CIMA Gateway Case Study
Practice Exam Pre-seen
Reference material 1
Flyjet
Introduction
Fly-jet is one of several low-cost airlines operating in Western and Southern Europe. It is
classified as a short-haul carrier, operating flights to major European cities and tourist
resorts. By definition, such airlines offer flights with duration of three hours or less. Typically,
short-haul flights use small to medium-sized planes, with seating capacities ranging from 40
to 180 passengers.
Fly-jets business model is based on the low-cost model first introduced by Southwest
airlines in the USA. This model aims to provide customers with a basic service at the lowest
possible price. Airlines such as Fly-jet are often referred to as no-frills because they have
eliminated many of the services and facilities that their more traditional competitors offer in
order to undercut their prices. For example:
Fly-jet often uses regional airports that are smaller and further from major cities, but
which charge lower landing fees than major airports.
Fly-jet does not provide passengers with free in-flight snacks and refreshments. Instead,
it sells drinks and sandwiches during flights.
All of Fly-jets ticket sales are made through the companys website. That avoids paying
commission to travel agents.
Fly-jets tickets are for designated flights and cannot be changed. If a customer wishes to
travel on a different flight after making a booking then it is necessary to buy a new ticket.
Traditional airlines often offer some flexibility in bookings.
Passengers are issued with boarding cards that do not assign them to specific seats on
the aircraft. That encourages passengers to board quickly, thereby reducing the costs
associated with delays.
All fares are point-to-point. Customers cannot buy connecting flights. Customers may
wish to travel from City A to City C but be unable to find a direct flight. A no-frills airline
that had flights from City A to City B and City B to City C would sell the customer two
separate tickets and would take no responsibility if the first flight was late and the
customer missed the second flight to City C as a result. Traditional airlines generally sell
connecting flights as a package and accept full responsibility for getting passengers to
their final destinations.
No-frills airlines also tend to operate a single model of aircraft. That leads to a number of
efficiencies. For example, pilots are qualified to operate specific models of aircraft. Each
of Fly-jets pilots is qualified to fly all of the companys planes. Inventories of parts are
streamlined by the fact that there is only one model of plane and all of Fly-jets engineers
are qualified to maintain that model.
Chartered Institute of Management Accountants 2014 no reproduction without prior consent
( airplane image: Microsoft Corporation)
Markets and economics
When Fly-jet was first established it tended to attract mainly private individuals who wished
to travel for leisure or for personal reasons. Fly-jet and the other no-frills airlines created their
own customer base of travellers who would possibly have travelled by rail or might simply
not have travelled at all.
The success of the no-frills airlines has had a number of quite significant effects. One of the
most notable has been the development of many of the regional airports that are served by
these airlines. In particular, many now have excellent bus and rail links to nearby cities and
have become far more attractive to customers, particularly business travellers. That has
stimulated demand for landing slots at these airports, which has led to increased landing
charges. That has reduced the cost savings associated with operating out of these airports
in comparison to the airports used by the traditional full-service airlines.
These improved transport links have encouraged many business customers to travel by nofrills airlines. In some cases it is actually more convenient to travel via these regional airports
because they are smaller and their owners are keen to ensure that the service that is offered
exceeds that of the major hub airports. It is increasingly difficult to justify paying more for a
ticket from a full-service airline when the basic service offered by the no-frills airlines is just
as good.
These changes have led to prices charged by no-frills airlines increasing due to higher costs
of operating from airports and also because of greater demand for seats. At the same time,
many of the traditional airlines have cut their prices in order to retain customers. That has led
to them copying some of the no-frills airlines innovations, such as online ticket sales.
Conversely, some of the no-frills airlines have started to offer some of the services that have
traditionally been restricted to the full-service airlines. For example, some of these airlines
assign seats at check-in, making it easier for customers to ensure that they can sit beside
their travelling companions. Fly-jet has, to date, resisted the temptation to incur additional
expense in order to enhance passenger comfort.
On a macroeconomic level the on-going recession in the Eurozone has reduced demand for
travel, both by individuals and by business customers. That has forced all airlines to focus on
their costs and to maintain customer loyalty.
Many airlines, including Fly-jet and other low-cost operators, have tried to gain extra revenue
by offering related services. These include the offer of services such as car hire, insurance
and accommodation through partner organisations. There has also been a policy of
unbundling services with separate charges for priority boarding, additional luggage and
credit and debit card fees.
Job Description
You are the senior management accountant. Your main role in the organisation is to provide
information to the Finance Director to enable the company's performance to be measured
and for decision making purposes.
