Using an AIRLINE for T8

Hey again, i'd appreciate if someone reply my above asked question, thank you. I also have some other questions: 1. is it necessary to do operating statistics analysis of the comparator as well? like if i do a detailed revenue analysis of my main company including ask, rpk etc, and see the company's progress over the years, do i need to do the same for my comparator? do i have to do as detailed analysis of my findings as that of my comparator? 2. when i emailed obu, they told me we are basically doing "comparator analysis" instead of competitor analysis. so can i mention the word "comparator" in my research when i'm making a reference to my other company?

You need to do sufficient analysis for the comparative too, maybe not much in detail, but pretty much. Many people fail because they haven't analysed in detail with their comparator too.

Operating KPIs are used in the industry and therefore comparing companies' KPIs is always a good idea. If you just state throughout your analysis that the main company (or comparator) out performed the other company without backing it up with reasons why this happened in relation to SWOT / PEST / operational factors you are unlikely to pass Evaluation & Analysis. Comparator / competitor are virtually interchangeable and therefore do not worry about the terminology here as I doubt the marker will either - it is the detail behind the analysis they will mark you on :-)

Thank you @ehsan and @trephena. Can i use 'operating cash flow' ratio along with current ratio to analyze a liquidity scenario?

Yes you could. It may be worth looking at gearing and whether the companies lease or buy their aircraft (read the notes to the accounts) as this will impact. Although depreciation will affect operating profit remember it is not a cash flow whereas lease payments have to be made (however the company may have financed the purchase through long term loans which similarly have to be repaid). Another alternative is that share issues can be used to finance assets and dividends are only 'discretionary' - so you need to read the notes (possibly also CEO and directors' reports) and look at the figures to get the full picture !

I have some questions to ask: 1.The ratios that i will be used to do the Excel calculations and graphs needs to derive from the books and need to referenced them? and if yes where? in excel or word? 2. for the graphs do i need to write in the word like ' Figure 1: Operating and net profit margin (Appendix 2)'' and need to do a list of figures after the contents of page? (that's many words if this is a must to do) 3. Some of my ratios calculations are quite different from some websites i found that have calculated the same ratios? Is this gonna have an effect to my project? (such as ROCE, gearing ratio and trade payables) Thank you !

@trephena i will be using gearing ratios and explain all that you said however, i wasn't able to find enough information to give details on current ratio as mostly, the airline is talking about their cash flows and operating cash flows under the liquidity heading so i was wondering if i could add along the operating cash flow ratio with current ratio to give details.

@mayanisa - it does not surprise me that there is little information about the current ratio and that more focus is on cash flows. (The airline working capital model is very complex as I try to explain in the Topic 15 forum and why not to choose an airline for that topic). So yes go with operating cash flows but explain why you are taking this approach

@ trephena right, thank you for the advice!

@Steven 1. See the Ultimate Guide to Referencing. Graphs normally derive from figures from the financial statements 2. First part see the UGR ; second part - not mandatory 3. They should either be from the annual report or your own. Differences should not be material - if they are, go with the annual report (as explained above and in T15 - airline cash models are complex - read my post on this on T15 if you want to know why). It is stability in some of these ratios that is important. As long as you explain why you are taking a specific approach that should be acceptable. The Open Tuition Ultimate Guide to Referencing is found on our homepage www.opentuition.com/obu

Hi All, I am using Flybe as my main Airline and am having difficulty in producing CASK and RASK figures. Available Km are not quoted in any of the financial reports. Luckily in the FY16 result presentation they quote RASK & CASK figures in the small print, but nothing for FY14. I have searched many sources trying to find these figures or at least the available km for FY14 to no avail. Would it be acceptable to only include the FY15 and FY16 figures in my analysis and note the lack of availability in the section on problems encountered? Thanks

@mark11 - yes include 2025 &2016 figures and explain they did not announce the 2014 KPIs pubically for these (there is no legal obligation for them to do so). These figures help strengthen the analysis and if you can, make comparisons with the competitor. Look for reasons why load factors have changed and what has also influenced a ny changes in CASK and RASK

@mayanisa - I don't know if you are asking a question here and if so what. Please state it without the back quote then I may understand what your particular query is.

Sorry for not being clear. I was quoting @ehsan as he was discussing ratios with another student. I wasn't able to do that correctly. Anyways, my question was that i wanted to know how to find information on gearing ratio (specifically debt to equity ratio) for Qantas and Virgin Australia. Debt to equity ratio has been calculated in Qantas's annual report 2013 and 2014 however 2015 onward, they don’t mention it at all. In my appendices, i took out gearing ratio as total debt / total equity which is not how Qantas takes out in their annual report. They take it out on net debt and include some other complicated things including operating lease etc and do not discuss it. My mentor said that i should not calculate the debt to equity ratio the way i have done it but instead use the gearing ratio given in annual report. is that the right approach? also, even if i use the gearing ratio given in annual report, they stop providing that from 2015 annual report onward. how do i analyse the debt to equity ratio? should i separately look for information on debt and equity and combine that together? i am not able to find accurate information on debt to equity ratio. I have searched on google but all i find is other people's financial analysis who have either calculated debt to equity ratio in different ways or i find articles quoting the debt to equity the way they find in annual reports or don't mention it. I did however find some general information on Qantas's capital structure .Its all general information. But i need reasons to analyse my ups and downs in the ratios. Now I am confused for all the ratios, whether to use ratios given in annual reports (which are usually just stated and no calculations are given) or i should calculate my own ratios. And how to reason them. So i need your advice on this. My mentor also said to just make assumptions of why the ratios might be the way they are. Is that a correct approach? Also, i noticed that alot of financial analysis contradict between annual reports. For instance in 2014's annual report, Qantas talks about net debt/equity ratio. In the next year's annual report, they ditch that ratio and add up net debt/ebitda instead. Alot of times i found the information was not steady and i had to not talk about that ratio because they completely remove that from the following year. Please help.

You will have to work with the figures you can get and the airline's own calculations would be best when there are major differences. What I try to get over to students is that a good report looks at the bigger picture -it is not a case of just calculating ratios or doing a routine application of the models - it is about using all the relevant information you can find and integrating it into a 'rounded' analysis. The business and financial analyses are connected and similarly you should try to show strong links between the two. So to get back to your question and how the above and the following all fit together: Gearing is obviously linked to loan capital and loan capital in the airline business is usually connected to the need to acquire aircraft and maintain a modern fleet. The attached article is very interesting as it specifically deals with this and Qantas. https://theconversation.com/did-qantas-bet-the-house-on-the-wrong-planes-30999 So instead of fretting about not having all the gearing ratios begin your gearing section with the reliable company numbers you do have, mention the limitation of not having the latest. Then extend the discussion to the context -I haven't had time to read all of this article (I do have a job and helping on OT has to be fitted in round it!) but I suspect that Quantas may be changing to leasing aircraft and try then to link back to the SWOT weakness that this article hints at (did it purchase the wrong aircraft?). Consider also that perhaps the latest gearing ratio (you could try estimating it from your figures provided you mention that this is your attempt not the official company figure) if it shows a great reduction could be down to a change in policy on purchasing aircraft. Perhaps too it might be misleading if it has decreased considerably for the company to highlight it as it would be simply due to the change in policy not necessarily improved performance. Also this example stresses the need to follow 'leads' - what are the finance costs now looking like? What do the notes say about leases? Has leasing aircraft materially affected depreciation (after the 2014 write-down). And of course the 2014 loss was aggravated by the write-down so you can comment on that. I hope you are now starting to grasp the bigger picture both in terms of Qantas and in relation to how all the numbers in the accounts are interdependent and a good research report recognises this fact

Oh. I understand. This is very helpful. Thank You. But can i ask one more annoying question? (sorry). So, even if i use the financials provided my Qantas. What if those financials aren't available for the comparator? I leave that out then? for instance i figured that Qantas is using debt / ebitda instead of debt / equity but there is no sign of debt / ebitda by VAH. i don't talk about this from VAH's point of view?

"one more annoying question?" - haha!! You can only make comparisons if you have the numbers. Instead of debt/ebitda you may have to talk about Virgin Australia's long term loans in a different way (again explaining why you have taken this approach). Do you have sufficient to discuss and compare interest cover? Or can you discuss the lease or purchase issue for both companies? It is a case of selecting relevant information and producing a coherent report - sometimes you have to stand outside ?the box' a bit and focus on what is really significant in the industry sector and not following a tick sheet of prescribed ratios. Try to take a more 'creative' rather than routine approach - cover the main ratios as best you can but show your research skills and critical thinking and you are more likely to get a good grade.

Hello, know that I am too late to worry about my submission for period 33 on T8. I had used PEST model to analyze at country level on political stability, country's GDP on disposable income on the middle class, and statistic on tourism which might seem to have relevant impact on the mainstream Airline representing the country, but I did not frequently explain how these macro factors would benefit/drawback to the Airline, will this pose a problem for me passing this project? I was told by my mentor to use different colors on each different bar charts to demonstrate my IT skills, but with clarity on the chart details, would I still be penalized for being too colorful? I was told by my mentor not to analyze too much on the comparator because the entire Part 3 should be talking about the main company I have selected, hence I have analyzed the service rankings between the two airlines based on Skytrax Awards, 4 Ratios on ROE, Gearing, Quick/Liquidity/ PE. WTI Oil price movement relating to the boost on Operating profit. And sometimes I used the 3rd and 4th comparator on a short sentence to justified a good/bad example. Sorry I may be seem worrying this late, but have spent so much effort in the referencing from public Library/search engine and even paid $40 Turnit-In to ensure my gauge is below 5% probability towards plagiarism, getting into trouble re-amending the report again and again to almost Max word counts for all sections. Just do not want to fail. :)

@trephena, I choose a company with year end 31 dec 2016 and their financial statement will be published in April 2017. I know that rules allow me to use 2013, 2014 and 2015 financial statements, however when i am doing business analysis i have to cover latest happenings but when it comes to financial analysis i have to go back in year 2015 (as 2016 f/s are not available) so that i can relate changes to financial performance with happenings in 2015. I am little confused about whether i understand this right? will financial analysis looks out of context, and how i will be able to relate changes in financial performance with business analysis since the years are different? Thank you very much for your support.

zhixiang85 -As you have observed nothing can change things now! I cannot say whether any student will have passed or not all I can say is that if they have followed my advice they will have increased their chances of passing. I have suggested many times that the models/business analysis for T8 should be applied and done BEFORE the financial analysis as they set the scene. The management strategic decisions depend on the SWOT/ PESTLE/Porter's and those in turn impact on the financial performance. It is reasoned analysis that gets a pass and showing how the company has arrived at its current position. Statements of the obvious (just commenting on increases /decreases) and just repeating figures from the graph is not going to get a pass. There is no problem with colour provided you are consistent. If you choose for example green for the main company and blue for the comparator stick to those throughout. This is because the narker needs to be able to grasp the situation quickly and if they have to stop each time to work out which company is which this will interrupt the flow of assimilating your work. It is far better to produce clear well labelled graphs than aim to paint a rainbow to help them with this. As long as you didn't go down the route of just saying one outperformed the other (a statement of the obvious that the graph will have already shown) and by how much (again if the graph is clear the marker can see this already) without suggesting why then you should be ok. Universities do not just rely on Turnitin - they are aware that students will use a number of techniques to try to bring down the score (word substitution a bit of rephrasing for example). OBU also looks at the content of presentations and spreadaheets as they know some mentors supply templates (be wary if a mentor offers these - they will call them 'samples'). Several mentors have been banned for this and OBU says it is determined to stamp this practice out and will certainly not hesitate to remove more from the list. I suggest you now chill as it is too late to change things now.

@saan With an airline the main issue in the environment that is volatile are exchange rates and fuel prices. Airlines get round this by hedging and forward buying on the futures market. There is always a time lag between business environmental factors influencing management strategic decisions and the impact of these decisions on financial performance and this is particularly so with airlines (where it can be several years e.g. decisions to acquire aircraft, open new routes). I think when you get down to it the problem you have outlined will mainly disappear.

@trephena Thanks for all the pointers, they are all really helpful tips for everyone doing T8. Glad that I had placed the PEST-analysis before drilling down to the financial ratios of the company/comparator. There were about 40 additional references (No Wikipedia/investopedia) made throughout to support the reason for company segments up/down %. All charts/graphs in my excel were made from scratch. I had worried unnecessary because in an event of resubmission due to a strict marker would clash my revision for June 2017 exam, but I should chill and certainly make contingency plan. Glad to came across Open Tuition, it's certainly helpful.

@trephena You have mentioned a very good point regarding environment, management decision and impact on performance. Thank you. Cheers.

@trephena Should I only include latest "annual" financial statements in financial analysis or latest interim f/s as well? Thanks.

Just the latest Financial Statements unless there is something particularly pertinent in the interim ones or announcements that support strategies. Then they can be really useful to strengthen the evaluation if used in this way.

@trephena Very well. Thank you very much.

Dear OBU mentors, May I ask one question, for the submission period 34, May 2017. Can I use the 3 period financial statements from the year 2013, 2014, 2015 ? Because for 2016, the FS of airline industry that I choose have not been issued yet.

The rules are set out in the Information Pack. The 90 day rule means that you have to use the latest statements that were available at 1 February 2017

Ok thank you trephena.. May I ask one question again ? For the financial statements, may I download it from Bloomberg database ? rather than from the company's own website.