Swift Airline Company Operation - Essay Example

Swift Airline Company (Name) (University Affiliation) (Date) Swift Airline Company 1.0 Introduction Its hub based in San Francisco, Swift Airline Company, is set to be the most sought low-cost airline in America as a majority of the airline companies are somewhat unaffordable more so to students and low-income earners. With fascinating services such as 'seatback entertainment,' excellent snacks, and efficient customer care, Swift Airline is projected to exploit a huge market share as its target customers are still at large. As such, this report gives out a layout of the prospects associated with coming up with a low-cost-carrier. Thus, the report will analyze the American airline industry and Swift Airline’s viability to operate in this industry. 2.0 Airline Industry Overview A recent research indicates that the U.S airline industry is served by five hundred companies and often generates annual revenue of approximately $130 billion. However, this industry is dominated by three renowned carriers: United, Delta and American Airways. Besides, 80% of the entire American airline industry market and profits are mainly enjoyed by fifty largest companies in the industry. With globalism taking shape in other industries internationally, the American airline industry is in effect expanding as well as growing. A recent study carried out by Stanford University indicates there has been a 7% increase in air travel in the last decade (ATAG, 2005). Evidently, with impressive economic growth in the third world countries, governments in these countries are enjoying the profits that come from tourism thus developing the unused land by building tourist attractions as well as resorts. These governments are focused with developing the tourism sector in order to boost their economies. With budget airlines such as Jet Airline, which typically uses economical airplanes such as Boeing 737, people can today travel around the world at affordable costs. Thus, Swift Airline will be popular because of its affordability as it would use the Boeing 747 aircraft. With the globalism in place, potential companies such Swift Airline are in a position to invest globally as the business travel is rapidly augmenting. 3.0 Services From the onset, Swift Airline will engage in the transportation of customer from one destination to the as it is indicated in the route map. It will carry out its operation in an efficient, simple and direct manner. Swift Airline believes in excellent Customer care thus its employees will always be helpful and polite. Snacks as well as drinks will be served to customers in between the trip. Customer baggage will be allowed, however, overweight baggage will attract some fees depending on the weight. Besides, the seats will be assigned on first-come, first-serve basis. 4.0 Competition Even though there are more than five hundred airlines in the U.S, Swift Airline expects to compete with low-cost airlines such JetBlue, Southwest and Virgin Airlines. To position itself strategically, Swift Air will use discounts, emotional advertisement as well as exquisite services to outdo its competitors such as Southwest, which somewhat charges 5.7 U.S cents per customer in every kilometer. In effect, Swift Air will use the price strategy of 4.7 US cents per kilometer per passenger. 5.0 Target Consumer Swift Air targets the younger generations especially the students who have envied air travel for a long time, but can hardly afford it. The company’s motto will be “guaranteeing you the lowest fees,” hence will attract more young passengers. Even though JetBlue has started a campaign aimed at encouraging students to board their flights during holiday tours, they still charge exorbitantly, which gives Swift Airline an added advantage. Destinations Destinations Chicago Boston New York/LGA Seattle Cabo San Lucas New York/JKF Fort Lauderdale Puerto Vallarta Newark Orlando Austin Washington D.C/Dulles Cancun Dallas Love Field Washington D.C/Reagan National Portland San Francisco Las Vegas Los Angeles San Diego Kahului Airports that will be serviced by Swift Airline Swift Airline will operate in the following domestic as well as international flights from various airports as indicated below: Airport Code Country Airport Name Number of Flights SFO US San Francisco Intl. 15 LAX US Los Angeles Intl. 10 JFK US John F. Kennedy Intl. 3 BOS US Logan Intl. 2 CUN MX Cancun Intl. 2 DFW US Dallas Fort Worth Intl. 2 FLL US Fort Lauderdale Hollywood Intl. 2 IAD US Washington Dulles Intl. 2 LAS US McCarran Intl. 2 MCO US Orlando Intl. 2 6.0 Technical characteristics of the Aircrafts to be Used Technical features Boeing 737-800 aircraft Typical 2-class configuring 162 Typical 1-class configuration 189 Cargo 1,555 cu ft (44 cu m) Engines (Maximum thrust) CFMI CFM56-7 Maximum Fuel Capacity 6,875 U.S. gal (26,020 L) Maximum Takeoff Weight 174,200 lb (79,010kg) Maximum Range 3,060 nautical miles (5,665 Km) Typical Cruise Speed (at 35,00 feet) 0.785 Mach Wing Span 1112 ft 7 in 34.3 m) With Winglets 117 ft 5 in (35.8 m) Overall Length 41 FT 7 in (3.53m) Tail Height 41 ft 2 in (12.5m) Interior Cabin Width 11 ft 7 (3.53) Source: (Boeing.com,2013) 6.0 Technical characteristics of the Aircrafts to be Used Swift Airline will use Boeing 737-800 aircraft, which was derived and upgraded form the typical low-cost aircraft models known as the 707 and 727. Accordingly, the Boeing 737-800 is a jet airliner often single aisle and normally has a narrow body. Besides, the 747 fall under the category of short and medium series aircrafts and are considered as the most successful as they are the best-selling aircrafts globally. As Kingsley-Jones (2004) asserts, “The Boeing 737” has broken all records with regards to the most popular aircrafts. This can be attested by the fact that over six thousand aircrafts of the 737 model have been manufactured and delivered within the last forty-two years. 737-800 series aircraft, which is considered as the most produced airliner in history has two types of different classes of airplanes depending on the classes. The first type, Swift Air will use, is designed to carry 189 passengers and it is categorized as one class layout. The second type has a capacity of 162 passengers and has two classes. In effect, Swift Air will purchase and Boeing 737-800 aircraft as it has a longtime proven success. Throughout history, the Boeing 737-800 has proved to have low-cost function. 7.0 PEST Analysis 7.1 Political Historically, airlines in the United States and many other countries have been partially or fully owned by the central governments and as such, the airline industry is often subjected to political regulation. In retrospect, the economic arguments associated with regulation have often been justified on the concept that air transport was and will always be a public utility. As such, the external benefits from the civil aviation make it necessary for the airline industry to be regulated for these benefits not to be interfered. Tentatively, the American Airline industry is highly regulated, and much of the laws and regulation tend to favor the passengers more than the airline firms. The Passenger’s safety is prioritized in the American airline industry as such, Swift Airline will have to ensure that proper measures have been put to guarantee passenger safety and satisfaction. The American political stability was perfect before the terrorist attack that happened on the 11th of September, 2011. Notably, this heinous act markedly shook the American political stability and as such the Airline industry suffered considerable losses over the next six months before the industry started to recover. However, the U.S government came up with stern measures aimed at curbing any potential terrorist attack both in the U.S airports as well as the American airspace. With heightened security systems, which are highly automated and monitored, the U.S airline industry has managed to bring back the confidence with regards to investing in the U.S airline sector. Thus, Swift Airline will enjoy the favorable political stability in the U.S airline industry as the security measures in place are commendable. 7.2 Economic According to statistics given by the Airlines for America®, the American airline industry has created approximately thirteen thousand jobs, which represents 8.4% of the American jobs attributable to the commercial aviation (Airlines.org, 2016). Besides, the U.S airline industry represents nearly 5.1 % of the United States GDP, which translates to $807.1 billion. Moreover, in 2015, more than ten largest airline companies, which are publicly traded in U.S, recorded a pre-tax revenue of approximately 18.8 billion. This represents a 15.6% increase compared to the 2014 statistics which reported a 7.7% increase (Airlines.org, 2015). Further statistics indicate that more people are like to use air transport in the coming years due to the continuous fall of fuel costs as well as the increased globalization. Consequently, Swift Air stands a chance of securing a huge market share as it will offer affordable air transport accorded with exquisite services. The current data indicates that the fuel which dominantly accounts for 25% of the operating costs dropped by 36% in 2015(Airlines.org, 2015). In effect, Swift Air will enjoy reduced operation costs thus focus more on improving its services through motivating its staff and offering discounts to its customers. 7.3 Social With the emergence of the millennial generation into the consumer class, considerable social changes are evident, more so with regards to service delivery. Notably, millennial generation consumers have increasingly become demanding as far as looking for the friendliest and quality service-oriented airlines. These customers want to experience comfort and exploit various entertainment genres while seated in the airplane. They want to be connected to the world as they travel. Accordingly, Swift Air will have to meet these augmenting demands if the company is to secure a considerable share market, as well as remain competitive in the airline industry. Swift Airline will have to stabilize its costs as the passenger profile today has changed and consumers are certainly becoming economically minded. With the improved communication facilities, whereby the aircrafts are fitted with state of the art facilities, business class passengers are increasing reducing the need to fly down for meetings. Therefore, Swift Air should expect a new generation of customers who are exposed to quality services and goods thus focus on providing quality service to be unique and have competitive advantage over other low-cost airlines companies such as Frontier Airliners, Southwest Airlines, Virgin America and JetBlue Airline. 7.4 Technological Factors Evidently, today’s air travel consumers are much more technologically conscious as they are exposed to industrious world and as such would want to experience the same while boarding the airlines. Accordingly, Internet and videoconferencing remain as some of the major aspects that customers consider when looking airlines to board. Besides, these two aspects are considered as the most significant and influential drivers of change with regard to an airline’s microenvironment as far as technical issues are concerned. In view of this, Swift Air will have to ensure that their aircrafts are internet enabled such that passengers can comfortable connect with the world at the comfort of their seats. It is suggested that gadgets such iPads be availed in the airplanes such that a passenger is at liberty to use them while boarding the plane. 7.5 Environmental Factors Evidently, recent studies have indicated that emissions from the aircrafts when in air often have a significant impact to the environment since they travel several miles above the earth’s surface. As Penner et al. (2001) posits, the aircraft manufactures should be encouraged to find ways in which, they can reduce the emissions from aircraft when flying as they significantly damage the atmosphere. Besides, communities living near airports are constantly complaining about the noise pollution that is caused by the taking-off and landing of aircrafts. Consequently, governments are putting up measures through enacting environmental laws that force airlines to purchase new airplanes that do not produce much emissions and noise when in operation. On the other hand, the climate change is rapidly entering the community’s minds thus passengers are looking for airlines that are environment conscious. As such, Swift airline will be expected to adopt the concept of “green flying,” as well as respond to concerns being raised by environmentalists. 8.0 Swift Airline Management Management is a fundamental aspect of any organization; it is the brain and fulcrum of the business (ATAG, 2005). Equally, the type of management structure to be employed in any airline company depends majorly of the size of the firm as well as its operations. With the augmenting number of commercial airline companies, management teams are often subjected to constant pressures to perform thus increase profits, reduce the cost of operations and ensure no loss. Accordingly, Swift Airline intends to put together a solid management team thus combining highly skilled staff in finance, management and accountancy with their extensive industry experience. Currently, an initial project team has already been constituted and a full core management team will be created as more advanced planning engagement continues. The following section will show Swift Air proposed organizational structure. 8.1 Organizational Structure The envisaged overall management structure of Swift Airline will adopt a lesser hierarchical plan as the company will adopt a transformational type of leadership as opposed to transactional. However, a business environment whereby accountability and safety are of significance, one has to take control hence being in charge. Moreover, as the Kingsley-Jones (2004) states, there has to be a clear line of authority as well as expertise with regards to the operational aspects of Swift Airline Company. Beyond that, Swift Air will be designed around flexibility, common cross-training, a high level of individual responsibility and accountability. 8.0 Swift Airline Management Management is a fundamental aspect of any organization; it is the brain and fulcrum of the business (ATAG, 2005). Equally, the type of management structure to be employed in any airline company depends majorly of the size of the firm as well as its operations. With the augmenting number of commercial airline companies, management teams are often subjected to constant pressures to perform thus increase profits, reduce the cost of operations and ensure no loss. Accordingly, Swift Airline intends to put together a solid management team thus combining highly skilled staff in finance, management and accountancy with their extensive industry experience. Currently, an initial project team has already been constituted and a full core management team will be created as more advanced planning engagement continues. The following section will show Swift Air proposed organizational structure. 8.1 Organizational Structure The envisaged overall management structure of Swift Airline will adopt a lesser hierarchical plan as the company will adopt a transformational type of leadership as opposed to transactional. However, a business environment whereby accountability and safety are of significance, one has to take control hence being in charge. Moreover, as the Kingsley-Jones (2004) states, there has to be a clear line of authority as well as expertise with regards to the operational aspects of Swift Airline Company. Beyond that, Swift Air will be designed around flexibility, common cross-training, a high level of individual responsibility and accountability. With regards to the flight side, which is headed by the director of flight operations as well as liaises with director of flight safety, there will be only three ranks of personnel these are: Captain Flight officer Flight attendant 8.2 Salary Scales The salary scales as well as the levels of authority will be simplified depending on the employee’s functional work as well as the level of authority. The Swift Air’s main objective is to foster an atmosphere of shared responsibility as well as cooperation in order to fulfill the company’s overall mission as well as ensure customer satisfaction. Production Personnel Designation Salary per annum Captain (3 in every plane) $194,000x3=$582000 First Officer (3 in each airplane) $155,000x3=$465,000 Flight Attendant (9 in each airplane) $57,500x9=$517,500 Subordinate 1 (in each airplane) $41,000x4=$164,000 Sales and Marketing Staff Sales and Marketing Director $61,000 Regional Sales and Marketing manager $43,000 Special Sales and Marketing Manager $41,000 Air Cargo Marketing manager $41,000 Customer Service and Reservation Assistant $21,000 General & Administrative Staff President $180, 500 Vice president and General Manager $143,000 Vice President Commercial Dept $125,000 Vice President in Finance Dept $125,000 Vice President in charge of Operations $123,000 Other Senior Personnel and Regular Employees Director iin charge of Communications $52,000 Director In charge of HRM $52,000 Director in Charge of Flight Safety $52,000 Director in charge of Flight Maintenance $52,000 Director in charge of Ground Operations $52,000 Director in charge of Information systems $52,000 Station Manager $40,000 Ground Service Pers (4) $32,000=$128,000 Maintenance Engineers (3) $25,000=$75,000 Bookkeeping and Finance Personnel (2) $22,000=$44,000 Information Systems Personnel (4) $24,000=$96,000 Administrator Assistant Staff (4) $18,000=$72,000 Customer Relations Staff (2) $20,00x2=$40,000 Total Salary Expenses $3,439,000 9.0 Aircraft Expenses and General Budget Cost per airplane- Boeing 737 $51,000,000x 4=$204M Insurance 1.6% on value of the airplane= 8,160,000 Amount for down payment $100,500,000 Amount that will be financed $100,500,000 Insurance annually $1,840,000 Yearly payments on 4 airplanes for 10years $10,023,010 Total cost of airplane w/ payments $ interest $163,500,005 Residual value once 10 years are over Nearly. $75,100,000 Total real cost for 4 airplanes after ten years Nearly. $213,500,000 Operating Assumptions Amount Salaries $3,439,000 Four Boeing 737 $213,500,000 Annual insurance cost per aircraft $390,000 Fuel Consumption per hour 2,57 kg/h Fuel Price $4.77 Maximum Range 5,421 Km Misc. Trip Expense Per Hour $452.05 Food and drinks per hour $2,000 Total crew per airplane (every min.) Flght-5/Cab-8 Total Taxes annually $33M Total aircraft maintenance per flight $11,000 Departure charges per segment $160 Parking fee for Airplanes per night $160 Total operating costs/year $337Million 10.0 Swift Airline Financial Indicator The chart below, which is based on the projections researched from the current airline industry, indicates a systematic growth for the first three years Swift Airline will be in operation. As seen in the chart the financial turn-over and revenues verses costs are in good balance. Therefore, with a cautious planning of cash flows with respect to expenditures, Swift Airline life plan will be maintained. 10.1 Break Even evaluation The following chart indicates the break-even point, and has been from a monthly projection basis such that four aircrafts operate about five segments per day. It is estimated that more than 15,000 passengers will be boarding the Swift Airline every month. It is projected that Swift Airline will attain its returns with its first year of operations. Break-even Analysis Revenue Break-even (monthly) $516,471 Suppositions: Av % Variable-Cost 4% Approximated Fixed Cost (monthly) $481,744 10.2 Swift Airline Projected Balance Sheet As the below balance sheet depicts, the new business will sustain a healthy position. Even though the company will start off with a limited capital and assets Swift Airline is expected to have a good profits by the end of the third year. Projected Balance Sheet 1st year 2nd year 3rd year Assets Current Assets Cash $10,787,259 $18,460,187 $43,046,231 Accounts Receivable $4,807,930 $10,233,125 $16,622,313 Inventory $334,453 $70,217 $1,010,150 Other Current Assets $51,000 $51,000 $51,000 Total Current Assets $16,071,662 $32,543,529 $64,838,713 Long-term Assets $250,000 $250,000 $250,000 Accumulated Depreciation $110,000 $230,000 $350,000 Total Long-term Assets $81,000 ($41,000) ($151,000) Total Assets $17,151,662 $31,503,539 $65,688,703 Liabilities and Capital 1st Year 2nd Year 3rd Year Current Liabilities Accounts Payable $5,545,548 $6,142,496 $8,882,482 Current Borrowing $371,800 $215,500 $1,400 Subtotal Current Liabilities $5,455,437 $6,329,185 $8,874,052 Total Liabilities $5,647,438 $6,328,196 $8,973,081 Paid-in Capital $11,700,000 $11,700,000 $11,700,000 Retained Earnings ($980,000) $413,224 $13,354,332 Earnings $1,383,213 $13,850,129 $31,430,257 Total Capital $12,214,214 $24,163,343 $55,714,511 Total Liabilities and Capital $17,151,662 $31,503,539 $65,688,703 Net Worth $11,103,214 $24,153,352 $55,714,613 11.0 Conclusion and Recommendation Having highlighted the American Airline Industry, as well as the external impacts that may affect Swift Airline when conducting its operations, it is evident that the industry is conducive. From the statistical projections, Swift Airline, a low-cost carrier, will enjoy a new set of customers mostly the youth, who have often yearned to experience the air travel. The value of introducing Swift Airline Company into the U.S market is not measurable by numbers as well as market comparisons, but measurable through the unique change it brings in the mark. Swift Airline wants to change the viewpoint of the younger generations with regards to the cost of air travel. In other words, it wants its target customers to realize that it is possible to book flights when going out on holidays. Thus, it is recommended that after the first three years, Air Swift should carry out an overall performance analysis and later on expand in more destinations both regionally and internationally. References Airlines.org,. (2015). Airlines For America | A4A Projects Thanksgiving Air Travel to Rise 3 Percent to 25.3 Million Passengers in 2015, the Highest in Eight Years. Retrieved 21 January 2016, from http://airlines.org/news/a4a-projects-thanksgiving-air-travel-to-rise 3-percent-to-25-3-millionpassengers-in-2015-the-highest-in-eight-years/ Airlines.org,. (2015). Airlines For America | Data & Statistics. Retrieved 21 January 2016, from http://airlines.org/data/ ATAG. (2005). The Economic and Social Benefits of Air Transport. Air transport Action Group, 33 Route de l’Aéroport, P.O. Box 49, 1215 Geneva 15, switzerland. Boeing.com,. (2013). Boeing: Next-Generation 737. Retrieved 22 January 2016, from http://www.boeing.com/commercial/737ng/ ICAO. (2006). Economic Contribution of Civil Aviation. International civil Aviation organization, 2006 edition CD-ROM, Aviatech publication KINGSLEY-JONES, M. A. X. (2004). Surge in jet sales brings back boom. Flight International. Penner, J. et al (2001). IPCC Special Reports on Climate Change. Retrieved 25 January 2016, from http://www.grida.no/publications/other/ipcc_sr/?src=/Climate/ipcc/aviation/124.htm Read More