Etihad Airways Accounting Information System - Revenue Cycle Project - Example

Etihad Airways Background Etihad Airways was developed in 2003 by Royal (Amiri) Decree. It represents the United Arab Emirates as a national airline. Etihad Airways has over the ten years, emerged as the fast growing airline in commercial aviation’s history. However, Etihad has received a number of awards from the World Travel Awards for 5 consecutive years since 2009. The awards reflect Etihad’s position in the leading premium airline brands around the world. Etihad’s airline hub is Abu Dhabi. It is a perfect choice of our project because it has a fleet of 88 aircraft that operates approximately 1400 flights per week. As a result it serves an international network of cargo destinations and passengers in Africa, Middle East, Asia, North America, and Australia. This means that it makes huge sales of tickets per week. Furthermore, Etihad airways own about 40 per cent of Air Seychelles and 30 per cent of Air berlin; which is the Europe’s 6th largest carrier (Davis 102). After choosing Etihad airline for our project, we made an appointment with the accountant manager, Mr Peter Baumgartner. The aim of the appointment was to know more about Etihad Airline Company through interviewing Mr Peter Baumgartner. There are a number of questions we had designed for the interview which will be later discussed. We realized that Etihad airline is diverse in terms of considering it customers. It therefore seeks to mirror the best out of Arabian hospitality; that is being considerate, cultured, warm and generous. In addition, it aims at enhancing the status of Abu Dhabi by making it a centre of hospitality between West and East. The goal of Etihad airline is to become a global airline that change and challenge the conventions of airline hospitality around the world. It has managed to attract customer by the way it recognizes them as distinguished guests. For instance, the unique hospitality it offer in guest Travel Classes, the fresh services offered both on the ground and in the air, and travelling safe (Davis 156). Questions asked to Accountant Manager We designed a list of questions and used them to interview Mr Peter Baumgartner, the Etihad airline Accountant Manager. These questions include: 1. What kinds of marketing strategy do you use at Etihad airline? How does it increase your revenue? The marketing strategy used is a 7 P’s model 2. Why you become sponsor of Manchester City Football Club? And how this can give you benefit? To create awareness to potential customers in Australia 3. What are the key revenue cycle business activities in Etihad Airline Company? They include: Sales order entry Billing Picking order Cash collection 4. How do you process customer ticket orders in Etihad Airline Company? Customer orders: - Accepting ticket requests from customers using either manual or computer systems -preparing sales order Credit approval and limits -checking customer master files -verifying customers’ account status -authorizing credit Responding to customer enquires -providing ticket order Processing bill -Communicating sales invoice record -customer picks ticket after making payment Processing cash corrections -bank deposit 5. What type of invoicing do you apply? Pre-invoicing: -invoice prepared when ticket sales order is approved 6. What type of application system do you use for the revenue cycle? Computer system is mostly used although manual systems are used at small scales. Computer system is recommended because it play a crucial role in processing a large number of transactions: -quickly produce the documentation required –record reservation of product and services ordered –easily generate detailed reports for management use –reduce labor costs –reduce errors in pricing. 7. What type of system is used for depositing payments? Bank -printing the transaction list Supervisors review -reviewing transaction list before being stored. Revenue cycle Etihad airline has managed to succeed in the current competitive market through application of a marketing strategy. The strategy involves segmenting the market, selecting profitable segments, and then focusing on perfecting the products and services, on the selected segment, to attract customers. Furthermore, it provides and communicates the product or service. According to the accountant manager of Etihad airline, Peter Baumgartner, the marketing strategy is fostered by four principles. They include avoiding undifferentiated superiority, being inspirational, behaving like a luxury brand, and promoting Abu Dhabi by lining it new image with that of Etihad (Davis 192). The market strategy of Etihad airline increases its revenue through 7 P’s model. The first model is product which entails the air transportation. These products go along with some supplementary services which are divided into three classes. They include: Pearl Business class, Coral Economy Class, and Diamond first class. The main goal of such services is offering each target customer with the value that they deserve both on the ground and in flight. In addition, the aim is in parallel with acquiring Etihad’s future goals. Etihad airline also focus on adding more options and services such as Lounges, programmes for minor unaccompanied travellers, and “at door baggage pick up” services for passengers. The second model is place where Etihad Airline has established various offices across the globe (Davis 201). This assists Etihad in serving customers at their destinations in terms of providing customer support and selling tickets. The third model is promotion. Etihad makes a great effort in creating product awareness to their customers. The other model is media Advertisements. Apart from Etihad Airways website used to communicate with customers globally, innovative digital marketing strategies are adopted by its marketing department. This digital strategy assists in offering online flight status, online booking, and online checking of available flights among others. The other model is sponsorship and is aimed at creating awareness to potential customers in Australia. Etihad airline has sponsored many cultural events and sports on a global scare and in UAE. Price is another model used by Etihad airline. It uses a penetrating price strategy that offers lower prices as compared to competitors. Another model is loyalty programme. This programme aims at improving the brand loyalty with customers. Etihad airline Company use loyalty programme as a marketing supporting strategy to build a long term loyalty with its loyalty to the brand. The programme also helps in exchanging the value between the company and the customers. Apart from establishing a customer relationship management interaction with customers, the programme also establishes some customer’s belonging to the brand. In addition, loyalty programme enable the company to gather regular customer information for free and examine customers’ needs. The last one is the process model which refers to the systems utilized to convey the process. The process beings with customers booking for flights, until they either depart or arrive (Davis 188). Main Revenue cycle business activities Etihad airline has four basic business activities carried out when offering tickets to their customers. These activities are conducted using both manual and computer system. However, the four basic business activities undergo two phase processes which include: physical phase and financial phase. The physical phase involves sales order processing while the financial phase involves processing cash collections. The sales order processing takes place in the booking department. For automatic processing of tickets, Etihad airline has strong built systems that provide customers with the appropriate services. It has on-stage systems which include offices and online information systems. It also has back-stage systems which include scheduling and booking systems. In addition, Etihad airline has also expanded points of selling their ticket. For instance, it has installed some selling points in shopping and mall complexes for easier access (Davis 130). Through these systems customers are able to book their flights through phones or personal computers. The first three basic business activities fall under the sales order processing and they include sales order entry, billing, and picking order. However, the fourth basic business activity is called the cash collection and it falls under the processing of cash receipts. The sales order entry is performed manually by an on ground staff over the counter when serving customers that go to Etihad’s offices to book for tickets (Davis 102). In addition, the same strategy is used when booking tickets from installed points in shopping and mall complexes. However, sales order entry can also be performed using computer systems to avoid errors and improves service efficiency. Most of the booking is usually performed by customers through back stage systems. The rest of the business activities are carried out by Etihad staffs in their respective departments. Narrative for the Flow chart Sales order entry using a computer system The customer orders tickets either through the phone or accessing Etihad’s website using a personal computer. In the booking department the order data is received from the website and entered into the Etihad’s database. In the database, the requested order is processed through a computer system to identify whether the information provided by the customer is valid or not. If the information is valid it is then printed by the computer to produce an approved document. Some of the document is stored in the magnetic disk for future reference, while the other one is used for processing credit of the requested tickets by the customer. Sales order entry using a manual system The customer orders tickets over the counter. The request data is received and processed manually. In order to avoid human error and provide quick services, the processed data is fed into a computer system and then stored in a magnetic disk. The stored information is then used to process credit through a computer system. Checking the customer credit Customer credit is approved before further processing of tickets. Etihad’s staffs checks the master files of the customer and then communicates with credit manager to verifying his or her account status and authorizes it. Responding to customer inquires After credit authorization, the customer service responds to customer inquiries. Etihad airline uses customer relationship management system to manage this process. The system assists in meeting customer needs by keeping them informed on the process of booking flights. The goal of the system is to retain customers by improving the level of service and encouraging loyalty. Ticket order The process of responding to customer inquiries results to production ticket order document. Billing The next process is billing the customer. The process produces an invoice document that assists in notifying the customer of the total amount required to pay for the ticket. The document also indicates where the customer is required to send the money. The invoices may be sent in paper form if the process is taking place over the counter. However, for online customers, the invoice is sent via emails. Picking ticket order The customer picks the ticket after the bill has been processed and communicated to him or her. The picked ticket indicates the type of product that the customer has chosen. In addition, it also shows the quality of that product. For instance, Diamond first class, Pearl Business class, and Coral Economy Class. The diamond first class is the highest quality product with complete complimentary services. The ticket holders for such quality product are business travellers who are capable of maintaining their lifestyles even in the air. However, the pearl Business class is a product with less amount of money. It limits ticket holders on accessing some of the complementary services offered by the diamond first class products. In addition, this product also focuses on business travellers. On the other hand, coral economy class is a product that can be accessible to all including individuals and families. The product gives more family support and personal attention. For instance, it has an integrated footrest and a thirty two inch leg room that provide the desired comforts to the ticket holders. Processing cash collection The final business activity of Etihad revenue cycle is cash collections from customers that purchase tickets. The activity is processed where checks and cash deposits are directed to the bank. Since checks and cash are highly vulnerable, unauthorized persons are hindered from accessing account receivable personnel. The bank receives and scans the checks and sends electronic notifications, immediately, to the Etihad airline company. These notifications include the amount paid by the customer, and his or her account number (Davis 124). Printer Etihad airline Company receives the electronic notification from the bank. The notification data is entered into a printer which produces transaction document. Supervisors review The transaction document is then reviewed by supervisors and then stored. Threats and actions Revenues in the regulatory cycle Activity / action Threat How to counter the threat Introduction of ticket orders 1. Customer typing error in online application forms Upgrading the on-stage and back-stage systems in a manner that provide appropriate guidelines for booking tickets 2. Booking tickets through illegal agents Advertising the authorized agent and improving a common strategy for tickets issued by Etihad agents 3. Selling tickets to customers with weak credit accounts Strict checkup of customers’ master files to verify their account status Responding to ticket inquires 4. Weak support from customer care centers Providing special training programmes meant to improve skills for all staffs and increasing the value of Etihad brand 5. Long waiting time during processing tickets Developing a highly qualified and creative management team able to control automated ticket processing systems Accountancy and account receivables 6. Failure in customers’ account Providing directions through on-stage and back-stage system for customers to check their accounts in advance to ensure that they are active Regulatory control objectives The accounting information system designed for the sales of tickets should provide procedures that ensure the following objectives: That all ticket operations are carried out in respective departments and by respective expertise That all ticket operations are properly recorded That all ticket processes are recorded appropriately That there is protection of all assets, such as cash and data, from damage and loss That there is efficiency in revenue recycle business activities of Etihad airline Company The following is the information required by Etihad management team in making strategic decisions: Policies Installed on selling of tickets and their distributions Pricing of products and services The credit conditions provided Coming up with new marketing campaigns The information required in evaluating the performance of Etihad staffs involves the following: Time taken to respond to customer queries The time required to process the customer request The degree of customers’ satisfaction The percentage of ticket sales that need re-application Profitability analysis by customer, sales area, and product Work Cited Davis, A Nadinia. Revenue Cycle Management Best Practices. New York: American Health Information Management Association, 2011. Print. Read More