AIRLINE
AIRLINE:
A Business Strategy Simulation
The ultimate pedagogy for experiential
learning, a
“Learning by Doing”
Teaching Style
Overview of a Simulation
• Teams make a set of business decisions for a
simulated (3 month) period and these are
evaluated against decisions made by competitors
who are other class members.
• Decisions are entered into a program on a personal
computer.
• The program acts as the purchaser of the product,
compares the relative "merit" of the decisions
made by all teams, and computes the sales for
each firm.
• The program then computes the values for a
quarterly financial report for each team. The
reports may be printed by the instructor or by
student teams with the AIRLINE Student software.
• The teams analyze their results and prepare another
set of decisions.
• This is continued for a number of quarters.
• Upon the completion of play, teams usually give a
short report of their strategy and the administrator
debriefs the teams.
AIRLINE
was written by Professors Jerald Smith and
Peggy Golden after being introduced to the
President of a commuter airline. His invitation for
an extended visit to his headquarters to obtain
data was like food for a hungry soul for these two
avid pilots. It became the first industry-specific,
service industry-oriented simulation game. Both
Professors Smith and Golden are at Florida
Atlantic University .
The Smith-Golden team have 8 business simulations
published and used in the U.S., and in 11 foreign
countries.
OBJECTIVES
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Team Building
Communications
Cross Functional Understanding
Sales Planning
Budgeting
Business Strategy
Controlling and Evaluation of Operations
Managing under uncertainty and change
Consideration of Business Ethics
The Airline being Simulated
• The industry is highly competitive, filled with
uncertainty.
• The firm has been a Mom and Pop operation with
only 3 aircraft.
• The industry is composed of a few large firms and
many smaller regional operators.
• The new management team will have the task of
making the airline profitable through the purchase
of newer, more modern aircraft, opening new
routes, and convincing the public they are safe.
The Airline’s Market
• The Airline brings passengers from smaller
towns and cites to larger cites and hubs
where passengers can connect with larger
carriers.
• It also has some direct city-to-city service
• An opportunity exists for entering the
package cargo business and/or to diversify
into auto rental.
• It may also dual-designate with a larger
airline
Teams are ranked by
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Total profits
Profit trends
Return on sales and return on assets
Flight on-time reliability
Quality of Service
Stock price and dividends
Cash management
Corporate citizenship
Major Decisions That Are Made
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Overall fare strategy and promotional fares
Level of Cabin/beverage service
Promotion and marketing budgets
Number of salespersons
Employee compensation plans
Quality Management Budget
Maintenance Strategy/policy
Forward fuel contracting
Decisions (Continued)
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Cargo Decision and Budget
Corporate Social Responsibility programs
Common Stock sold
Short- and long-term loans acquired
Dividends
Purchase CD’s
Aircraft Purchases/replacements
Market research studies
Markets to enter and withdraw
Decisions (continued)
Financial Decisions
• Dividends
• Loan Addition or Payment
• In addition, for each decision period there is
a (mini) case on which a decision must be
made.
Fines for Stock Manipulation
The Airline is to be operated strategically. This
does not include stock manipulation (Buying
stock, EPS goes down, stock price goes down,
team buys it back.) A Large Fine will be
assessed. Another thing the instructor looks for
in the last quarter is if a team redeems all stock,
using a large loan to do so. This runs the EPS
up much higher than before and makes the
company look better than it really is (with a
large loan and high interest payments).
“Healthy, going concern?” We think not!
Student’s Program Menu
1. Enter Decisions
2. Print a Copy of Decisions, once entered
(Teams often try to print the decisions
BEFORE they enter them!
3. Print the Quarterly Report (after
the administrator has given back the
DATA file.)
(Teams Often try to print the results
immediately after entering decisions!)
ADVICE
1. Each team member is expected to participate
and cooperate with their team.
2. Most instructors do a mid-term peer
evaluation using the $ bonus form and and an
ending peer evaluation using the other peer
form. Both are in the student manual.
3. Buy Market Research and compare your
team to Everything your competition is doing.
Is your price too high, too low? Do you
have too many flights or not enough?
ADVICE
4. Have you gone past the point of diminishing
returns by certain budgets being too high?
How do you budgets compare (from market
research) to the average budget per aircraft?)
5. Do you have too many types of aircraft to
maintain?
6. Are your loans too high, and interest is
devouring your profits?
ADVICE
7. If your load factor is low in a market, is it
because the market has not had time to
develop (2-3 quarters)?
8. Someone on your team should be calculating
and comparing loads in each market each
quarter. (Do not complain to the instructor if
your loads are lower than a competitor. Many
other factors affect the load factor.)
ADVICE
9. If you are out of ideas in pulling your
company out of a tailspin, consider seeking
the consulting services of a of a successful
team on a fee basis. Of course, they should
not be in the same markets as you. Or
perhaps even merge with the other team.
Your instructor will use other expenses to
debit and credit the fees.
10. Merging is strictly “on paper” as the program
has no method of merging the assets of each
company. However, there are some ideas in
the student manual about merging and the
benefits that accrue.
ADVICE
11. One particularly upsetting event for teams
occurs when there is an unforeseen event of
no fault of the team or its decisions. As in the
real world, fate is ever present. Ask the new
car buyer who gets no further than a mile
away from the dealer when the car quits!
These events are spread evenly over the teams
so no team is put at a profit disadvantage.
ADVICE
12. “How can we tell how we are doing?”
Stock prices are relative indicators of
ranking, with a confidence factor of + or –
75%.
13. WARNING: Do not “end play” the
simulation or your ranking will be lowered.
The administrator wants a “healthy, going
concern” at the end, not a firm that has been
stripped in the last quarter to look better.
This especially applies to a large dividend
payment!
Final Thought
• Keep your airspeed and spirits up! And don’t
forget to lower the wheels before landing.
• The first few quarters are the most difficult.
Then each quarter becomes easier.
The authors wish you well as you embark on
your management adventure with
Airline