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10

Performance Analysis

Deyanira Diaz

Southern New Hampshire University

MBA 620

Professor Bates

May 1, 2022

Situation Analysis: Transglobal Airlines

Internal Environment

Transglobal airlines serve a global market segment for all of its passengers, including first-class luxury, business, and economy. Transglobal is a market leader in the United States. The corporation has produced and enhanced operational data that establish the extent to which the company is altering the airline’s market. As shown below, various internal elements affected the airline’s SWOT analysis findings.

Transglobal Airlines have a strong customer and staff base of up to 40,000 people, all of whom contribute to the company’s culture of open and honest communication, innovation, and teamwork. In order to achieve long-term greatness, the company, which was founded in 1951, had to transition from a monopoly or operation towards a more competitive environment that needed collaboration and strategic leadership management. The company’s operations and internal procedures are driven by the separation of leadership talent into various divisions and a positive culture that encourages employees to engage in career growth and innovation.

All recent strategic choices on organizational management and planning have been taken by the board of directors, which has played a key role in the development of and implementation of strategic goals. For the company’s long-term success, executives at all levels report to a chief executive officer (CEO), chief financial officer (CFO), chief operating officer (COO), or similar position.

Gross sales of $13.2 billion and net income of $1.5 million characterize the business’s financial performance. The company’s profits per share have increased by more than 30 percent year-over-year to $2,31. The company grew domestic sales by 7.7% and added 1.6 passenger vehicles. Both Atlantic and Latin income streams were profitable. There was just a 0.5% drop in revenue in the Pacific region.

External Environment

External market analysis is quite competitive, even more so given the SWOT analysis. Due to its 242 destinations in more than 52 countries on six continents, American domestic and international airlines are highly competitive. The US market comes in second with a stake of 18.3%, giving it a large lead over the US airline, which has a share of 19.1%. The airliner has a market share of 18.6 percent and is rated second internationally with an 18 percent market share.

There are 278 billion passenger miles in the company’s customer base, with an 80 percent return on investment and a 27 percent annual growth rate for new consumers in the range of 278 billion. To provide a great travel experience for all passengers, the airline works with a wide range of vendors and maintains strong ties with each one. They all have a substantial impact on the company’s financial results and profit advantage.

Analysis of Company A:

Balanced Scorecard Analysis of Opportunity Cost

Choosing one option over another has an opportunity cost, which is the benefit that is lost as a result (Fernando & Drury, 2021). To get a sense of how much it would cost to acquire Company A, one needs look at the corporate accounting history, culture and strategy, assets, and pricing structure (CFI, 2021). TransGlobal Airlines’ financial results must also be scrutinized in order to determine whether the airline has the funds necessary to make the transaction and if the acquisition would be a wise financial decision with a high return on investment.

A company’s past financial performance should be taken into account when generating a valuation since it may help predict the future and determine what is realistically feasible. As can be seen from the financial accounts of Company A, sales of $27,981 in 2017 grew to $29,610 in 2019. According to its financial statements, the company has a net profit of $2,379 (in thousands), an asset base of $86,438 (in dollars), and a cash flow of $44,319 (in dollars) (in thousands). According to these numbers, Company A is doing well financially.

There is a cash balance of $907.5 million at Airlines according to financial data (in millions). It’s also possible that earlier market purchases will help determine how much Company A is worth. In 2008, Southwest Airlines paid $7.4 million for ATA Airlines. As of 2020, (Pallini), Because of this, the acquisition of Company A for TransGlobal Airlines may cost about $7-7.5 million, which the airline can afford.

The gross profit margin of Company A is 64 percent, whereas the net profit margin is 21 percent. Since they show the transaction’s profitability, these numbers might be considered benefits while making a decision. The company also boasts a client retention rate of 66%, a customer growth rate of 22%, and an average seat occupancy of 74%. TransGlobal Airlines may save money on recruiting and training expenditures since Firm A is a recognized value leader with a low turnover rate, which shows that employees are satisfied with the firm. TransGlobal Airlines has an excellent probability of recouping its investment by purchasing Company A.

Risks connected with buying company A are largely concerned with what may happen if not every expected result is achieved in the purchase. In the end, the acquisition of firm A is a bad investment. Buying a business that will be recovered via its activities and transactions will involve large outlay of funds on the part of Company A’s financial component since it is so intertwined with all other elements. There’s a chance that the transfer process may create delays in financial predictions, putting the organization at risk.

A minimal risk to the cultural and operational environment exists since Transglobal is already a successful and running firm that can keep its original employees even if certain cultural issues occur as a consequence of acquisition. This means that an outstanding culture may be preserved. Predicted operational outcomes are still strong. There is no harm in changing the company’s culture or changing its operational procedures since they are both expensive and profitable.

Analysis of Company A

Balanced Scorecard Analysis of Risk

The Airlines face a moderate level of risk as a result of the transaction. Airlines may incur a loss of up to $7.5 million in the event of an acquisition failure. Additionally, since the target market comprises of vacationers, tourists, and Caribbean enterprises, Company A has a greater number of rivals. Additionally, its primary consumer base consists of luxury visitors and business travelers. Additionally, the corporation’s brand image as a premium, upmarket supplier may attract younger tourists, whereas economy class consumers would go with competitors.

Additionally, Company A’s internal operations, such as customer check-in and ticketing, are mainly manual. Company A outsources human resources and accounting services, which may result in Airlines paying vendors more money or taking longer to gather all the information necessary to incorporate these procedures into their internal systems. Additionally, Company A will need additional investment to modernize its internal procedures in order to operate more smoothly and effectively.

Analysis of Company B

Balanced Scorecard Analysis of Opportunity Cost

Company B is a more modestly sized airline in comparison to Company A. It has a workforce of 98 people and a fleet of forty airplanes. Additionally, Company B serves just eight cities. According to an examination of Company B’s historical financial statements, the company’s profits have decreased from $2,025 in 2017 to $79 in 2019. Additionally, Company B has significant cash on hand as a result of its 2016 sale to a regional hotel chain.

Trans Caribbean Airways was acquired by American Airlines for $18 million in one of the most high-profile mergers in aviation history (Time, 1970). Company B’s acquisition might cost TransGlobal Airlines between $18 and $20 million, according to the airline’s purchasing considerations. Despite the fact that Company B is less costly, it also gives less value for the money invested. It has a gross profit margin of just 49% and a net profit margin of 2% to 6%, based on financial data analysis. As a consequence, earnings for Company B are less rapid than those for Company A.

The advantage of investing in Company B, however, is that it has established strong commercial contacts with proprietors in the theme park sector in Florida and adjacent regions. This element may benefit airlines by providing an extra income stream via auxiliary services.

In terms of operational risk, the acquisition of firm B poses a medium risk. The cultural component associated with the purchase of business B will result in a significant shift in operational procedures and a significant cultural shift, lowering the risk to a more manageable level than the parent firm. The transglobal airline’s 2030 strategic plan and objectives include for modernizing its operations and increasing income. Nonetheless, the risk may deteriorate and adversely affect Transglobal Airline’s performance. The lowest risk will be on the market, since the firm now operates eight locations for tourists, visitors, and business travelers, all of which are segmented by consumer sector. Its customer retention rate is 40%, yet it has a seat capacity of 62%. The market will remain stable at all costs, and the firm is anticipated to acquire more destinations based on their size and occupancy in the Transglobal market. As a result, the risk of acquiring firm B is extremely low, although the profits are also quite low.

Analysis of Company B:

Balanced Scorecard Analysis of Risk

Consequentially of this deal, TransGlobal Airlines is exposed to severe risk. Vacationers, tourists, and business travelers make up the bulk of Company B’s clientele in Florida and the surrounding states. Customer retention at Company B is under 40%, while the average occupancy rate is 62%. These numbers don’t suggest that flying generates a lot of money. Rather than that, flying a half-full plane may wind up costing more money in terms of fuel and human expenses. Company B’s planes, on the other hand, have an average age of 18 years. Airplanes, on the other hand, generally have a 25-year useful life. Because of this, airlines will have to spend more money on aircraft improvements in the next years, resulting in higher costs for TransGlobal Airlines.

Another potential source of risk is the company’s culture. Firm B’s turnover rate is higher than that of many airlines, and the firm has difficulty retaining crucial maintenance professionals. The company’s annual turnover rate is around 18 percent. As a result, TransGlobal Airlines will invest more time and money into finding and retaining top-notch employees and improving the company’s overall atmosphere. In addition, a company’s ability to perform at its highest capacity is directly linked to the amount of turnover it experiences. As a result, although Company B is less costly, the risk of not recouping the investment is larger.

Conclusion

Investment opportunities between Companies A and B might have a substantial impact on Transglobal. The organization is responsible for making the investment. There may be considerable savings to be had if a cost-effective analysis shows that choosing business A results in more investment and risk, as well as greater earnings. According to the company’s strategic goal, Firm B needs less capital and delivers lower returns.

References

Bush, M. (2021, April 13). Why is diversity & inclusion in the workplace important? Great Place To Work. https://www.greatplacetowork.com/resources/blog/why-is-diversity-inclusionin-the-workplace-important

CFI (2021). Business valuation framework. https://corporatefinanceinstitute.com/resources/knowledge/infographics/valuationinfographic/

Chung, S. H., Ma, H. L., & Chan, H. K. (2017). Cascading delay risk of airline workforce deployments with crew pairing and schedule optimization. Risk Analysis, 37(8), 1443- 1458.

ERC (2019, February 19). Workplace culture: What it is, why it matters, and how to define it. https://www.yourerc.com/blog/post/workplace-culture-what-it-is-why-it-matters-how-todefine-it

Fernando, J. and Drury, A. (2021, August 29). Opportunity cost. Investopedia. https://www.investopedia.com/terms/o/opportunitycost.asp

Pallini, T. (2020, March 21). The past 2 decades saw the number of major airlines in the US cut in half. See how consolidation in the 2000s left customers with fewer options as profits soared. Insider. https://www.businessinsider.com/airline-mergers-and-acquisitions-in-theus-since-2000-2020-3

Peterson, R. (2018, June). Impacts of airline deregulation. TR News. http://onlinepubs.trb.org/onlinepubs/trnews/trnews315airlinedereg.pdf

Vickerman, R. (2017). Beyond cost-benefit analysis: The search for a comprehensive evaluation of transport investment. Research in Transportation Economics, 63, 5-12.

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