Identificación directa del comportamiento de la variable capacitación en seguridad y

Introduction

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Revenue

Information to provide:

Daily passengers = 200 round trip passengers (or 300 one-way) Avg ticket price = $500 for round trip (or $250 for one-way)

Days operational / year = 300(1)

Calculation:

Daily revenue = Daily passengers * Average ticket price = 200 x $500 = $100,000 Annual revenue = Daily revenue * days operational/year = $100,000 x 300 = $30M

Case 3: Zirgin Atlantic Airlines

Introduction

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Expensed Costs

Information to provide:

Average variable costs(2) _{= $40,000 for a round trip flight}

Fixed costs (excluding price of plane)(3) _{= $3M / year}

Calculation:

Annual variable costs = Cost / round trip * Days operational = $40,000 x 300 = $12M Total annual costs = variable costs + fixed costs = $12M + $3M = $15M

Part 1: If Zirgin decides to purchase one new plane to be used exclusively for the new route, does this investment meet Zirgin Atlantic’s corporate investment criteria? Assume that demand, pricing, and costs stay the same year after year, and that a new plane has a useful life of 25 years.

Payback Period

Information to provide:

Cost of purchasing a new plane (capital investment) = $75

Calculation:

Payback period = Capital investment / Annual profit = $75M / $15M = 5 years

Questions / Answers

Optional mini-questions:

1.  Why would the days operational per year be 300 days instead of 365? It is impossible for

planes to be utilized all the time due to controllable factors (scheduled maintenance) and uncontrollable factors (weather).

2.  What are some examples of variable costs for this case? Fuel, on-board labor, food/drinks 3.  What are some examples of fixed costs for this

case? Gate fees, terminal labor, insurance

Main question:

Does the investment meet Zirgin’s corporate investment criteria? Yes, on a standalone economic basis, purchasing a new plane should generate a 5 year payback period assuming no growth/decline in demand or in pricing. This is below the company’s target of a 6 year payback. The useful life factors into this analysis because, in order for the service to continue, the company will have to buy a new plane in 25 years. However, since this useful life is fairly long, the route will payback the initial investment 5x before a new plane is required.

Annual Profit

Information to provide:

Annual cost to lease a plane = $10M

Calculation:

Annual profit = Annual profit excluding lease costs – annual lease costs = $15M - $10M = $5M

Case 3: Zirgin Atlantic Airlines

Introduction

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Part 2: Richard Branford comes back and tells you that instead of buying a new plane, the company can also lease a plane $12M a year, renewable at the same cost year after year in perpetuity. Do you think the company should pursue this new route with this lease? Assume that demand, pricing, and costs stay the same year after year.

Questions / Answers

1.  Is leasing a new plane economically profitable for Zirgin Atlantic? Yes. If Zirgin decides to lease a plane, then they will generate a profit of

$5M a year without having to buy a new plane.

2.  What are the financial and risk implications of buying a new plane versus leasing a plane? If Zirgin buys a plane, the company needs to

invest $75M in order to generate $15M a year, or $375M total over the 25 year useful life of the plane. On the other hand, if the company leases a plane instead, then the company generates $5M a year without the heavy initial investment. Just looking at pure numbers, the company will generate a lot more overall profit in a long period of time by buying a new plane. However, buying a plane also encompasses more risks. First, the purchase of a new plane increases the PP&E/asset base of the company, which some investors may be wary about. Second, if the company buys a plane and the route ends up being unsustainable, then the company needs to resell the plane or use it for another route. Leasing a plane presents a much more attractive exit option. Third, buying a plane requires significant initial capital and depending on the financial strength of the company, Zirgin may want to conserve this capital for other means. This capital can also be used for other projects that may generate even better returns.

Case 3: Zirgin Atlantic Airlines

Introduction

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Part 3: It seems like based on your analysis and the assumptions used thus far, it is financially attractive to open up this new route. Aside from the pure economics of the route, what are some other potential upsides and risks to the plan?

Potential Upside (among others)

1.  Increase exposure / marketing: Even if the route was not

financially attractive on a standalone basis, opening up a new direct route between cities could generate exposure for the Zirgin brand, especially because of Branford’s desire to increase the company’s presence in Canada.

2.  Synergies with other routes: The new route may provide both

revenue and cost synergies when combined with existing operations. On the revenue side, a new direct route could mean new alternatives for transferring passengers (which could mean additional demand for other routes). On the cost side, the new route can share administrative and labor costs with existing operations.

Potential Risks (among others)

1.  Cannibalization: The case mentioned that Zirgin already operates

flights in and out of Montreal and London. Opening a direct route between the two cities may cannibalize customers that already make a similar trip (with stops or between nearby cities)

2.  Competition: Entering this new route invites competition from other

airlines, especially among those with similar routes

3.  General airline industry risks: There are inherent risks in the

airline industry including high sensitivity to consumer spending levels, large fluctuations in energy costs, administrative risks associated with doing business on a multinational level, etc

Case 3: Zirgin Atlantic Airlines

Introduction

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Part 4: You run into Richard Branford in the elevator as he is on his way to a meeting. He knows that you haven’t completely finished your analysis yet but he wants a quick 30 second update on what your recommendation is.

Recommendation

The new proposed route seems attractive for Zirgin Atlantic. The economics appear most favorable if the company buys a new plane, but depending on the capital situation and risk tolerance of the company, the rental option is also financially viable. We should of course view this in relation to other opportunities that the company is investing. There are also risks to consider including how the new route will impact competition and existing Zirgin operations. However, given the good economic implications of this opportunity, my recommendation is to pursue the new route.

Problem Statement Narrative

The national zoo hires you to decide whether they should buy a panda. The client is looking to increase their revenues and profits.