10.06.08

                                                                         

1.From the data provided by Fun Air in Tables 2 and 3 for the year ending 1999, calculate:

a) total revenue for the year

b) the number of full price return tickets that had to be sold to break-even.

Annual Overheads/(Ticket per person minus variable costs per passenger)

40270/(300-30)=150 tickets need to be sole to break-even?

c) the total profit for the year

42095730??

2. Prepare a S.W.O.T. (strengths, weaknesses, opportunities and threats) analysis for Fun Air and use this to comment on whether Jeff Martin should be confident about his firm’s short-term future.

One of the strength Fun Air has is that its CEO Jeff Martin has worked for twenty years as a marketing executive of a holiday company. He has experience and knows exactly what consumers thrives and needs. Another strength is that using Jeff Martin’s experience, he has clearly pointed what consumers what and not on the market right now (which means less competition as for now) which is to especially target families with school age children and ‘fast food’ that improves the traditional airplane food the children hates. Yet as for weaknesses, Jeff Martin’s experience as a marketing executive of a holiday company means that he has limited experience in the airline market. Also because of Fun Air niche marketing, it can bring them plenty of ‘low’ seasons for example when school age children are in school. Jeff Martin borrowed heavily to buy his first three aircraft using finance from a venture capital company which took a 5% shareholding in return. This is a likely threat since venture capitalists usually get significant control over company decisions, in addition to a significant portion of the company's ownership. Other threats include competitors starting to notice after they gained a 15% market share, Eagle Air has given notice of cancellation of its support contract. Other competitors have rumored to cut prices on Fun Air’s routes an d Free Spirit has announced to start its own budget operation. Increase competitions may lead to a decrease in profit and market share for Fun Air. Another threat is that the growth in the European economies has slowed and tourist expert have predicted a 2% reduction in air travel over the next two years. Opportunity for Fun Air is plausible expansion in the market and also expanding a new business sector perhaps international business or tourists with leasing two newer aircraft which might attract consumers attention. In conclusion, even though Fun Air has an increasing 15% market share the company may be facing likely problems in the short-term future ranging from competition, decrease in profit to lack of consumers due to the decline in economic growth and reduction in air travel over the next two years. Jeff Martin should keep an eye out. I would advise him not to make any expansion on the short term wait until the economy heals a bit or when he has paid all the debt in buying his first three aircraft.

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3. a) What is venture capital and why is Fun Air the type of organization that venture capitalists favor?

Venture capital is capital investment into a firm by ‘venture capitalists.’ A venture capitalist is a person or investment firm that makes venture investments, and these venture capitalists are expected to bring managerial and technical expertise as well as capital to their investments. A venture capital fund refers to a pooled investment vehicle that primarily invests the financial capital of third-party investors in enterprises that are too risky for the standard capital markets or bank loans.” Venture capital is ...

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