircraft Owned + $5000 (on Facilities and
Equipment).
Market
Research Cost
Entire package costs $31,000; prices range from $1,000 to $16,000.
Interest
Income
5% per annum or 1.25% per quarter that is paid on your firm's CDs.
Lease Payment
Income Tax
Lease payments represent the amount due for all aircraft that are leased.
Since these are operating leases, the aircraft do not appear on the balance
sheet as an asset. Leases will be granted for an indefinite period, but there
is a $50,000 fee to cancel the lease and return the aircraft to the lessor. The
firm does not have any aircraft under lease at the start of the simulation.
40% of net profits.
LOAN INTEREST RATES
Short-term
Loan
10% per annum or 2.50% per quarter (beginning rate).
Long-term
Loan
9% per annum or 2.25% per quarter (fixed rate throughout simulation).
AppendixPage 89
AIRCRAFT PURCHASE COSTS
Aircraft
Purchase Costs
Key
A
B
C
D
E
F
G
COST TO PURCHASE AIRCRAFT

Cost Quarterly Cruise
Name
($M)
Lease
(MPH)
Beechcraft 1900
2.0
$ 80,000
268
British Aero 31
2.2
$ 82,000
253
Embraer Brasilia
3.1
$ 132,000
294
Saab 340
3.4
$ 144,000
272
Embraer ERJ135
4.3
$ 184,000
400
Aerospatiale ATR42
4.4
$ 185,000
300
Canadair CRJ100
5.8
$ 240,000
450
Cabin
Class
No
Yes
Yes
Yes
Yes
Yes
Yes
Seats
19
18
30
34
37
46
50
ADMINISTRATIVE COSTS
Administrative expense is a variable amount based on the total number of
seats in your fleet. While these costs may change, the cost at the beginning
of the simulation is as follows:
Number
of Seats
Administrative
Costs
076
77102
103134
135168
169199
200230
231279
> 279
Administrative
Cost per Qtr.
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
$400,000
$450,000
Plus $1,700 per seat
over 280
The increases in cost at various levels of fleet size are the result of extra
management, support personnel, administrative space, and maintenance
facilities required as fleets and firms become larger.
ACCOUNTING BALANCE
Accounts
Receivable
Accounts
Payable
40% of gross revenues.

30% of operating expenses (minus depreciation).
MISCELLANEOUS EXPENSES
Cabin Service
Costs
$1, $2, or $5 per passenger.
Sale on Fares
Usually an entry of 1(which is 1/3 off ticket prices for one month.)
Flight
Attendants
Need one if aircraft has more than 30 seats. (This cost is built into "Flight
Operations" cost amount.)
Demand
Forecast
Displayed in the Newsletter and is just a forecast; not a guaranteed rate of

demand increase or decrease.
Cost to Sell an
Aircraft
1% of book value.
Cost to Break
a Lease
$50,000 per aircraft.
Cost to Enter a
New Market
Flight
Operations
Cost per Mile
Fuel Price
$10,000.
$ 0.12 (twelve cents) at start of simulation.

$1.00 per gallon at beginning of simulation.
MAINTENANCE COSTS
Level 1
No additional charges
Level 2
$2,500 per aircraft per quarter
Level 3
$3,500 per aircraft per quarter
AppendixPage 91
ANALYSIS FORMS AND WORKSHEETS

This section contains various forms and worksheets to aid your team in making better
decisions and to keep abreast of your performance in relation to the industry averages. A form
for recording your decisions each quarter is also included.
There are two types of Market Profitability Analysis worksheets included. We have found
that some prefer one over the other, so we have included both versions.
A list of the contents follows below:
Naming Your Airline

Passenger Bill of Rights
List of Policies
Airline Decision Log
Aircraft Scheduling Worksheet
Management Audit Worksheet
Management Audit Form
Annual Report for Stockholders' Meeting
Executive Bonus Recommendation
Debriefing Questionnaire
NAMING YOUR AIRLINE

Industry________________
Company # ___________
1. List your service (major purpose or mission):
2. List other services you think you might want to add in the future, if any (for example, you
will be given the opportunity to begin cargo service and auto rental in the simulation):
3. Describe your target market (the demographics of the segment of the population you want
to serve. (Example: Scot Air, the low price leader.)
4. List some advertising mottos, jingles, or lines you think your target market might relate to
(Example: "Fly Sublime, the On-time Airline."):
5. Describe the motif (cabin design, color schemes, aircraft paint design) you may use.
(Example: A recent airline chose the color blue and chose the name "Jet Blue.")
6. Describe any other factors that you want to consider in naming your business:
(Continued on next page . . .)
AppendixPage 93
(...Continued from previous page.)
7. From the data above, list at least four possible names:

a. _____________________________________________________
b. _____________________________________________________
c. _____________________________________________________
d. _____________________________________________________
8. Select the best name: ___________________________________

9. Describe the overriding reason for its selection:
Some considerations in naming your business and some right/wrong examples are
given below:
1. Is the name descriptive of what you do?
Pony Express vs. Trans-American Airlines
2. Is the name descriptive of your service?
Luxury Airline vs. Northeast Lines
3. Is the name an ego trip or does it contain meaningless names/words representing
the owners?
DWT Airlines (first initials of the owners) or We Three Airlines
4. Is the name distinctive, perhaps catchy, and easy to remember? Will it be
conducive to future advertising jingles and logos?
Eastern Econo Airlines vs. JanSanMark Airlines
5. Does the name lend itself to future changes in services or expansion of the
product line (i.e. cargo, charters)?
Petes Passenger Express vs. Americana Airlines
PASSENGER BILL OF RIGHTS

Most airlines have either been pressured to create or have created on their own, a Passenger Bill of
Rights. This is usually a short list of the responsibilities the airline has to its customers. The list
should include everything from passenger rights when a passenger is "bumped" or has a flight
canceled, to lost baggage. You may want to search the web sites of airlines for some ideas.
You may use a "bulleted list" to keep the document from being too wordy. Keep the language
concise and clear. Write it at the ninth or tenth grade level.
Submit ONE statement per team. Keep a copy for your firm's records.
AppendixPage 95
LIST OF POLICIES
Most firms have an Employee Handbook, which describes all employee policies. This assignment
will accomplish the same objective except it is to be a concise list (not a book) of the policies you
have for your employees. It should cover everything of importance, including vacations, sick
leave, absence without notification, insubordination, promotion policy (promote from within or go
outside, and the circumstances for each), child care policy, etc.
It is suggested that you use a "bulleted list" to keep the total length reasonable. Write at a level
that even an employee without a high school diploma can understand it.
Submit ONE list per team. Keep a copy for your firm's records.
AIRLINE DECISION LOG

Industry ___ Qtr # ___
Co # ____
Reproduce as many copies of this form as needed. (Use additional pages if required.)
Please attach a print out of your quarterly decision summary to this document.
State any major change in your overall strategy (e.g., long-term objectives) and how it differs
from the original. (For quarter 1, please state your overall strategy.)
State the major issues and/or problems to be discussed at the meeting:
List each MAJOR decision or change in previous operating policy you are going to make this
quarter and give the rationale behind the decision:
Members of the team present at this meeting on _____ day of _____________

1. ______________________________________________________
2. ______________________________________________________
3. ______________________________________________________
4. ______________________________________________________
AppendixPage 97
AIRCRAFT SCHEDULING WORKSHEET

Form 5: Aircraft Scheduling Worksheet
Aircraft
#
Mkt
Miles
Mkt
Miles
Mkt
Miles
Mkt
Miles
Mkt
Miles
Total Miles
this Aircraft
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Objective:
Total miles flown for each aircraft should be as close as possible to its maximum daily number
of miles. Some aircraft may be a few miles over (100) as long as other aircraft are a few miles
short. Fill in the form below to calculate the total miles per day you may fly per aircraft type.
Number of Aircraft in your fleet
X
=
Multiplied by maximum miles per day / per aircraft (max. varies from 18002400)
Equals your fleet total maximum miles per day
Use this worksheet as an alternative to the simulation analysis screen, Aircraft Scheduling.
MANAGEMENT AUDIT WORKSHEET

Your team should be prepared to make a short (8-10 minute) presentation to the class. Your
instructor may also want a written report; if so, the report should be typed and be well
organized.
Make sure you turn in any additional analyses you performed in order to make better
decisions, including charts, graphs, etc., for which you have not received credit. You may
want to prepare a short handout for the class indicating the main points of your report.
For the purpose of this audit, assume that your firm is a case study out of the textbook.
Investigate the performance of the firm as though you were management consultants brought
in to determine what kind of job the firm's management team has done. Of course, there are
several methods of approaching this assignment and you are encouraged to be creative. The
major point you will be graded on is your OBJECTIVITY AND HONESTY in reporting your
findings; i.e., be brutally frank. Your instructor has been following all the teams closely via
administrator reports furnished by the simulation, and any attempt to "whitewash" or omit
critical points will be dealt with unkindly.
Listed below are some key questions to help you get your thinking caps on. However, your
report (both verbal and written) may follow any creative format you wish; just try to address
in some way or other most of the points covered below.
Your instructor may ask you to conduct the audit by playing the role of a consultant firm to
encourage objectivity on your part.
1. Refer to the original goals and objectives. Did the strategies work as planned? What
strategies, goals, objectives, policies, etc., were changed? Why? How closely did the
firm end up doing what it said it was going to do? (You will not be penalized if your
goals did change substantially.)
2. The functions of the manager are planning, organizing, directing work, and
controlling.
a. To what extent and how were these functions handled by this team?
b. Comment particularly on the controls that you may or may not have used.
Were they effective?
c. Did the team have enough records, controls, and worksheets to manage
effectively?
3. If this firm were to begin again, what should it do differently?
4. If the management team were going to be transferred, what advice should it give to
the new team coming in to manage this company?
AppendixPage 99
5. Does the firm have a prudent dividend policy? What would a committee of
stockholders say about this firm's treatment of its stockholders?
6. Did the team make decisions on a rational basis or did it often "stab in the dark"?
7. What are the firm's strengths and weaknesses?
What are the threats and opportunities facing the firm at this time?
8. At this point, is the firm a healthy, going concern? Is there any evidence of "end
playing" the simulation? Such evidence would include a large dividend payment at
the end, reducing all budgets, buying or selling stock to influence the stock price,
etc.
9. Was there any evidence of lack of teamwork in the firm? If so, what
communication, decision-making, and cooperation efforts need improving?
NOTE:
Most Instructors will penalize a team heavily if the team does anything at the end of the simulation that attempts
to make the firm look better. See Number 8 above.
MANAGEMENT AUDIT FORM

Industry _____ Co _____
1. How many times did the team have a zero cash balance (overdraft loan)? _____
2. How many times was there an excess amount of cash that was not invested in CDs
(excessive is defined as over $300,000)? _____
3. How many quarters did you have aircraft utilization of less than 95%? (From the
aircraft Scheduling Analysis screen.) _____
4. Total dividends paid: $_________. Total amount per share: ______
List the quarters in which you made a dividend payment and amounts (per share)
of that payment:
5. In view of your dividend record above, do you think you were fair with the owners
(stockholders) of the firm? Why or why not?
6. How many markets did you abandon during the simulation? ______
If you abandoned a market and re-entered it, count it. Why did you abandon the
markets, if any were abandoned?
7. Total amount spent on market research for the entire simulation: $__________
Do you think this was sufficient? Too much?
8. What was Average Passenger Load Factor (for entire simulation)? ________%
9. Total passengers flown (for the entire simulation): ____________
10. What are your profits after taxes and before dividends since quarter 0?
______________
11. Profit per passenger flown for all quarters being reported (total profits before
dividends divided by total passengers for all quarters): $ __________
12. Return on sales for the entire simulation (total profits before dividends divided by
total revenues): _______%
AppendixPage 101
13. Return on equity for entire simulation (Total profits before taxes divided by average
total equity):_______%
14. What was your average stock price for entire simulation? ____.___
15. What was your reliability at the end of the simulation? _______%
16. What was your employee turnover at the end of the simulation? ______%
17. How many quarters did you exceed the maximum mileage? _______
18. List your fare for each quarter:
Qtr.
Qtr.
1
2
3
4
5
0.___
0.___
0.___
0.___
0.___
7
8
9
10
11
0.___
0.___
0.___
0.___
0.___
0.___
12
0.___
19. Indicate any other factors that are relevant to this audit of your airline:
20. Indicate any other positive factors (strengths) that are relevant to this audit of your
airline:
ANNUAL REPORT FOR STOCKHOLDERS' MEETING

Corporations report the state of the organization to their owners (stockholders) on an annual
basis. Sometime after your first year of operations, you may be asked to conduct an annual
meeting with members of your class acting as stockholders. Your instructor will assign the
actual length and format of the oral presentation. The annual meeting is used to communicate
the condition of the corporation to the owners and is a public relations vehicle for the general
public, investment bankers, and prospective stock purchasers.
Each team will be expected to prepare a short Annual Report to its stockholders and reproduce
sufficient copies for each of the "stockholders" and the instructor. You should check the
annual report section in the library to get a more complete idea concerning what should be
included. Some items that the firm should include in the written portion are: a brief synopsis
of sales and earnings trends; an explanation of start-up problems and how they are being
overcome; a general statement of the financial health of the firm; and a discussion of dividend
plans and policy, expansion plans, and future prospects, etc.
In addition to this brief narrative of operations, you will need to include the financial report for
your firm. The financial report includes, at a minimum, an income statement, balance sheet,
statement of changes in financial conditions, and explanations that include comparisons to
prior-year data. This listing is not meant to limit other financial information you may want to
include in your report. Since all financial reports use the previous year with which to compare
current performance, use the beginning balance sheet for Quarter 0. For an annual Profit and
Loss statement, multiply the quarter 0 sales and expenses times 4 to obtain a full year of profit
and loss information for the previous year.
Each member of each team is responsible for analyzing the annual reports of the other teams
and asking questions during the presentations.
HINT:
Do not feel you must "tell all" and reveal all your future plans in detail. Likewise, you may merge certain
expenses on the financial statements you prepare, e.g., under Marketing Expenses you could include promotions
budget, advertising, marketing research, and salespersons expenses.
AppendixPage 103
EXECUTIVE BONUS RECOMMENDATION

(Peer Evaluation normally used at mid-semester)
Co # _____
As a member of your firm's Executive Compensation Committee, you have been assigned the
task of allocating $40,000 among the managers of your firm.
In addition, or in place of, your instructor may require you to fill out the online Peer
Evaluation form. This form can be accessed from Simulation menu on your class website.
Fill in names of the executives of your firm,
including your own.
Fill in the Executive

Bonus Amount
Your Name:
TOTAL:
$ 40,000
NOTE:
A fair, firm, and objective performance evaluation is a crucial function of the manager. While peer evaluation is
not an easy task, your instructor expects you to complete this task honestly.
AIRLINE DEBRIEFING QUESTIONNAIRE

Please check with your instructor to ascertain if this is to be anonymous.
Your Name____________________________
Industry_____
Company #___
1. What did you like about the simulation?
2. What didn't you like about the simulation?
3. To what extent did the simulation help you understand the operation of an
organization from the viewpoint of top management?
4. An objective of a simulation is to help participants understand the TOTAL firm and

interrelationships between the different functional areas. To what extent did the
simulation achieve this objective?
5. To what extent did the simulation help sharpen your ability to analyze problems
and recommend solutions (i.e., decision making skills)?
6. What other skills did you learn because of the simulation and group decision
making that occurred?
7. How many hours per decision quarters did your team meet as a team (either faceto-face, phone, or via Internet: _____ hours at the beginning ______hours after
Quarter 4
8. How many hours per decision quarter should a team meet to make decisions?
_____ Hours
AppendixPage 105
9. How many hours per decision quarter did you spend (excluding team meetings) in
preparing for the team meeting or in doing outside work, gathering data, analyzing
data, working with a spreadsheet program, etc.?
_____ Hours
10. Please make any comments you feel (pro and con) about any of the incidents:
11. Please make any comments you feel (pro and con) about any other part of the
simulation:
12. Do you have any other suggestions concerning the simulation or the method in
which the instructor handled it?
13. Suppose that another student told you she was going to take this course next
semester. She has the choice between a course that has case studies only and a
course like this one that has a business simulation. What would be your advice
about course choice?
14. What would be your advice to her about the simulation if she were to take the
course with the simulation?
15. Do you feel the simulation is a valuable learning experience? Why?
GLOSSARY
Available
Seat Miles
Flown
The AVAILABLE SEAT MILES FLOWN for all of your routes can be
calculated by multiplying the seats available per flight by the miles in the
particular market. Then add all the individual markets for the total.
Example: maximum miles per Aircraft per day x 80 flying days per quarter
x total seats in fleet.
Available
Line of
Credit
The unused portion of a line of credit. AVAILABLE LINE OF CREDIT is

calculated by subtracting the total loan balance from the LINE OF CREDIT.
(See also: LINE OF CREDIT)
Breakeven
Load
Cost per
Available
Seat Mile
Current
ratio
The breakeven load for most small commuter aircraft is a 40 TO 50% load
factor, e.g., a 19-passenger craft would be 19 x .40 = about 8 full fare
passengers. This would include direct but not fixed costs of operating the
aircraft. Total costs would require 55% load or 19 x .55 = 11 passengers.
To determine your BREAKEVEN LOAD, divide the cost per Available Seat
Mile by the Yield per Revenue Passenger Mile. Quarter 0 example: 0.178
/ .35 = 0.509. Therefore a 50.9% passenger load is the airline's Breakeven
Point.
The COST PER AVAILABLE SEAT MILE is calculated by dividing total
operating costs (including commissions and refunds) by seat miles. This
will indicate how much it is costing to fly one seat one mile (whether
occupied or not).
A broad measure of liquidity calculated by dividing current assets by current
liabilities. The results should then be compared to the industry average. A
current ratio of less than 1 means that there are insufficient liquid assets to
pay current bills. Conversely, too high a current ratio (greater than 3) means
that too much cash is accruing and not being used to generate income
(longer-term investments, dividend payments to stockholders, and new
capital assets).
Current Ratio = Current Assets / Current Liabilities
Daily Seat
Productivity
Measures the efficiency with which a company is using its aircraft.

Daily Seat Productivity = Total Aircraft Seats / Total Revenue Passengers / 80
AppendixPage 107
Debt-Equity
Ratio
Indicates the proportion of borrowed dollars to owner dollars. A 2-to-1

debt-equity ratio means that there is $2 of debt for every $1 of equity.
Higher ratios are associated with greater risk and this may be reflected in
the interest rate that a bank offers to a firm. For the purpose of the
simulation, a 2:1 ratio should be considered as maximum.
Debt-Equity Ratio = Long-Term Debt / Total Equity
Employee
Turnover
Total employees at the end of the quarter and employees lost due to
turnover during the preceding quarter are shown on your firm's Operations
Report each quarter. To decrease employee turnover, the firm must pay
higher wages and increase the training budget.
Fuel Prices
FUEL PRICES are quoted for the open market in the current quarter (spot
prices) and for the three-month contract for next quarter. There is no
forecast for spot fuel prices as they are determined on a day-to-day basis
during the quarter.
Gross
Revenue
Your Gross Revenue is calculated multiplying passenger miles flown by the

average fare on a passenger-mile basis.
Interline
Ticketing
Interline ticketing and baggage arrangements can be made with all major
carriers. This agreement allows a small regional airline to issue tickets to
any destination at competitive rates and to offer the convenience of baggage
checked through to the final destination.
Line of
Credit
LINE OF CREDIT is the maximum amount a firm can borrow. This amount
differs as a function of the bank's credit practices at the time a loan is
negotiated and the firm's financial health and financial history. Normally,
the line of credit is equal to three times the total equity of the firm, but may
be less for firms with negative income. (See also: Available Line of Credit.)
Market
A "market" consists of a round trip between two cities.
Overdraft
Loan
If the total cash available is not sufficient to meet cash demands, your bank
will automatically issue your firm an "overdraft" loan. This loan will cover
your cash shortage exactly and your Ending Cash will show a zero balance.
The interest for this loan is not charged until the following quarter.
Passenger
Load Factor
Return on
Assets
Your PASSENGER LOAD FACTOR is a ratio of revenue passenger miles

divided by available seat miles. This indicates the average percentage of
seats occupied. You will need from 50 to 56% to break-even.
This productivity measure shows how well a firm is using its assets to
generate income.
Return on Assets = Net Income / Total Assets
Return on
Equity
Measures the return on stockholder's equity only. It includes the impact of

reduced profitability from interest payments. It should be substantially
higher than the current prime lending rate.
Return on Equity = Net Profit after Interest and Taxes / Total Equity
Return on
Sales
Shows the relationship of net profits to sales dollars. This is also known as
return on revenue and assists in the evaluation of both sales levels and
expenses.
Return on Sales = Net Profit / Revenue
Revenue
Passenger
Miles
(RPM)
REVENUE PASSENGER MILES is that portion of available seat miles that

actually had a paying passenger. This is calculated by multiplying the total
passengers flown on each flight by the length of the flight in miles by the
total flights each quarter. (This is a difficult calculation but it is done easily
by the computer program.)
Short-Term
Interest
Rate
The SHORT-TERM INTEREST RATE for each firm can differ, according to
the overall financial condition of the firm. At the start of the simulation, the
firm is being charged 2% over the current prime rate for short-term loans
(10%) and 9% for long-term loans. The firm's interest rates as well as the
prime rate could vary during the course of the simulation.
Yield per
Revenue
Passenger
Mile
The average amount of revenue, net of fare sales, generated by passengers

for each mile flown.
Yield per Revenue Passenger Mile = Revenue / Revenue Passenger Miles
AppendixPage 109
INDEX
A
accounts payable .................................................. 20, 75, 90
accounts receivable .................................................... 20, 90
aircraft
acquisition ....................................................... 37, 71, 85
disposal .................................................................. 37, 86
lease ...................................................................... 14, 37
lease, terminate........................................................... 37
leasing costs ................................................................ 13
maintenance ........................................ 13, 14, 19, 37, 86
maximum mileage ................................................. 84, 87
purchase prices............................................................ 90
scheduling.................................................. 39, 48, 81, 84
specifications ............................................................... 85
type.................................................................. 12, 21, 72
utilization ..................................................................... 14
ANALYSIS
Aircraft Scheduling ...................................................... 48
Financial Analysis ......................................................... 49
Market Profitability ..................................................... 47
B
balance sheet ........................ 14, 18, 20, 53, 71, 72, 78, 103
breakeven load ............................................................... 107
budget............................................................................... 70
advertising ....................................................... 16, 34, 64
cargo ...................................................................... 34, 64
marketing .................................................................... 81
promotional ..................................................... 16, 34, 64
quality and training ......................................... 36, 61, 83
social performance ...................................................... 41
total quality management system (TCM) .................... 36
training and quality programs ..................................... 83
C
cabin / food service .................................................... 33, 84
cargo business ......................................... See budget: cargo
cash flow ................................................... 20, 54, 71, 72, 76
CDs ........................................................................ 42, 75, 76
interest income ........................................................... 89
commission ....................................... 16, 19, 49, 52, 76, 107
COMPANY
Balance Sheet .............................................................. 53
Cash Flow..................................................................... 54
Dashboard ................................................................... 51
Fleet Status .................................................................. 56
Income Statement ....................................................... 52
Operations ................................................................... 55
Sales Report ................................................................. 56
cost
abandon market .......................................................... 81
aircraft disposal ........................................................... 86
aircraft maintenance ....................................... 37, 84, 91
cabin / food service ..................................................... 91

employee training ................................................. 36, 77
employee turnover ..................................................... 77
flight attendant ........................................................... 91
fuel .............................................................................. 91
incident ....................................................................... 78
insurance............................................................... 77, 89
leasing ......................................................................... 72
market research .................................................... 57, 89
new market ..................................................... 77, 81, 91
OTJ (on-the-job-training )............................................ 89
per available seat mile .............................................. 107
per flight mile .............................................................. 91
per seat mile ......................................................... 47, 82
sales personnel ........................................................... 34
stock bonus plan ......................................................... 84
to sell aircraft .............................................................. 91
to terminate lease ........................................... 37, 86, 91
D
decision aids ..................................................................... 46
DECISIONS
Compensation
wages, benefits, quality and training budget......... 36
Corporate
social perfomance budget, distribution of budget 41
Decision Summary ...................................................... 45
Fares
fare structure, fare, cabin / food service ............... 33
fares, cabin service ................................................ 33
Financing
loans, CDs, stock, dividends ................................... 42
Fleet
maintenance, fuel, acquisitions ............................. 37
Marketing
promotion / advertising cargo budgets, sales
personnel, in-flight magazine ........................... 34
Routes
schedule aircraft, flights, add or abandon market,
fare sale ............................................................ 39
Special
incident .................................................................. 44
demand ...........................................................10, 11, 15, 33
aircraft effect on ......................................................... 13
build up ....................................................................... 81
market ......................................................................... 70
stimulate / hurt ........................................................... 15
demand forecast .................................................... 3, 60, 91
demand index................................................................... 60
demand note .................................................................... 74
depreciation ...................... 20, 49, 53, 54, 56, 71, 78, 86, 89
aircraft, annual amount .............................................. 72
E
employee
IndexPage 111
training ........................................................................ 17
turnover ................................................................. 17, 55
wages............................................................... 17, 36, 83
enter decisions.................................................................. 32
expense
administrative........................................................ 20, 90
categories .................................................................... 69
direct flight ............................................................ 19, 81
fuel............................................................................... 20
hiring ........................................................................... 16
hiring sales personnel .................................................. 34
in-flight magazine ........................................................ 34
interest ........................................................................ 77
leasing.......................................................................... 20
marketing ........................................................ 34, 77, 89
new market ................................................................. 19
new route .................................................................... 39
operating ..................................................................... 54
operating outside market region ................................. 81
other ............................................................................ 78
passenger service ............................................ 19, 77, 81
quarterly ...................................................................... 52
F
fare sale ........................................ 12, 19, 39, 56, 60, 82, 91
fares .................................................................................. 15
effect on demand ........................................................ 63
financial ratio analysis....................................................... 79
FORMS / WORKSHEETS
Aircraft Scheduling Worksheet .................................... 98
Airline Debriefing Questionnaire ............................... 105
Airline Decision Log ..................................................... 97
Annual Report for Stockholders' Meeting ................. 103
Executive Bonus Recommendation ........................... 104
List of Policies .............................................................. 96
Management Audit Form .......................................... 101
Management Audit Worksheet ................................... 99
Naming Your Airline..................................................... 93
Passenger Bill of Rights ................................................ 95
interest
short-term loan ........................................................... 74
interest expense ................................. See expense: interest
interline ticketing ........................................................... 108
investment income........................................................... 75
L
lease
payment ................................................................ 78, 89
lease vs purchase ............................................................. 71
line of credit ....................................................... 14, 74, 108
loan
interest rates ............................................................... 89
long-term, short-term .................... 14, 37, 42, 74, 76, 77
overdraft ..................................................74, 76, 77, 108
short-term interest rate ............................................ 109
M
market characteristics ...................................................... 10
market research ............................................................... 57
maximum mileage ............... See aircraft:maximum mileage
menus
brief descriptions of .................................................... 27
pull-down .................................................................... 25
N
navigation buttons, green ................................................ 26
O
operations
guide ............................................................................. 7
other profits ..................................................................... 76
overhead .................................................................... 21, 34
P
passenger load factor ............................................... 55, 109
promotional fare .............................................................. 15
gross revenue ........................................................... 19, 108
Quality Index .................................................................... 55

Quality rating.................................................................... 86
INDUSTRY
Compensation ............................................................. 61
Demand Forecast......................................................... 60
Fares ............................................................................ 62
Marketing .................................................................... 64
newsletter ............................................................... 1, 44
Newsletter ................................................................... 58
Operating Statistics ..................................................... 59
Sales............................................................................. 63
input screens .................................................................... 25
insurance policy ................................................................ 86
R
refund
lease disposal fee ........................................................ 37
refunds .............................................. 19, 49, 52, 54, 76, 107
reliability factor .......................................................... 19, 76
retained earnings ............................................................. 75
revenue passenger miles ................................................ 109
review
historical information.................................................. 26
Route Map ........................................................................ 11
S
sales personnel ................................................................. 34
hiring cost .................................................................... 16
simulation
navigation .................................................................... 25
SIMULATION
Logout.......................................................................... 64
STARTUP
Aircraft ......................................................................... 30
Briefing ........................................................................ 28
Case ............................................................................. 29
Glossary ....................................................................... 31
Startup Decision .......................................................... 31
stock
bonus plan ................................................................... 84
dilution of value ........................................................... 73
dividend ................................................................ 42, 75

issuing ............................................................. 14, 70, 71
options ........................................................................ 17
selling .............................................................. 37, 42, 73
T
tax credit .......................................................................... 78
tax expense ...................................................................... 78
taxes ................................................................................. 78
income tax .................................................................. 89
team leader role ............................................................... 27
tools
decision-making .......................................................... 25
V
view previous decisions.................................................... 45
IndexPage 113

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Airline

The Strategy Simulation

Jerald R. Smith, Florida Atlantic University

Charlottesville, Virginia, USA

Discover a Better Way to Learn. Active Learning through Business Simulations.

ABOUT THE AUTHORS

In Airline, you will

In this simulation, we have attempted to illustrate the strategic

Key Simulation Objectives

Page 2Airline Student Manual

Develop Goals and

Section 1 (Case) of this manual presents a description of your

Page 4Airline Student Manual

As you enter your decisions, they are automatically

Competing firms will be following their own

The Strategic Planning Process

THE STRATEGIC PLANNING PROCESS

Establish the Purpose (mission, master strategy) of the Organization

a) The External Environment (termed industry study)

List all Possible Courses of Action

Select Best Course(s) of Action

Establish Policies, Standard Operating Procedures, and Methods Which Will

In narrative form, the outline answers these questions:

Where are we now?

Page 6Airline Student Manual

The Airline Manual

This section provides guidance on how to analyze information and

Page 8Airline Student Manual

SECTION 1: THE AIRLINE CASE

History of the Airline

Analyzing the airline

When the Federal government deregulated the entire airline industry,

The Airline CasePage 9

Markets and Routes

In the world of Airline, there are seven market types designated by

In addition to having unique market characteristics, each market type

From your mini-hub to a medium city with light manufacturing and

Service between 2 medium cities. One has a large number of service

Page 10Airline Student Manual

The Airline CasePage 11

Page 12Airline Student Manual

In addition to the impact aircraft selection will have on customer

Aircraft Type / Name

Min. headroom; no toilet; no

Standing room; toilet; no flight

Standing room; toilet, requires

Standing room; toilet, requires

Standing room; toilet, requires

Standing room; toilet, requires

Standing room; toilet, requires

Note: You start the simulation with 3 Beechcraft 1900s.

The Airline CasePage 13

Airplanes do not generate revenues when they sit on the ground.

Page 14Airline Student Manual

The Airline CasePage 15

The agreement allows you to issue tickets to any destination

Advertising and Promotion Budgets

Airlines advertise through a variety of media: billboards, magazines,

Page 16Airline Student Manual

Human Resource Development

a) Encourage a sense of ownership in the company through stock

The Airline CasePage 17