From the Authors of Airline

F(requently) A(sked) Q(uestions) about Airline

Q: Why did you write the Airline simulation?

We have been publishing different types of simulations for years. So in the early 90's when were introduced to the President of a commuter regional airline, we saw the opportunity to research the industry first hand. We are both pilots, so it was a labor of love!

Just as in the "real world" the demand is based on what your firm does in comparison to everyone else; if you have a higher price than the competition in a given market, you will probably sell fewer seats but earn more profit per ticket sold. Which is best? That is what a simulation is all about--experimentation with different strategies. Other determinants include number of flights per day in a market, number of seats flown from and to that market, relative price, relative service, and marketing. Of course there is a point of diminishing return for all these areas. As an example, if too many daily flights are offered in a market, average seats sold per flight will be less, and the firms in that market could all lose money in that market. Yes, each market has a finite demand.

Some teams do and some don't. If a team has a strategic plan and builds the airline in accordance with that plan, they may have losses for 3-5 quarters. However, you should not take any loss lightly. You should know WHY you have losses. Is it because you have priced yourself too high above the competition or is it because you have additional expenses as you open new markets, etc.

Various professors have different things they are looking for. We will say that there are objectives beyond pure profits -- including stock price; return on sales, assets, investment; dividends, being a socially responsible firm, and ending with a healthy, going concern. *WE* believe that every team "wins" if they have learned something about the world of business, have had an opportunity to integrate previously learned tool courses, and learned something about themselves, and about group dynamics.

Absolutely! The team that is "heads up" about the simulation and takes it seriously seem to do better than the team that throws dice to arrive at decisions. As a matter of course, we have seen an equal number of teams win that were discounters, luxury, and regular airlines.

There are good airline industry cases in several strategic management textbooks such as Miller and Dess, Strategic Management, 2nd Edition. In addition, most cases about airlines themselves have good industry overviews. You can also look at the home pages of some airlines. For example, Southwest Airlines or American Airlines have informative home pages. And you might want to try The Federal Government's Resource Page, and the Regional Airline Association for industry and general business environment information.

Question 1 asks you to consider the overall condition of the industry and the attractiveness of the company. There are many ways to approach this problem. You may want to find out whether the regional airlines are consolidating or expanding as part of making this decision.

Question 2 suggests developing a mission statement and objectives and goals for the company. There are forms to help you do this in the Student Manual. One suggestion to guide your thinking: who are the customers that you want to reach with this company? How would they normally travel between city pairs?