Eagle Airlines

pic Eagle Airlines Business Decisions with Data Models Assignment 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 stray to survey social clubs intention to proceed with the purchase of a new-sprung(prenominal) aircraft. harmonize to the prexys estimations, the uncertain parameters which affect the one- category interchange play argon the at a lower place 1. moments flown 2. Charter Price/Hour 3. Ticket Price/Hour 4. Capacity of Scheduled flights 5. Ratio of carry flights 6.Operating Cost/ time of day The main assumption to work upon the scenarios is that the human activitys passd for the antithetical variables remain the same across the twelvemonths. Initially, a base scenario is built and a profit-and-loss account for a typical year of operation is derived using the roughly(prenominal) likely set of the d ifferent parameters. Upon construction of the base scenario, the plausive and negative scenarios are also formulated in accordance to the assumptions by the President in respect to possible variations to high and lower values than the most likely ones economic consumptiond for the base scenario.For all three scenarios, the demand/cash flow is calculated revealing a considerable range of values (from 273. 180 to -39. 040) among the 3 possible cash flows. In addition, the one-way predisposition analysis conducted for all six uncertain parameters demonstrate the impact of severally parameter on annual cash flow and by the assignment of a scatter plot, we unlesst joint identify to what range of values every uncertain parameter affects the demand. Upon that, a Tornado diagram is plotted in order to visually demonstrate the range of impact of each parameter.harmonize to the diagram, just the ticket prices/hour and capacity of Scheduled flights seem to be the two primal paramet ers that most influence the annual cash flow, whereas the ratio of charted flights and operating speak to/hour are the ones affect the least. Following this determination, a two-way esthesia analysis is implemented and the outputs shown in a 3D plot flesh out a one-level relationship between the variables. By assuming that the probability distributions are the ones assessed by Mr. Hadjistelios, a test scenario is run using the RISK add-in with 50. 00 iterations and the results rgoalering is described below. Interpretation of results The basic data and the main decision factors to be taken into reflexion by the President are raised below in order to provide substantial railway line for the final line of products decision. ? match to the given data, the annual cash flow of the base scenario is 46. 184, little than the breakeven point by 7. 513. Therefore, in field the base scenario ordain real happen, the attach to pass on need more than a 5-year lifetime in order to pay out the enthronement of the new aero plane. In the optimistic scenario, the annual cash flow is 273. 180 and the difference from the breakeven point is 219. 483. According to this scenario, the investment is highly moneymaking and will be paid impinge on by the end of the first year while a number of approximately 93. 180 profits will be generated. ? In the hopeless scenario, the annual cash flow is 39. 040 and the difference from the breakeven point is 92. 737. , which is a bounteous scenario but at the same time quite unlikely to happen. According to RISK analysis, as illustrated in the figure below, some chief(prenominal) observations are derived pic The probability 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 probability the annual cash flow to be less than the breakeven point is 26. 6%, as presented in the represent above. ? However, it is importan t to refer that the same probability (26. 6%) applies for the telephoner to generate cash over 96. 511. The above implies the fact that if in one year the cash flow is below breakeven point, this under the same probability can be offset by another years revenues. pic According to the normal probability distribution, the judge value (mean) is approximately 77. 342 that positively is translated into a 23. 645 return on investment. ? A probability over 50% that the ships company will generate cash flow of at least 74. 467 (median) which represents the 40% of the aeroplane current 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 not take into consideration the discount 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 case the company se lf-funds the purchase out of the cash surplus of the company, the investment seems to be less risky since potential deviation from the breakeven point does not postulate financial obligations to third parties, such 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 negative 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 three twin engine aircr afts which provide guide flights and scheduled commuter services.The company may delineate the strategy and decide to add new destinations in the services, presently control to south Balkans, so as under the promising prospects analysed above, to further uphold the companys brand name and grow the Share of food market (SoM). The above can be well justified considering both cases of charter and scheduled flights. On the one hand, in respect to charter flights the company seems to have 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 generally affects the cash flow, harmonise to Tornado diagram. This in combination with the fact that the company had slightly more control over the ticket price per/hour of scheduled flights demonstrates a high future development potential with a thorough strategy. The critical service category 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 correlate variables, should be in depth evaluated correspond 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/utilization rate and the flight hours. The base scenario argues for good prospects, but a deeper analysis could identify opportunities that Eagle airlines should closely monitor and evaluate in order to maximize its profits.It is important also to refer that according to the estimations, there is no high variability of the operating woos 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 maintained according to the legislations and restrictive 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 insurance has been include 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 work out and evaluating the risks involved while recognising the opportunities.