British Airways Case Study

CONTENTS

1. Terms of referenceÐ'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'....3

2. Executive summaryÐ'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'.......3

3. IntroductionÐ'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'.......3

4. FindingsÐ'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'......5

4.1 RATIOS.................Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'......5

1. Profitability Ratios

2. Efficiency Ratios

3. Liquidity Ratios

4. Investment Ratios

4.2 SWOT AnalysisÐ'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'..............7

4.3 PEST AnalysisÐ'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'....Ð'...Ð'.......8

5. ConclusionsÐ'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'.......9

6. BibliographyÐ'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'....10

7. AppendicesÐ'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'...Ð'......11

Appendix 1- Ratio Calculations for period 2001-2005

1. Terms of reference.

On the instruction of British Airways the financial analyst was appointed and asked to analyse the financial position and report on the future performance and profitability of the organisation as well as to explain what has influenced the ratios. The report has been handed in by the company's account department. In order to fill up the demand of the present report, some financial ratios from the previous years have been used (profitability, liquidity, efficiency, investment, gearing and growth). To give a clear overview of the airline the financial analyst will also examine the internal environment within the airlines operate (SWOT) and the sector of the industry, in which the company performs. Additionally, the report includes implications about external factors influencing the organisation (PEST).The independent investor will then consider whether it will be profitable to invest with British Airways Ð'Ј250,000.

2. Executive summary.

The financial reports of British Airways for the period from 2001 to 2005 were assessed in order to analyse and report future performance of the company.

In comparison with previous years the general performance of British Airways has been improved. The turnover, operating profit, attributable profit for 2005 went up by 3, 3%, 33.3% and 93.1% in comparison with 2004. There was a growth at 1.5 point in operating margin but the company noted a decrease at 4.4% in significant operation yield. Through repayment of its debt it managed to lower net debt from 54.1% to 42.7%.

Operating statistics showed upward in 2005 of RPK (revenue passenger kilometres), RTK (revenue tonne kilometres) and passenger load factor at 4.7%, 6, 5% and 1.8 points respectively. However, the passengers carried result was down by 1.1% in 2005 to 2004.

The trend ratio shows slow upward movement in profitability, maintenance of efficiency, correct liquidity and improved gearing. However, the Price /Earning ratio noted a quite big fall. (British Airways, 2005)

3. Introduction.

Air transport is one of the world's biggest and fastest growing industries. It facilitates economic development, world trade, worldwide investment and tourism. In the last ten years, air travel has grown by 7% per year. Travel for both business and leisure purposes grew internationally. Scheduled airlines carried 1.5 billion passengers last year. In the leisure market, the availability of large aircraft such as the Boeing 747 made it convenient and affordable for people to travel further to new and exotic destinations. Business travel has also grown as companies become increasingly international in terms of their investments, supply and production chains and their customers. Airlines' profitability is closely tied to economic growth and trade. During the first half of the 1990s, the industry suffered not only from world recession but travel was further depressed by the Gulf War.

International Air Transport Association (IATA), forecasts international air travel to grow by an average 6.6% a year to the end of the decade and over 5% a year from 2000 to 2010. Forecasts suggest that the number of passengers will double by 2010. These rates are similar to those of the past ten years. In Europe, where the air travel market is already extremely developed, slower growth of 4%-6% is estimated.

To meet the requirements of their increasingly discerning customers, some airlines are having to invest heavily in the quality of service that they offer, both on the ground and in the air. Ticketless travel, new interactive entertainment systems, and more comfortable seating are just some of the product enhancements being introduced to attract and retain customers.

The cheap airlines have expanded rapidly since the late 1990s, especially in the UK and in European markets. They offer customers low fares and services to a wide range of European destinations. These carriers have grown to account for as much as 45% of all capacity

...