Incorporating an OnIncorporating an On--Line Airline Line Airline Management Simulation into a Management Simulation into a

Senior Capstone CourseSenior Capstone Course

Dr. Daniel Prather, A.A.E.Dr. Daniel Prather, A.A.E.Middle Tennessee State UniversityMiddle Tennessee State University

dprather@mtsu.edudprather@mtsu.edu

Why a Capstone Course?Why a Capstone Course?

•• Serves as a culminating experience allowing seniorServes as a culminating experience allowing senior--level level students the opportunity to synthesize their knowledge students the opportunity to synthesize their knowledge and apply that knowledge toward solving and apply that knowledge toward solving ““realreal--worldworld””issues/problems.issues/problems.

• AABI Form 201 Each program MUST provide evidence of a significant culminating upper division experience. Examples of a culminating experience include a capstone course, an internship, or a special project that builds on prior course work. Evidence may include student portfolios and other records of student achievement.

Why Airline Online?Why Airline Online?

•• WebWeb--based application allowing student access from based application allowing student access from anywhere, 24/7anywhere, 24/7

•• Appropriate for Pro Pilot, Management, and other Appropriate for Pro Pilot, Management, and other concentrationsconcentrations

•• Requires students to remain actively involved and make Requires students to remain actively involved and make a multitude of business decisions a multitude of business decisions

•• Creates competitive environmentCreates competitive environment•• Produces a wealth of financial (and other) informationProduces a wealth of financial (and other) information•• Flexibility inherent in the application allows instructor to Flexibility inherent in the application allows instructor to

rank teams according to RASM/CASM (or spread), net rank teams according to RASM/CASM (or spread), net profits, capitalization, etc.profits, capitalization, etc.

•• Allows incorporation of additional required projects Allows incorporation of additional required projects

Overview of Decisions in Airline OnlineOverview of Decisions in Airline Online•• Human ResourcesHuman Resources

–– Matching the number and skills of employees to the size and Matching the number and skills of employees to the size and activities of the company activities of the company

–– Salaries and employeeSalaries and employee--related expenses related expenses •• FinanceFinance

–– Funding startFunding start--up and continued ops through stock market, loans up and continued ops through stock market, loans and bonds and bonds

–– Start up costs: purchasing aircraft, offices, cargo handling cenStart up costs: purchasing aircraft, offices, cargo handling centers, ters, maintenance bases, personnel, etc. maintenance bases, personnel, etc.

•• Stock marketStock market–– Function Function –– Buying and selling shares Buying and selling shares –– Market capMarket cap

•• MarketingMarketing–– Advertising Advertising –– Branding (upload logo) Branding (upload logo) –– Appraising the effectiveness of marketing strategies Appraising the effectiveness of marketing strategies

•• ProcurementProcurement–– Locating and purchasing aircraft Locating and purchasing aircraft –– Aircraft costs Aircraft costs –– Delivery lead times Delivery lead times –– Efficiencies of scale Efficiencies of scale

Overview of Decisions in Airline OnlineOverview of Decisions in Airline Online•• Industrial relationsIndustrial relations

–– Employees and unions Employees and unions –– Reasonable wages Reasonable wages –– Acceptable working conditions Acceptable working conditions

•• Tactics and StrategyTactics and Strategy–– Positioning yourself in the market Positioning yourself in the market –– Differentiating your product from that of the competition Differentiating your product from that of the competition –– Increasing your profit and/or market share Increasing your profit and/or market share –– The effects of code sharing The effects of code sharing

•• Business AnalysisBusiness Analysis–– Making sense of financial and performance data Making sense of financial and performance data –– Using current financial reports and competitor data to your Using current financial reports and competitor data to your

advantage advantage •• TeamworkTeamwork

–– Decision making as part of a management team Decision making as part of a management team –– Effective delegation Effective delegation –– Consequences of decisions on other departments within the Consequences of decisions on other departments within the

organization organization

Overview of CourseOverview of Course

•• SimulationSimulation•• Business PlanBusiness Plan•• StockholderStockholder’’s Reports Report•• Management AuditManagement Audit•• AdoptAdopt--AnAn--AirlineAirline•• Weekly AnalysesWeekly Analyses•• Reflective PortfolioReflective Portfolio•• Peer EvaluationPeer Evaluation

ApproachApproach

•• Establish teams (3Establish teams (3--5 students per team)5 students per team)–– Students can pickStudents can pick–– Or instructor can assignOr instructor can assign–– Preferable to have diverse concentrations on each Preferable to have diverse concentrations on each

team (e.g., one Pro Pilot, one Maint, and one Mgt)team (e.g., one Pro Pilot, one Maint, and one Mgt)•• Team members assume job titles (and discuss Team members assume job titles (and discuss

decisiondecision--making)making)–– Dir of MaintDir of Maint–– Dir of Flight OpsDir of Flight Ops–– Dir of Finance & AdminDir of Finance & Admin–– Etc.Etc.

Approach (cont)Approach (cont)

•• Teams brand/name their airlineTeams brand/name their airline–– Public perceptionPublic perception–– LogoLogo–– NicheNiche

•• Teams spend at least one week reviewing Teams spend at least one week reviewing Airline Online User Guide (~60 pages) Airline Online User Guide (~60 pages) before allowed access to Simbefore allowed access to Sim

Simulation BeginsSimulation Begins

•• Recommend a Trial PeriodRecommend a Trial Period–– No more than 3No more than 3--4 weeks4 weeks–– Allows teams to figure out the Sim without Allows teams to figure out the Sim without

fear of jeopardizing their airlinefear of jeopardizing their airline–– Students are more likely to Students are more likely to ““try things outtry things out”” if if

they can plan on a reset before the they can plan on a reset before the ““realreal””competition beginscompetition begins

–– Teams can further refine their strategy during Teams can further refine their strategy during this trial periodthis trial period

Business PlanBusiness Plan

•• Suggest the due date near the end of the trial Suggest the due date near the end of the trial period, yet prior to formal Sim startperiod, yet prior to formal Sim start

•• LengthLength–– Preference of instructorPreference of instructor–– Typically, 3Typically, 3--5 pages is adequate5 pages is adequate

•• Provides direction and focus to management Provides direction and focus to management teamteam

•• Each team begins Sim with $100M, but is able to Each team begins Sim with $100M, but is able to secure additional funding based on quality of secure additional funding based on quality of Business PlanBusiness Plan

Business Plan ComponentsBusiness Plan Components

•• Company DescriptionCompany Description•• Organization & ManagementOrganization & Management•• Service/Product LineService/Product Line•• Marketing and Sales ManagementMarketing and Sales Management•• Funding/FinancialsFunding/Financials•• AppendicesAppendices

Formal Airline Sim BeginsFormal Airline Sim Begins

•• Batch Update (1/4 FY) prior to each class periodBatch Update (1/4 FY) prior to each class period•• Sim Results for that quarter reviewed each classSim Results for that quarter reviewed each class

–– RASMRASM–– CASMCASM–– Yield (RASM/CASM spread)Yield (RASM/CASM spread)–– Fleet SizeFleet Size–– Net ProfitsNet Profits–– Load FactorLoad Factor–– Net AssetsNet Assets–– Team RankingsTeam Rankings

Formal Airline Sim Begins (cont)Formal Airline Sim Begins (cont)

•• Teams must submit a weekly analysis Teams must submit a weekly analysis each week detailing their decisionseach week detailing their decisions

•• Each student maintains a reflective Each student maintains a reflective portfolio (turned in upon the completion of portfolio (turned in upon the completion of the Sim) the Sim)

Annual StockholderAnnual Stockholder’’s Reports Report

•• Submitted by each team midSubmitted by each team mid--semestersemester•• Actual StockholderActual Stockholder’’s Report (Southwest) is s Report (Southwest) is

reviewed inreviewed in--class prior to completing this class prior to completing this assignmentassignment

•• Typically 4Typically 4--5 pages, plus financial 5 pages, plus financial statementsstatements

Annual StockholderAnnual Stockholder’’s Report s Report ComponentsComponents

•• Brief synopsis of sales and earnings trendsBrief synopsis of sales and earnings trends•• Explanation of startExplanation of start--up problems and how up problems and how

theythey’’re being overcomere being overcome•• General financial health of the firmGeneral financial health of the firm•• Discussion of dividend plans and policy, Discussion of dividend plans and policy,

expansion plans, and future prospects expansion plans, and future prospects •• Include financial report for your firmInclude financial report for your firm

Management AuditManagement Audit

•• End of semester projectEnd of semester project•• Consists of written report and inConsists of written report and in--class class

team presentationteam presentation•• Other faculty invited to observe Other faculty invited to observe

presentationpresentation•• Everything during the semester leads up Everything during the semester leads up

to this major project and presentation to this major project and presentation •• 66--10 pages plus 1010 pages plus 10--15 minute 15 minute

presentationpresentation

Management Audit ComponentsManagement Audit Components

1.1. Did your initial strategy work? What did you Did your initial strategy work? What did you change? How closely did you adhere to your change? How closely did you adhere to your Business Plan?Business Plan?

2.2. How were the functions of planning, How were the functions of planning, organizing, directing, and controlling handled organizing, directing, and controlling handled by your team?by your team?

3.3. If this airline were to begin again, what should If this airline were to begin again, what should be done differently?be done differently?

4.4. If the management team were going to be If the management team were going to be transferred, what advice would you give to the transferred, what advice would you give to the new team assigned to manage this airline?new team assigned to manage this airline?

Management Audit ComponentsManagement Audit Components

5.5. What was the airlineWhat was the airline’’s stance on s stance on company stock? Did your airline sell company stock? Did your airline sell any? Were any dividends paid?any? Were any dividends paid?

6.6. Did the team make decisions on a Did the team make decisions on a rational basis or did it often resort to rational basis or did it often resort to guesswork?guesswork?

7.7. Conduct a SWOT Analysis. What were Conduct a SWOT Analysis. What were the airlinethe airline’’s strengths and weaknesses? s strengths and weaknesses? What opportunities and threats exist?What opportunities and threats exist?

Management Audit ComponentsManagement Audit Components

8.8. At this point, is the airline financially At this point, is the airline financially healthy? Did your team try to healthy? Did your team try to ““endend--playplay””the simulation by selling all aircraft, the simulation by selling all aircraft, selling all stock, or reducing expenses to selling all stock, or reducing expenses to unreasonable levels?unreasonable levels?

9.9. Was there any evidence of lack of Was there any evidence of lack of teamwork in the firm? How could this be teamwork in the firm? How could this be improved?improved?

10.10.Financial statements and other dataFinancial statements and other data

AdoptAdopt--AnAn--AirlineAirline

•• To enhance the To enhance the ““realreal--worldworld”” application of application of the Sim and allow students to remain the Sim and allow students to remain current on the airline industrycurrent on the airline industry

•• Each team is assigned an airline to follow Each team is assigned an airline to follow throughout the semester. throughout the semester.

•• They must remain aware of events They must remain aware of events affecting the assigned airlineaffecting the assigned airline

•• They must also research the history of They must also research the history of that airlinethat airline

•• Typically 5Typically 5--7 pages7 pages

AdoptAdopt--AnAn--Airline ComponentsAirline Components

•• HistoryHistory•• Corporate Structure and Mgt Philosophy (# of Corporate Structure and Mgt Philosophy (# of

employees, org chart, corp culture) employees, org chart, corp culture) •• Current Characteristics (fleet size, cities served, Current Characteristics (fleet size, cities served,

target market, etc.)target market, etc.)•• Company Events/News (that occurred during the Company Events/News (that occurred during the

semester)semester)•• Insight (your thoughts on this airline, ways to Insight (your thoughts on this airline, ways to

improve, opportunities for future growth, etc.)improve, opportunities for future growth, etc.)•• Professional with references (photos and Professional with references (photos and

additional info in Appendix is also helpful)additional info in Appendix is also helpful)

Items Due Upon Completion of SimItems Due Upon Completion of Sim

•• Peer EvaluationsPeer Evaluations•• Reflective PortfolioReflective Portfolio•• Management AuditManagement Audit•• Management Audit PresentationsManagement Audit Presentations•• AdoptAdopt--AnAn--Airline ReportAirline Report

Management Audit Presentations typically last 2Management Audit Presentations typically last 2--3 3 class periods depending on number of teamsclass periods depending on number of teams

Evidence?Evidence?

•• Upon completion of the semester, the Upon completion of the semester, the instructor will have plentiful evidence of instructor will have plentiful evidence of the student involvement during the the student involvement during the semester and the amount of learning that semester and the amount of learning that took place.took place.

•• Students will finish the semester talking to Students will finish the semester talking to each other in terms of RASM/CASM, load each other in terms of RASM/CASM, load factor, fleet size, and more. factor, fleet size, and more.

Final ThoughtsFinal Thoughts

•• This Airline Online Sim allows students the opportunity This Airline Online Sim allows students the opportunity to actively learn and enjoy the learning experience.to actively learn and enjoy the learning experience.

•• Many students comment that this is their favorite class in Many students comment that this is their favorite class in four years of college.four years of college.

•• Students spend many (up to 20) hours per week outside Students spend many (up to 20) hours per week outside of class working on the Sim.of class working on the Sim.

•• Whether Pro Pilot, Mgt, Maint, etc., students finish the Whether Pro Pilot, Mgt, Maint, etc., students finish the course with a much deeper appreciation of the course with a much deeper appreciation of the complexities involved in managing an airline.complexities involved in managing an airline.

•• Beware: Students are very competitive and take the Sim Beware: Students are very competitive and take the Sim seriously!seriously!

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Questions?Questions?

ContactContactDr. Daniel Prather, Dr. Daniel Prather,

A.A.E.A.A.E.Associate Professor Associate Professor

of Aerospaceof AerospaceMTSUMTSUdprather@mtsu.edudprather@mtsu.edu615615--898898--22892289

Airline Online

Sydney, Australia

www.simulate.aero

And-UAA Exhibit Hall