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6-1 Milestone Two: Performance Analysis
MBA 620
SNHU
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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
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company also prioritizes the safety of the customers. For this reason, the 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
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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 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
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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 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
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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 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
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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 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
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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 comparison to the associated cost. It will help the company to expand
effectively, acquire new customers, and grow its revenue.
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References
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/
