Module 8 – Discussion

Page 1 of 3 pages Confidential – For Internal Distribution Only

TransGlobal Confidential Internal Memo

Interviews with Company Leaders: Company B

The notes below are a summary of recent conversations with company leaders at Company B. As much

as possible, I have summarized these in a question-and-answer format. I tried to transcribe actual

statements as they were made, but I was unable to capture every detail of each conversation. I’ve also

included some background from recent messages and last quarter’s reports.

As an introductory note, I’ll observe that smaller firms tend to be far less structured and less

bureaucratic than TransGlobal. This sometimes translates into quicker and more flexible decision

making. It also can result in some elements of good management falling through the cracks to some

degree. Also, I’ll note that my opportunities for discussions were quite limited, so these notes are not

comprehensive.

Interview #1: President

The Company B president is a new arrival to the company. She had prior experience in some high-tech

fields, but not in commercial aviation. Her strongest beliefs are that the way to move the company

forward is through the adoption of an agile culture, empowering employees, and placing emphasis on

innovation. She’s thrilled that the firm has recently entered into a strategic partnership with a software

company and that they will soon bring new levels of travel convenience to the customers right in the

palms of their hands. The IT team believes this will be a five-year effort; the president is hoping for one

year.

It seems that she’s been hired to make corrections in the financial trajectory of the company. About two

years ago, some costs got out of hand and resulted in a small loss for the year; the past 12 months have

been more favorable.

She’s not an expert on aircraft, but she did express interest and enthusiasm for new planes, with a

specific focus on the Bombardier line. Company B has used the Bombardier CRJ-700 and CRJ-200 in the

past with very good records of performance, safety, and reliability. She feels that it would be

advantageous to continue using those aircraft and possibly investigate alternative (newer) Bombardier

models.

At times, she expresses some truly visionary perspectives. Enhancing hand-held passenger convenience

and integrating the flight experience with other aspects of travel seem like excellent new directions.

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She’s also committed to the overall notion of environmental stewardship and moving toward net-zero

carbon as soon as possible.

On the other hand, a few of her ideas seem a bit like science fiction. As a hobby interest, she’s

interested in ornithopters, for example, and she’s actually asked the engineers in maintenance to look

into electric airplanes! A few folks have even heard her mention drones as a possible future business

line. Some employees wonder if she’s perhaps a bit offbeat.

Interview #2: Sales

The Company B sales team is relatively complacent. They perceive their marketplace and their routes as

mostly fixed and not likely to shift much in the coming decade. Passenger volumes over the past few

years have generally remained flat, plus or minus a few percentage points.

The last two quarters have shown a 5% decline in overall seat occupancy compared to the prior year.

Interview #3: IT Manager

The IT manager is a transplant from a much larger airline and also has experience working at Disney.

He’s always willing to try something new, and he has recently pushed the company into a business

relationship with a software company. They hope to reimagine vacation travel, bringing an integrated

and seamless experience from start to finish for the customer.

Others in the company have been skeptical and sometimes describe his approach as reckless and

fraught with excess costs. They were also a bit perturbed with the expense associated with the software

partnership, since a year ago, many of them had taken an obligatory temporary pay reduction. He

insists that “we need to be strategic and skate to where the puck is going to be,” using a strategic

metaphor of some kind involving Wayne Gretzky.

Interview #4: Operations and Maintenance

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The company has some very seasoned individuals in the maintenance and operations areas, several of

whom have prior military experience. They pride themselves on a positive performance record,

especially pointing to the statistic that their aircraft, while older than many fleets, are well maintained

and average a 90% availability rate, consistent with industry averages. The crew is innovative and hard

working, but there has been substantial turnover in recent years. Several current mechanics are in

probationary status, still acquiring their technical certification credentials. There is some concern that

the core of expertise resides in the employees that are approaching retirement age and that there is

inadequate knowledge transfer.

Interview #5: Human Resources

Company B employs an outside provider to handle most of its HR functions. The firm is located in

Orlando and handles a variety of travel-related clients. Their strengths are in union negotiations and

rapid onboarding.

Page 1 of 3 pages Confidential – For Internal Distribution Only

TransGlobal Confidential Internal Memo

Interviews With Company Leaders: Company A

The notes below are a summary of recent conversations with company leaders at Company A. As much

as possible, I have summarized these in a question-and-answer format. I tried to transcribe actual

statements as they were made, but I was unable to capture every detail of each conversation.

As an introductory note, I’ll observe that smaller firms tend to be far less structured and less

bureaucratic than TransGlobal. Sometimes, this translates into quicker and more flexible decision

making. It also can result in some elements of good management falling through the cracks to some

degree. Also, I’ll note that my opportunities for discussions were quite limited, so these notes are not

comprehensive.

INTERVIEW #1: Vice President of Sales

Why do your customers come to your airline? Why do some customers choose other airlines? How do

your customers make their buying decisions?

“Our customers are very often repeat customers; close to two-thirds of our sales each year go to

individuals who have flown with us before. Plus, we have extraordinarily positive word-of-mouth

advertising. This is supported by our Bring a Friend promotional program, which encourages

customers to send us additional customers. This has been very popular. Just last year, we conducted a

poll and learned that 75% of our customers would recommend us to a friend or family member.

“Also, we provide our customers with some special features on our flights, and we don’t charge for

the first checked bag, either. Customers appreciate the feeling of going first class. We also add in little

extras at times to provide our passengers with a sense of excitement and entertainment. This is

generally done by flight staff and ground staff; they use little things like special treats or small toys for

kids, things like that. A year ago, we overdid this a bit and added unnecessary expenses to our Cost of

Goods Sold, but we’ve corrected that in the past 12 months.

“We hold about 19% of the overall regional market, though that is about three points down this year

from prior years. A few of the bigger companies have started moving into regional specialty markets

in the past 10 years, cutting into our traffic. We’re still competing well, though, especially because our

fleet is built around the smaller volumes.

“As a contrast, our competitors usually emphasize low price, and we do lose some customers to them

for that reason. A few of them have also started bundling services, for example, including hotel

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arrangements, destination-specific restaurant dining packages, and golf and recreation options along

with their flights. We’ve looked into this a bit, but our present IT systems aren’t built for that sort of

complexity; it would take a sizable investment to go in that direction. We could afford such an

investment, but even so, we’re not sure it’s justifiable.”

NOTES: The VP of Sales also indicated that he would like to hire additional personnel and use a New

York advertising firm to boost traffic in the off-season. He indicated some difficulty in selling this idea

to others in the company; he seemed confident that he could boost overall gross revenue by $1–2

million with an investment of just $100,000.

INTERVIEW #2: Chief Financial Officer

How would you describe the company’s financial picture? Are you optimistic about the future?

“We’re coming off a great year. Our revenues hit an all-time high (above $29 million); year-over-year

growth is favorable; and profit-wise, our latest net earnings are bouncing back nicely from the prior

year. The prior year was a bummer in many ways—we had some excess costs and a variety of issues

with quality.

“On the other hand, some trends are worrisome. Our two largest costs are personnel and fuel … and

the third is our payments on capital equipment. With a fleet of 55 aircraft, we’ve got a lot of

maintenance, too. As a company, we’re dedicated to safety first, but some of the more cosmetic and

customer-friendly upgrades have been deferred over the years.

“It’s been difficult to acquire new aircraft over the past 10 years, so our fleet is now showing some

age. There are some more advanced aircraft available, and we do have the available cash to build up

our fleet. Despite the age of our aircraft, they’re still fully safe, of course, but the luxury feel that we’d

like to offer our customers isn’t always apparent, if you know what I mean.”

INTERVIEW #3: Chief Operating Officer

Tell me a bit about your operating processes. Where does your firm excel in delivering value? Where are

there issues or process improvements needed? Do you use total quality management methods? Are you

an innovative company?

“Well, let me start by telling you that I am somewhat new on the job; I’ve only been here for two

months. When I was recruited, the company president advised me that there might be some quality

issues and productivity challenges, too—and wow, was she right about that! Our team is really good

at managing to meet the FAA and other legal and regulatory requirements, but beyond that, this place

is locked somewhere in the last century!

“Don’t get me wrong, we keep our customers happy, sure, but at a large cost. We probably have twice

as many baggage handlers, check-in attendants, customer service specialists, and so on as our next

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competitor has, all because we’ve not employed technology to the level that we should have. The

result is buried costs, and these will likely jump up and bite us in the shorts someday soon.

“I’m also concerned about recruitment, especially for pilots and for skilled technicians. Because we

operate in a great location, we have not been keeping up on our compensation levels, and this may

make recruitment difficult soon.

“On the bright side, our on-time arrival performance is top notch (88% on time, improved from the

prior year at 84%); lost or delayed baggage is at 2%; and customer satisfaction is in the top 10% in the

industry. We get, oh, maybe three passenger complaints a week … and none of those ever amount to

anything much.”

NOTES: The COO went on to explain that his prior employers had emphasized efficiency in all

processes but that the Company A leaders seemed somewhat lax in the pursuit of cost savings and

standardization. He plans to focus on process improvement in the next quarter, starting with what

might be good opportunities for staff reductions in some supporting roles.

INTERVIEW #4: HR Director

How do the company’s employees contribute to the success of the company? How would you describe

the culture of working here? What challenges and opportunities do you have?

“We’ve got a strong workforce, from the custodians and cleaning crews all the way to the pilots and

management team. Everyone who needs to take annual refresher courses gets them … but we have

no budget for extras. Sometimes I worry that we’re falling behind and that we’re losing our most

valuable employees.

“Last week, I learned that 15% of our employees had left in the past year—a third of those were

retirements, but the others were all because of more attractive job offers elsewhere. I did some

digging and found that this has been typical for us for the past three years. And, by the way, that

happens to coincide with the arrival of our president, Ms. Huntington.”

NOTES: The HR director made it clear that the company does not make substantial investments in

training and development beyond what is strictly required for licensing and safety. She feels that this

limits the opportunities for creativity and innovation, but she also understands budget restrictions.

Among her concerns are the limited opportunities for upward career mobility and too few career path

opportunities in the company. I gained the impression that the HR Director was feeling some sense of

burnout and counting the days until retirement.