ACCT30002 workshop 2 tasks sem 2016.pdf

8/18/2019 ACCT30002 workshop 2 tasks sem 2016.pdf

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ACCT30002 Enterprise Performance Management

Workshop 2 tasks:

Discussion Questions

1.

Read the Flamholtz (1996) article and

a.

summarise the four functions of control; and

b.

outline the key components of the “core control system”.

Tasks

2.

Preparation: See the attached article: Virgin flight path impeded by some severe headwinds

Required:

a.

Outline the change in strategic direction that Virgin has undertaken in recent years. What

factors are driving the change in strategic direction?

b.

How might the nature of the controls (for example performance measures and incentives) alter

as the strategy alters; and operations begin to reflect the new strategic direction?

c.

More recently, Virgin has taken a major stake in Tiger Airways. How might this effect strategic

direction and the control system more generally?

d.

Perform a little research on the current status of the airline industry. As a result of this, what

advice do you have for Virgin Australia? How does the new strategic direction for Virgin seem to

be unfolding (see second and third attached articles)?

In-class task:

e.

Look at the extract from the 2015 annual report of Virgin Australia. Compile a list of each of the

performance measures reported.

a.

How do these measures help Virgin execute its strategy?b.

Which of these are financial; non-financial? How would each be calculated?

c.

How might these measures be connected?


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Weekend AFR 26-27 March 2011


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“I thought, ‘I can’t believe this, these guys don’t get it, they’re supposed to understand thelandscape’. I walked away thinking ‘I’ll see who laughs in three years’ time’ and I’m glad tosay I’m here to laugh.’’

The airline that was conceived on a beer mat in a British pub will reach a milestone on

Tuesday when the final Virgin Blue red aircraft enters service in the new white livery ofVirgin Australia.

It comes as the airline yesterday revealed it moved back into the black with an underlying pretax profit of $55.3 million for the second quarter, equivalent to an interim underlying profit of $10.3m, and a net profit of $11.3m. Budget subsidiary Tigerair Australia, which had been haemorrhaging money, broke even and could now beat its target of achieving profitability by the end of fiscal 2016.

Borghetti, looking relaxed after a short break, says the airline is ahead of schedule on allfronts.

He said the airline had wanted 20 per cent of its revenue to come from corporate andgovernment passengers by the end of fiscal 2014. However, this had been achieved by theend of fiscal 2013. “Now we’re way above it, let’s just a say a number between 25 and 30(per cent),’’ he says. “We’re targeting 30 by the end of ‘17 and I’m very confident we’llachieve that. So in that regard, that’s way ahead of schedule.

“In fact, we’re actually ahead of schedule in every key performance indicator we enunciated back at the launch, whether it be Velocity members, revenue mix, route networks — youname it, we’re ahead of it.’’

Virgin’s “game change’’ strategy was unveiled in May 2011, when Borghetti joined part-owner Richard Branson to unveil the carrier’s new livery on a two-class Boeing 737 andvowed to lift the airline’s proportion of revenue from corporate and government businessfrom 12 to 20 per cent.

The strategy included Airbus A330 widebody aircraft on transcontinental routes, new flightattendant uniforms, a new in-flight menu designed by chef Luke Mangan as well as newlounges.

Over the next three years, the airline would significantly boost its fleet and establish a global

virtual network through alliances with major partners Etihad, Singapore Airlines, Delta AirLines and Air New Zealand. Australia’s liberal domestic aviation regimen would allow threeof the partners to become major shareholders as Virgin itself went out to acquire Perth-basedSkywest and budget carrier Tigerair Australia.

There would be major expansions of lounges in Sydney and Melbourne, a new lounge inCairns and second lounge in Perth to accommodate charter and regional customers.

In addition to a world-class domestic business class, the airline launched complementarysnacks on major routes and rolled out wireless streaming across its Boeing 737 fleet.


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A revamped Velocity Frequent Flyer program resulted in membership topping 4.5 millionand Borghetti would surprise the market by selling a stake in the loyalty program with atarget of boosting membership to seven million over three years.

Borghetti recalls getting on a plane about two years into the transformation and trying to find

something on the aircraft that was unchanged. “Everything that I could see was new, wasdifferent,’’ he says.

Ultimately, he says, the airline is about brand and services rather than aircraft. He alsostrongly believes it is about people and he has added 4000 staff during his tenure to bring theworkforce to more than 10,000. “Everyone flies the same aeroplanes, they’re just painted adifferent colour,’’ he says. “So what makes the difference? The differences are the people andthe way you project your brand. And a lot of airlines forget that’s what’s the business isabout; it’s a service business, it happens to fly aeroplanes. We’ve tried to maintain that

philosophy and certainly while I’m here we’ll keep it that way.’’

Borghetti is pleased by the recognition Virgin has received in brand surveys, one of which put it as the nation’s third most respected, and the accolades it has received. The airline thisweek found it had been voted one of the top 10 business-class airlines in the world by readersof Conde Nast Traveller . “What the team have done is nothing short of heroic, frankly — -establishing your brand, positioning it in a way that you’re the third most respected, wayahead of your competitor, and also in recognition for the sector of the market you said youwere going to target,’’ he says.

But it hasn’t all been gourmet food and fine wines — there were issues with the Virgin’s Navitaire reservations system that led to flights being grounded and the lesser pain oftransitioning to its new SabreSonic system.

Qantas also responded to the Virgin strategy and the resultant increase in its fleet and numberof seats sparked a fare war and profits tumbled at both airlines. The Flying Kangaroo at one

point thought it had its rival on the ropes as Virgin continued to burn through cash but Virgin bolstered its balance sheet with an enhanced equipment note offering and a controversial$350m rights issue that resulted in its airline shareholders increasing their stakes in Virginand joining the company’s board.

The Virgin rights issue prompted Qantas to launch an unsuccessful lobbying campaignclaiming foreign airlines were funding Virgin’s growth as part of a foreign takeover of

Australia’s skies.

The Virgin boss still finds it hard to believe the misunderstanding about Virgin’s part in theso-called “capacity war”.

He says the airline outlined its fleet plan in his first 12 months and brought up the same chartat every results presentation but there had been a “shock, horror” reaction when the aircraftfinally arrived.

The only additions to the plan, were a few ATR turboprops but people had not being payingattention, he says.


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The introduction of widebody A330s on transcontinental routes saw a big increase inavailable seat kilometres but Borghetti believes commentators would have been better offcounting seats. He says Qantas counteracted Virgin’s ASK boost to maintain their “so-called65 per cent’’ market share by putting in many more seats on shorter sectors such asMelbourne-Sydney. “Well you then say look at the seats don’t look at the kilometres and

there’s no wonder what people found was that we were putting in something like 500,000 to600,000 seats and Qantas putting in three million seats because they were all on short sectors.So I just found that whole thing quite bizarre,’’ he says. “But, you know what, you try andexplain it, people don’t understand it and you just move on.’’

While Borghetti says he’s happy with the current capacity growth, the network is the crucialthing because airlines need to fly to destinations passengers want to visit at the time theywant to go. “By network, I mean are you flying the right footprint and have you got the rightfrequency,’’ he says. “And that’s what our fleet plan was all about from day one …. we nowhave that. Sure there’ll always be a bit of tweaking here and there but we’ve got it.’’

Consumers benefited from the influx of capacity with lower fares and Borghetti does not seean end to low lead-in fares as the average cost of tickets trends upwards.

He notes that the same conditions that pushed down fares also prompted airlines to slashcosts — Virgin has a $1 billion cost-reduction program — and this means a more sustainableindustry as demand and supply become closer. What may change, though, is the proportion ofcheap fares.

“It’s quantity rather than the absolute number that will change,’’ he says. “They’ll still begreat fares out there and they’ll be just as good as they’ve ever been, in fact I can argue thecase where you might see even better offers.”

The airline veteran has always maintained he is not after a specific market share but oncapitalising as much as possible in each segment. He believes this approach using multiple

brands marks a major difference from the Qantas-Ansett duopoly.

He points to the decision to acquire 100 per cent of Tigerair Australia, saying he has noambition for the budget airline to gain 20 or 30 per cent of the market but for the carrier tofind the level that makes sense to the group.

While conceding there have been concerns about the low-cost carrier, he defends the decision

to retain the Tigerair name, arguing Virgin has been able to boost confidence in the brand.

A major problem at Tigerair was the continual changes in management, something Borghettisays is now fixed under chief executive Rob Sharp.

“He’s really consolidated the group, he’s improved its efficiencies, improved its service proposition — and I emphasise service proposition not reinventing the product — and hasstarted to build scale again to get some of the efficiencies,’’ he says.

Where Tigerair goes from here will depend on the market but Borghetti is adamant the two brands will never blur but stay in their distinct segments.


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Virgin has brought forward its estimates for Tigerair’s profitability several times and iscurrently saying the end of fiscal 16.

So will it come forward again?

“Frankly we’re very, very happy with the progress we’re making at Tiger,’’ Borghetti sayswith a smile.

Turning to Skywest, which has targeted revenue to up to $200m by 2017, the Virgin chiefacknowledges the slowdown in the resources industry but notes Virgin still has a small sliceof the market. “So even if the total pie has shrunk a little it’s still a very big pie,’’ he says,adding that Virgin has brought to the market competition and the lower pricing procurementofficers seek in hard times.

He expects Virgin Australia to remain a primarily a domestic carrier but notes that doesn’tmean it might add or subtract routes. “We’re fortunate we’ve got four international carriers as

very strong partners.”

Asked how partners have affected the transformation, Borghetti says they have been “terrific partners’ and continue to be so as board members. It is business as usual in terms of thestrategy.

“I think it’s a great testament to the strategy that they, or some of them, have elected to buyinto the company,’’ he says, adding that all of them at one point a have publicly endorsed the

plan.


8/13

Virgin Australia in profit as domesticairfares surgeDate

February 11, 2016 - 4:27PM FROM SYDENY MORNING HERLAD

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• Read later

Jamie Freed

Senior Reporter

View more articles from Jamie Freed Follow Jamie on Twitter Email Jamie

•

Virgin chief executive John Borghetti said the airline had nearly met its target of 30 per cent of domestic revenue from the

corporate market. Photo: Daniel Munoz

Virgin Australia's decision to limit the number of flights in the domestic market at a time of weakdemand and its ability to pick up more business traffic has paid off.

The carrier charged an average of 9.1 per cent more for its mainline domestic fares and 12 per centmore for fares at low-cost arm Tigerair Australia in the first half, helping to drive an eight-fold rise infirst-half underlying profit to $81.5 million.

Both Virgin and rival Qantas have kept seating capacity at relatively flat levels since May 2014, when

the pair ended a financially damaging capacity war that left both airlines in the red.

http://www.smh.com.au/business/by/Jamie-Freedhttp://www.smh.com.au/business/by/Jamie-Freedhttp://www.smh.com.au/business/by/Jamie-Freedhttp://www.smh.com.au/business/by/Jamie-Freedhttp://twitter.com/Jamie_Freedmailto:[email protected]:[email protected]:[email protected]://www.smh.com.au/business/by/Jamie-Freedmailto:[email protected]://twitter.com/Jamie_Freedhttp://www.smh.com.au/business/by/Jamie-Freedhttp://www.smh.com.au/business/by/Jamie-Freed


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Virgin CEO John Borghetti and Financial Officer Geoff Smith brioef media on the half-year result. Photo: Daniel Munoz

Virgin chief executive John Borghetti said an increased mix of business and government travellershad boosted average fares for Virgin in the first half, while Tigerair had benefited from productimprovements at Melbourne Airport and its better on-time performance than rival Jetstar.

Advertisement

"Certainly capacity growth has been slower," he said. "But we have to be careful to not jump to the

conclusion that airfares are going through the roof. When we started this journey five years ago [totake Virgin upmarket] we said we'd bring competition and airfares would go down. Fares today arecheaper than they were five years ago."

Weaker consumer confidence


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Virgin Australia has returned to a first-half profit. Photo: Glenn Hunt

However, Mr Borghetti said weak consumer confidence combined with Virgin picking up morecorporate and government traffic, meant passengers were booking their flights a closer to the date oftravel.

That, in turn, affected the timing of the airline's cashflows, with Virgin reporting a $133 million cashoutflow in the first half.

"I've seen this many times [over my career]," said Mr Borghetti, who earlier worked more than 30years at rival Qantas Airways. "Typically speaking whenever sentiment is low, people don't commit as early. It is typical human behaviour in anything."

Virgin also benefited from a lower oil price during the half, although the majority of the gains wereeroded by a weaker Australian dollar which pushed up the cost of its US dollar debt and supplies.

Overall, the airline reported a $33.5 million net gain from the lower oil price. Its fuel is hedged at anaverage price of $77 a barrel in the second half and it has little exposure to any participation in thedownside at a time when the spot price of oil has fallen to $43 a barrel in Australian dollar terms.

In its domestic division, Virgin reported underlying earnings before interest and tax (EBIT) of $130million in its domestic division, up from $69.7 million a year earlier, driven by its ability to boostfares rather than filling more seats.

Virgin's revenue per available seat kilometre rose 7.1 per cent in the domestic market, which is farhigher than the 1.5 per cent rise Credit Suisse expects from rival Qantas Domestic.

Mr Borghetti said Virgin was already "knocking on the door" of a target of 30 per cent of domesticrevenue from the corporate and government market by the end of financial year 2017.

Jets for saleOn Thursday, Virgin disclosed plans to dispose of five of its 18 Embraer E190 jets by September,

with the flying to be covered by increased use of its Boeing 737 fleet in a move that will help cutcosts.

http://www.smh.com.au/good-weekend/flying-high-with-john-borghetti-20141031-11evix.htmlhttp://www.smh.com.au/good-weekend/flying-high-with-john-borghetti-20141031-11evix.htmlhttp://www.smh.com.au/good-weekend/flying-high-with-john-borghetti-20141031-11evix.htmlhttp://www.smh.com.au/good-weekend/flying-high-with-john-borghetti-20141031-11evix.htmlhttp://www.smh.com.au/good-weekend/flying-high-with-john-borghetti-20141031-11evix.htmlhttp://www.smh.com.au/good-weekend/flying-high-with-john-borghetti-20141031-11evix.html


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Chief financial officer Geoff Smith said the airline did not expect any new owned aircraft deliveries inthe second half.

Virgin's international division, which took a $19.2 million EBIT hit from volcanic activity in Baliduring the first half, remained loss-making. Virgin's international underlying EBIT loss was $30.8million, which was better than the $39.5 million loss a year earlier.

Low-cost arm Tigerair Australia reported a major turnaround, swinging to underlying EBIT of $13.9million in July-December from a $24.8 million loss in the year-earlier period.

On a bottom-line basis, the airline swung to a $62.5 million first-half profit from the year-earlier$47.8 million loss.

Virgin had already revealed its half-year results figure last week as part of a December-quarter marketupdate. Deutsche Bank analyst Cameron McDonald last week said the $81.5 million underlying profitfigure was below his expectation of $85.8 million, while Citi analyst Anthony Moulder had expectedan even higher $95.5 million.

Read more: http://www.smh.com.au/business/aviation/virgin-australia-profits-rise-as-domestic-fares-surge-20160210-gmqr1w.html#ixzz3zup5Hutq Follow us: @smh on Twitter | sydneymorningherald on Facebook

http://www.smh.com.au/business/aviation/virgin-australias-halfyear-profit-soars-as-domestic-fares-rise-20160203-gmkuha.htmlhttp://www.smh.com.au/business/aviation/virgin-australias-halfyear-profit-soars-as-domestic-fares-rise-20160203-gmkuha.htmlhttp://www.smh.com.au/business/aviation/virgin-australia-profits-rise-as-domestic-fares-surge-20160210-gmqr1w.html%23ixzz3zup5Hutqhttp://www.smh.com.au/business/aviation/virgin-australia-profits-rise-as-domestic-fares-surge-20160210-gmqr1w.html%23ixzz3zup5Hutqhttp://www.smh.com.au/business/aviation/virgin-australia-profits-rise-as-domestic-fares-surge-20160210-gmqr1w.html%23ixzz3zup5Hutqhttp://www.smh.com.au/business/aviation/virgin-australia-profits-rise-as-domestic-fares-surge-20160210-gmqr1w.html%23ixzz3zup5Hutqhttp://ec.tynt.com/b/rw?id=aBfWCmwwCr37XTadbiUzgI&u=smhhttp://ec.tynt.com/b/rw?id=aBfWCmwwCr37XTadbiUzgI&u=smhhttp://ec.tynt.com/b/rw?id=aBfWCmwwCr37XTadbiUzgI&u=smhhttp://ec.tynt.com/b/rf?id=aBfWCmwwCr37XTadbiUzgI&u=sydneymorningheraldhttp://ec.tynt.com/b/rf?id=aBfWCmwwCr37XTadbiUzgI&u=sydneymorningheraldhttp://ec.tynt.com/b/rf?id=aBfWCmwwCr37XTadbiUzgI&u=sydneymorningheraldhttp://ec.tynt.com/b/rf?id=aBfWCmwwCr37XTadbiUzgI&u=sydneymorningheraldhttp://ec.tynt.com/b/rw?id=aBfWCmwwCr37XTadbiUzgI&u=smhhttp://www.smh.com.au/business/aviation/virgin-australia-profits-rise-as-domestic-fares-surge-20160210-gmqr1w.html%23ixzz3zup5Hutqhttp://www.smh.com.au/business/aviation/virgin-australia-profits-rise-as-domestic-fares-surge-20160210-gmqr1w.html%23ixzz3zup5Hutqhttp://www.smh.com.au/business/aviation/virgin-australias-halfyear-profit-soars-as-domestic-fares-rise-20160203-gmkuha.html


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PASSENGERS CARRIED (MILLIONS)

TOTAL REVENUE AND INCOME ($MILLIONS)

OVERVIEW

2009

2009

18.2

2,635

2010

2010

18.6

2,982

2015

2015

22.3

4,749

2013

2013

19.3

4,020

2014

2014

20.0

4,307

2012

2012

19.4

3,920

2011

2011

18.6

3,271

V I R G I N A U S T R A L I A G R O U P2


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RPKs/ASKs (MILLIONS)

FINANCIAL HIGHLIGHTS 2015($million)

2014($million)

Total revenue and income 4,749.20 4,306.60

Statutory net profit/(loss) after tax (93.8) (355.6)

OPERATING STATISTICS (Group) 2015 2014

Available seat kilometres 46.0bn 42.2bn

Passengers carried 22.3m 20.0m

Revenue load factor 77.8% 78.4%

2015

2014

2013

2012

2011

2010

2009

45,969

42,218

41,800

35,774

33,084

31,300

31,100

39,800

37,092

29,569

34,012

26,894

27,816

21,800 Revenue Passenger Kilometres (RPKs)

Available Seat Kilometres (ASKs)

A N N U A L R E P O R T 2 0 1 5 3

Documents

ACCT30002 workshop 2 tasks sem 2016.pdf