1.From the data provided by Fun Air in Tables 2 and 3 for the year ending 1999, calculate:
a) total revenue for the year
b) the number of full price return tickets that had to be sold to break-even.
Annual Overheads/(Ticket per person minus variable costs per passenger)
40270/(300-30)=150 tickets need to be sole to break-even?
c) the total profit for the year
2. Prepare a S.W.O.T. (strengths, weaknesses, opportunities and threats) analysis for Fun Air and use this to comment on whether Jeff Martin should be confident about his firm’s short-term future.
One of the strength Fun Air has is that its CEO Jeff Martin has worked for twenty years as a marketing executive of a holiday company. He has experience and knows exactly what consumers thrives and needs. Another strength is that using Jeff Martin’s experience, he has clearly pointed what consumers what and not on the market right now (which means less competition as for now) which is to especially target families with school age children and ‘fast food’ that improves the traditional airplane food the children hates. Yet as for weaknesses, Jeff Martin’s experience as a marketing executive of a holiday company means that he has limited experience in the airline market. Also because of Fun Air niche marketing, it can bring them plenty of ‘low’ seasons for example when school age children are in school. Jeff Martin borrowed heavily to buy his first three aircraft using finance from a venture capital company which took a 5% shareholding in return. This is a likely threat since venture capitalists usually get significant control over company decisions, in addition to a significant portion of the company’s ownership.
Other threats include competitors starting to notice after they gained a 15% market share, Eagle Air has given notice of cancellation of its support contract. Other competitors have rumored to cut prices on Fun Air’s routes an d Free Spirit has announced to start its own budget operation. Increase competitions may lead to a decrease in profit and market share for Fun Air. Another threat is that the growth in the European economies has slowed and tourist expert have predicted a 2% reduction in air travel over the next two years. Opportunity for Fun Air is plausible expansion in the market and also expanding a new business sector perhaps international business or tourists with leasing two newer aircraft which might attract consumers attention. In conclusion, even though Fun Air has an increasing 15% market share the company may be facing likely problems in the short-term future ranging from competition, decrease in profit to lack of consumers due to the decline in economic growth and reduction in air travel over the next two years. Jeff Martin should keep an eye out. I would advise him not to make any expansion on the short term wait until the economy heals a bit or when he has paid all the debt in buying his first three aircraft.
3. a) What is venture capital and why is Fun Air the type of organization that venture capitalists favor?
Venture capital is capital investment into a firm by ‘venture capitalists.’ A venture capitalist is a person or investment firm that makes venture investments, and these venture capitalists are expected to bring managerial and technical expertise as well as capital to their investments. A venture capital fund refers to a pooled investment vehicle that primarily invests the financial capital of third-party investors in enterprises that are too risky for the standard capital markets or bank loans.” Venture capital is most attractive for new companies with limited operating history that are too small to raise capital in the public markets and are too immature to secure a bank loan or complete a debt offering. In exchange for the high risk that venture capitalists assume by investing in smaller and less mature companies, venture capitalists usually get significant control over company decisions, in addition to a significant portion of the company’s ownership (and consequently value).
b) Identify TWO additional sources of finance available to fund expansion of Fun Air, commenting on the suitability of each source to the airline’s present position and future needs.
Fun Air can now ask for a bank loan with its mature company. This might help the airline’s future needs for expansion and will help them become much more competitive. Fun Air can also try to attract more investors to invest which can help them deal with the low economic growth and the prediction for a reduction in air travel by 2%.
4. a) Describe and evaluate the behavior of Fun Air’s competitors to their entry into the market.
Fun Air had captured a 15% market share by the end of 1999 and competitors have started to notice. One likely reason is that the competitors entry into the market has proved that profits in their current market is very little,
b) How can Fun Air react to the threats posed by their competitors?
Fun Air can provide better and/or new services directed to school age children to attract consumers. They can also reduce their prices by having family sets by giving a discount for the children when adults buy their tickets. They can also expand into their competitors’ market but with the slow economic growth and reduction in air travel they should be careful.
5. Examine the advantages and disadvantages of Fun Air’s direct ticket sales policy.
Fun Air’s direct ticket sales policy can maximize their profits, reducing unnecessary costs and efficient. The direct ticket sales policy can let Fun Air have direct contact with consumers in which can help them market their products correctly.
6. Analyze Fun Air’s existing organizational structure and corporate culture and comment on whether these could survive a significant growth in the business.
Fun Air’s employees are called partners and have shares in the business. Jeff Martin in on first name terms with all his employees. This helps boost up the employees’ morale by making them feel important. If Fun Air decides to expand, these corporate culture and organizational structure might not survive considering the number of new employees they will need. (Do not exactly get organizational structure)