'Eagle Airlines\r'

'[pic] Eagle Airlines Business Decisions with Data Models fitting on Risk Analysis Team Members: Sfykti Dimitra Goumas Evangelos Manikas Athanasios Papaspirou Yiannis As assigned by Mr. Hadjistelios, electric chair of Eagle Airlines, a simulation abbreviation is developed in high society to evaluate company’s intention to retain with the acquire of a newfound aircraft. fit in to the President’s estimations, the shy parameters which affect the ane- yr funds melt are the below; 1. Hours eatn 2. Charter harm/Hour 3. Ticket Price/Hour 4. depicted object of Scheduled flights 5. Ratio of charter flights 6.Operating Cost/ hr The main assumption to work upon the scenarios is that the numbers generated for the diverse variables remain the akin across the twelvemonths. Initially, a beginning scenario is built and a profit-and-loss account for a natural course of study of operation is derived using the roughly apparent regard ass of the different parameter s. Upon construction of the report scenario, the affirmatory and hopeless scenarios are also formulated in accordance to the assumptions by the President in revere to possible variations to higher and lower values than the most likely ones used for the base scenario.For all deuce-ace scenarios, the demand/cash bunk is calculated revealing a wide browse of values (from €273. clxxx to -€39. 040) among the 3 possible cash flows. In addition, the unidirectional sensitivity analysis conducted for all six uncertain parameters demonstrate the impact of distri entirelyively parameter on annual cash flow and by the identification of a scatter plot, we tramp identify to what range of values every uncertain parameter affects the demand. Upon that, a Tornado diagram is plotted in disposition to visually demonstrate the range of impact of each parameter.According to the diagram, ticket determines/ arcminute and capacity of Scheduled flights wait to be the two all hi storic(p) parameters that most get the annual cash flow, whereas the ratio of charted flights and operating personify/hour are the ones affect the least. Following this determination, a two-way sensitivity analysis is implemented and the outputs shown in a 3D plot illustrate a one- take relationship between the variables. By assuming that the opportunity distributions are the ones assessed by Mr. Hadjistelios, a test scenario is run using the @ endangerment of infection add-in with 50. 00 iterations and the results’ interpretation is described below. indication of results The basic entropy and the main decision featureors to be taken into consideration by the President are raised below in order to reserve substantial wrinkle for the final demarcation decision. ? According to the prone data, the annual cash flow of the base scenario is €46. 184, less than the breakeven focus by €7. 513. Therefore, in depicted object the base scenario forget actually happen, the company depart need more than a 5-year lifetime in order to pay out the coronation of the new aero plane. In the optimistic scenario, the annual cash flow is €273. one hundred eighty and the difference from the breakeven manoeuver is €219. 483. According to this scenario, the investment is highly utile and depart be paying off by the end of the first year musical composition a number of approximately €93. 180 profits leave be generated. ? In the pessimistic scenario, the annual cash flow is †€39. 040 and the difference from the breakeven dot is €92. 737. , which is a bad scenario but at the same time quite unlikely to happen. According to @RISK analysis, as illustrated in the figure below, some most-valuable observations are derived; [pic] The prospect that the investment will be profitable within a 5-year lifetime is 73. 4%, meaning that the annual cash flow will be greater than the breakeven point of €53. 697. ? The pr obability the annual cash flow to be less than the breakeven point is 26. 6%, as presented in the graph above. ? However, it is historic to refer that the same probability (26. 6%) applies for the company to generate cash over €96. 511. The above implies the fact that if in one year the cash flow is below breakeven point, this down the stairs the same probability can be offset by another year’s revenues. [pic] According to the normal probability distribution, the pass judgment value (mean) is approximately €77. 342 that actually is translated into a €23. 645 eliminate on investment. ? A probability over 50% that the company will generate cash flow of at least €74. 467 (median) which represents the 40% of the aeroplane received value. ? However, another important statistical parameter to be taken into account is the standard deviation of €35. 257 that describes a quite wide dispersion/variability of the probability distribution. ? If we do no t take into consideration the price reduction rate of 15%, then the breakeven point will be 36. 00 (180. 000/5) and the probability of the investment to be profitable is 89%. ? In compositors case the company self-funds the purchase out of the cash surplus of the company, the investment seems to be less risky since likely deviation from the breakeven point does not imply financial obligations to third parties, such(prenominal) as banks (loans and interest rates). [pic] ? The probability that the investment will be paid off already by the end of the first year is 0. 7% while the probability that the company will generate cast out values by the end of the first year is 0. % which seems a quite extreme case, with a smallest value of -€22. 642. [pic] ? However, it should be considered that the company operates a number of business parts and it is being taxed for the total activities as a whole, thus with a tax rate of 33% the actual loss will be €22. 642 * 0. 67 =€ 15. 170, with the assumption that the company is profitable overall. Another important factor to consider is the operations’ expansions by 33% with the purchase of one additional aircraft to the current equipment of the terce twin †engine aircrafts which provide charter flights and plan commuter services.The company may redefine the scheme and decide to add new destinations in the services, before long limited to south Balkans, so as under the promising prospects analysed above, to further strengthen the company’s brand name and suffer the Share of foodstuff (SoM). The above can be well reassert considering both cases of charter and plan flights. On the one hand, in respect to charter flights the company seems to stick already identified available ground to grow by further building on the level of service.On the other hand, the scheduled flights, currently holding a percentage of 60%, represent the variable that more often than not affects the cash flow, concord to Tornado diagram. This in compounding with the fact that the company â€Å"had slightly more mince over the ticket price per/hour of scheduled flights” demonstrates a high future development potential with a thorough strategy. The critical service socio-economic class in the context of the new investment risk analysis for Eagle airlines to analyze is Scheduled flights.Ticket prices/hour and capacity of Scheduled flights, the two most important and correlated variables, should be in depth evaluated according to the most likely possible estimations. For example, according to the data given, the variability for the price per ticket is greater in the higher values than the lowest ones. However, the actual price per ticket is highly correlated to the capacity/ physical exercise rate and the flight hours. The base scenario argues for superb prospects, but a deeper analysis could identify opportunities that Eagle airlines should near monitor and evaluate in order to maximise its profits.It is important also to refer that according to the estimations, thither is no high variability of the operating be compared to the expected value of €445/hour (only €15 in either direction). Some important facts are given also throughout the case providing additional argumentation over the purchase; Piper Chieftain has been hold according to the legislations and regulatory environment, is in a good condition and the expected normal use is 5 years with possibilities for more, contains the necessary navigation and communication equipment, and amends has been embroild in the fixed costs.The above, in case were unknown, would be important cost factors to analyze and include in the risk analysis assessment. The above analysis argues the business decision to proceed with the investment in the Piper Chieftain, having calculating and evaluating the risks involved while recognising the opportunities.\r\n'