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I have set up this forum topic especially for those choosing to do an airline for Topic 8
If your query is about anything else PLEASE do NOT post it here unless the query itself is DIRECTLY connected specifically to using an airline for your RAP (we have other forum topics that deal with referencing, the SLS, graphs etc so use specific key words to find them)
I shall move questions asked previously related to airlines here so everything is in one place
Hi Trephena,
I also have the similar situation as Stevr whereby my main (Ryanair)co’s year end is Mar,so I use Mar 11 (base year for ratio) to Mar 15 but my competitors (Easyjet)year end is Sep , I would not have the Sept 15 annual report, can you please advice what I should do in this case?
I’m finding it hard to find a suitable comparable competitor for Ryanair.If I choose a different low cost airline , it may not be comparable due to the of Ryanair/routes/destinations it travels in Europe.Please help.Thank you
Kelly AnnANSWER FROM TREPHENA (answer copied from another forum topic)
@kellann – The Information Pack clearly sets out ‘The 90 day Rule’, meaning that (for P31 submissions) any annual report published before 1st August 2015 MUST be used for the main company. You have to use the most appropriate competitor’s statements and explain any limitations. Markers will always check and if you have NOT used the latest for the main company it will be an instant fail for out of date statements.What constitutes the most appropriate with airlines (particularly low cost airlines) would be that they both covered the same peak summer season so Mar 2015 for Ryanair and 2014 for Easy Jet would be appropriate. You must however think about how this might skew your results and consider these limitations when interpreting them.
The important limitations of the comparisons here would be that Ryanair’s FS also include the 2014/15 Christmas/New Year (second peak period) whereas EJ is 2013/14. Also oil prices have fallen significantly over the last year and this would favour the more recent results,as fuel cost is a major airline cost. Remember your marker wants a sensible analysis explaining how the various SWOT and PESTLE factors have impacted -what they don’t want are monotonous ratios that tell them nothing they cannot see from the FS or graphs for themselves
(All students doing T8 should ensure that they read Bassanio Broke’s forum “Top Tips for the RAP” at the top of our Forum page and the article I wrote on ‘Evaluation and Analysis’ on our homepage https://www.opentuition.com/obu. )
Hi trephena,
thank you for the good job and services u’re rendering may you continue to increase in wisdom!
I’m planing to write my RAP on T8 and with the new policy on ICB i have settle with the airline sector going for the low cost airline operator in UK, but there is a challenge of disparity in FS Y/end with the main company Ryanair’co y/end 31 march 15 which is the latest F/S and the comparative coy Easy jet’co y/end F/S is 30 sep 2015 what would be your honest advice
1 considering the seasonal period that the comparative company E’co would have cover in it latest f/s i.e summer holiday period which will put it in a more favourable position
2 R’co report its currency in euros while the latter is in pounds, would this affect my RAP in any way? because i’ve tried to look for another comparator but none is close in terms of route & destination, market share, revenue, operational cost, fleet and customer base
3 tips on what to look out for on airline strategic operation, promotion and marketing that would aid quality RAP e.g holiday packages and other services.
Thanks in advance.The problems you mention have been raised before so please see: https://opentuition.com/topic/quick-clarification-financial-year-results/page/6/
1. As you have grasped (and I mention in my previous posts) seasonal variations are the problem but as long as you address these you should be fine.
2. Currency isn’t too much of problem in that you are comparing ratios with ratios mainly so these ‘iron out’ most currency translation problems – remember it is year on year growth/trend that is important too.
3. Please try to tailor some of your ratios to the sector (this applies to ALL companies not just airlines). It is absolutely senseless with a service industry to bother to calculate the quick ratio as they do not have appreciable amounts of stock – however passenger load factors, revenue per passenger mile and revenue per employee are far more useful for airlines (and the sort of KPIs the company itself will be using)!
It may also be useful for you to search out the post I did on the Topic 15 forum about why an airline is not a good idea for T15 as it mentions some of the dynamic aspects you might like to consider in your particular T8 RAP e.g. how the fall in oil price helps increase margins and the effect of the decision to lease or buy aircraft impacts on liquidity and perhaps gearing.
Look at the CEO and directors reports within the annual reports for comments about strategies and track these over the period covered (even starting with their reports year before the 3 year period you are looking at as this and the following years strategies will be the direction that will have influenced the first few years you are analysing). Use ‘quality’ business pages – many are available online: forbes, telegraph and bbc
If you are after a B or A grade look at my posts towards the end of ‘Top Tips for the RAP’
KUDOS!!! @Trephena
thank you for the prompt response, and will Everly be grateful for this insightful info, all your point is noted and will be taking on board.
in the course of doing evaluation do you think SWOT & PESTLE will be sufficient or are there any business model that could be adopted? dat’s applicable in service industry?
Best regards!
They are both fine for T8. It is better to do 2 models and apply them well than 3 that are done superficially. You should aim to connecti the factors from the models to the financial analysis by seeing how these factors have impacted on performance and influenced management strategic decisions as this,will really strengthen and add value to your evaluation.
Hi. I want to prepared my RAP choosing topic 8 and companies which I am thinking about are Emirates Airlines and Qatar Airways. The problem which I’m facing is that I am unable to get the financial statements for Qatar Airways from their official website. Can anyone guide me how I can get access to Qatar Airways financials?
As per my understanding, they don’t publish their financial statements. Qatar Airways is a state owned company and not public limited company.
https://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapid=7828461
You need to either request their financials by contacting their officials or change the company.
Regards,
Hammad Ahmed Qureshi.Hi @Ahmed,
Please can you explain me how do your prepare effective report if you select companies from different economic systems/countries? keep your report more precisely and concisely.
In favor of meaningful analysis, I suggest you to select both companies from the same country/same economic environment to make your analysis more meaningful,. You may chose Emirates Vs Etihad Airways.
If you have a question, feel free to ask me.
Regards,
Ali Farooq
OBU Registered Mentor, ACCA member USA Chapter and CPA USA.Mr. Ahmed,
I am unable to share Etihad Airways annual reports for 2014 due to confidentiality issue. I can access to financial information because of strong reference inside Etihad Airways. You may search for Air Arabia Sharjah based Airline.
@trephena said:
@akonda if they are both based in the same country then the PESTLE differences affecting them should be minimal. However as you have mentioned airlines a couple of tips for evaluation – try to tailor your ratio analysis to the business (this applies of course to every business) – with airlines revenue per passenger kilometer (or mile), load factors, aircraft utilization are fairly important so DON’T try a text book approach here. In fact don’t even think about doing the quick ratio – service industries don’t tend to hold trade inventory by definition of being a service industry so it is totally pointless.When doing the business analysis you may want to look at the cost of fuel as this is significant cost and fluctuations in its price and the dollar can really impact on profitability. Other things that may account for differences in operating costs is whether the airlines buy or lease their aircraft and the age of the aircraft (new planes are more fuel efficient). And also of course a short-haul operator will tend to have higher operating costs in this respect (just like long car journeys are more fuel efficient than doing town driving). Normally the annual reports will have all the seat/load factor type and revenue per passenger km info so go through and extract anything that is useful. Try to get a feel for the industry by reading the CEO and directors’ reports and that will help you to understand their strategies and focus
Hope that gives you a few ideas. 😀
Very useful indeed! If we chose a comparator with a similar strategy would it limit our analysis?
@darkangle5 -thanks for reminding us of that as I do forget what I write where! 😀
A good question. As it would probably limit choice even further – I think you can use companies with different strategies and use these to your advantage in your critical analysis when doing your evaluation. (Of course you cover some of the main factors in a more generalised way in the limitations section). For example all airlines (unless state run) will seek to maximise load factors but this is probably more critical to a low cost airline like Ryanair. British Airways probably tries to maximise revenue per flight in terms of offering different levels of service -a business class seat may cost 2 or 3x that of economy and a 1st class 5x as much. There can also also be some diversification into package holidays and selling hotel accommodation by some airlines so remember to bring this in if appropriate.
Remember too that some airlines such as those in the Gulf States not only benefit from very low cost fuel prices on their outbound flights but because they often have the backing of the rulers of their country they are not quite so commercially pressed as other operators…(I hesitate to use the expression ‘vanity project’ but they have the benefit of low shareholder pressure – if you get my drift!)
A final aspect you could cover which though not directly under the control of the airline is the ‘hub effect’. Paris Charles de Gaule, Schiphol, Heathrow/ Gatwick and Frankfurt compete as the major European hub from the USA to the Middle and Far East so may be worth researching as a factor that may impact on passenger traffic. Governments are often involved in providing elements favouring their hub e.g. rail connections etc or even more direct promotion. (Not all of these considerations are necessary for a pass but could help if you are after a higher grade) 🙂
@trephena
Thank you, I can’t express in words how much I appreciate your efforts in giving such detailed explanations and precise insight 🙂Lol @ the vanity project 😀 😀 But you are right!
Umm so if I chose KLM, what competitor will suit best?
Thanks again 😀
@darkangle5 – probably British Airways or Lufthansa but certainly not Air France. This is because you would be best off choosing a company from a different partner alliance.
‘The World has got bigger'( do I sound like a commercial?) If this all sounds cryptic take a look at:
https://www.staralliance.com/en/member-airlines
https://www.skyteam.com/en/
https://www.britishairways.com/en-gb/information/partners-and-alliances/oneworld
@fathima – I am not ignoring you but I will have to think about this one – couldn’t you do T17 instead? I am not being facetious but T17 is currently such easy life – so much so that my ‘insider’ on the marking team has said they will have to make it tougher to pass by changing the title a bit! But before they do my advice has been go with T17 as it is so straightforward!@Trephena,Thank you and God bless you!
Hi,
Just came across this from British Airways annual report 2014 Pg13
“Corporate Governance
As the shares of the Company are not listed, it is not required to comply with the UK Corporate Governance Code. However, as the Company
continues to be an issuer of listed debt it remains subject to certain provisions of the Companies Act 2006, Listing Rules and the Disclosure and
Transparency Rules. In order to comply with these provisions, certain information about the Company’s corporate governance is detailed in this report.”Can I still take it as a competitor with KLM, and vice versa?
@darkangel5 – the clue here is that you are looking at the Corporate Governance statement that requires UK listed companies to comply with the UK Code on CG. BA is not listed on the UK stock exchange so by definition is not required to comply with the UK code.
It is actually owned by International Consolidated Airlines Group, S.A., (shortened to IAG), which is is a Spanish-British multinational airline holding company based in London, but and with its registered office in Madrid, Spain. It also owns Iberia the Spanish Airline. As KLM is not owned by IAG then you should be fine in comparing the two companies.
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There is a new rule out there for topic 8 to only choose from given four industries. I may choose Emirates Airline but i am very confused which competitor should it be. CAn it be outside UAE? like Qatar Airways? Any suggestions?
@asalman1
Yes, you can choose any international airline outside UAE such as British Airways, Air Arabia, Pakistan International Airline etc. Search on internet for listed airlines and compare any.
Regards,
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Thank you for the prompt reply. I am having a problem finding the annual reports of Qatar Airways and when i go on Eithad they dont have 2015 and 2014 financial annual report. So i may go for Air Arabia as their Annual reports are available but i am confused if they are comparable enough with Emirates. Secondly, is it reasonable to calculate payable, Receivable, and inventory ratios on Airline? or Should we tailor the ratios accordingly? And is this ok if some of my ratio answers do not match with the companys own calculation of ratios?
@asalman1 – you could try Gulf Air as an alternative. The main ‘problem’ with middle eastern airlines as I have indicated before is they are not so subject to financial pressures like other airlines that do not have the support of the oil revenue of their major backers e.g. oil sheikhs and rulers. However this can make for an interesting and enlightening business analysis. Gulf Air has an interesting history having initially been supported by the UAE rulers before they set up their own airlines (Emirates and Etihad). It had been making losses but has undergone a strategic review and seems to be making good progress.
Regarding calculation of ratios – these should always be tailored to the industry and as I have indicated time and time again it is totally pointless in calculating quick ratios for service industries. Load factors , revenues and costs per passenger mile, profit per employee are much more relevant. Look at how the airline industry measures itself by researching relevant Key performance indicators.
I actually think it may be better to use the airlines own calculated ratios for some parts where you encounter a wide variation with your own figures -justified on the basis that the industry is very complex and operates in multi-currencies, engages in forward contracts and currency hedging. Why not put their figures alongside yours in the spreadsheet to show you have tried and indicate the problem in both the limitations section and where appropriate when doing your evaluation?
[I am assuming you are doing T8 – I have indicated on the T15 topic forum that airlines (and other complex industries such as gas and oil exploration) are not suitable for T15 because of the nature of their operations and the intricacies of the ways they manage cash flow and working capital through complex financial modelling]
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Thank you for the reply
Very helpful.
Yes i am woking on topic 8.
I have tailored and added Specific Ailine ratio. I am going to do at least 11 ratios hope these are going to be enough. Although didn’t added Inventory days and Receivables.@asalman1 – The important thing is to really focus on the business models and use them to guide your financial analysis. Do not rely on just calculating ratios and telling the marker that this or that has changed and making statements of the obvious. Your role in the financial analysis / ratio section is to provide detailed reasons of strategic factors (management decisions) or business environmental factors (SWOT & PESTLE factors) that EXPLAIN what has gone on to influence and impact on the company.
For this reason I strongly advise all students attempting Topic 8 to spend time researching the industry sector their company operates in and to read the CEO statements/ directors’ reports to shareholders for the last 4 years BEFORE they start their financial analysis
Hello,
I have chosen Topic 8 for my RAP project and for my research I have chosen Qantas as my main company and Virgin Australia as the comparator.
I have only been able to find the consolidated accounts of both the companies in their respective annual reports. Now doing the research on the whole group by using their consolidated accounts will make things a little complicated, that I can understand, but I am left with not much options.
I tried using different airlines but in some cases either the year end dates differed, the currencies differed or just that the standalone accounts were not available.
I just want to know am I following the correct approach and what points should I be bearing in mind during the research especially considering the amount of time that I am left with.
Regard,
Arun.
Could someone share their company selection for topic 8?
I just found out the companies i’ve chosen had different reporting period, and they’re in the airline industry. So, i may have to adjust the figures in order to compare them, this would be quite difficult and i want to avoid unnecessary inaccuracies in the process.
Anyone has some good examples of company choice i could have a look?
Many thanks in advance!
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