MA in Virgin Airlines

Question: Discuss about theMA in Virgin Airlines. Answer: Introduction In terms of sales departments, the management has emphasized upon disseminating the different roles of management reporting into several sets of job profiles. These posts comprises of Accounts Managers, Operational Executives and sales analysts. The key revenue indicators comes from passenger ticket sales, this is to be followed by the revenues generated through the freighting activities coupled with providing logistical solutions. Instead of machine hours as used in manufacturing and production operations, the airline uses Block Hour (BH). A synonym for Aircraft Hour, the BH is determined by the duration that a particular flight takes between moving out of departure gate until entering the arrival gate (Belobaba, Odoni and Barnhart 2015). The productivity of airlines is computed using the BH unit; Virgin too utilizes these unitary measures in order to gauge the degree of efficiency of its operating activities. The primary fleet of airbus operated by the company comprises of Boeing 7 37-400 and 737-800 (Virgin Australia 2016). The airline sets a particular benchmark for utilization of its aircraft carriers based upon the industry standards and thereby computes the degree of variance based upon the frequency of its flight schedules. In terms of measuring the overall unit costs of operations, the cost per unit of available seat mile (CASM) is utilized by the Virgin Airline likewise other airline companies. The basic methodology for computing CASM is through determination of aggregate operating costs followed by computing the quantum of available seat miles and then dividing the former with the latter (Web.mit.edu 2016). The actual CASM is derived and analyzed periodically; mostly on a quarterly basis in order undertake comparison with the industry standards. The benchmarking of the costs as against Virgin Airlines domestic and international competitors assists in evaluating the effectiveness of cost management operations currently implemented by the company. Revenue Passenger Miles (RPM) is the measurement unit of computing the degree of passenger traffic managed by the airline in the last quarter, half year or annual period. The RPM is a indicator of the salability of the airline due to the fact that computation of RPM entails determining the number of airline seats sold by the company. A high RPM tends to indicate the fact that the company has succeeded towards retaining its existing consumer base along with attracting newer sets of flyers (iata.org 2016). The analysts undertaking the evaluation of sales activities tends to use RPM as a parameter to make recommendations regarding current management policies concerning the sales activities. The load factor is another costing unit utilized in order to assist in determining the quantum of consumption of airline output. The load factor comprises of using the RPM as a percentage of Available Seat Miles (ASM). Moreover, the computations as regards to load factor is done by the company on a w eek by week basis in accordance with the industry norms which is then aggregated at the end of a particular quarter. The revenue generated by the company through carriage activities pertaining to its passengers are categorized as passenger revenue (PR). Moreover, they are appropriated on the basis of schedule flight operations thereby attributing the costs in accordance to each activity. The passenger revenue is a representation of a division among the sources of revenue generation by the airline. The generated revenue by the airline is segregated amongst the revenue earned from passengers and those earned purely from logistical activities. Another form of measurement of revenue relates to the fact that the total revenue is to be computed with regards to ASM in order to facilitate evaluation of revenue generated per ASM. Airline industry in general has diverse sets of costs comprising of regulatory expenses, operating expenses, services costs and costs pertaining to security, technological up gradation expenditures among others. Virgin Airlines has numerous expenses that are variable in nature and cost of which tends to vary upon several relevant factors. Primary among them being the travel routes in which the airline operates. Moreover, the purchasing mechanism for aircraft carriers, maintenance costs, staff salaries, aviation fuels costs among others. Further, the maintenance costs relating to aircrafts vary in quantum. This is owing to the fact that the specification, fuselage and efficiency along with the engineering involved in manufacturing the aircrafts vary from aircraft to aircraft. The airlines follow ABC method of costing in order to compute aircraft maintenance costs due to the inherent nature of cost allocation facilitated by ABC costing. The ABC method of costing has been developed with an intention towards providing a enhanced set of platform for cost ascertainment than what was provided by Traditional Cost Accounting (TCA). The benefits as regards to ABC Costing arise from the fact that the product cost behavior can be adequately evaluated by companies implementing the method (Drury 2013). In terms of Virgin Airlines, the usually distorted sets of cost computations resulting from implementation of TCA can be reduced substantially by applying ABC. In case of TCA, the allocation of overhead costs has been facilitated through accumulation of costs from each department. This is followed by allocating them to the services or products (Levant and Zimnovitch 2013). On the other hand, ABC costing tends to undertake cost ascertainment and allocation based upon different sets of activities (Kaplan and Anderson 2013). Thereby, the allocating processes under ABC are more transparent and rational in nature for airline companies like Virgin. Airline industry in general incurs heavy maintenance costs that can be segregated into both direct and indirect costs. Every set of Airline Company, including Virgin Airlines, tends to have their activities distributed amongst aircraft maintenance, cabin and crew maintenance, structure maintenance coupled with upkeep of relevant tools. The aircraft maintenance activities comprise of preflight checking and functioning, inspection of aircraft decks, performing onboard operation checks along with cleaning of airbuses. Further, in terms of cabin maintenance, the activities entails maintaining the rugs, seats and carpets inside the flights coupled with installation and upkeep of emergency medical aids. The structure maintenance pertaining to airbuses comprises of repairing, oiling and painting, overhauling and wielding activities. The direct costs in relation to airline operations includes engine maintenance costs, direct labor costs as in salaries of cockpit crews and aeronautical engineers directly involved in operating in the predetermined routes. Moreover the leasing, rents relating to airbus maintenance, both heavy and base aircraft maintenance consumables falls under direct costs. The primary form of overhead costs includes regulatory fees to be paid to aviation authorities, depreciations as regards to airbuses and the rent relating to aircraft hangars. The majority of MA functions are undertaken by the Finance department whose functions includes initiating the financial analysis, financial forecasting, preparation of internal audit report, management of expansionary and up-gradation projects (Virgin Australia 2016). The relevant job roles pertaining to the finance department comprises of Auditor, Project Managers, Business Analysts and Accountants along with specialization in IT architecture and softwar e. The major forms of reports generated by airlines in order to facilitate managerial decision making comprises of preparation Flight Load on a daily basis. The flight load pertaining to a particular period comprises of flight numbers, the operating flight routes, details regarding the departure and arrival time. Further, such report also takes into account the volume of passenger booking the flights coupled with no show. The next line of reports tends to provide details regarding BH, RPM, ASM and PR in order to facilitate performance evaluation of activities undertaken by the company. Moreover, preparation of budget forecasting under the supervision of Finance Department tends to assist in mitigating the prevalent degree of cost overruns. 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