Using an AIRLINE for T8

Also i don't want to take risk using a company where i can have issues regarding currency or year end issues, can anyone please help me with who can be a domestic competitor for Ryan air or easyjet or british airways?

Hi, can i use Air canada with westjet as it's competitor?

I am not planning to escape anywhere unless there is a personal or family crisis :-)

@trephena Can you guide me? I am planning to finally take Air Canada and Westjet after alot of research that took the whole day. I am really confused about my companies. Please guide me.

@MahinAdnan Yes, you can but please ensure none of the company is only cargo focused. They must have passenger service too and i recommend choose the one with major passenger service income. Regards, Hammad Ahmed Qureshi – OBU Registered Mentor

I am looking at EasyJet for my RAP, and am currently torn as to who to use as a comparator. I have got the accounts for both Ryanair and BA, but cannot decide which would be better- Ryanair as a similar low cost airline, or BA in order to make the comparison with a more traditional carrier. From what I have read on here it looks like closest is best, so Ryanair? Of course their accounts are in Euros, which is an added limitation

@jenecho It is fine to chose any in same industry, but would be better if you look at their scale of operations and then decide the most close competitor which challenge your main company. Currency is not an issue as you will doing ratio analysis and most of them are measured in %, days, number etc. but where you need figures in currency such as sales you can convert them at last date of year end for your analysis purpose. Regards, Hammad Ahmed Qureshi – OBU Registered Mentor

@MahinAdnan Either you need to align easy jet year end to BA, or you can look at economic, legal and other changes such as seasonality which effected Easy JET during Oct-Sep.If there are no big changes during 3 months, then you can write in limitations of information section that there are different year ends of BA and Easyjet. In answer to this, you will write with some references or justification that economic and other factors remained much stable during 3 different months covered in both companies financial statements, hence you did not aligned year ends. It is always fine to do consolidated FS analysis but ensure your analysis cover both regional & sub companies performance and service & product performance. Please do not be confuse on companies, try and select one with a competitor which are listed for topic 8 and start work as soon as possible because from now onward, you have enough time but not much to delay. Regards, Hammad Ahmed Qureshi – OBU Registered Mentor.

@MahinAdnan - go for Ryanair and EasyJet as they are better comparators. Please take a look at previous posts as there is probably a lot of relevant advice there for you. The currency thing is NOT a major issue as you work mainly in ratios not absolute figures. DO NOT attempt currency translation as it is not necessary and in the context of dividends paid and declared currency translation becomes a nonsense

Hello everybody! Are the air carriers suppose to purchase airport slots from the country they belong? For example KLM want to land or take off in/from Schipol airport, does it mean it have to purchase a pair of airport slots? Now if they can't utilise a minimum of 80% they can sell the slots to another carrier. What advantage do they have on selling other than increasing their cash flows? And yes no longer an intangible asset so no amortisation cost! This is pretty interesting but i' am not sure if i' am going on the right track :( and oh also how does season affect airport slots?

@darkangel5 Yes, airports do purchase slots from airport owner where they want their planes to be landed, takeoff & held for some time. For KLM, yes it need to purchase slots. If they sell slots, they can improve liquidity or even make profit in case of high demand and low available slots at busy airport. For intangible asset, you need to look company's accounts for its recognition & accounting. Seasonal effects are there for airport slots. Examples are, Islamic Annual Hajj season in Saudi Arabia, where flights land in Jeddah Airport from all of world, so slots are tight. Similarly, if any country is holding a world cup and final match is in a particular city, so slots available may be limited due to seasonal demand at that city's airport. Also, tourism season depending on weather may fluctuate slots. Regards, Hammad Ahmed Qureshi - OBU Registered Mentor.

Hi, Is it advisable to do business analysis using PESTEL and Porter's 5 forces for the airline industry? I am based in India and there is immense competition between the airlines. Or should I stick with the standard PESTEL and SWOT? Thanks

Thank you sir @Hammad Ahmed, Can you please tell me how operating lease and pensions affect the gearing levels?

@darkangel5 As pensions and operating lease are obligations of the company, so while calculating gearing ration, you may add these to loans and other debts. This will increase gearing. Regards, Hammad Ahmed Qureshi – OBU Registered Mentor.

@gbtech Yes these are fine and totally your choice. I will recommend you to choose SWOT and Porter. Regards, Hammad Ahmed Qureshi – OBU Registered Mentor.

Thanks for your recommendation Mr. Hammad Ahmed Qureshi..

@hammadahmedqureshi said: @rayman417 Altering figures of competitor for comparison purpose is not difficult, it requires some effort. If it is possible, i always recommend to do it. Otherwise you can see political, economic and other macro factors whether they were up or down too much during different months compared to competitor. So, if there weren't too much changes to these factors then you may write different year ends under limitation of information section of RAP and then write how did you overcome this. Regards, Hammad Ahmed Qureshi – OBU Registered Mentor.

My main org. year end is 30 Mar and the compatetor is 31 Dec, can I use Q1 reports of the compatetor of each year for the balance sheet comparison purposes. For the P&L shall I add up the figures for example from Q2 2013 to Q1 2014 or just add up Q2 to Q4 and then extrapolate them??

This problem has been discussed on this topic forum and also many, many times on https://opentuition.com/topic/quick-clarification-financial-year-results/ So please look at the answers there.

Hi The airline I'm using was loss-making in 2012 & 2013. Should I still calculate the ratio analysis for ROCE, Net profit margin and EPS?

@hammadahmedqureshi said: @darkangel5 As pensions and operating lease are obligations of the company, so while calculating gearing ration, you may add these to loans and other debts. This will increase gearing. Regards, Hammad Ahmed Qureshi – OBU Registered Mentor.

Thank you :)

Hi Trephena, i have been working on Air canada and west jet until today when i saw your post. could you please explain why the two companies are not good comparators. I have another question: which one of the basic or diluted EPS should i use for RAP purposes and what is the best approach to get market price say for 2014: 1) end of 2014? 2) average between the price at the beginning and at the end of the respective year? thank you very much NB

If i use operating margin and net margin and ignore gross profit margin because no wider information is available, is that okay? Also i'm not able to find inventory days or payable days ratios due to lack of information on these in the annual report. What alternative ratios should i use?

@traphena, thank you for your reponse, however i have doubts about choosing easy jet and ryan air because both have different year ends and i don't want to put myself in that situation. Just like @nbobu asked, why aren't Air Canada and Westjet good comparators? I see many websites comparing them and there is alot of comparative information available online. Why do you think they are not good companies?

@coco78 - the fact that your company or its comparator has been making a loss is an important part of your analysis -what factors caused the loss? How has it turned this around? Answering these questions and including good graphs to show the trends is ESSENTIAL. The key here is producing good graphs and researching well to explain exactly what has gone on over the 3years

@nbobu - the purpose of a comparator is to assist your evaluation and analysis. The latter is about relating how a company has (or has not as the case may be) exploited strategic strengths, seized opportunities in its business environment and overcome weaknesses and how environmental factors (I.e. PESTLE factors) have influenced management decisions and direction. Differences in performance between the 2 come down mainly to this. If you choose companies that operate in different markets then their strategies are going to be different as well as their business environments. I suspect if you look at Westjet their mission statement is to be the best low cost carrier in North America. I doubt very much that this is Air Canada's mission statement (or that low cost even enters it). So straightaway the strategic direction of the 2 companies will be angled differently. If you look at their route maps then you will see Westjet has very few destinations outside N.America and the Caribbean whereas Air Canada operates globally. Their target markets, customers and business environments are not therefore the same. It is entirely up to you which companies you choose but if your analysis revolves mainly about talking about ratios and you ignore strategic and environmental factors you will not fare very well at the hands of the marker. Comparing like with like makes it easier to avoid this pitfall. You can of course continue with your two companies but in answer to the direct question of which to choose at the very beginning I think Ryanair and Easyjet are better comparator as they have more similar strategies, markets and business environments With EPS again a comparison should be like with like. Share prices are normally available on the stock exchange where the company is listed.

@MahinAdnan. You really need to read previous posts on here and apply things in context. I have mentioned many times on our forums how you should tailor ratio analysis to the relevant industry and why it is totally pointless calculating any inventory ratios or trying to differentiate between the current ratio and quick ratio for any service industry (which by definition includes airlines). I have now explained above the inherent problem of matching Westjet with Air Canada (two North American low cost carriers would be better) or for Air Canada another GLOBAL N. American airline. Kellann achieved an A and chose Ryanair and Easyjet and thanked me for my advice in helping her achieve this. I am not saying an A for Westjet and Air Canada is not possible but it would be harder to do a good objective evaluation and valid comparison which is very necessary for a higher grade and a student is more likely to produce a RAP which markers describe as 'death by numbers' if their comparators are not well matched. This is because they can't find any valid reasons to account for performance differences beyond looking at the financial statements.

Thank you very much Trephena. I looked at west jet mission St-t: it says by 2016 they want to be 5 most successful international airline in the world. They pride themselves in being canada preferred airline and put lots of focus on customer experience. Which is different from low cost carrier- they do not put so much focus on that. And it looks like they do aim at being international Would United airline out of USA be a good comparator. Both fly global, based out of North America and are part of star alliance. Usd Currency impact will be limited only on air canada cost side and revenue pick up. The ifrs vs Us gaap will differ- I will note that in limitations. I would prefer to stay out of Europe as I live in NA and expect I will need to spend lots of time working on pestle if European airlines are chosen etc. I am kind of running out of time. thank you!! Nb

I get what you're saying @trephena but again i wonder that how come Air Canada is compared everywhere with WestJet. if they are not competitors, why compare them? if you search, everywhere Air Canada is compared with WestJet and that makes me question why WestJet cannot be compared with Air Canada. Their mission statement is different which is "Connecting Canada and the World" but currently Air Canada is aiming at lowering their costs as their costs are increasing and their profit margins are not as high compared to other companies including WestJet. whereas WestJet is performing great and expanding their business slowly.

@trephena @darkangel5 hi, Thanks for your supporting comments so far guys. I've been following this thread for a while. I was doing Ratio analysis for QANTAS and Virgin airways, problem is couldn't find some figures for some ratios. Like, Cost of Sales figures is not given in FSs, so i cant calculate Gross profit accurately, similarly i cant calculate inventory days ratio and creditors days ratio coz cost of sales figures isn't shown in FS. Although there is a long list of Expenditures mentioned there, still i don't know exactly at this stage what accurately is included in cost of sales figure. Need some helpful suggestions. Also do suggest if not these ratios, what other ratios can be used instead. Thanks!

@trephena @darkangel5 and i know you have explained this in previous posts, but i really need a Specific alternative to do ratio analysis. Thanks!