Running Head: TRANSGLOBAL AIRLINES f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f 1
6-1 Milestone Two: Performance Analysis
MBA 620
SNHU
Feb 12,2022
TRANSGLOBAL AIRLINES f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f 2
Introduction
TransGlobal Airlines is a reputed government-owned company. The company has
enjoyed a monopoly status in the airlines industry. TransGlobal Airlines is planning to expand
its operations and acquire other companies. This report focuses on shedding light and
evaluating the performances of TransGlobal Airlines, Company A, and Company B that are
involved in the acquisition process. The report will also compare the benefits, costs, as well as
risks associated with each of the companies in order to make well-informed decisions relating to
the acquisition.
A. Situation Analysis of TransGlobal Airlines
TransGlobal Airlines started its operations in the year 1951 and has expanded a lot.
Today, the company has nearly 40,000 employees. It is a global airliner with a dominant
presence in the US market. The headquarter of TransGlobal Airlines is in Miami, FL.
a) Internal Environment
The internal environment of an organization comprises of the culture of the organization
and other elements within the organization. It includes the owners, managers, employees,
leadership, as well as material resources (Halmaghi et al., 2017).
Organizational culture refers to the norms, values, beliefs, assumptions, and attitudes
that play an important role in shaping the manner in which people within an organization
behave or get things done (Politeknik NSC surabaya: Business Administration. Politeknik NSC
Surabaya | Business Administration, 2021). In terms of culture, TransGlobal Airlines focuses
on ensuring the delivery of optimum quality services to its customers. The company treats all its
customers with respect and values the customers, employees, business partners, as well as other
important stakeholders. TransGlobal Airlines delivers innovative solutions to enhance the
travel experience of the customers. It focuses on building long-term relationships with the
customers. The company also prioritizes the safety of the customers. For this reason, the
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employees are provided with appropriate safety training. In addition to people, TransGlobal
Airlines also takes the necessary steps and operates in such a way so as to protect the planet. The
company aims at reaching a net-zero carbon footprint by the year 2075. It has started adopting
alternative fuels and fuel-efficient aircraft in order to lower the carbon emission into the
atmosphere. Moreover, TransGlobal also plans to enhance its ticketing and reservation
experience through the introduction of smartphone apps. The company also focuses on building
an inclusive culture and effectively addressing all the inequities existing in the organization.
In terms of leadership, TransGlobal Airlines is a publicly held company with a president, board,
VP admin, VP sales, CEO, COO, CFO, division VPs, and subsidiaries. All these individuals
play a vital role in making important decisions relating to the operations of the company. The
leadership hierarchy of the company allows it to make a better and faster decision in a
systematic manner.
In terms of internal processes, the interaction between the airlines and the travelers starts
with booking or making flight reservations and ends with passengers boarding the flight and
claiming their baggage. In terms of operations, TransGlobal Airlines operates worldwide.
However, it has a strong presence in the US market. The global market share of the company is
18%. The US market share of TransGlobal Airlines is 18.3%. The company is a major airline
competitor in the world and is planning to expand its operations beyond the domestic market
and enhance its competitiveness.
In terms of finance, the records of the company show that it has a strong financial
performance. The main source of revenue for TransGlobal Airlines is the passenger market
segment. The revenue of the passenger market segment was USD 11,635 million in the year
2017. However, it has increased to USD 13,313 million in the year 2019. The revenue generated
from the cargo market segment has also increased over the years. In the last quarter, the
domestic revenue experienced significant growth of nearly 7.7%. In terms of geographical
TRANSGLOBAL AIRLINES f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f 4
segment, the Latin market segment witnessed the highest growth of 6.7%. The net income of
TransGlobal Airlines has increased from USD 1,009 million in 2017 to USD 1,501 million in
2019. The total revenue has also increased from USD 12,954 million in 2017 to USD 14,803
million in 2019. All these financial parameters show that the company is improving in terms of
its financial abilities. Leveraging global destinations can further increase the chances of growth
and expansion of TransGlobal Airlines in the near future. It will allow the company to enhance
its market share effectively.
b) External Environment
External environment refers to the factors and forces that are beyond the control of the
organization but affect the operations of the business (Akpoviroro & Owotutu, 2018). Some of
the vital aspects of the external environment are the competition in the market, suppliers,
customers, and regulatory policies.
For TransGlobal Airlines, there exists tough competition in the international market.
The major competitors of the company are all domestic as well as international US airlines. The
increase in the number of low-cost airlines that offer reservations at competitive prices is likely
to intensify the competition in the market. In order to increase its competitiveness, TransGlobal
Airlines will have to invest more in making the necessary improvements.
In terms of market segment, the market of TransGlobal Airlines is divided into first-
class, business class, luxury, and economy. The company has a customer retention rate of 80%.
There are a number of regulatory requirements that TransGlobal Airlines have to adhere to in
order to operate smoothly in the market. TransGlobal Airlines has to comply with the
Department of Transportation (DOT) as well as Federal Aviation Administration (FAA)
regulations in the home market. Moreover, the company also has to comply with various other
regulations in the international market. TransGlobal Airlines also complies with licensing as
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well as standard requirements. However, there may be a need to upgrade its processes in order
to meet the changing regulatory requirements.
The company has a very good relationship with its valuable customers. One of the core
values of the company is to treat its customers with respect and deliver exceptional services to
enhance their overall travel experience. The customers have high power and low interest in
influencing the operations of the company. On the other hand, the suppliers have high power as
well as high interest to influence the operations of TransGlobal Airlines. Fuel companies and
online travel agencies are the major suppliers of the company.
B. Balanced Scorecard Analysis of Company A
On the basis of the balanced scorecard, a number of aspects relating to the performance
of Company A have been identified. The annual growth of the company ranges from 2.5% to
2.9%. In Year 1, the annual revenue of Company A was USD 28 million. However, in Year 3,
the revenue has increased to USD 84 million. This shows that the financial performance of the
company is improving, and the company is making efforts in order to enhance its overall
revenues. Increasing fuel efficiency will allow the company to experience even better growth
and improvement of its revenue.
Company A is focusing on expanding the number of aircraft in its fleet. This shows that
there is an increase in demand for Company A among the customers in the market. The
company plans to add two new models every year. The average age of the aircraft was 14 years
in Year 1. However, it became 20 years in Year 3. This means that the company is making an
effort to make the best possible utilization of the available capabilities.
The current customer retention rate of Company A is 66%. It is lower than that of
TransGlobal Airlines, which is 80%. However, the current retention rate of the company shows
that the company has been successful in establishing a loyal customer base who are likely to
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choose the company whenever they have any travel plans. This can prove to be beneficial for
TransGlobal Airlines and help in expanding its customer base.
a. Opportunity Cost
Opportunity cost can be defined as the value that an organization has to pay in order to
avail of a particular opportunity (King, 2009). In this case, if TransGlobal Airlines moves ahead
to avail the opportunity of acquiring Company A and availing the associated benefits, it will
have to bear some significant costs. One of the opportunity costs is the need to spend on
employee training in order to reduce the employee turnover rate. TransGlobal Airlines will have
to bear expenses and provide training to employees of Company A on various aspects such as
customer service, FAA basics, as well as FAA safety assurance system. However, after the
employees are trained, it can help in boosting their morale and efficiency, thereby enhancing the
overall performance of the company. So, the benefits outweigh the cost. Another potential cost
is that the parent company may have to invest more in digitalization and integration of the latest
technologies in order to strengthen the internal processes of Company A.
b. Risks
In addition to opportunity cost, there are also certain risks associated with the
acquisition of Company A by TransGlobal Airlines. One of the significant risks is the
difference in culture. As TransGlobal Airlines and Company A have a different organizational
culture, it may give rise to certain challenges in integrating the culture. The operational risk is
low as both the companies operate in the aviation industry and serve global clients. The
financial and market risk is medium. The overall risk of acquiring Company A ranges from
medium to low.
C. Balanced Scorecard Analysis of Company B
On the basis of the balanced scorecard of Company B, a number of performance aspects
of Company B have been identified. The annual growth of Company B is 3%. The annual
TRANSGLOBAL AIRLINES f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f 7
revenue of the company ranges from USD 26 million to USD 27 million. Currently, the number
of aircraft possessed by Company B is 40. However, it plans to increase its aircraft by adding
three new models every year. The average age of the aircraft is 18 years. This shows that
Company B is making efforts in order to utilize its capacity in the best possible way. However,
with the increase in the age of the aircraft, the cost of maintenance may also increase.
The current customer retention rate of Company B is 40%. This shows that the company
has not been much successful in establishing a strong customer base. However, the acquisition
of Company B can help in expanding the customer base of the parent company to a certain
extent. The current search occupancy rate is 62%. The annual employee turnover rate is 18%
which is higher than Company A.
a. Opportunity Cost
In order to acquire Company B, the opportunity cost that TransGlobal Airlines has to
bear is the cost of training the employees. As the turnover rate is 18%, the parent company will
have to invest more in employee training. It will help in improving the talent of the employees
and providing them with an opportunity to grow. Another significant cost is the establishment
of a customer portal in order to appeal to the target customers and increase the seat occupancy
rate.
b. Risks
There also exists a number of risks relating to the acquisition of Company B by
TransGlobal Airlines. One of the risks is a cultural risk. The difference in culture may make it
challenging for the effective integration of both companies. The financial and operational risk is
medium. The overall risk ranges between medium to low.
Recommendations
On the basis of the analysis, it is recommended that TransGlobal Airlines must proceed
to acquire Company A. This acquisition can provide the company with more benefits in
TRANSGLOBAL AIRLINES f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f 8
comparison to the associated cost. It will help the company to expand effectively, acquire new
customers, and grow its revenue.
References
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Akpoviroro, K. S., & Owotutu, S. O. (2018). Impact of external business environment on
organizational performance. International Journal of Advance Research and Innovative
Ideas in Education, 4(3), 498-505.
Halmaghi, E. E., Iancu, D., & Băcilă, M. L. (2017). The organization's internal environment and
its importance in the organization's development. In International Conference
Knowledge-Based Organization (Vol. 23, No. 1, pp. 378-381).
King, E. (2009). Economic vs. Accounting Profit Rates. In Transfer Pricing and Corporate
Taxation (pp. 7-10). Springer, New York, NY.
Politeknik NSC surabaya: Business Administration. Politeknik NSC Surabaya | Business
Administration. (2021). Retrieved February 9, 2022, from
https://nscpolteksby.ac.id/ebook/book/business-administration/
