The case is the study of Adrenaline Air Sports and their attempts to grow from a new start-up company a few years ago. The company has many different internal and external environment issues that they need to overcome if they wish to continue to grow. Sky Diving is a sport that is growing by about 2% per year. The external environment for consists of being in an area far away from major population areas to draw from to support their need for new skydivers.
The town the company is in is a small resort town but does get 10,000 new visitors per week during the high season. They are within 40 miles of a population base of 120,000 people in the Roanoke area. In addition, about an hour and half drive away is the college town of Blacksburg, which has a population of about 40,000 people plus an additional enrollment of 25,000 students. Students are the greatest percentage of first time customers but rarely make a second jump due to costs.
The Greensboro area of North Carolina is 80 miles south. First time students and those that continue to get license are the biggest moneymakers for the company. Only 3 percent of first time skydivers return and those that do tend to stay in the sport, so it is key to get more to return since they have the highest profit margin.
Adrenaline Air Sports has two main competitors that are located 120 miles northeast of them that compete for the people in the Roanoke area. Although further away, they provide more open times and bigger and faster airplanes that can go to higher altitudes and thus command higher fees.
They also are both open year round on weekends and in the high season are open at least four days a week. In addition, there are two additional competitors that are much further away that Adrenaline would only really need to worry about for his serious skydive customers and he can use as a basis for setting costs. Adrenaline Air Sports costs for parachuting is on the whole a little lower then both its competitors. The scenery of his skydiving area is another plus.
The internal environment has several issues. All employees are part timers including the owner and many have issues working more then the weekends that the company is currently open. The owner, Billy Cockrell, works Monday to Friday and cannot begin work at Adrenaline until after 7 pm on Friday at the earliest. One issue is that he only has one video camera operator so can only film one new person per flight. In addition, people do not get their videos until late Sunday and since most new student reservations are made on Monday most people do not get to see that video until the following weekend. Billy Cockrell does have allot of serious skydivers who would be willing to come to work for him if he asked.
Another issue is the equipment available to the company. Currently they have two Cessna 182 that can accommodate up to four parachutists each at one time. These planes take longer to reach higher altitudes so the company limits jumps to 10,000 feet maximum. Even at this lower altitude, these planes turn around times are longer then their competition. Another equipment logjam during the high season is the amount of parachutes. The company currently only has four tandem and two accelerated free-fall parachutes.
My major finding is that the company needs to grow and find other ways to increase revenue and profit margins. I believe the company has two main options. One is to continue to operate the company as a part time business with the same amount of planes but to extend their weekends to include Fridays and Mondays to accommodate more skydivers. The benefits of this would be that they would not need to buy an expensive new larger plane but could take advantage of more operating time. The downside of this would be finding employees to work longer hours since this is a second job for most of them including the owner.
The Second option would be to buy a larger plane that would allow a greater number of jumpers, higher altitudes and faster turn around. This option would probably require that the company to go full time. By doing this they would also need to extend the weekends in high season but would have higher profit margins and hourly revenue. They would also need more parachutes for rent. They would probably need to raise prices a bit to afford this high capital expenditure. They would also need to advertise more to get enough people to fill the new plane. Possibly selling one of the Cessna 182 would help alleviate the cost of the larger plane.
Although the first option allows for slow growth of the company without having to make it a full time enterprise, I believe the next step for this company is to operate as a fulltime company. The first option does not increase the hourly revenue and you still have issues with how to get more of the higher revenue beginner personnel. The company has a talent pool of many serious skydivers who would be willing to work for the company. To take advantage of this, they need to get a larger plane and increase revenues per hour and also extend their days during the season. The company’s growth rate in its first few years shows that the demand is there. This would require going out and finding more first time jumpers and initiating programs to get them to return again. One way would be to move up the free jump to the second or third jump. If you can get them back for three jumps they will probably keep coming back. In addition they need to add at least one more video person since this is a moneymaker and a great form of advertising.