Using an AIRLINE for T8

I do not particularly like making recommendations / suggestions for companies and comparators (in fact I don’t actively encourage people to do Topic 8 as I think it is a boring, formulaic and unimaginative topic in spite of being the most popular). However Ryanair and Easyjet are frequent choices followed by American and Delta , Luftansa and BA and Cathay Pacific and Singapoore Airlines.

I do suggest however that you read through this forum to avoid the pitfalls of attempting a text-book type of analysis which just does not work for an airline or overloading your analysis with unnecessary percentages and figures that will result in your marker suffering ‘death by numbers’.

Provided you can get the relevant financial statements I don’t see why not. Mention any limitations of valid comparisons in the data limitations section.

Do NOT engage in currency translations these are completely unnecessary as by using ratios, comparisons may be drawn on the basis of comparing straight ratios. (In fact there are grounds for failing on understanding if you do translate currencies as it shows you don’t understand the purpose of ratios!)

The annual reports should be used selectively and can provide a,wealth of information if used appropriately. The chairman’s / directors’ reports are extremely useful for discovering strategies used or future plans. Use them along with the financial statements to understand and help explain the changes and trends in performance. The markers do NOT like comments that are just based on statements of the obvious or say things like ‘operating profit decreased because administrative and marketing costs increased’ and read like notes to the accounts. They want ‘proper’ reasons -if marketing costs have increased then why?

I have,also tried to impress on students that you should bring in KPIs used by airlines themselves – discuss such things as load factors, revenue/ costs / profit per available seat kilimetre (ASK). These KPIs are also in the annual reports.

Finally you will be expected to research more widely than just the annual reports and supplement some of the commentary with articles from the business press.

@tomphan – a common error with this topic is to do ratio analysis rather than a proper business and financial analysis. The latter involves looking at connections in the data and the impact a change in one area will have on another. You cite depreciation as a problem and expect to find the answer in an article somewhere – this is just not going to happen! Instead stop and think -what is depreciation, who decides how much it will be and how does it relate to other aspects of the business?

Then put this in the business context: aircraft cost millions of dollars (the good news is that with proper maintenance schedules they will last at least 15 -20 years)- so how is this going to be funded? How is this going to affect gearing and liquidity? An airline has to choose – lease or buy aircraft? How does this affect cash flow? Even if buying it does not go out and spend the millions in one go -there will be stage payments. Finally then you arrive at depreciation policies having considered how much operating profit is affected by any lease payments and maintenance. PS Unlike most assets you will probably find that dep’n is largely governed by flying hours (as is maintenance).

(When looking at gross profit also remember fuel is a major cost and newer more advanced aircraft are more fuel efficient)

So you need to think about how this capital intensive service industry ‘works’ and build up a proper picture of the industry -read the director and CEO statements to shareholders find out and read behind the notes to the accounts…. and finally burn your text books -the airline industry does not suit a textbook approach. Your references will come from linking reasons back to the business environment (economic and technological factors) and the annual reports (page numbers) but they need to be accompanied by sensible commentary that explains the picture appropriately.

I think if you consult the 2016/2017 Information Pack you will find the same sectors apply however you must use the latest financial statements otherwise it is an automatic fail.

Start Part 3 with the business analysis and application of the models as these factors will have influenced management decisions and therefore impacted on performance. The models are intended to help and guide the financial analysis and there should be links between the business and financial sections if you have done the RAP property. Ensure your graphs are clear and don’t use unnecessary and excessive numbers in the text unless you want to kill the marker by boring him/her to death (for which you will be punished with by a fail).

The usual answer is to trim lots of the ‘tosh’ from the beginning (parts 1 & 2). As you haven’t done much for this then just don’t put in a lot of superfluous material – simples ! 🙂

I have written elsewhere that markers are unlikely to be the least bit interested in reading in the report why you (and the 99 other students whose work they are marking) chose the company and topic so save it for the SLS. Nor do they need some discussion of what primary data is nor its merits/defects when you are not even using primary data in your work! When it comes to discussing limitations of data gathering stick to what is relevant and the list of sources used should be succinct.

Markers need facts, detail and explanations that directly relate to the main study (part 3) to form a judgement on whether you have achieved the assessment criteria, not drivel, and have a limited time for marking, so are you surprised there is no mention of doing all the superficial material in the Information Pack?? Very brief company introductions and why they make good comparators will be sufficient for example.

The other usual way is to use the word count efficiently (and not bore the marker) by ensuring you have good clear graphs and charts and don’t then repeat too many numbers/percentages in the text (markers are not blind and stupid and are fully capable of seeing a trend from an appropriate graph and cannot assimilate figures thrown at them in the text at the speed of a machine gun!).

It is good linkage between the SWOT/PESTLE and the financial analysis that is important so good that you are going for depth and looking at worldwide trends.

I trust you are using useful KPIs too -and don’t even consider calculating the Quick ratio ( I know one marker who says when she sees this for a service industry she realises how little the student has bothered to think about the nature of the business or understands the basics of analysis!!!). Ensure you understand the Assessment Criteria (Appendix A) too as she reckons the majority only bother to look at this when they get their feedback sheet AFTER they have failed! 🙁

The analysis should comprise both financial information (revenue, profitability, liquidity, gearing and investors ratios) and operational and efficiency ratios e.g. revenue per ASK, profit per ASK, load factors, aircraft utilisation (related to how much time the aircraft are in the air). The basic data for this normally will be in the annual reports – I cannot state categorically for Wizz as I have never looked at their financial statements.