Using an AIRLINE for T8

I also read that west jet has code sharing or interlink travel with 49 airlines.

Good

As far,as ratios go you need to include the sort of KPIs the industry uses - load factors, revenue/profit per passenger mile/kilometre and get away from the whole idea of inventory and a general 'text-book approach -it just doesn't work that way for airlines! Aircraft utilisation is another important one -no money is made by keeping aircraft on the ground. Yes I can understand if you live in N.America you would prefer to avoid European airlines Westjet stating they are global is a bit wishful thinking given they only have a handful of destinations in Europe however it does emphasise how important links to transatlantic partner airlines are to their strategic ambitions- something you could focus on. As for the comments about comparisons being constantly made between Air Canada and Westjet - that's fine but bear in mind the people making them are not attempting a RAP! (And a RAP is not just about financial ratios and a comparison of increases/ decreases in them and just whether one is better than the other). A RAP as I have tried to point out is as much about business strategy and environment as it is about actual figures I.e. it is what the figures represent rather than what they mean in absolute terms.

so to quote @nobu again, would united airlines be okay to use with air canada?

Okay so @trephena i just read your comment that it's "best off choosing a company from a different partner alliance." United Airlines and Air Canada both are alliances of Star Alliance which is not okay. I know I have mostly been asking "typical questions" but i have not been able to search for them here so i ask them where ever you have replied latest. (sorry for that) So my question is: Can you tell me which is a good comparator for Air Canada then? Can i use Lufthansa or United Airlines (which are both member of star alliance) as comparator for Air Canada or i should use KLM to compare it with Air Canada? I was almost done with the project till your guidance moved me. So i don't want to change my main company which is Air Canada. what should i do?

If you have already done a lot of work then don't abandon it - just ensure you have really used appropriate ratios (some of the usuals + the KPIs as mentioned) and ensure the focus is on strategies. Look at pronouncements made by the CEO and the directors' reports and see how they have guided decisions and how those decisions link back to the SWOT & PESTLE You are more likely to pass if your business and financial analyses are good and well researched even if the comparitor companies are not an ideal match than if you have perfectly matched companies but you don't really explain what has influenced the strategic direction and the factors that have impacted on performance. So don't panic - instead refocus on what is really important. As for matching Air Canada another N. American airline with transatlantic routes but not in the same partner alliance would be appropriate ( but faling that one of the major European carriers would be fine). However as I said at the start don't ditch Westjet if your work is nearing completion - rework the analysis and refocus iinstead

Thank you so much for the vast response @trephena. Here's a question: how do i know that i am covering all the aspects when i am doing the financial and business analysis? What extra details would i have to look into when performing my ratios and business analysis? From the appendices that i made, westjet is performing great. It has lower revenue and costs in comparison to air canada definately (where air canada has its amounts in millions and westjet in thousands) but it is growing and growing. It has good financial stability. Air Canada on the other hand, even being the best airline in north america is not performing so well. It's growing but not at the pace westjet is growing. Nor does it give dividends to its shareholders. I read the director's message of both the companies. Air canada's director wants to focus on lowering costs to gain high revenues and westjet's director wants to focus on achieving targets and growing internationally. From google research, westjet is a better airline than air canada and preffered more. So what details would i have to put in to make my project stand out? How do i have to change my strategic direction? Can you guide me? I'd be really greatful!

You spend time on doing a really thorough PESTLE and SWOT. Read ALL the CEO and directors' reports starting with the one for the year preceding the first year you are starting with as reports often set out future plans. Try to outline these plans (in your draft notes) and see how they have built up. You hopefully should see in part how the companies are building on strengths, overcoming weaknesses (essentially you are determining the SWOT factors) and identify what environmental factors have been particularly relevant. For example if you have read through this forum you will see I have mentioned the falling cost of oil in 2014 and 2015 (gradually rising now though) - which will have decreased costs considerably. When it comes to this cost (again as I have pointed out elsewhere) newer planes tend to be more fuel efficient but longer flights proportionally use less fuel per mile / kilometre flown (like long car drives are cheaper per mile than short trips). Although the requirements and word count probably only allow for SWOT & PESTLE in depth analysis of the main company in your main report if you do a draft one for the comparator (much of the PESTLE should be the same) in your notes or as an appendix you will get a much better 'feel' overall for both companies operations. Then, when you do your written financial and ratio analysis you try to link the results to these models to really show how they have affected and influenced the performance and results. You will have to use references to support your statements so look at articles about your companies in the business press (Forbes, Huffington Post, New York Times etc.) If you do this sort of research analysis and evaluation and refer to some relevant KPIs you will build up a 'quality' analysis (and you won't feel the need to cite a bucketful of numbers either!) as you will really be starting to understand what your companies have been up to in the last 3 years, the opportunities they have seized and challenges encountered -one of which for Air Canada will be Westjet's growth. Also for this pair consider how they have chosen to finance their fleets - lease or buy? How has this affected operating costs? - depreciation and lease payments and the amount of capital actually employed in the business, balance sheet strength, gearing etc. As I said several posts back a text-book approach is not appropriate for this industry as it requires a more sensible foundation!

Is it ok to compare BA and Lufthansa? and how much ratios are enough? and wha about using porters 5 forces than PESTEL? Can i use Porters five forces?

@ricko - please read the posts on here from the beginning as I don't have the time (or energy) to repeat everything (and also because a degree is about working somethings out for yourself) Regular readers will know that I am not a great fan of Porter's 5 Forces as a T8 model. If you read my posts on this page you will see how I have suggested that SWOT and PESTLE are very useful and usually lend themselves better when exploring and explaining the changes in the trends (not so obvious and easy to do with the P5Fs model).

Hello, I am preparing to write on topic 8. My choice of companies are american and delta airlines. With regards to the Industry Classification Benchmark (ICB) requirement by oxford brookes, I do not know what this is all about or how to applies to my work. Please Help, Jibao

@jbao - please see this link helpfully supplied by the Learning Luminarium which was originally posted on our forum about choosing a topic for T8 &T 15 from P32 onwards https://learningluminarium.com/wp-content/uploads/2015/12/Topic-8-Three-New-Industries.pdf

@trephena Hi, thanks for your pormpt replies and guidance. My que is, can i use asset turnover ratio to explain aircraft utilisation? Is that ok, or both are different and need to be calculated differently.

@Usman Saadat - the two are not quite the same. Asset Turnover is a financial ratio and brings in all assets including buildings and might be skewed if the company leased rather than owned their aircraft. Whereas aircraft utilisation is an efficiency KPI and refers to the average percentage of aircraft usage (whether leased or owned) - that is when aircraft are actually in service. It reflects on various departments performances e.g. how well aircraft are serviced as unscheduled maintenance would push the ratio down as would having too large a fleet for the routes flown (tying up too much capital in expensive planes or commitments to lease payments). Although arguably both are efficiency ratios aircraft utilisation is more relevant (if it is available) for monitoring operational performance and useful as an appropriate more specific measure of assessing how well capital is being used to generate income than the Asset turnover.

1. Should KPIs and ratios like aircraft utilization and load factor be calculated in appendices right? 2. If my company leases aircraft to other companies and gain revenues this way, should i consider it under resource utilisation? 3. If i submit in november session, i can still use annual reports or i would have to adjust annual reports by including quarterly results?

You normally cannot calculate most KPIs yourself as you probably won't have sufficient information. Look in the annual reports for them and load them as an appendix. Here are the type of things BA produced (and hopefully still produces) but you will have to look for the most recent ones. https://www.britishairways.com/cms/global/microsites/ba_reports0910/financial/opfin_stats.html No adjustments are necessary if you follow the RAP rules on financial statements.

Thank you and can you also guide me what ratios to calculate for airlines? apart from operating margin and net margin, i calculated current ratio, debt to equity ratio, interest cover, earnings per share and P/E ratio. what other ratios should be calculated? and which ones from what i have calculated shouldn't be included? and i'm re-writing my previous question again: If my company leases aircraft to other companies and gain revenues this way, should i consider it under resource utilization?

Hi @trephena I'm writing on T8 using Ryanair as a case study and Easyjet as a comparator I'm in part three of my RAP and I'm getting stuck of how to structure my words in other for me not to missed the point and also not write too much as the word count is limited to 4500, just your candid advice on how best to structure my ratio analysis since it is a 3yrs performance I'm looking into and that of its competitors 1 would it be better for me to do analysis on a straight 3years trend of the coy performance? e.g The above graph clearly shows that Ryanair outperformed Easyjet in terms of higher operating margin, as Ryanair operating margin fluctuate from 14.7% in 2013 to 13% in 2014 and 18% in 2015 a year on year increase of 38.5% btw 2014 ad 2015 a turning point after a three-year decline in growth, as prophecy between 2012 and 2013 shows there was a decrease in growth of 5.5% and the trend continue between 2013 and 2014 where it suffer a further decrease in growth of 11.6% although Ryanair outperformed Easyjet in terms of higher operating margin it could be observed Easy jet has witnessed a steady increase in the last 3yrs first time easy jet recorded a double-digit margin since 2002 from 11.7% in 2013 to 12.8% in 2014 and 14.7% respectively in 2015 a growth of 9% btw 2013 and 2014 and a growth of 15% btw 2014 and 2015 fiscal year whilst highlighting the reason for the increase such as passenger volume, or decrease in fuel cost, rise in flight ticket and increase in ancillary revenue etc. or 2 to do a year on year performance analysis such as e.g 2013 at 14.7% operating margin as a proportion of revenue is lower compared to 2012 15.5% operating margin a drop in growth of 5.2% there was an increase in sales revenue of 11.2% in 2013 which is slower than the increase of 12.4% in operating expenses the increase in op expenses is largely due to 18.3% increase cost of fuel which represent 45% of total operating cost compare to prior year 43% Other factors also include growth in the airline which reflects 7.5% increase in op expenses per passenger capacity in 2013 fiscal year, exchange rate differential attributable to the cost of operations total operating profit went up by 5% to €718m 2014 will also follow, and at what point do I bring in the comparator company? having in mind that I have another 4 or 5 ratios to write about such as the KPI this is just to give you the idea of what my problem is and I hope you will be able to proffer a lasting solution and remove the doubt in my mind.

Hello guys, Just a quick clarification, am kind of confused. The financial year of a company from 1st April 2014 to 31 March 2015, would you say it as FY 2014 or FY 2015? Thanks

I@abolorelegacy -you asked me to be candid so I shall be. Although a 3 year review is better IMO, that first paragraph of the first version is doomed! You just do not overwhelm the reader with percentages or they drown in a sea of numbers! Remember too the marker is not blind so they can 'read' the trend from the graph (as long as you show it with the earliest year on the left and the latest year on the right) Strip out all those unnecessary numbers first. I think you can generally go for a 3 year period review (rather than year by year) but if something significant happened in a particular year then bring it in. So you might start with 2013 and comment something like " operating margin which slipped slightly back in 2014 has improved by 3.3% over the whole period. The market fall in the price of oil being a major input cost has contributed to this (reference required) [ give more reasons if you can + references]. This turning point follows a 3 year decline in profitability [ I don't know what decline in growth you are really referring to as it is not clear and all those numbers do not help! - decline in passenger volumes? Revenue? Operating margin?so a need to express yourself clearly. Next bit: although Ryanair outperformed Easyjet in terms of higher operating margins overall, with EJ struggling previously to achieve a double digit operating margin, EJ has experienced steady growth over the 3 year period with an OM of 14.7% in 2015 (an improvement of x% since 2012) mainly due to.... (referenced reasons) As you will note I am using numbers sparingly to HIGHLIGHT key points That way the reader has a much better picture of what has been significant and does not lose sight of what you are trying to get across Start Part 3 with your models and KPIs in the business analysis and then link the financial/ratio analysis to these. Discuss a ratio for main company, then do comparison as above with other company -you can usually show both companies' ratios on same graph or chart.

In addition to the above comments, i'm kinda struggling to choosing which ratios to use in my analysis... btw, my main is easyJet and comparator is Ryanair. Please please advise!

@trephena thank you so much for the prompt response! this your advice has just given me a head start and I will incorporate in my RAP just to draw your attention as most of the growth would be openings of new base and route, delivery of new fleet which enhances its operation capacity also revenue growth would be combinations of non-schedule flight product mix such as hotel accommodation, car rental service, on flight sales of bus and train ticket using POS, commission on sales through its website. lastly, I wish you can be my mentor or perhaps because of your sensitive position recommend someone who can be a mentor as most of the mentor I have been fortunate to meet are either base in Dubai or Pakistani or united state who don't have little knowledge of European market.

@trephena said: I@abolorelegacy -you asked me to be candid so I shall be. Although a 3 year review is better IMO, that first paragraph of the first version is doomed! You just do not overwhelm the reader with percentages or they drown in a sea of numbers! Remember too the marker is not blind so they can 'read' the trend from the graph (as long as you show it with the earliest year on the left and the latest year on the right) Strip out all those unnecessary numbers first. I think you can generally go for a 3 year period review (rather than year by year) but if something significant happened in a particular year then bring it in. So you might start with 2013 and comment something like " operating margin which slipped slightly back in 2014 has improved by 3.3% over the whole period. The market fall in the price of oil being a major input cost has contributed to this (reference required) [ give more reasons if you can + references]. This turning point follows a 3 year decline in profitability [ I don't know what decline in growth you are really referring to as it is not clear and all those numbers do not help! - decline in passenger volumes? Revenue? Operating margin?so a need to express yourself clearly. Next bit: although Ryanair outperformed Easyjet in terms of higher operating margins overall, with EJ struggling previously to achieve a double digit operating margin, EJ has experienced steady growth over the 3 year period with an OM of 14.7% in 2015 (an improvement of x% since 2012) mainly due to.... (referenced reasons) As you will note I am using numbers sparingly to HIGHLIGHT key points That way the reader has a much better picture of what has been significant and does not lose sight of what you are trying to get across Start Part 3 with your models and KPIs in the business analysis and then link the financial/ratio analysis to these. Discuss a ratio for main company, then do comparison as above with other company -you can usually show both companies' ratios on same graph or chart.

I ' am seriously your fan, I follow all your comments! Can you please please give one example on how could we use the KPIs and where do we put that in?

@abolorelegacy - I do not act as a mentor but offer advice to all students on the forum. (At Open Tuition we recommend The Learning Luminarium, which has a high pass rate [100% for the report in P31 - although they themselves admit that this is both unsustainable and exceptional and they would anticipate a pass rate of about 90% to be realistic going forward] as offering a high standard of mentorship. Admittedly they are based in Singapore rather than the UK but offer a quality and professionalism). Your explanations are fine as long as you include them so that the reader can pick up on this and you show from where you have extracted this information by means of references. @darkangel5 - as mentioned in a previous post Part 3 should start with the Business Analysis (models and KPIs) which will then help put the financial analysis into a better context especially if when discussing ratios you cross refer the results to the models and bring in the KPIs if and when relevant. As examples of KPIs and applications of them take a look at p.5 of the British Airways plc Annual Report and Accounts ended 31 December 2014 (I can't get it to link unfortunately) but you should be able to find it easily if you google it. Whether you are doing a RAP on BA or not, the written part of this report may give you some ideas of areas you could cover in your analysis.

Thanks a lot @trephena, but just to be clear, should I include the KPIs in SWOT or write it separately as a separate heading apart from the SWOT analysis? I have just been reading all this while that I feel I should start writing now!

@Trephena i'd be grateful if you reply to my question too. If my question is a typical one, again i'm sorry but i wasn't able to find it anywhere. Please can you tell what ratios for airlines should be calculated?

@MahinAdnan - it is difficult to be prescriptive and state EXACTLY which ratios you should use. I try to get the message out that whatever companies are used you need to avoid a text-book approach, generalisations when it comes to explanations and making comments that read like the notes to the accounts. That said you must talk about profitability, liquidity (but avoid most inventory measures), gearing and investor ratios. For an airline bring in some detailed revenue analysis - maybe beginning with this and referring to those KPIs that specifically deal with aspects of revenue. @darkangle5 -again it is difficult to be prescriptive about how exactly to arrange work when it comes to detail -it is what 'works' best where when organising your ideas and approach so your work 'flows'. However the SWOT and PESTLE should be distinct sections in the report and the KPIs and discussion of revenue would come after these. (Note in the BA Report referred to above how they have identified certain risks -depending on whether these are internal or external, most of them constitute weaknesses or potential threats)

@trephena you recommend pestle. However if both airlines are of the same country and function in same environment, how would pestle be useful? Shouldn't i use porter then? Also the financial statements of the airlines are also available from google finance. My question is that a lot of things differ from the financial statements available in annual reports. Like the operating expense amounts both differ but the end result is the same. Which financial statements should i follow?

True doing PESTLE for companies which may operate in the same geographic areas would be very similar however it is how those companies react to those factors that you discuss in the analysis (mainly for the main company). How companies react to innovations in technology for example. Most airlines allow online check in, seat selection for example but technology may be linked to loyalty programs, target marketing and building up customer profiles through data analytics. This may give one company the edge when formulating their strategic decisions e.g. operation schedules, product offering, pricing etc. All financial statements will vary between companies that is where policies and the notes to the accounts come in to explain to the reader the basis of the figures. I am not a personal fan of Porter's as it tends to be used by students in what I call a 'backwards looking approach' to justify how the company has arrived at the current position, whereas SWOT and PESTLE are more dynamic IMO as they encourage a more forward thinking approach and assess not just what has gone on but the direction the management intend to take the company in. The models are intended to help you put together a good reasoned analysis and assist in following management strategies and decisions when doing the evaluation so again IMO Porter's is of limited use in the RAP.

Okay. So i just explained sales revenue and revenue growth yearly wise under financial ratios. If i have to write about a kpi that is relevant to revenues, do i add it under the sales revenue heading or i should explain that seperately? I'm confused where to add kpis.