Strategic Management Project

MGMT 436

CHAPI AIR TRAVEL

For the strategic audit exercise I will chose CHAPI AIR TRAVEL; which is a small airline located in Venezuela. Their fleet has recently change and is constituted by 3 small airplanes and their target is to fly cargo and passengers between Caracas and Los Roques. I will be explaining the location and mission of this company which I find very interesting. The main reason why I selected this company is because I can see a big opportunity for improvement if the correct strategic management is implemented. They have been working with a relatively poor management and still being profitable. Therefore, I find interesting to know what the problems are and after a deep analysis, a winning strategy can result and the improvement could be substantial.

BOARD OF DIRECTORS

The board of directors is led by its founder member and President Miroslava Rodriguez. She studied Business Administration at central university of Venezuela. She has been related to the aviation industry since 1990 when she was part of the administration team of a small charter company. The Vice-president and recent addition to the board of directors is Giorgio Serloni, an Italian business man who started his aviation career when he bought two aircrafts and obtained his pilot license in 1995. They both have extensive knowledge about the aviation in Venezuela because of their experience in the field. Efrain Noguera is also part of the board of directors but without owning any shares of stock. He was included since the foundation of the company because of his experience in the aviation industry, and specifically commercial airlines and aircraft maintenance. Efrain Noguera is the director of operations.

The shares of stock are divided in this way: 33.33% owned by Miroslava Rodriguez, 33.33% owned by Giorgio Serloni, and 33.33% owned by a company called Peach Three. The board of directors contributes to the company by executing specific tasks in different areas. Miroslava is part of the administration department of the company and supervise any administrative activity. While Giorgio contributes with connections and the necessary permits to continue operations. Efrain is in charge of the operations of the daily operations, such as maintenance, aircraft parts, pilots, employees.

It is important to state that the level of involvement of the board of directors is high because they actively participate in the company´s strategic management and suggest future directions. I think this is a positive for the company, because they are 100% involved.

EFAS TABLE

External factors that affect Chapi Air can be opportunities or threats. As opportunities, we can find the increasing rate of tourists which can increase profit but it is not properly used by the company because flights are already full, so there is a lack of capacity. Another issue that could be useful is a government´s loan to improve fleet; but this option is not considered for now. Low competition in the route covered by Chapi Air is a situation where the company is taking advantage. For last, new airport facilities represent a good opportunity for the future because it is still under construction; but passengers will be more comfortable in new terminals.

Now, a threat for the company could be the increasing government regulations but Chapi Air understand that all is done for safety so they stay up to date in order to avoid any penalty. But if we talk about the biggest threat that Chapi Air is facing, we have to talk about the constant problems to acquire US Dollars to buy parts for the aircrafts and execute the proper maintenance to keep flights safe. Venezuelan government has a control over this currency and a company like Chapi Air needs US Dollars constantly in order to continue operations because aircrafts´ parts cannot be found in Venezuela. However, the company is in reunions with the government trying to work on solutions. Another external factor that is affecting Chapi Air is the fact that other airlines are getting newer aircrafts; and renovating the fleet is important to keep the passenger comfortable. This is an issue that needs to be addressed.

IFAS TABLE

Internal factors can be classified in strengths and weaknesses. In the strengths Chapi Air has three important factors: first, the financial position which is privilege because the company is in positive numbers and it has no debts. Second, is the experience in the top management area which is very high due to the fact that the director has been in the area for round 20 years. And third, the good structure company has develop during years; which means that it is a very independent company that has its own reservation department, administration department, customer service department, airport locations, and maintenance shop with its own mechanics.

Among weaknesses, we can find that Chapi Air needs to increase the required level of training for its employees due to the fact that customer’s complaints when addressing any inconvenient or passenger care. Another low point in the internal factors is the absence of leadership during periods of time. This is because the director has business trips to buy aircraft´s parts or to build business relationships, and during this time the company requires another leader. For last, the internal communication can be considered another weaknesses because there are no proper channels of communication, and sometimes this lack of communication leads to an administrative error that is solved later but there is a waste of time that could be avoid.

SFAS MATRIX

This is the summary of Chapi Air´s strategic factors, where the most important internal factors where combined with the most important external factors. In this SFAS Matrix, new weighs where assigned; and the two strengths from the internal factors are considered the most important factor of the company. The financial position of the company is very positive because Chapi Air has no debts and the potential loan eligibility is an important tool for expansion and improvement. Another principal factor is the experience that the company´s director has. This experience allows the company to go in the right direction and save a lot of money by finding better deals with the indicate service provider instead of taking an expensive or unexperienced company to provide a service to Chapi Air. The government is an external factor that represents a threat for the company because of the problems to acquire dollars and the constant and sometimes arbitrary regulations they announce. However the route that the company flight is a “gold mine” the rate of tourists is always increasing and the low route competition represents a big opportunity to the company for increasing profit. Some weaknesses that are not being properly addressed by the company so far are the employees´ training and the internal communication but there is a chance for a short term solution because of a future alliance with training schools for a plan with regular training sessions.

TOWS MATRIX

The TOWS (Threads, Opportunities, Weaknesses, and Strengths) table includes all the internal and external factors that affect Chapi Air in order to use it as a method of strategic analysis and determine strategic alternatives for the company. The strengths-opportunities section includes: the use of government loan to expand, the use of the new airport to improve the company´s facilities, and to take advantage of the increasing rate of tourists with the correct decisions made by the experienced management team. The weaknesses-opportunities section suggests to make use of the new airport facilities to implement new communication systems by closer location or phones connected in direct lines. In addition, in the WO section the loans could be an opportunity to invest in the employees´ training. The strengths-threads strategies include the use of government loans and experienced management to purchase newer aircrafts and properly compete with other airplanes in the route. It also suggests to focus the management effort to solve problems with the acquisition of dollars and to comply with all government regulations. Finally, the weaknesses-threads strategies consists of some alternatives such as solve the employees´ training situation in order to avoid any fine in consequence of lack of training. Another alternative to these negatives factors would be to sell the company and transfer the knowledge and experience in the aviation industry to another country where the economic and social environment is adequate to develop a business project.

COMMON-SIZE STATEMENTS

LIQUIDITY RATIOS

Current Radio: 1.26

Quick Radio: 0.47

Cash Ratio: 0.37

ASSET TURNOVER RATIOS:

Collection period: 7 days

NO DEBT

PROFITABILITY RATIOS

Gross Profit Margin: 0.5

Return on Assets: 0.32

Return on Equity: 0.5

The main difference when statements are calculated as common-size statements versus reported dollars is that it is much easier to analyze the company´s data and financial performance. This is because it is easier to compare the information with the data of other years, or to compare it with the records of other companies in the market.

As we can see in the common-size statements the net income has been decreasing progressively from 2011 through 2013. This is because the costs of operations are increasing year by year. Aircrafts need maintenance and parts to continue with the airline operations but these goods are becoming more and more costly due to the regulation in the market to import parts. Even though the net profit represents a good percentage of the revenues it can always increase.

The assets are mostly constituted by inventory parts to replace the ones installed on aircrafts when necessary and the aircrafts and properties such as the office and the maintenance hangar. The account receivable is low because the collection period is very short. And the Chapi Air keeps a good amount of cash in their accounts. The liabilities are payments for overhauling engines. These engines are received by Chapi Air and carry a liability until Chapi Air returns the cores (expired engines). In addition, the company has no long term debts because it does not have any loans or similar.

The liquidity ratios show low risks for shareholders because the company has no significant liabilities. The asset turnovers ratios are not crucial because the company has low annual credit sales, and its collection period is as low as 7 days. Chapi Air does not owe money so there is no debt. And the profitability radios such as gross profit margin, return on assets, and return on equity show the company´s success in sales, use of assets, and use of investments to be profitable.

CONCLUSION

Chapi air travel has many positive aspects that can lead to a huge success if they are properly develop. However, it is necessary a restructuration and a new injection of capital in order to acquire new aircraft and continue growing. This money can come from a bank loan because the company has no debts and the demand from passengers is superior to the offer; which means that increasing the aircraft capacity will not be a problem because these new seats will be easily filled. Other airlines in the market have recently changed and renew their fleet, and Chapi air needs to do the same in order to compete with them. The board of director is doing a good job by actively participating in the company’s future.