BUSN-3620-001 Assignment 1 Case Study: Denver International airport Date: 14/6/2018 Submitted To:- Submitted By: Mr.
Gary Sveinson Loveneesh Kumar (300283820)1. Is the decision to build a new airport at Denver strategically a sound decision? Strategically to build a new airport at Denver is a good decision from the various aspects such as:- 1. Denver ‘s Stapleton airport (old airport) is not able to handle the traffic properly.
Due to insufficient airport capacity, Denver could lose its valuable business. 2. As Denver ‘s airport is attached to world ‘s major airports, therefore, delays at Stapleton airport affect the flights at other airports. According to an estimate, Denver losses $100 million income each year because of delays and flight cancelation.
3. For the future, Denver ‘s new airport will act as a potential hub for the Northwest or USAir. This will cause to increase business in Denver.
4. Stapleton airport has only two North-South runways which are near to each other and during the bad weather, the two runways act as a single runway while Denver ‘s new airport would have three North-South runways that will help to increase the number of flights per hours and will cause in reducing delays. Moreover, the new runways would be technically better than the previous runways as these will include lighting system and a 327-foot FAA air traffic control tower that will help to air traffic controllers to lead the pilots properly and also during bad weather conditions. 5.
Last but not the least, because of the sufficient space 2 FAA class 6 aircraft can operate one after each other without impacting each other that will help in reducing delays and proper use of time. 2. Perform an analysis for strengths, weaknesses, opportunities, and threats (SWOT) on the decision to build DIA. Strength:- 1. The noteworthy quality of the choice is that DIA has the three North-South runways that will expand the number of flights every hour and will cause in decreasing the deferrals. 2. Because of the adequate space 2FAA class 6 aircraft can work one after each other without affecting each other that will help in diminishing postponements and appropriate utilization of time.3.
Another quality is that in view of no postpones Denver presently won’t misfortune $100 million income every year. 4. Moreover, the choice of new airplane terminal will decrease the commotion contamination since it is arranged in a uninhabited territory. 5. Last however not the minimal quality of the choice is that it will help in expanding the productivity of all the air terminal activities, for example, new things framework will bring about diminishing the sitting tight time of travelers for their gear. Opportunities:- 1. The major opportunity of the decision is that for the future, DIA was going to act a potential business hub for the Northwest or USAir that would increase the business in Denver.
2. As the Denver will convert into business hub it will help to increase its economy that will cause in strong financial power. 3.
Another opportunity by the DIA is that it will result in increasing number of enplaned passengers. Weakness:- 1. The weakness of the decision is that initially, it did not get the full support from the United and Continental airlines. 2.
Another weakness is that cost of renting at DIA is higher than the Front Range airport that can be extended at the place of building a new airport. Threat:- 1. The major threats to the decision are airlines boycott, customer boycott and government authorities approval, public pressure groups. 2. Another threat to the DIA decision is the bad weather of city as it can affect the schedule management of building the DIA.3. Who are the stakeholders and what are their interests or objectives? Stakeholders Objective City officials To build a new airport to satisfy the needs of Denver.
Denver Mayor Federico Pena and Adams County(1985) and Denver Mayor Wellington(1993) To build a thing of beauty in the form of airport and to satisfy the needs of Denver. Peat Marwick (consulting firm) The objective of the consulting firm is to conduct a feasibility study (economically, operational, technically) included project traffic. Denver voters To get an airport that could result in higher traffic to the city that would cause of potential business hub.
Airlines Providing the better services to the customers and generating revenue for the shareholders. Passengers Passenger’s objective is to get a comfortable airport that will reduce their waiting times and will reduce the number of delays. Security agencies Maintaining the security at the airport.
Greiner Engineering (engineering, architecture, and airport planning firm) and Morrison-Knudsen Engineering (design-construct firm) The objective of these two firms is to act as project management teams which are responsible for schedule coordination, cost control, information management, and administration of approximately100 design contracts, 160 general contractors, and more than 2000 subcontractors. New Orleans-based architectural firm The objective of this firm is to create the standards for the whole airport. Airport staff The objective of airport ‘s staff is t provide better services to the passengers to satisfy them according to their needs. 4. Did the airlines support the decision to build DIA? Initially, the airlines did not support the decision to build the DIA.
As the major traffic at Denver is from United and Continental airlines but these did not support the decision because airlines feel that the new airport would increase the cost burden. As the construction started in 1989 but till November 1991 airlines did not sign a firm agreement with the DIA but in December 1991 airlines agreed to provide services at DIA. 5. Why was United opposed to expansion at Front Range Airport? Denver International Airport was good strategic fit for the United airlines because most of the business at DIA is from the United and Front Range airport is lookin g as the competitor for the DIA. Therefore, if Front Range expands then it will directly affect the business at DIA that causes low revenue to the United airlines. Therefore th e United opposed the expansion at Front Range Airport.
6. Why was the new baggage handling system so important to United? The new stuff dealing with framework was imperative to United in light of the fact that United needed to decrease the sitting tight time of travelers for their things and furthermore needed to abbreviate the turnaround time. Joined was concerned that to exchange the baggage with the old framework would devourmuch time in light of the fact that their few entryways are in excess of one mile far from each other. It was clear in light of the fact that the old things framework is worked manually so it devours much time yet the new stuff framework is quick since it is bolstered by the new innovation and with the new framework, things could be exchanged starting with one entryway then onto the next in under 10 minutes.
Along these lines, new things framework was important to the United. 7. Is DIA a good strategic fit for Continental? As DIA regards lessen the number of deferrals of flights and expanding number of flights every hour for Continental yet from the general view, DIA isn’t deliberately fit for Continental in light of the fa ct that DIA has expanded the weight of cost on Continental carriers. Mainland has been going under subsidence so it can’t run with the high arrival expenses so it diminished 23 percent flights at DIA in light of high landing charges. 8. What appears to be the single greatest risk in the decision to build DIA? The single most serious hazard in taking the choice to manufacture the DIA is to sign the agreements with two noteworthy carriers (United airlines and mainland airlines) on the grounds that 80% of the flights at Stapleton air terminal are from these two airlines. As at first the two aircrafts did not bolster the choice and marked any agreement with the DIA experts. These agreements were important to create the cash for the advancement of the DIA and the income for what’s to come.
9. United is a corporation in business to make money. How can Unit ed issue tax-free municipal bonds? In a business, one partner can issue some tax- free or interest free bonds to other partners.
S imilarly, in this case United issued the tax-free bonds to the DIA authorities by making the contract to provide the service s at the airport.10. What impact do the rating agencies (i.e., Moody ‘s and Standard & Poor ‘s) have in the financing of the airport? Standard and Poor’s Corporation has the negative effect on the DIA bonds as the organization brought down the rating on the DIA bond from BBB to BBB-. On the opposite side, Moody did not bring down the rating on the $1 billion remarkable of air terminal bonds. 11. According to the prospectus, the DIA bonds were rated as BBB —by Standard & Poor ‘s Corporation.
Yet, at the same time, the City of Denver was given a rating of AA. How can this be? Rating, for one thing, could be different from the prospects of two distinct companies because eac h company uses the different factors to rate something. Therefore, this can be possible in case of De nver so the rating of DIA bonds by the City of Denver is AA while Standard ; Poor ‘s Corporation gave BBB-. 12. On October 1, 1992, the United bonds were issued at an interest rate of 6.875 per cent. Was this an appropriate coupon for the bonds? As the united agreed to pay the vital, interest on the bonds and also the premium, therefore, it would not be wrong to say that to get the 6.875% interest on the bonds was an appropriate coupon bonds .
13. There are numerous scenarios that can occur once the airport opens. Create “what if ” scenarios that will help identify potential issues or blind spots for DIA. For example, “What if low cost carries begin using Front Range airport? ” Or “what if the city sells the airport to a private Corporation? ” If the low cost carries begin using Front Range airport then it will directly affect the revenue of DIA authorities because the other airlines will also like to move to Front Range airport. United is already seeing the Front Range airport as its competitor, therefore it will take further actions to maintain its profit. If the city sells the airport to a private Corporation then it could raise the price for the landing of airc rafts, so the cost of air tickets could increase and private Corporation could also increase the services at the airport to generate the more profit.
14. Assume that DIA finally opens and with a debt of $3 billion. Is the revenue stre am sufficient to pay interest each year and pay the principal at maturity? As per the case, DIA’s income stream would have the capacity to pay the intrigue every year and the vital at maturity.
15. What options are available to DIA if the coverage falls below 100 percent? There are several options available to the DIA authorities to cover the 100% revenue as DIA authorities can earn the income by implementing the own telephone company that could generate the good income to the authorities. Moreover, by giving the space at rent to retail shops, food chains, parking garage and etcetera DIA authorities can cover the revenue . 16. If the debt coverage were actually this good, why would the ratings on the bonds be BB? Despite of good revenue coverage the rating of the bonds was BB because of poor baggage handling system as the airport authorities were failed to implement the baggage system effectively and the second reason was the poor management of the airport because many things were going wrong. 17.
One of the critical parameters that airlines use is the cost per enplaned passenger. Using Exhibit V, determine whether the cost per enplaned passenger can be lowered. From the exhibit V it is clear that number of enplaned passengers increased in the year 1993 as compare to 1992. Because of more enplaned passengers the number of departures will also increase that would result in generating more revenue to the airport because airport charges fees to the airlines for the departur es, therefore, if the airport decreases the charges for the departures then the cost per enpl aned passenger can be lowered. 18.
Is there additional revenue space available (i.e., unused capacity)?Initially, the DIA is focusing to generate the revenue from the airlines because without the services of the airlines, DIA cannot be acted as an airport but DIA could generate the additional revenue from the various factors such as by giving the space at rent to restaurants, retail shops and parking garages etcetera. 19. What is the function of the project management team (PMT) and why were two companies involved? The project management team ‘s functions are schedule management, budget control, information handling and management of near about 100 design contracts, 160 general contractors, and more than 2000 subcontractors. The city of Denver appointed two companies (Greiner Engineering (engineering, architecture, and airport planning firm) and Morrison-Knudsen Engineering (design-construct firm)) to assist the project management process and these companies ‘ acts as project management team. 20.
When did the effectiveness of the project management team begin to be questioned? When the New Orleans teams designed a stepped-roof profile, the mayor, city council and others started to concern about the budget because they were thinking that this design is not according to the $2 billion project. Here the effectiveness of the project management team began to be questioned and the financial analysis of the roof design clarified that the cost of the project would increase by $48 million and the project will not go according to schedule. Hence the questions raised on the effectiveness of the project management team. 21. Did it sound as though the statement of work/specifications provided by the city to the PMT was ” vague ” for the design phase? The statement of work/specifications provided by the city to the PMT was vague for the design phase that is cleared from various perspectives such as:- ? As the city wanted a thing of beauty but the airport personnel wanted an easy to clean airport.? It seemed that all the decisions were made in reaction to maintenance or technical issues.
Thus this created the problem to the design team to design the airport image. ? The project team was also failed to understand the differences between the city ‘s aspirations and the maintenance orientation of the operators. ? PMT was failed to estimate the cost and required time to complete the project. From all these this is clear that work specifications provided by the city were not clear. 22.
During the design phase, contractors were submitting re-estimates for work, 30 days after their original estimates, and the new estimates were up to $50 million larger than the prior estimate. Does this reflect upon the capabilities of the PMT? No, this can’t be reflected upon the capacities of the PMT on the grounds that when the city of Den ver gave the summon to the PMT to plan the air terminal, the task was at that point a half year behind the real timetable and a few times venture was deferred. This shows that the project was complex and was really in the bad situation. This also indicates this that top management was unable to know the real situation of the project, therefore, PMT required some time to know about the project so submission of re-estimates for work that was different from the original estimate cannot be reflected upon the PMT after just one month. 23.
Should the PMT be qualified to perform risk analyses? Yes, PMT should be qualified to perform the risk analysis. As the risk analysis is not the single step process. It starts from risk identification by several methods such as expert judgment, brainstorming etcetera then analysis of risks comes. Because the DIA was facing several problems from the initiation, therefore, here the PMT should be highly qualified to perform risk analyses. According to the case, major risks to the project are cost, human resources and bad weather. With the addition to this PMT should analyze quality risk, scheduling (there is lot work is postponing in the project). 24.
Why were the architects coordinating the changes at the construction site?The architects were coordinating the changes at the construction site because they were contracted to create standards for the whole airport and when they analyzed that the decision is based on operational issues than aesthetic values then this raises the questions on the effectiveness of PMT therefore, architec ts coordinated the changes at the construction site by designing a stepped roof profile. Another reasons were to de crease the paperwork and to maintain the schedule, architects were highly involved in the construction phase. 25. Should the PMT have been replaced? Yes, the PMT should be replaced due to several factors that are as:- ? Several questions were rising against the effectiveness of the PMT as it was looking that PMT has been failed to determine the correct budget and schedule to complete the construction in the starting phase. ? Another reason was that it was failed to add the airlines in the decision-making process which were the major stakeholders. ? PMT was also unaware about the baggage system as it did not know what to do with the DCV (destination coded system) which was highly important for the United.
? Delays in the project work also raise questions on the effectiveness of the project management team, therefore, it would be better to replace the PMT. 26. Do scope changes reflect upon the ineffectiveness of a project management team? Yes, scope changes reflect upon the ineffectiveness of the project management team. The various changes in the scope in this project are as:- As the automated baggage system was important to the United airlines, therefore, the chankes occurred in the designing of terminal building.
Because of the pressure from the United airlines the changes made in the interior design of Concourse B. Changes the cost of various things such as runway and lighting system.27. Why did United Airlines decide to act as the project manager for the baggage handlin g system on Concourse B? Baggage handling system was highly important to the United. DIA authorities were failed to imple ment the baggage system properly because they were totally unaware about the installation o f a new system.
Authorities Selected BAE to design the baggage system but it was also failed to implement the system in the proper way as most of the bags were going at the wrong spot and one joke was that when people fly for Denver they had to stop in Chicago to get their luggage. Therefore people were getting irritated from thi s but United was wanted to provide highly scaled services to its customers and the concourse B was only for United airlines operations, therefore, United decided to act as project manager for baggage handling at the Concourse B.