Case study: Flyglobespan.

com business failure, reasons and lessons to be learnt Word Count: 2000

Layman Brothers and numerous financial instructions that used to run on credit. Internal reasons are companies lack of ability to adapt to ever changing market trends. There are two factors of business failure. Business failure is a very common phenomenon in today¶s fast paced world. inflationary pressure. Not every business is capable enough to sustain competitive advantage. there were instances of those companies that were nowhere near their ability to meet crippling expenses. This case study aims to highlight different possible reasons that led to the financial crisis and solvency of Flyglobespan. one is catastrophic failure and the other is general lack of success. they couldn¶t make it. Those companies that once were thought of the strongest and financially sound eventually resulted in disappointment of the general public when they had gone bankrupt leaving thousands of employees stranded on the road. Anomalies are very common to be happening in today¶s world. Many companies have come and gone in efforts to get their businesses running but unfortunately due to some reason. Holland (1998) describes business failure having two meanings. On the other hand. Threats to a business from other local or international competitors also can be categorized as business failure. is a very practical definition by Storey (1994).Introduction Business failure: ³Ultimate business failure implies closure or liquidation ± the organization hasfailed to satisfycertain key stakeholders and it has ceased to be financially viable´. including government policies. economic policies. yet managed to successfully get out of debt and fuel On the other hand. . a private Scottish Airline company that had gone bankrupt in late 2009. but doesn¶t have to be the exact same meaning. lack of ability to craft good strategies. one is external and the other is internal. a private airline company of Scotland. managerial decision-making problems and various other factors that are based upon the company¶s performance. More details are specified with reference to the case study of Flygbloespan. The recent recession of 2007 ± 2008 has resulted in business failure of various companies like Enron. Complete bankruptcy of business is known as business failure. market structure. external factors can be categorized as the external environment upon which a business stiff competition from competitors etc.

Background of Flyglobespan. It had been operating from 5 different airports of the UK to numerous destinations in Europe. The company was founded by Globespan Airways Limited as a branch of a low cost private airline that could compete with British Airways and other competitors of the country. It had the most prominent jet planes that were used by its competitors. 2003. including Boeing 737-800. UK. It is now headed by an administration. the domain behind the private. Boeing 767-319. .com Flyglobespan. America and Africa. low cost British airline company with headquarters based in Edinburgh. low cost British airline company had stopped updating its website after the business failure of the company since December 2010. with operations commencing in April. and Boeing 787-8 The company website lacks information about itself after it had gone bankrupt. Scotland. FlyGlobeSpan used to be a private. The company was founded on November 2002.

states that Flyglobespan did not move well in time to consult on redundancies that resulted in business failure. Elia) personal bank account was empty. another private airline company just a year before Globespan¶s business failure. it automatically stirs up restlessness amongst the others. This has led to a chaos where an administration had ben sit for resolving this crisis. whether Flyglobespan couldn¶t pay its debt. Flyglobespan went bankrupt due to a severe blow to its cash flow over the last 6 months from its bankruptcy. the credit . It is now responsible for resolving the 90 million GBP. The company had been declared bankrupt and had to be run by an administration. This cash flow problem resulted from the delay of payments from E-clear. The worst case scenario took place when nearly 5000 passengers got affected of the companies¶ failure policies with another 5000 passengers stranded abroad waiting to get back to their homes after vacation. Main reason for the failure of Flyglobespan was its inability to cope with stiff competition paralleled with rising fuel costs and the word ever recession that had hit the world in 2007 and 2008. whereas the owner¶s (Elias. Gareth (2010. Another reason could be cited as a domino effect of collapse of XL. a credit card company (Peter & Michael. All flights were suspended and the company jets were grounded on the different airports as they were. 2010). There is a good business evidence that when one competitors fails in business. This was the exact same situation happened with Flyglobespan when XL got bankrupted. to which FlyGlobeSpan responded fiercely and claimed that it is doing well in terms of cash. Another big reason for the failure of GlobeSpan was over 100 million GBP debt that the company blames on E-Clear.Reasons for failure of FlyGlobespan The main purpose of writing this essay is to analyze the various reasons why flyglobespan ceased its business operations in 2009. 2009). There were reports shown to the High Court in which it was clearly evident that E-Clear had less than 10 million GBP in two bank accounts. 2010). Many analysts now expect that several hundreds of travel agencies could collapse in the long run after the failure of Flyglobespan (Charles. When Xl failed in business just a year ago. or fell victim to E-clear¶s credit policies (Peter & Michael. rumors were spread that FlyGlobespan airline could be the next airline to declare bankruptcy. in fear of getting bankrupt.This was a main internal failure for the company.

led to liquidity crisis in the latter. Eventually all clients of E-clear failed miserably as the credit card company could not achieve smooth business operations. More than 100 million debt in GBP was owed to various ticketing companies by E-Clear that couldn¶t process payments to the corporate bank accounts of airline agencies (Simon. many businesses fell victim to the credit card companies¶ policies. This resulted in a severe crisis where payments were not being made by E-Clear whereas on the other side company passengers used to travel and enjoy the companies¶ airline policies. many companies had been getting successful business operations due to rising credit. Before the recession.Flyglobespan has now launched a case against E-Clear along with various other companies that the credit card company owes to. . variouslessons could be learnt. 2009). The role of E-Clear was to process credit card payments by holidaymakers and send them to Flyglobespan. however the inability of the former to do so. The first lesson that can be learned and the one hanging prominently in the failure of all companies are to never rely on debt.card processing company to FlyGlobeSpan. Debt is nothing but a big burden for all businesses. Nearly 34 million GBP was owed by E-Clear to the airline company that was the biggest asset to Flyglobespan. Since the credit card company was involved in providing debt to companies at international level. but the financial recession of 2007 eventually led all of these companies to a big a disaster leaving them unable to clear their debts. Lessons that could be learned from this failure: Considering this and many other business failures in the UK and worldwide. E-clear has itself collapsed after the collapse of several airline companies in the UK. Reports by the Times Magazine quote E-clear policy with business failure waves reaching far beyond Scotland. It is not easy to bear a financial loss and watch the company go bankrupt in front of the owners¶ eyes knowing that the company is unable to do anything to resolve it (Jim. 2009). Companies have made it a trend to rely their business operations on high amounts of loans that were unable to be paid off from the profits generated through business operations.

dividends & profit. Without clear cut marketing segment and target market. The company management should not solely take decisions based upon the investors in the stock market that are investing for one reason one. 2003). A panel of analysts should be brought up with effective decision making policy that can lead to better and fairer value of the merger or acquisition. the business needs to be keep itself with limited products & services in order to get the business policies succeeding to the heights of business environment. In other words companies should be ready for unforeseen consequences that their businesses could eventually fall victim to credit crunch or any other failed business policy in the long run (Dean.Flyglobespan failed to recognize the fact that future is always uncertain. it is worthless to spend thousands and millions of dollars hiring celebrities or branding the company¶s product if the initial message that ought to be delivered to the right target market does not get to them. 2003). but with improved quality and customer services. Eventually this would return in short term profits but long term failure when the customers find other competitors.Businesses should never greed to earn more profits and compromise on quality (Adam. 2008). a social networking online website in 2008 for $850 million while selling it for $10 . there always needs to be a cushion for general reserves of the company to be kept safe in case of sudden financial crisis. Loss orientation should be kept in mind. If they cannot afford a business loan or floating their shares in the stock market. although costly. Instead. Your target market is not interested in marketing schemes that are intended for other customers. The best lesson that could be learnt from business failure is analyzing the reasons why the business failed and making sure not to do them again (Dean. AOL acquired Bebo. Investing in effective marketing strategy can be categorized as another lesson that could be learnt from business failure (Naomi. So. 2009). Many businesses that overpay in order to acquire other companies and gain media attention also miserably fail. the business environment in which a business operates should be understood before developing any business policy. Businesses should always keep a modest level of debt in order to run themselves. This could lead to a big financial disaster of the company that is running on greed to earn more and more profits.

million just two years later. The company wanted to gain media attention and press releases for its acquisition.Flyglobespan invested more than their actual value in jets and other aspects although it was a low cost airplane. Flyglobespan should have invested in small jets that could operate domestically at lower fares than its competitors. . 2009). The company gained initially media publicity but failed miserably when it could not cope up with the rising expectations of Bebo and sold it to another company for a mere $10 million (Amy.

e. The company was wrong not to suspend its business operation as early as possible or devise a management plan to effectively restore debt with its operating credit card processing company E-Clear. thousands of companies once categorized as financially strong eventually ended up miserably failing in all aspects because of high debt upon which they were operating. With the recent recession. Entry into any business is never without risks considering the fact that there is a high level of competition in almost all walks of life. This recession has left people with many lessons to be learnt and the best one is ability to avoid running your business on debt. trust in employees and ability to get ready for unforeseen consequences in the long run. This would make sure that the company does not fall victim to any policy. and lessons to be learnt from business failure.Conclusion Based upon the above factors as to why businesses failed. i. it is unlikely that people had recovered themselves of their personal finances getting crippled and businesses going in rising debt. with specific example of GlobeSpan and E-Clear. For many more years to come analysts predict that there would be much more susceptible cases of business failure in most sectors of companies that are relying heavily on debt. Many companies have been able to achieve this. a great lesson can be learned. With the death of firms as mentioned by Storey (1994). Companies and individuals should always learn from their business mistakes making sure that they do not commit them again in the long run. Big companies sand those that heavily relied on debt and credit eventually failed leading to . Flyglobespan continued its business operation despite knowing that the company was in debt that had continued to rise without even stopping to any limit. which itself had become bankrupt. transferring economic resources from the least productive sectors to healthy. profitable ones. The main reason was high level of confidence in the company¶s management. it can be analyzed that businesses need to struggle in order to win over competitors in the long run. After the worse ever recession that hit the world in 2007. although they were all small scale. Despite the economic recessions some companies managed to do excellent and struggle to survive.

. This would eventually lead to success for any business in the long run. Business failure is inevitable but in order to avoid it.thousands of job losses and worse ever economic conditions of an average person in European nations. one has to get ready for the worst ever future consequences. It is concluded in this essay that businesses should learn from their mistakes make strong policies that do not cost company dear in any aspect of business operation. Transparency should be brought in and corruption should be eliminated in order to get the business operations done in a much better and improved way.

2. 2009. 5th edition. Thousands stranded as Scottish airline Flyglobespan goes bust. 2011] 5.html [Accessed 23 2011].uk/tol/business/industry_sectors/banking_and_finance/artic le6994354. Holland. [online] Available at http://www. Credit card company blamed for failure as Globespan collapses with 100M GBP [Accessed 23 April. [online] Available at http://business. Amy. Learning from Business failure: propositions of grief recovery for the Selfemployed. 1994. 2010. 8. 2009. Terry & Simon. 2003.ece [Accessed 23 April. Academy of Management Review 9. The Telegraph.pdf [Accessed 22 April. 2010. Awareness and growth. Strategic management. 1998. Flyglobespan files petition against Strategies for learning from failure. John Thompson with Frank Martin. 2011] 4.telegraph.References 1. 2006. Planning Against a Business Failure. Dean. 3. 2009. Peter &Vint. [online] Available at http://www. [Accessed 23 April. Failing to learn? The effects of failure and success on organizational learning in the global orbital launch vehicle industry. [online] Available at http://cpa. 10. 2011]. 2011].uk/news/business/news/flyglobespan-files-petition-againsteclear-1845585. ppThomson Learning: Academy of Management Journal. .timesonline. [online] Available at http://www. Peter & Michael. 2009. Simon. Storey. Understanding the small business sector. Flyglobespan collapse: travel companies face bleak winter. Harvard Business Review.

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