harrah s entertainment inc(2)

8/8/2019 Harrah s Entertainment Inc(2)

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Harrahs Entertainment Inc.Harrahs Entertainment Inc.(2002)(2002)

Major Case StudyMajor Case Study

Presented to: Madam Sajida KhanPresented to: Madam Sajida Khan

PresentedPresented By:By:MohiuddinMohiuddin ZiaZiaShakeelShakeel HussainHussain

TalatTalat RehmanRehmanZiaZia ulul HaqHaq

ShabbirShabbir KhanKhan

IrfanullahIrfanullah KhanKhan


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Introduction of IndustryIntroduction of Industry

Eleven states, Seventeen Markets, 425Eleven states, Seventeen Markets, 425casinos.casinos.

The Nevada market consists of 30.2%,The Nevada market consists of 30.2%,New Jersey represents 18.6% of theNew Jersey represents 18.6% of thegaming industrys volume.gaming industrys volume.

Heavily regulated industry Paid 3.5 billionHeavily regulated industry Paid 3.5 billion

in tax in 2000.in tax in 2000.More than 370000 people with wages ofMore than 370000 people with wages ofmore than $10.9 billionmore than $10.9 billion


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Introduction of the OrganizationIntroduction of the Organization

William F. Harrah founded Harrahs as a bingoWilliam F. Harrah founded Harrahs as a bingoparlor in Reno, Nevada In 1937parlor in Reno, Nevada In 1937

In 1973, Harrahs became the first casino to beIn 1973, Harrahs became the first casino to belisted on the New York stock exchangelisted on the New York stock exchange

Merger with the Reo Hotel & Casino, LasMerger with the Reo Hotel & Casino, LasVegas. In March 2000Vegas. In March 2000

Harrahs headquartered in Las Vegas, NevadaHarrahs headquartered in Las Vegas, Nevada

Harrahs Entertainment, Inc, is a $3.7 Billion perHarrahs Entertainment, Inc, is a $3.7 Billion peryear gaming companyyear gaming company

(21 casinos in 17 markets)(21 casinos in 17 markets)


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Analysis of External environmentAnalysis of External environment

a)a) Industries Dominant traitsIndustries Dominant traits

Part of the vast entertainment industry, paysPart of the vast entertainment industry, payshundreds of millions of dollars in tax revenues.hundreds of millions of dollars in tax revenues.

Created thousands of jobs, women andCreated thousands of jobs, women andminorities benefited.minorities benefited.

Heavy tax paying industry.Heavy tax paying industry.

According to American gaming AssociationAccording to American gaming Associationsurvey of Casino Entertainment, Casinosurvey of Casino Entertainment, Casinocustomer has remained consistentcustomer has remained consistent


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General Environment faced by theGeneral Environment faced by theCompanyCompany


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Economic FactorsEconomic Factors

More than 1 million jobs nationwide, overMore than 1 million jobs nationwide, over370,000 people with wages of more than370,000 people with wages of more than$10.9 billion.$10.9 billion.

Employed women and minorities.Employed women and minorities.Industry contributed more than $3.5 billionIndustry contributed more than $3.5 billionin tax revenue in 2000.in tax revenue in 2000.

Generated reasonable revenue asGenerated reasonable revenue ascompare to other related industries hotels,compare to other related industries hotels,etcetc


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Technological FactorsTechnological Factors

Three major developments affected the gaming industryThree major developments affected the gaming industry1.1. Play cards,Play cards,2.2. Slot technologySlot technology3.3. linked jackpots and the internet.linked jackpots and the internet.

Suppliers (Such as International Game Technology)Suppliers (Such as International Game Technology)developed new types of slot like games to keep playersdeveloped new types of slot like games to keep playersexited and satisfied.exited and satisfied.Harrahs, the first casino in the industry to offer playersHarrahs, the first casino in the industry to offer playersthe opportunity to play the Raining Diamonds slotthe opportunity to play the Raining Diamonds slot

machine.machine.Managing customers data through CRM is also helpfulManaging customers data through CRM is also helpfulfor consumer promotion and planning.for consumer promotion and planning.In 2000 Total reward system (Patent) was rankedIn 2000 Total reward system (Patent) was rankednumber 1 among the top One hundred U.S companies.number 1 among the top One hundred U.S companies.


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PoliticalPolitical--Legal FactorsLegal Factors

The commercial casino industry is one ofThe commercial casino industry is one ofthe most heavily regulated industries in thethe most heavily regulated industries in theUnited Stats, Casinos not only have toUnited Stats, Casinos not only have tomeet strict state regulations, also adheremeet strict state regulations, also adhereto many federal laws.to many federal laws.

Industry contributed more than $3.5 billionIndustry contributed more than $3.5 billion

in tax revenue in 2000in tax revenue in 2000


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SocioSocio--Cultural FactorsCultural Factors

Casino players household income is 19 percentCasino players household income is 19 percenthigher than that of the US population.higher than that of the US population.

Casino players slightly less educated.Casino players slightly less educated.

81% of casino customers usually set a budget81% of casino customers usually set a budgetbefore visiting a casino.before visiting a casino.

Attitude toward the gaming industry in U.S isAttitude toward the gaming industry in U.S is

positive. In US, Residents of communities wherepositive. In US, Residents of communities wherecommercial casinos are located tremendouslycommercial casinos are located tremendouslysupport the gaming industrysupport the gaming industry


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Analysis of the industry onAnalysis of the industry onPorters Five ForcesPorters Five Forces


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Threat of New Entrants/ Entry BarriersThreat of New Entrants/ Entry Barriers


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Exit BarriersExit Barriers


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Competitive RivalryCompetitive Rivalry


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Power of BuyerPower of Buyer


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Power ofSupplierPower ofSupplier


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Threat ofSubstitute ProductThreat ofSubstitute Product


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Overall Industry attractivenessOverall Industry attractiveness


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strategic groups present in thestrategic groups present in the

industryindustryMarket Share

S/NO Company Name %age Share

1 Park Place 34%

2 MGM Mirage 22%

3 Harrah's 20%

4 Mandalay 15%

5 Trump 9%


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strategic groups present in thestrategic groups present in the

industryindustry

Revenue

High

Low

Low High

Market share

Mark Place

MGM Mirage

Harrahs

Mandalay ResortTrump


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Drivers of change in the industryDrivers of change in the industry

September 11th AttacksSeptember 11th AttacksInternet gamesInternet gamesEconomic recessionEconomic recession

Increased GlobalizationIncreased GlobalizationHuge Marketing/ PromotionsHuge Marketing/ PromotionsSlow industry growth rate increase rivalrySlow industry growth rate increase rivalryamongst existing firms.amongst existing firms.

More budget for Research and DevelopmentMore budget for Research and Developmentfor product development and innovation.for product development and innovation.Requires high differentiationRequires high differentiationHighly depends on changing lifestyle andHighly depends on changing lifestyle andconsumer preferences.consumer preferences.


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Key success factors for theKey success factors for the

industryindustryGlobalizationGlobalization

QualityQuality

InnovationsInnovationsR & DR & D

MarketingMarketing

InternetInternet


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Industry Matrix/ CompetitiveIndustry Matrix/ Competitive

P

rofile MatrixP

rofile Matrix (CP

M)(CP

M)


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ConclusionConclusion

Overall industry attractiveness is 3.44Overall industry attractiveness is 3.44which means industry is slightly favorable.which means industry is slightly favorable.

Industry Matrix rating shows:Industry Matrix rating shows:Harrahs =3.92Harrahs =3.92

MG Mirage=3.44MG Mirage=3.44

Harrahs Entertainment is strong in itsHarrahs Entertainment is strong in itsstrategic group.strategic group.


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Opportunities/Threats for theOpportunities/Threats for the

companycompany

OpportunitiesOpportunities1.1. Support of local people andSupport of local people and

residents for the gamingresidents for the gaming

industry.industry.

2. Support of state government2. Support of state governmentto the gaming industriesto the gaming industries

because it brings growth inbecause it brings growth in

other areas i.e. Tourism, Houseother areas i.e. Tourism, House

construction, and restaurants.construction, and restaurants.

3. Casino players have 19%3. Casino players have 19%

higher income than other UShigher income than other USpopulation.population.

4. Age of casino players is4. Age of casino players is

similar to that of US populationsimilar to that of US population

ThreatsThreats1. Four major and some minor1. Four major and some minor

competitorscompetitors

2. Government regulations on2. Government regulations on

potential resource i.e. Internetpotential resource i.e. Internetgaming competition.gaming competition.

3. Post 9/11 significantly3. Post 9/11 significantly

declined the revenue.declined the revenue.

4. Government regulations4. Government regulations

against TV media marketingagainst TV media marketing

(CommunicationAct 1934)(CommunicationAct 1934)


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EFA Matrix for HarrahsEFA Matrix for Harrahs

EntertainmentEntertainment

Key External Factors Weighted Rating Weight

Opportunities

1. Casino players high income 0.45 3 0.15

3. Age medium similar to the US population 0.3 3 0.1

4. Being first to offer Raining Diamond Slot. 0.6 4 0. 15

5. Technology Development 0.8 4 0.2

Threats:Market competitiveness 0.45 3 0.15

Post 9/11 Era 0.2 2 0.1

Government Regulations 0.3 2 0.15

TOTAL 1.00 3.07


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Company AnalysisCompany Analysis

MissionMission

Mission is comprehensive code of commitment thatMission is comprehensive code of commitment that

is addressed to customers, employees andis addressed to customers, employees and

communitiescommunities..

HarrahsHarrahs Mission:Mission:

Commitment to guests for promotingCommitment to guests for promoting

responsible gamingresponsible gaming


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Objectives, strategies andObjectives, strategies and

policespolices..The industry commits that its employees areThe industry commits that its employees are

To be treated with respectTo be treated with respect

Provide them opportunities to build satisfying careers.Provide them opportunities to build satisfying careers.

We are committed to sharing our financial successWe are committed to sharing our financial successthrough tuition reimbursement on job training careerthrough tuition reimbursement on job training careerdevelopmentdevelopment

We actively seek and respond to employee opinions.We actively seek and respond to employee opinions.

Company says our commitment to communities to helpCompany says our commitment to communities to help

make them vibrant places to live and work and to marketmake them vibrant places to live and work and to marketour casino responsibilitiesour casino responsibilities

Business is conducted with honesty and integrityBusiness is conducted with honesty and integrityconsistent with highest moral legal and ethical standardsconsistent with highest moral legal and ethical standards


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Strategies of HarrahsStrategies of HarrahsEntertainmentEntertainment

More DistributionsMore Distributions

Quality ProductsQuality ProductsPatent TechnologyPatent Technology

Great ServiceGreat Service


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ValueValue--Chain Activity AnalysisChain Activity Analysis


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1. Inbound & outbound logistics:1. Inbound & outbound logistics:

Harrahs have partnered with America WestHarrahs have partnered with America WestAirlines and other agents to offer packageAirlines and other agents to offer packagedeals to customers for airfares. Which isdeals to customers for airfares. Which ishelpful in the movement of goods.helpful in the movement of goods.

2. Data Base System:2. Data Base System:The card tracks player demographics andThe card tracks player demographics andplaying habits and each casinos locations.playing habits and each casinos locations.Data base system also helps inData base system also helps in

intercommunication with other casinointercommunication with other casinobranches.branches.


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3. Marketing:3. Marketing:--

Total Reward Offer.Total Reward Offer.

1.1. Total GoldTotal Gold

2.2. Total PlatinumTotal Platinum

3.3. Total Diamond.Total Diamond.

Increase of $165 million revenue fromIncrease of $165 million revenue fromplatinum . Total reward allows customersplatinum . Total reward allows customersto gain discounts on shows, hotel rooms,to gain discounts on shows, hotel rooms,

food and beverages as well as priorityfood and beverages as well as prioritycustomer status when makingcustomer status when makingreservations, checking in, or makingreservations, checking in, or makingreservations for show seating.reservations for show seating.


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4. Human Resource Management:4. Human Resource Management:

The Commercial casino industry has moreThe Commercial casino industry has more

than 370000 people with wages of morethan 370000 people with wages of morethan $10.9 billion.than $10.9 billion.


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Strengths and Weaknesses of aboveStrengths and Weaknesses of above

activitiesactivities::--

The casino industry has ease in inventoryThe casino industry has ease in inventorymovement. And its data base system ismovement. And its data base system isbeneficial for finding the potentialbeneficial for finding the potentialcustomers. As for as marketing iscustomers. As for as marketing isconcerned more revenue is generated byconcerned more revenue is generated bythese casino due customer attractionthese casino due customer attraction

towards such kind of promotions.towards such kind of promotions.


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Financial HealthFinancial HealthTo evaluate a companys performance financial ratios acquire a specific position which help in

developing the health comparisons of items on the companys financial statements rather thana direct readings i.e.

INTERPRETATIONINTERPRETATION2000200020012001FROMULAFROMULARATIOSRATIOSNoNo

The company has 0.75 asset in order to pay one liability, inThe company has 0.75 asset in order to pay one liability, in

second it improved its strength relatively.second it improved its strength relatively.0.750.751.091.09C.A/C.LC.A/C.LCurrent RatioCurrent Ratio11

It shows day to day cash management.It shows day to day cash management.

It is showing improvementIt is showing improvement

(195070)(195070)4879048790C.AC.A--C.LC.LWorking CapitalWorking Capital22

Though company has 1Though company has 1

asset in order to pay one liabilit but in second yearasset in order to pay one liabilit but in second year it improvedit improved

its strength than previous year.its strength than previous year. Satisfactory conditionSatisfactory condition

0.720.721.051.05C.AC.A--InV/C.LInV/C.LAcid test RatioAcid test Ratio33


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Asset Management RatiosAsset Management Ratios

This ratioThis ratio isis analyzing that in how many days company collects itsanalyzing that in how many days company collects its accounts receivablesaccounts receivables..13 days13 days11 days11 daysA.R/CrediA.R/Credi

t sales/365t sales/365

Avg.Avg.

CollectionCollection

PeriodPeriod

44

This ratio is showing that it takes 80 days for the company inventory to be converted into cash which shows aThis ratio is showing that it takes 80 days for the company inventory to be converted into cash which shows a

bit unsatisfactory condition of inventory control system.bit unsatisfactory condition of inventory control system.

72 times72 times80 times80 timesCOGS/AvCOGS/Av

g.Invg.Inv

InventoryInventory

turnoverturnover

55

The asset turnover financial ratio calculates the total sales for each dollar on bases of fixed asset a companyThe asset turnover financial ratio calculates the total sales for each dollar on bases of fixed asset a company

ownsowns

72% on72% on

1 doller1 doller

67% on67% on

1 doller1 dollersales/F.Asales/F.A

FAFA

TurnoverTurnover66

The asset turnover financial ratio calculates theThe asset turnover financial ratio calculates the total sales for each dollar of assettotal sales for each dollar of asset a company owns. This ratioa company owns. This ratio

shows that company is efficient in using its assets.shows that company is efficient in using its assets.64%64%60%60%sales/T.Asales/T.A

TATA

TurnoverTurnover77

Financial Leverage RatioFinancial Leverage Ratio

This Ratio indicates that low proportion of debt a firm has relative to its assets than first year. ImprovementThis Ratio indicates that low proportion of debt a firm has relative to its assets than first year. Improvement0.700.700.690.69T. Debt/T.T. Debt/T.

AssetAssetDebt RatioDebt Ratio88

It indicates what proportion of equity and debt the firm is using to finance its assets.It indicates what proportion of equity and debt the firm is using to finance its assets.2.852.853.123.12T D/T ET D/T EDebt toDebt toEquityEquity

RatioRatio

99

How easily a company can pay interest expenses on outstanding debt. The lower the ratio, the more theHow easily a company can pay interest expenses on outstanding debt. The lower the ratio, the more the

company is burdened by debt expense so these values are showing quite satisfactory condition of the firmcompany is burdened by debt expense so these values are showing quite satisfactory condition of the firm

relatively.relatively.

0.130.1327.627.6EBIT /EBIT /

Int.Int.TIETIE

11

00

This ratio is showing relationThis ratio is showing relation

b/w Assets & Equityb/w Assets & Equity4.09%4.09%4.46%4.46%T.A/ TET.A/ TE

EquityEquity

MultiplierMultiplier

11

11

It shows relation b/w G.P and salesIt shows relation b/w G.P and sales50.44%50.44%50.36%50.36%GP/salesGP/salesGP Ratio:GP Ratio:1122

It shows relation b/w N.P and salesIt shows relation b/w N.P and sales0.03%0.03%5%5%EAT/salesEAT/sales

* 100* 100

Net ProfitNet Profit

Ratio:Ratio:

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performance measure to evaluate the efficiency of anperformance measure to evaluate the efficiency of an investmentinvestment0.3%0.3%3.4%3.4%EAT/T.AEAT/T.A

* 100* 100ROIROI

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44

The above values are showing the amount of net income returned as a percentage of shareholders equity.The above values are showing the amount of net income returned as a percentage of shareholders equity.9.5%9.5%15.02%15.02%EAT/ E *EAT/ E *

100100ROEROE

11

55


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Financial condition:

Harrahs is at 3rd number in industryBig players with 32.28% market share

Economic recession fueled by the events of

September 11, 2001. Domestic customers arereluctant to travel to the United States Casinos.This potential recession may dramatically

decrease Harrahs revenue.

Over all it has improved condition but it needs tofocus on in capital management and inventorymanagement to be top among competitors besidesother focused strategies.


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IFE MatrixIFE Matrix

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Space MatrixSpace Matrix

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Issues faced by the CompanyIssues faced by the Company

Govt regulationGovt regulation

The Commercial Casino industry is one of the most heavily regulated industry in the United StatesThe Commercial Casino industry is one of the most heavily regulated industry in the United Statesof America. Not only do commercial casino companies have to meet strict regulations, casinosof America. Not only do commercial casino companies have to meet strict regulations, casinosalso must adhere to numerous federal laws.also must adhere to numerous federal laws.

99--11 attack11 attack

HarrasHarras will likely face many financial challenges in the next five years due to the possiblewill likely face many financial challenges in the next five years due to the possible

impending economic recession fueled by the event of September 11, 2001. Domestic Customersimpending economic recession fueled by the event of September 11, 2001. Domestic Customersare reluctant to travel and to spend money on recreation, and international customers are moreare reluctant to travel and to spend money on recreation, and international customers are morerestricted in their travel to the United States. This potential may dramatically decrease Harassrestricted in their travel to the United States. This potential may dramatically decrease Harassrevenues.revenues.

BankruptcyBankruptcy

HarrasHarras faced numerous challenges in 2000, including the bankruptcy proceedings of the Newfaced numerous challenges in 2000, including the bankruptcy proceedings of the NewOrleansOrleans CassinoCassino property and National Airlines. The financial performance of the Rio property inproperty and National Airlines. The financial performance of the Rio property inLas Vegas also negatively affected revenues.Las Vegas also negatively affected revenues.

Internet gamblingInternet gambling

One potential source for intense gaming competition is internet. Both the state and federalOne potential source for intense gaming competition is internet. Both the state and federalgovernments have actively worked to regulate and even ban internet.governments have actively worked to regulate and even ban internet.

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TOWS MatrixTOWS Matrix

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Minimum of three alternative strategies toMinimum of three alternative strategies to

resolve the issuesresolve the issues

Keeping in mind the event of September 11thKeeping in mind the event of September 11th2010, and the financial challenges where2010, and the financial challenges whererestrictions will be imposed from the governmentrestrictions will be imposed from the governmentUnites States. The company should focus on theUnites States. The company should focus on thepopulation living with in three hour drive ofpopulation living with in three hour drive ofowned managed property rather then companyowned managed property rather then companyshould not go for lavish expenses. Such asshould not go for lavish expenses. Such aspartnering with American West airlines to offerpartnering with American West airlines to offer

package deal to customers for airfares andpackage deal to customers for airfares andjoining the travel agents Global Distributionjoining the travel agents Global DistributionSystemSystem


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Alternative strategies toAlternative strategies to

resolve the issuesresolve the issuesAs it is difficult to place a price on theAs it is difficult to place a price on theproduct offered by the casino industry inproduct offered by the casino industry interms of room s, food and amenity pricingterms of room s, food and amenity pricingHarrah's entertainment inc. ShouldHarrah's entertainment inc. Shouldincrease the room rates $ 150 to $ 250 perincrease the room rates $ 150 to $ 250 pernightnight


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AlternativeAlternative strategies tostrategies to

resolve the issuesresolve the issuesHarrah's entertainment inc. should spendHarrah's entertainment inc. should spendon other variety of new games which areon other variety of new games which arein the market such as videoin the market such as video--based games,based games,multi game machinesmulti game machines


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Alternative company should adaptAlternative company should adapt

Keeping in mind the event of September 11thKeeping in mind the event of September 11th2010, and the financial challenges where2010, and the financial challenges whererestrictions will be imposed from the governmentrestrictions will be imposed from the governmentUnites States. The company should focus on theUnites States. The company should focus on thepopulation living with in three hour drive ofpopulation living with in three hour drive ofowned managed property rather then companyowned managed property rather then companyshould not go for lavish expenses. Such asshould not go for lavish expenses. Such aspartnering with American West airlines to offerpartnering with American West airlines to offer

package deal to customers for airfares andpackage deal to customers for airfares andjoining the travel agents Global Distributionjoining the travel agents Global DistributionSystem.System.


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Thank YouThank You

harrah s entertainment inc(2)

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