The company led the way as an innovator, launching a large range of new products and processes to make photography simpler, more useful and more enjoyable. With the rapid growth of digital photography, competition against its product and being slow to embrace the move to digital technology Kodak has fallen on hard times. In January 2012, Kodak and its US subsidiaries filed voluntary petitions for Chapter 1 1 business reorganization 1 in the US Bankruptcy COUrt for the Southern District of New York.
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A company spokesperson said the aim of the business reorganization was to enable Kodak to bolster liquidity, sell off nonstarters intellectual property, and enable the company to focus on the most valuable business lines. The process will allow Kodak to continue normal business operations while it attempts to emerge a profitable and sustainable enterprises. Kodak: Snapshot of an innovative icon slow to move with the times In filing for bankruptcy protection, Kodak executives say they are seeking to follow the path of US corporations that have reinvented themselves after a court-supervised reorganization, like United Airlines and Chrysler.
Antonio Perez, the company’s oft-criticized chief executive who has been trying to turn the company around nice 2005, said the bankruptcy was a step ‘in the transformation in order to build the strong possible foundation for the Kodak of the future’. ‘What everyone should expect from Kodak is business as usual’, he said in a video message. For critics, business as usual is exactly the problem with Kodak. They questioned how Kodak would emerge from bankruptcy as a viable company since it has not yet proved its turnaround strategy, focusing on consumer and commercial printers, can turn a profit. My sense is they have played every card they can dig out of the deck’, said Jay Lawrence Westbrook, a business law professor at the University of Texas. He predicted that Kodak would liquidate most of its assets, with some parts remaining as viable companies, perhaps even called Kodak. But he added, ‘l would be surprised if they reorganized and look anything like the Kodak that went in’. Shannon Cross, an analyst who has had a sell rating on Kodak since 2001, said the problem for Kodak was that its core business had not been making money and the company had been living off licensing fees for intellectual property. To me it’s not clear that the pieces that will be left at the end make sense as a stand-alone company, she said. It’s sad that it happened. It’s not a surprise, the way it’s been managed’. A US Chapter 11 proceeding is a legal mechanism that allows an organization otherwise considered potentially bankrupt to focus on the preservation and reorganization of ongoing operating companies. 2 The introductory two paragraphs are adapted from the Kodak Company website accessed 26 April 2012 via .
Page 2 of 21 Global Strategy and Leadership?Pre-seen exam information The predecessor to Kodak, Eastman Dry Plate Co, was formed as a partnership in 1881 by George Eastman, and it became one of America’s blue-chip giants, a many whose name was synonymous with taking pictures and its ubiquitous yellow film box. But the company was slow to respond to competition in the film business from Fussily of Japan, which undercut Soda’s prices. And though one of its own researchers invented the digital camera, Kodak was slow to embrace digital photography.
At a court hearing on Thursday evening, a layover representing Kodak creditors questioned management’s plan to borrow $SUSHI million to stay afloat during the bankruptcy process, noting the company had burned through $JUS billion in the past two years trying to reinvent itself. From our perspective, what’s past is prologue’, said lawyer Michael Stammer. ‘They have taken what we believe is reckless and destructive spending and imposed them on this case’. At the end of the four hour hearing, Kodak won approval for $SUSHI million in interim bankruptcy financing, led by Citreous.
Under Perez, who joined Kodak from Hewlett-Packard in 2003 and became chief executive in 2005, the company has tried to reinvent itself by focusing on printers, packaging and workforce software. Perez financed those efforts with billions in licensing fees from Soda’s intellectual property, but analysts warned hat Kodak was burning through cash too quickly and could eventually run out. Kodak announced in July that it would try to sell some of its digital imaging patents, hoping to cash in on a frenzy for intellectual property that drove Google’s $SSI 2. Billion takeover of Motorola Mobility. But Kodak failed to draw enough interest among potential buyers, driven in part by fears of the company’s deteriorating financial health. Mr. Perez said his turnaround efforts were hurt by the recession, which slowed new business growth and expedited the decline of the film business. He said the objectives of the reorganization included obtaining ewe financing to shore up confidence in Kodak, selling some of the company’s patents and adjusting ‘legacy’ costs?such as healthcare benefits to retirees ?to the company’s now smaller size.
Allan Groper, the federal bankruptcy judge overseeing the case said, ‘Kodak is a great American institution, and every creditor here, I’m sure, wants to see it get out of Chapter 11 as soon as possible and to prosper. The question is how to do that quickly and simply’. The first task may be for Kodak to sell the patents it has been trying to unload, said Daniel McKinney, managing director of corporate restructuring for Epic Systems. Though buyers may have been skittish, a court-supervised sale provided greater protection against liens and other claims.
A Kodak lawyer estimated the patents were worth $US. 2 billion to $JUS. 6 billion. If the sale is successful, and depending on how much money remains, Kodak will then have to convince the court that it has a viable business plan. Lawrence Perkins, senior managing director at Conway MacKenzie, a restructuring and financial advisory firm, said a bankruptcy could provide Kodak with a fresh start, but it would not be easy. ‘This is going to be a tough one’, he said. Just like anything else, the business has evolved. It’s going to be hard to unwind 130 years of history’. Source: Martin, A. And De la Mercer, M. 2012), ‘Kodak: Snapshot of an innovative icon slow to move with the times’, The Saturday Age, Business Day, 21 January, p. 10. Replication of article in full. Page 3 of 21 Kodak moments?A timeline of major company events 1881 Founder George Eastman starts Eastman Dry Plate Company with Henry Strong in his mother’s Rochester, New York kitchen. Eastman developed dry plates, which can be developed at any time, to replace photographic wet plates that had to be treated at once. 1885 First transparent film. 1888 First Kodak camera?the name was coined by Eastman, giving birth to amateur snapshot photography. 889 Eastman Kodak Company formed. Transparent roll film makes Thomas Edition’s motion picture camera possible. 1892 Company renamed Eastman Kodak Company. 1898 First folding pocket Kodak camera. 1900 The Brownie camera sells for $1. Film is 15 cents a roll. 1901 Present parent company, Eastman Kodak Company of New Jersey, formed. 1929 First film designed for the new sound motion pictures. 1930 Added to the DOD Jones Industrial Average Index. 1935 Coatroom, the first mm color film, is launched. Kodak holds a monopoly on film. 1938 First camera with built-in photoelectric exposure control, the Super Kodak Six, introduced. 963 The Numismatic, featuring easy-to-use cartridge loading film; more than 50 million were produced from 1963-1970; reduced to pocket-size in 1972. 1975 The first digital camera invented, but company keeps its focus on film, then its cash cow. 1984 First video system, Sedation Series 2000 mm. 1987 First one-time use camera, the Kodak Fling. 1991 Kodak partners with Nixon to market a professional-grade digital camera but sticks with film as core business. 2001 Kodak Seashore digital cameras and docking systems; popular with consumers but made little profit for the company since margin on digital cameras plummeted. 005 The company focuses on consumer and commercial printers while photography products steadily lose market share. 2012 Kodak files for bankruptcy protection. Page 4 of 21 Global Strategy and Leadership?pre-seen exam information Case Scenario 2 From Virgin Blue to Virgin Australia: ‘A fine balancing act’ 1 Introduction to Virgin Blue: Low-cost leisure travel for Australians In 2000, the British-based Virgin Group founded by Sir Richard Brannon menaced operations in Australia with the launch of a low-cost domestic airline named Virgin Blue.
The airline was developed to service the Australian domestic leisure travel segment as a low-cost airline with low prices, one class of ticket and minimal on-board, complementary services. The first real low-cost airline in Australia, Virgin Blue experienced strong growth in the asses as the company’s low fares encouraged Australians to take more holidays and air travel. Virgin Blue grew the market for leisure travel. Despite its name, ironically, the actual color scheme for the Virgin planes was red on white.
The story went that, as redheaded people in Australia were often nicknamed ‘bluely, so too should an airline business whose corporate colors were red. This marketing ploy drew media attention to the airline’s launch and helped establish Virgin Blue as playful, funky and renegade. In 2003, Virgin Blue Holdings Ltd was floated on the Australian Stock Exchange with its core business being to provide travel services to leisure travelers in Australia and overseas. Over the next decade Virgin Blue expanded to four airlines. Virgin Blue established a second airline in 2004, Pacific
Blue, which offered short-haul flights for leisure travelers between Australia, New Zealand (NZ), the Cook Islands, Tong, Fiji and Vaunt. In 2008 Pacific Blue also started offering domestic flights in NZ where it was based. In 2005, in partnership with the Samoan Government, Virgin launched its third leisure- focused airline, Polynesian Blue. Virgin Australia was set up as a longhand airline servicing the trans-Pacific, with the first flight to Los Angels in 2009. In addition to flights, Virgin Blue also established additional services including ‘Blue Holiday, travel insurance and a freight business.
Blue Holiday offers packaged deals to leisure travelers including flights, accommodation, tours, entertainment and car hire. Blue Holiday travel packages include ‘Mystery Packages’ and ‘Aberrations’, short-break holiday packages. In 2006, Virgin Blue formed a new venture with JUJU, an online travel company, to expand the Blue Holiday program to include travel options within NZ and the South Pacific using Pacific Blue and Polynesian Blue, and other participating airlines for some destinations. Blue Holiday in NZ also began offering snow ski packages that included flights, accommodation, ski passes, and car and ski hire.
Introduction to the Australian domestic airline industry With the first domestic flights in Australia undertaken in the early asses, the industry took off when the Queensland and Northern Territory Aerial Services (SANTA) began operations in 1920, making it the third oldest airline in the world. Air travel in Australia is somewhat of a necessity, given the size of Australia and the low density of population. As such, change in air travel demand is usually correlated with demand for travel for personal or business reasons, as well as the movement of time-sensitive freight. Age 5 of 21 2. 1 Industry product segments Industry revenue was estimated to be $14. 5 billion in 2012, with its main business being the transportation of passengers and freight on scheduled routes within Australia. Approximately 86 per cent of industry revenue is generated from airline ticket sales. There are three product segments summarizes as follows: I:] Business travel. Accounting for 57. 1 per cent of industry revenue in 2012, this segment comprises full fare passenger transport by business and government travelers.
This segment includes travel where airlines charge a premium for a ticket (i. E. Business class) and fully flexible fares which allow booking and flight hinges at short notice. Although more expensive, business travelers prefer full-fare service due to the flexible nature of the tickets enabling them to change flights at minimal cost as well as the availability of business lounges in airports and a range of services on board, including entertainment, baggage allowances, meals, beverages and newspapers. Demand is based on business conditions and the need to travel.
The cost of airfares is not necessarily an important factor. The growth of video conferencing has had a slightly negative impact on growth in this segment in recent years. The unit value of sale per passenger is approximately bubble that of a low-fare leisure travel fare. Leisure travel. Accounting for 29. 4 per cent of industry revenue in 201 2, this segment comprises low-fare passenger transport by leisure travelers. Leisure travelers make an occasional trip to take a vacation, or to visit family and friends.
Price is an important factor and is normally the first issue considered when planning a trip. Leisure travelers are prepared to trade off less flexible tickets and flight times for low fares. Heavily discounted tickets are a strong driver of passenger growth in this segment. Passengers do not always get a full-service offering?that is, low fares often include the flight cost only, with the passengers having to pay additional charges for baggage other than hand luggage, and on- board services such as entertainment, drinks or meals.
Lounges are not offered for low-fare travelers, and high costs are incurred for flight changes. Freight and other. Accounting for 13. 5 per cent of industry revenue in 201 2, this segment comprises freight transport (4. 9 per cent) and other revenue (8. 6 per cent) such as charges on excess baggage, late fees, luggage storage charges and other items. Time-sensitive and high-value-to-weight items are generally reinserted by air rather than land due to the need to get these items to their destination quickly. 2. Industry profitability Airline operating margins are relatively low, averaging around 2. 0 per cent over the last five years. Declining fares in the leisure travel segment due to strong competition have combined with increasing costs to lower profitability over this period. Yield management is critical to profitability due to high fixed costs involved in operating a flight?that is, the marginal cost of a passenger on a flight is very low, so having a plane full, with as many full-fare passengers as possible, s important to maximize profitability.
Page 6 of 21 3 Industry competition In 2012, the industry is dominated by two airlines, Santa Airways Ltd (GAL.) and Virgin, with market shares estimated as follows: Competitor Share of industry revenue in 2012 Brand names Santa Airways Ltd 65. 0% Santa, Jetsam, Sanitarians Full service, low cost, regional Virgin 17. 2% Virgin Australia Full service, low cost Other 17. 8% Total 100. 0% 3. 1 Various Services offered Private charter passenger flights or freight operators Major industry competitor: Santa Airlines Ltd Santa Airlines Ltd (GAL.) is the largest industry competitor.
The company offers revise in all industry segments under two major brands: Santa and Jetsam. Jetsam, Gal’s low cost airline, was introduced in 2004 in response to Virgin Blue’s success in the industry and the loss of market share away from Quanta’s full- fare service to the low-fare carrier. Competition between Santa and Jetsam is strong; however, they target different segments?Santa targets the business segment and up-market traveler, while Jetsam is a low-cost carrier targeting low-fare leisure travelers.
Santa dominates the business segment due to the breadth of its network domestically and internationally, the large number of lights and, most importantly, because they offer a full-service airfare including the Santa Club business lounges. The airline was a founding member of the Enrolled Alliance, which provides access to hundreds of destinations and airport lounges around the world?this is important to business travelers for an integrated travel experience. The business segment is much less competitive than the leisure segment, with customers who are willing to pay more for a full service offering preferring Santa.
Aspects of service quality used as non- price competition include provision of airline club lounges, priority ticketing and heck-in procedures for full-fare passengers, valet parking services and wider seats. Santa also offers high-quality catering and other on-board services such as newspapers and magazines in premium class cabins, and hire car and hotel reservation services to be a full travel provider. Importantly, while GAL. accounts for around 65 per cent of industry revenue, it holds only 48 per cent of domestic passengers carried in Australia.
The difference in revenue and passenger share is due to Santa’ focus on business travelers, where the company earns more revenue from each person and maintains a higher profitability than the industry average as a result. ‘Various’ includes Regional Express 1. 7 per cent, Keyset Airlines 1. 5 per cent, Tiger Airways 1. 5 per cent, Air Australia 1. 0 per cent and a large number of small airlines which fly predominantly to regional locations throughout Australia and have a market share individually of less than 1 per cent. Age 7 of 21 4 Game Change program?A new strategic direction for Virgin in Australia Until 2010, Virgin Blue had grown through expanding its leisure travel segment, and growing low-fare passenger numbers to hold the number one position in the assure segment and maintaining its Costs focus. However, the introduction of competition in the leisure segment in 2004, with Gal’s launch of Jetsam, curtailed Virgin Blue’s strong growth and Virgin Blue needed to broaden its offering by adding more services to enter the business segment and attract higher yield customers.
This trend increased from 2005 because Virgin Blue had underestimated the success that Jetsam would have in capturing part of the leisure market. Virgin Blue began offering a premium economy fare, developed its passenger lounges, introduced a loyalty reward scheme, ‘Velocity Rewards’, ND offered the first Web check-in service in Australia. By 2010, Virgin had about 10 per cent of business travelers and an approximate 30 per cent of all domestic air travelers.
Virgin managed to finish the 2010 financial year making a small profit despite the uncertainties of the global financial crisis (SGF), changing interest rates and fierce competition from low-cost carriers in its domestic market; however, it faced some significant challenges. These challenges included having only the second largest market share of industry revenue, unprofitable routes in New Zealand and to estimations including Fiji, Packet and South Africa, high costs in maintaining its four brands, and confusion in the market between the brands.