Using an AIRLINE for T8

@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.

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.

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.

@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.

@darkangel5 – Aircraft utilisation refers to the usage of aircraft and is often expressed as the average daily hours aircraft are in flight – it is an asset utilisation KPI that can also be used to give an indication of efficiency.

ASK is available seats per kilometre and is sometimes called ‘load factor’ and therefore is not the same – it relates to passenger seat occupancy and is an efficiency KPI. Many of the costs for flights are fixed e.g. crew salaries and landing fees, some are semi-fixed with a fixed element but slightly variable element e,g. fuel consumption mainly depends on weight of total aircraft and distance (but also weather conditions and the altitude flown at). So the higher the load factor the more the likelihood of making a profit. However the more premium passengers (first class and business class the greater the potential profit per passenger).

@Ehsan – yes those are exactly the type of ratios that you should include along with profitability, liquidity (not stock or anything to do with inventory though!) when doing your analysis and evaluation in the main report. Starting now should give you the time to do a solid and quality report as long as you stick at it 🙂

Sorry but I have no idea what ‘blockhours’ are.