American Airlines’ Struggle

Nicas, Jack. "Deeper Cuts Loom Over AMR." Wall Street Journal [New York City] 6 Dec 2011, n. pag. Web. 8 Dec. 2011.

American Airlines is thinking that they will be able to recuperate the company by going through bankruptcy. The protection of bankruptcy would favor American Airlines from creditors until the bankruptcy plan is planned out. American Airlines believes it will be able to cut costs by filing for bankruptcy. It looks like they are using the bankruptcy to fix their economic problem instead of changing their business strategy. The problem is that many airlines, including American Airlines, are surviving off fees not the price charged for their service. If you look at American Airlines financial statements you can see that their income is about the amount that they charge for extra fees. An airline, or any other company, cannot live off fees only. The company needs to find new ways to attract customers and be able to charge for a service not charge everything as a fee. This is all very important when analyzing any company’s financials.

American Airlines is looking at cutting flights from hubs such as Chicago and Los Angeles. It is thought that by doing this American Airlines can be more profitable. This idea of being more profitable is because they conclude that if there are less flying options prices will be driven up. As I mentioned before, sometimes smaller is better. My personal opinion is that American Airlines needs to become a bit smaller and reorganize their sales strategy. There has to be something that they can change in their operations to be more profitable. This might include replacing older planes with more fuel efficient planes to save money.

Gerard Arpey, the CEO of American Airlines, is retiring soon. Arpey is not too happy about the bankruptcy and actually believes it was not necessary. If the CEO of the company is opposed to the bankruptcy there must be things that American Airlines could do to better their situation without filing bankruptcy. The fact that they could do something without the bankruptcy but decided to file anyway shows that American Airlines is unwilling to change their current sales strategy. The five-hub plan that American Airlines has in place has only been successful in Miami and Dallas. In order to keep their profits balanced out, American Airlines has had to provide discount fares at other locations to compensate for its weaker network. I personally believe that each location should be able to stand alone and not need to be compensated for from other locations. This shows a poor understanding of cost accounting analysis. Locations that are not as profitable should be eliminated or at least analyzed to find defects. The defects that are found need to be checked for specific flaws and find ways to fix them. If this does not fix the problem at the locations then these locations must be closed down. Before actually closing down the company needs to compare relevant cost and see if it is more convenient to close or stay in operation with a net loss. American Airlines need to hire a cost accountant to analyze all of this to see what their best option should be.

When Smaller is Bigger

Jargon, Julie, and Paul Ziobro. "Kraft Hashes Out Details of Split." Wall Street Journal [New York City] 6 Dec 2011, n. pag. Web. 8 Dec. 2011.

Kraft Foods Inc. is in the process of dividing its company into two: North America Grocery and Global Snacks Company. This slip is to be concluded at the end of next year. Yet, there are still many things that need to be done before the split. Right now Kraft is working on sorting out which brands will be included in the different companies. The products that will not be included in one will have to be licensed by the other. The main product that is of concern is Philadelphia cream cheese; it has much overlap with the geographic region encompassed by the global snacks company. Kraft is also concerned about their new size after the split. By being a smaller company, especially if Nabisco is not going to be a Kraft brand anymore, their negotiation power with retailers will be lower. Nabisco is a big part of Kraft and they are worried about the outcomes of giving it up. Other products like Gevalia, an international coffee brand, has not been introduced in the United States grocery stores, and like the Philadelphia cream cheese, Kraft has not decided which company will own it.

Placement of products within store is also affected. It is hard for a company to place a new brand that no one has heard of in a store without a trusted brand on the box. Many times grocery stores don’t want to give up space of Doritos, for example, to place a new bag of chips that no one has heard of. Like the Gevalia coffee, many people in the United States have no clue to what Gevalia is and who owns it. Putting it by its self on shelves in a U.S. grocery can be catastrophic. People will ignore it; it might on the lowest or highest shelve where consumers cannot see it as easily. But, if a trusted brand was on the label like Kraft, then people will be willing to take the risk of trying a new product. All these concerns are being considered in the decision making of what company will get what brands.

Having a smaller company can sometimes be better. It is easier to manage a smaller company and sometimes there may be more profit to be made by being smaller. In the United States we are so accustom to want bigger and bigger things all the time. But, it is not our fault; this is just what we were taught by pop culture. The truth is that sometime smaller is actually bigger. A smaller more manageable company can be more profitable because it can focus on the smaller details that are overseen as a big company. The process of producing goods, delivering goods, and advertising goods and be more closely monitored. By saying this, it is clear that after monitoring processes more precisely companies are able to make appropriate adjustments to the process as necessary. For example, advertising will be more focused on the target market located in the United States rather than those in other countries. But, in many cases a split can be the best thing a company can do.

Reversed Mentoring

Kwoh, Leslie. "Reverse Mentoring Cracks Workplace." Wall Street Journal [New York] 28 Nov 2011, n. pag. Web. 7 Dec. 2011.

The word ‘mentor’ usually is thought of to be an older person with a lot more work experience in a certain field that is training or teaching someone younger and less experienced. Recently companies have started reverse mentoring which is the exact opposite from what it commonly taught of mentoring. Older executives and top level positions are being paired up with younger employees within their company to learn how to use new technology and other tasks that the older executives might not have as much experience in. When Jack Welch was the chief executive of General Electric Co. he commanded 500 top level executives to find a person below them to learn how to use the internet. This was a fairly new experience for many people but it turned out to be very effective. The idea of reversed mentoring is to have newer employees mentor the older employees on things like technology but companies have also found that there are more benefits that come along with the reversed mentoring programs; turnover rate among younger employees has lowered. Companies believe that the sense of importance in the company makes newer employees stay longer. Without the reversed mentoring program many new employees feel unimportant and small.

Lois Zachary, president of Leadership Development Services LLC, says that reversed mentoring programs “… [Help] younger people get comfortable in a company. It promotes loyalty, it generates trusts.” When someone is trusted in an organization they are willing to work a bit harder and they feel they have an opportunity to grow within the company. I can think of many times when I have felt unheard at work and it is really upsetting. But, when I am heard and my ideas are taken serious I know I want to keep working there because I have a voice.

These programs benefit both mentees and the much younger mentors. The mentors are able to learn about management and what it is like to be top level executive. Many times the mentors even give the mentee advice on management. Companies that do not have something like this in place usually ignore new ideas from younger employees that do not have much experience to back themselves up. A lot of great ideas are thrown away like this every day. Mentees learn many new things such as using the internet, posting things on tweeter, and what is “hip” in pop culture. This is especially important in industries that these new technologies are important like advertising and technology.

I truly believe that these programs are important for organizations with a wide range of positions. This program can not only teach everyone something that they are lacking but can also build a friendlier workplace. Companies that are big and most people don’t know each other can be intimidating, especially for new employees. These programs give new employees a chance to meet new people in the company and show what they have to offer. Andrew Graff, CEO of Allen & Gerritsen, says “There’s an assumption that if you’re senior, you have a lot to teach, and if you’re junior, you have a lot to learn, and I’m saying let’s challenge the status quo.”

Gilead’s $11 Billion Investment

Winslow, Ron, and Peter Loftus. "Gilead's $11 Billion Gambit." Wall Street Journal [New York] 22 Nov 2011, n. pag. Web. 7 Dec. 2011.

There are about 170 million people in the world that have hepatitis C and of those four million live in the United States. It is sad to know that of those four million people with hepatitis C in the United States only one million have been diagnosed. The current medication for a person with hepatitis C is to take weekly injections of interferon and twice-daily ribavirin pills. This combination of drugs leads to harsh side effects and they must take the medications for up to a year. It would be nice to cure everyone after taking these drugs but in reality only about 50% of those threated are actually cured. Therefore, it is very important to find a cure that is effective and convenient for the patients to take.

Pharmasset is a small company from Princeton, NJ that is developing a compound that can be used to make an all-oral treatment for hepatitis C. There are many companies that were interested in buying the company for its research. Resources expect the hepatitis C market to reach $16 billion in 2015; in 2010 the hepatitis C market was only $1.7 billion.

Looking at this from an accounting perspective, we can see that Gilead is purchasing Pharmasset at a premium. On Gilead’s books, the amount that is paid over the worth of the Pharmasset will be included in Goodwill. This difference will not be expensed out at put under the purchase of Pharmasset to depreciate. On the other hand, the Goodwill will be tested annually for impairment and recorded as such. Annual testing for impairment is required by GAAP on intangible assets such as Goodwill. By recording it this way, the company can maintain a proper idea of the worth of Pharmasset and show how much is it impair, if any, each year.

Purchasing Pharmasset is a great way to invest in something that has potential. When making a purchase like this a company must do their research on the industry and consider all the possibilities for the future. In the case of Pharmasset, they are making a new drug that many people will be able to use and be cured not only in the United States but globally. The market is estimated to increase drastically. The fact that the new drug will be taken for a shorter amount of time, will include less side effects, and be much more effective are all great achievements to take into account. This product will be a hot item for many people and they should expect to have many sales.

Many times presidents of companies make decisions to purchase companies, equipment, other assets, but they don’t take into account the importance of cost accounting. It is very important to think like an accountant when making a purchase because this way you have the ability to see the future benefits and what the opportunity costs are. People without an accounting background can make choices from information that we call “sunk costs,” costs that have already occurred and cannot be recovered. When making decisions like this sunk costs cannot be used to make decisions.

Games = Work?

Silverman, Rachel Emma. "Latest Game Theory: Mixing Work and Play." Wall Street Journal [New York] 10 Oct 2011, n. pag. Web. 7 Dec. 2011.

When we think of work we rarely picture people playing video games and competing to be the best among colleagues. Many larger companies have started bringing more play into everyday work. This “gamification” of the workplace has proven to have its pros and cons. It companies like LiveOps, Inc., a virtual call center, has implemented a game to where employees try to keep their calls to shorter amount of time. Since they have implemented this game, call time has been reduced by 15% and sales have improved by a percentage between 8% and 12%. Yet, the idea of gamification has also produced new problems. Some employees do not take the competition very friendly and get upset with other employees. Kris Duggan, chief executive of game-maker Badgeville, mentions another problem with gamification in the workplace, “Adding gamification to the workplace drives performance but it doesn’t make up for bad management. If you are a bad manager, gamification won’t help you.”

Just about everything including internal controls such as the gamification have their flaws. But, there are many benefits associated with the gamification in the workplace. The gamification has been introduced to the training aspect and has shown great results. Training employees while they play makes it fun to employees and they retain more information this way. Employees receive points and/or badges for achievements and win certain prizes at the end of a certain time period. Some of the programs helps employees rate themselves with other employees; this is thought to motivate a friendly competition among employees. If one employee sees that another has more points than he/she does than they will try harder to beat that other employee. As mention earlier, firms need to be careful that this competition does not get too out of hand, to where employees are becoming enemies with coworkers.

Gartner, a tech-industry research firm, estimated that by 2014 about 70% of large companies will have some kind of gamification program at their company. Technology is changing constantly so I believe that this change in the workforce is very important for employee satisfaction and turnover. If the employees are satisfied with their jobs then they will be willing to put more effort into doing things right the first time and they won’t want to look for a new job every six months. It is mentioned in the article that firms have been doing this for many years now but it has always been focused on the customer and not so much on the employee. Companies are realizing it is as important to have happy customers as it is important to have happy employees. Introducing a program that implies more games and fun into the workplace is a great beginning to reaching employee satisfaction and turnover rate.

The idea that if a company begins a gamification program at work cannot expect success if it is not managed correctly is crucial. For example, if the program consists of giving points for achievements, then it must be explain to employees how the system is going to work exactly and the firm must follow these rules. There cannot be favoritism among employees; this causes many problems including decrease in morale. But, overall the idea of including a gamification program seems like a great idea if it is managed correctly.

Slow Recovery for Airlines

Mouawad, Jad. "After Losses, Airlines Battle Back to Profit, a Fare and a Fee at a Time." New York Times 19 10 2011, B4. Print.  

After September 11, 2001, 41 airlines filed for bankruptcy. The airline industry had a hard fall and is still trying to recover from their losses. An article, It All Adds Up – Airlines Battle Back to Profit, a Fare and a Fee at a Time, in The New York Times by Jad Mouawad talks about the airline industry and its current struggles. Airlines are now cutting back on service, free meals, leg room, and so much more. Most airlines are also charging for checked baggage. But, it seems like there is a fee for everything now on airlines. The percentage of fares of revenue from passenger has gone down to 71 percent in 2010 from 88 percent in 1990. A lot of people are complaining but Delta’s chairman and chief executive, Richard H. Anderson, defends the industry by pointing out that they are not the only ones charging for special services. He mentions how rental car companies charge for GPS systems and hotels charge for Wi-Fi and other services.

Many comforts have been taken away from airline passengers due to economic downturn. I agree that airlines should be charging the fees they charge for extra services. Meals are not necessary on most flights and the people who want a meal can purchase one on the plane or before they get on and eat on the plane. Leg room has also been reduced significantly. Airlines want to fit more people in less airplanes and this is their way of doing that. If someone wants more leg room they can also pay for it. People need to fly and they will have to pay for these extra services not available for free.

What I don’t agree on is that if they are going to charge extra for things that also bring on more expenses, they should do so without rising fare costs. The fare rate should be what it needs to be and not be changed. The reason airlines are charging these extra fees is to cut back on giving certain services to the people who don’t want or don’t need the extra services. Now if a person wants something extra they can pay for it and the expense will be for that one passenger not everyone on the plane. But, the problem many people are running into is that airlines are charging these extra fees and still rising fares. They should stick to doing one thing or another and not both. I believe this goes for every industry not just airlines. If you order food to be delivered to you a fuel surcharge is for sure noted on your receipt. Again, this is fine if the fuel surcharge fluctuates with the cost of fuel but it does not. In most cases the fuel surcharge was increased with the increase of fuel and now that the fuel has gone down the surcharge has not decrease or gone away. The same thing can be said to be happening in the airline industry. Airlines have found another revenue outlet and they are not going to stop charging these fees and rising fares if not necessary.

Apple’s iPhone 4S

Wingfield, Nick. "Apple's Profit Gains 54%, but iPhone Sales Fall Short of Expectations." New York Time 19 10 2011, B3. Print.

Nick Wingfield writes about the introduction of the new iPhone 4S by apple in his article, Apple’s Profits Gains 54%, but iPhone Sales Fall Short of Expectations, in The New York Times on October 19, 2011. The article talks about how the new iPhone 4S did not sell as much as was expected and sales were down in the third quarter. These results caused a seven percent decline in apple shares. Many people were delaying their purchase of a new phone in order to get the new iPhone. But, many of these people were disappointed in the new product. Consumers were expecting an iPhone 5 not an iPhone 4S. Apple’s explanation is that this new iPhone 4S sold more than four million the first weekend it came out, this is more than double the sales of past iPhones. Revenues have gone up from previous years but what hurt Apple the most was that they did not reach expectations. People were very excited to get the new iPhone 4S and they were expecting a lot.

Sometimes surprises like this are good and other times they just back fire on companies. Customers were expecting an iPhone 5 to come out and what they got was an iPhone 4S. Yes it’s new and better but not that much different from the iPhone 4. Apple believed that this would get customers on track with them. Apple assumed that most people that have the iPhone 4 are still on their two year contract and it won’t be until next year before they will get a new phone. Therefore, Apple decided to come out with the iPhone 4S and leave the iPhone 5 for a time closer to iPhone 4 users’ contract renewal. The idea behind Apple is reasonable but customers did not agree. A lot of people are upset and the decline in Apple shares is evidence.

On the other hand, the iPad have had a tremendous success. Apple has sold more than 40 million iPads since they came out 18 months ago. Their Mac notebook computers are also doing well in the market. A big competition for Apple in the phone industry is Google with its Android operating systems. Android has 43.4 percent of the market while Apple has only 18.2 percent. There is a big contrast between the two competitors. Apple, on the contrary, is expecting its sells to go up in this holiday quarter. But, all we can do right now is wait and see how the customers react during this quarter. Overall, if Apple would have came out with the iPhone 5 instead of iPhone 4S, sales could have been drastically different. The perceived value of getting an iPhone 4S if you already have an iPhone 4 went down. These people might as well wait for the iPhone 5.