I have selected the topic 8 "The business and financial performance of an organization over a three year period" for my research and analysis project for Oxford Brooks University degree.
Reason for selection the topic
I have selected this topic because during the ACCA study, I like to analysis and evaluate the performance of organization on the basis of their financial and non financial commitments during the period. How they arrange their finances and what they plan to get their goals and objectives. And more importantly to look that how they device their strategy to satisfying their stakeholder and bind them to keep their investments with the company. All these key reasons motivate me to choose this topic for my research work.
Reason for selection of organization
There are number of organizations available for research topic but I have selected the "British Airways" (BA) for my project. I have very keen interest in airline industry. And I think this topic will not only fulfill my project demand but also provide me opportunity to deeply analyze this industry.
In this decade, the airline industry is passing in its critical time where the profits drop to nil and passengers become more conscious for their safety and airline hospitality.
In this slow downturn of economies, it's put a huge pressure on BA to fight for its survival and maintain the same level of premium services for its customers and ultimately to investors. One of the reasons to choose this topic is the sudden change of financial position of the company. In 2008, company is achieving the highest profit margin and next year 2009, company is finding ways to save the same financial position but end up in a deep loss. These are the key basic findings which attract me to deeply look at in this organization and analyze the reasons for sudden decline in profits.
The company is one the world premium air carrier which hit 150 destinations around the world.
It has environmentally emission cutting commitment.
New performance leadership systems development.
In 2008/09, first 6 months company was in profit and at year end it was declaring loss.
All these highlights motive me to write on this organization.
Company introduction
British Airways' history can be traced from the origin of civil aviation history. On 25th August 1919, the first schedule flight flew between London and Paris from Hounslow Heat. In this flight, there was only one passenger and cargo.
Since 1919 British Airways progressed in every decade. From 1920 to 1929, it was providing services to four major destination of Europe. Between1930 to 1939, government nationalized the British airways limited and imperial airways and form British overseas airways corporation (BOAC).
After the end of Second World War, British South American airways merged with BOAC and form British European Airways (BEA). In 1950's, the world enter into the race of jet flights which reduce the time to almost half of previous flight time.
In the start of 1970's, BOAC and BEA come under the management of newly formed group known as "British Airways". In the 1980's, government of that time arranged condition to privatize the loss making organization. In 1987, the company was floated on London Stock Exchange.
In 1990's BA was one of the world leading air carrier and most profitable airline. During the 90 years of tenure, BA did mergers and de mergers. Currently, there are discussions going on between Iberia and BA for merger agreement but keep the brand separate.
(Source: britishairways.com)
In 2008/09, Group revenue increase from £8,758 million to £8,992 but company reported loss of £401 million as compare to profit of £922 million in 2007/08. The management of BA blames hard economic conditions and sudden drop of its customers on premium routes. The other key reason they include is the unexpected movements of oil prices during the year.
Currently company is using 254 aero planes for meeting its operational activities. BA's management is arranging the options to be the leader in the industry for the next 10 to 20 years along with other strategic plans.
(Source: Annual Report 2008/09)
The aims and objectives of the report
The key aim of this research and analysis project is to assess and evaluate the financial and business performance of "British Airways". This report will entail a deep analysis of financial performance over a three years period and assess the BA strategy for its future growth.
The main objective of this report writing is to;
Collect and present the information in a sequenced way that can able the user to assess the financial performance and company growth during the analysis period.
Identify the ways by which the company plans its strategies for its future growth and expansion.
Evaluate the overall benefits given to its investors for retaining their investments in the company.
Finally, I commented on my findings during the research work and try to give recommendations suitable to improve BA profitability and operations.
Part 2: Information Gathering
2.1 Introduction
The information is a key element for taking decisions. The information is a set of knowledge communicated with specific facts. The gathering of information is key skill to arrive at the best conclusion while you are going to make investment.
In this modern age, information is widely available and businesses spend millions of pounds to fetch the accurate information and channelize it for their decisions making.
I would like to describe the importance and need for information during the project development. Collect the right information for making this research analysis and give a comprehensive conclusion to show up the realistic picture is a vital part of report.
2.2 Information needs
For writing a comprehensive and balanced report, I identified the following data would be required;
Initial information relevant to selected industry and business
Key theories and financial information for presentation of financial statements.
Analyst's reports for my referencing.
The financial and non financial methods available to use for analysis. E.g. ratios analysis and SWOT analysis.
2.3 Primary Information
The foundation of my research analysis is to collect the primary information from different sources. It provides me guideline to understand the industry environment. Every field provides different sources to fetch its primary information e.g. personal interviews, phones, emails, seminars etc.
For this report writing, I did not require the primary source of information. Because the relevant information for this report writing was readily available through secondary source of information.
2.4 Secondary information
A secondary source of information is that information which is commented or discussed on primary sourced information. The feature of secondary information is that it usually interprets the primary information.
These sources could be reference materials, books, professional journals, industry magazines and eBooks.
I refer the following sources for information gathering;
www.google.com
www.bashares.com
www.londonstockexchange.com
corporate.easyjet.com
www.bbc.co.uk
www.ft.com
Wikipedia.org
www.journallive.co.uk
http://www.aircrafteconomics.com
www.airlinerworld.com
http://www.flightglobal.com
Kaplan Study Text
BBP study Text
FTC Notes
Annual reports
2.5 Problems encountered
Initially when I started to scratch the project, I have gathered a bundle of information through online journals, newspapers, library books and annual reports. Each piece of information seems to be true and eligible for report writing. And it is becoming harder for me to blend the all information in the report. But sometime when I try to find the particular event information, I noticed that newspapers were not able to provide the complete coverage. It merely mentions the date and event outline.
I try to use the best sources of information available to me for completing this project report.
3. Results, Analysis, Conclusion and Recommendations
Research Analysis
Before we go into the depth analysis of the organization lets take a look on the current market situation and its impacts on the organization.
3.1 Market overview
The pace of economic slowdown during the year 2008 was faster than most had predicted. What had first been expected to be a downturn in key developed economies turned into a global recession in the autumn of 2008? With record oil and commodity prices, sterling collapse and an unprecedented financial crisis all striking at once, even those emerging economies that had been expected to go untouched by recession saw sharp declines in growth.
In the UK, growth began slowing in the first half of the year, whilst the US economy went into recession in the last quarter. In both economies, consumer and business confidence plummeted due to rising unemployment, uncertainty in the capital markets, a continuing squeeze on credit, the erosion of household budgets and falling house prices. Growth also slowed dramatically in many Asian economies.
Government attempts - nationally and internationally - to halt the financial crisis through bank bailouts and credit guarantees staved off what might have been an even more serious collapse.
Subsequent efforts to stimulate economic activity are expected by most economists to take longer to take effect.
It is hoped that these steps will kick-start the US and UK economies which will provide some economic growth in 2010.
This should, in turn, provide some basis for a recovery in our own business.
3.2 Impact on the industry
The airline industry acts as an economic barometer. Like our competitors, we feel the full force of falling confidence quickly and, on this occasion, dramatically. During the first half of the year, oil prices hit a record high of $146 a barrel, forcing up the fuel costs of all carriers to unprecedented levels and putting margins under enormous pressure. Although fuel prices subsequently fell to about a third of that level, the onset of recession had already begun in earnest, forcing many airlines into financial loss.
Even at these lower levels, fuel remains a much bigger proportion of airline costs compared to a few years ago, and the prospect of renewed volatility in prices remains a long-term concern. The most significant impact of the downturn has been on premium passengers, with businesses looking to cut back sharply on travel to save money. IATA's latest figures show that global premium traffic fell in 2008 by 2.8 per cent. The impact on business travel is likely to continue for some time. A recent survey suggested that 47 per cent of businesses will take fewer trips in the year ahead.
Individual customers are also looking to make savings on travel, increasingly seen as an item of discretionary spend. Consumer confidence the world over has tumbled. Though many customers continue to see a first holiday as an essential rather than a luxury, most are cutting back on second and third holidays and short breaks.
3.3 Financial Analysis
Ratio Analysis
Financial ratio analysis is the calculation and comparison of ratios which are derived from the information in a company's financial statements. The level and historical trends of these ratios can be used to make inferences about a company's financial condition, its operations and attractiveness as an investment.
Financial ratios are calculated from one or more pieces of information from a company's financial statements. A ratio gains utility by comparison to other data and standards. Financial ratio analysis groups the ratios into categories which tell us about different facets of a company's finances and operations.
3.3.1 Revenue Analysis:
Revenue is one of the key things for any organization. Better performance in revenue tends to affect all the financials of any organization. If we take a bird eye view of the revenues through the years we come to know that British Airways is way ahead of its major competitors.
2006
Group revenue for the year 2006-07 was £8,492 million, up 3.4 per cent compared with last year, on a flying programmed 0.7 per cent Larger in ATKs. Passenger revenue was up 4.9 per cent to £7,263 million. This was primarily driven by long haul premium and 'World Traveler Plus', the Company's long haul premium economy cabin.
Passenger yields were up 2.1 per cent per RPK, and seat factor was in line with last year at 76.1 per cent on capacity 2.9 per cent higher in Asks. Cargo revenue at £618 million was down 3.1 per cent in the full year. Cargo volumes measured in CTKs were down 4.7 per cent in the full year, with yields up 1.7 per cent. The decline in volumes has been driven by a combination of capacity, competitive, market and operational factors. Operational issues in the second half of the year were a significant factor in the volume decline. Overall load factor for the year was 70.4 per cent, up 0.4 points on last year.
2007
Their revenue performance was good, up 3.4 per cent in financial year 2007-08, despite the threatened cabin crew strike after Christmas, which was felt in the fourth quarter. Total costs were up 5.5 per cent, driven mainly by fuel, up 22.1 per cent at £1.93 billion. Fuel continues to be a major cost and we expect our fuel bill next year to be just over £2 billion, some £100 million up on this year. Our cargo performance suffered due to operational and security related issues. We also flew one less dedicated freighter aircraft
2008
Revenue for the year was £8,753 million, up 3.1 per cent, despite the negative impact of exchange rate movements. Excluding the impact of exchange, primarily down to the weaker US dollar, revenue was up 4.6 per cent. Their passenger revenue, at £7,541 million, was up 3.8 per cent, on capacity up 0.8 per cent.
Non-premium traffic on the North Atlantic was soft during the year and this, in part, contributed to a reduction in no premium revenue. Their cargo revenue for the year was £616 million, up 3.0 per cent.
Excluding the impact of exchange, it was up 4.8 per cent. Cargo capacity, measured in available tone kilometers (ATK), decreased by 0.2 per cent. Our cargo volumes, however, recovered strongly in the year and were up by 4.2 per cent. Premium product volumes continued to grow and were up by 12.6 per cent. Our cargo yield (revenue per cargo tone kilometer) decreased by 1.2 per cent. Increased cargo fuel surcharges and a better premium mix in the second half of the year helped offset ongoing price pressures evident in a number of markets.
Now if we look at the performance of its major competitor EASY Jet it also showed outstanding growth in its revenue through out the period observed by us. Its Total revenue increased 11% to £1,797.2m in 2007 from 2006 and in 2008 Total revenue grew 31.5% to £2,362.8 million which, on a per seat basis, reflects a growth of £5.09 or 12.6%. Passenger revenue grew 22.7% and ancillary revenue, excluding bag charges, grew by 30.3%; the introduction, this year, of the checked bag charge delivered £144.1 million, or £2.76 per seat, of revenue.
3.3.2 Equity Ratios:
Earnings per Share (EPS)
Calculation: Net Income / Weighted Average Shares
Earnings per share (EPS) are the portion of a company's profit allocated to each outstanding share of common stock. EPS serves as an indicator of a company's profitability.
British airways have also shown tremendous growth in its earnings although its competitors have also been good. In 2008 company had stunning boost in its earnings which resulted tremendous growth in EPS. EPS of the Company which is at least 4 per cent per annum more than the increase in the Retail Price Index during three consecutive financial years ending on March 31, 2008. EPS is calculated as set out in the Statement of Investment Practice No. 1 of the Institute of Investment Management and Research (IIMR). The options granted in 2005 were tested at the end of 2007/08. In 2004/05, the Company's EPS under the IIMR definition was 29.3 pence. Taking this base figure and adding RPI plus 4 per cent per annum gives a target EPS level of 36.1 pence. EPS for 2007/08 using the IIMR definition was 49.1 pence. The Remuneration Committee therefore determined that performance condition had been satisfied in relation to the grants made in 2005.
The performance conditions in relation to options granted in prior years have been satisfied and those options vested accordingly. The total earnings attributable to shareholders for the year was
£290 million, equivalent to 25.5 pence per share, a reduction of
36.9 per cent compared with last year's earnings per share of 40.4 pence. The total earnings attributable to shareholders for the year were £680 million, equivalent to 59.0 pence per share. This represents a 131 per cent increase on last year's earnings per share of 25.5 pence. The increase was driven by both the higher profit before tax and by a one-off credit to the tax charge, arising from the reduced corporation tax rate effective from April 1, 2008. However Easy Jet has also shown growth in the EPS in three year tenure but last year was bit sluggish for them.
Based on the average annual growth in earnings per share (EPS), where no shares vest if EPS growth is less than RPI plus 5%, 30% vest where EPS growth is RPI plus 5% and 100% vest where EPS growth is RPI plus 20%. It is understood that the awards made on 2 June 2005 will vest in full. During the year the options granted in December 2004 and June 2005 vested in full as the average annual growth in EPS over the three years to September 2007 exceeded RPI plus 20%.
3.3.3 Dividend per Share:
Dividend is the distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders.
The calculation of dividend is not given because company did not pay any dividend in the past years, also its competitor Easy does not pay any dividend. However for British Airways the directors propose a dividend of 5 pence per share (Totaling £58 million) for the year ended March 31, 2008. The dividend was submitted for approval at the annual general meeting to be held on July 15, 2008. The financial statements do not reflect the dividend payable which will be accounted for as a reduction in shareholders' equity in the year ending March 31, 2009.
3.3.4 Profitability Ratios
Profitability Ratios are used to assess a company's ability to generate earnings, based on revenues generated or resources used. For most of these ratios, having a higher value relative to a competitor's ratio or the same ratio from a previous period is indicative that the company is doing well.
Their profits reached record levels in 2007/08, as we achieved our target of a 10 per cent operating margin for the first time. Group profit before tax for the financial year 2007 was £611 million, compared with a £616 million profit in the previous year.
Operating profit in the year, at £602 million, was £92 million worse than last year. The 7.1 per cent operating margin was 1.4 points worse than last year. The deterioration primarily reflects increased operating costs, in particular fuel, partially offset by a 3.4 per cent increase in revenue.
The operating profit for the year of £602 million was after a £396 million non-recurring credit arising as a result of agreed changes to the New Airways Pension Scheme (NAPS), and a provision for £350 million for settlement of competition investigations into alleged anti competitive activity.
If we take a look at its competitor Easy Jet had dismal performance last year loosing profits due to increase in fuel prices. However Strong revenue growth has meant that easy Jet was able to offset over half the impact of higher fuel costs and deliver underlying pre tax profits of £123 million1 and underlying return on equity of 7.6%1, down from 13.6%1 last year. Reported profit before tax for 2008 was £110.2 million including £12.9 million of one-off integration costs related to the acquisition of GB Airways. Excluding these costs the underlying profit for the year was £123.1 million compared to £191.3 million in 2007. The fundamental performance trends within the business remain strong despite a £1.93 fall in underlying profit per seat from £4.30 in 2007 to £2.37 in 2008.
The financial presentation of the results is significantly influenced by
• Fuel prices;
• GB Airways acquisition;
• Strengthening euro exchange rate.
3.3.5 Operating Margin
Calculation: (Operating Income / Revenues) *100
Operating Margin is a ratio used to measure a company's pricing strategy and operating efficiency.
It was the core objective of the organization's management to increase operating margin. Operating margin in 2007/08 was 10.0 per cent compared with 7.1 per cent in the previous year. Finally they the figures they wanted. Their operating profit of £875 million gives them a record operating margin of 10 per cent. Their pre-tax profit of £883 million was also a record. Their operating profit in the year, at £875 million, was up £273 million, against a background of ever-increasing fuel prices. Pre-tax profits were £883 million, up £272 million on the previous year. Their financial strength has been significantly improved over the last few years and these results put them in a good position to deal with the extremely difficult climate which is now gripping the industry - caused by economic slowdown and record fuel prices.
Operating margin continue to be their key financial performance indicator. A more challenging economic outlook, the continuing rise in the price of fuel, and transitional costs relating to our move to Terminal 5 will all contribute to a reduction in our operating margin in 2008/09.
3.3.6 Net Profit Margin
Calculation: (Net Profit / Revenues) *100
Net Profit Margin is the ratio of net profits to revenues for a company or business segment - that shows how much of each dollar earned by the company is translated into profits.
From 2006 company has volatile Net profits. Group's net profit margin is grown rapidly in 2008. Mainly it is due to increase in the revenue of the organization. Ratio shows that organization trend towards net profit margin is getting better considering its competitors. If we look at the graph we easily configure, 2007 was not a good year for the organization where its competitors beat them. However in year 2008 group regained its position despite all that recession.
3.3.7 PBT Margin (Profit before Tax)
Calculation: {Income before Tax / Revenues} *100
Profit before Tax Margin measures the pre-tax income over revenues.
Group profit before tax for 2007/08 was £883 million, compared with £611 million in the previous year increased by 3.1 percent. It was record profit for the organization. This outstanding achievement was subject to strikingly impressive performance in revenues.
If we undergo the per year performance of the organization with reference to its competitors we can clearly see that recent trend for the organization is way better from 2007 where it had poor performance in earnings and despite the giant size of the organization Easy Jet beat the organization.
3.3.8 Return on Equity
Calculation: (Net Income / Shareholders Equity)*100
Return on Equity measures the rate of return on the ownership interest (shareholders' equity) of the common stock owners.
The group's Equity is greatly deteriorated by its exposure to exchange rates. Company has tried to hedge through options. Group's Effect to equity form Dollars, yen and Euros is simultaneously given for 2008 (42) m, (57) m and (26) m. Company needs improvements in the use of hedging policies as they have much exposure to the exchange rate movements. It has adversely affected the equity of the owners. Its competitors had dismal performance in returns on equity. By this we can understand that 2008 was quiet a difficult year for industry. BA performance is not bad considering that element also group had much better performance in 2008 but not that significant as was in year 2006.
3.3.9 Return on Capital Employed
Calculation: EBIT / (Total Assets - Current Liabilities)*100
Return on Capital Employed is a ratio that indicates the efficiency and profitability of a company's capital investments. ROCE should always be higher than the rate at which the company borrows; otherwise any increase in borrowing will reduce shareholders' earnings.
The Group has significant growth on its capital in year 2008. However its key responsibility of the shareholders to ensure sustainable returns on the capital employed in their business and can invest for future growth. The Group had set a target of a ten per cent operating margin to ensure an adequate financial return and it continues to make progress towards this goal. The Group also has responsibilities to other stakeholders - its employees, its customers and the communities affected by its operations, as well. Group achieved its goal of obtaining 10% operating which led to growth in the capital employed.
3.3.10 Return on Assets
Calculation: (Net Income / Total Assets)*100
Return on Assets is an indicator of how profitable a company is relative to its total assets, the ratio measures how efficient management is at using its assets to generate earnings.
Ratios suggests that organization's management very much right decisions and group is heading in the right direction. In year 2006 and 2007 company was behind its competitors. In year 2008 company surpassed its competitor significantly and achieved higher returns on its assets, courtesy tremendous growth in revenues and operating margins.
3.3.11 Cost Ratios
Cost ratios help to understand the costs the company is incurring as a percentage of sales.
3.3.12 operating costs (% of Sales)
Calculation: (Operating Expenses / Revenues) *100
Operating costs as percentage of total revenues measures the operating costs that a company incurs compared to the revenues.
Graph depicts poor performance in year 2006 and 2007 but little better in year 2008. Their depreciation, amortization and impairment costs reduced by 3.1 per cent compared to last year. This is partly due to changes in dilapidations charges and changes to the useful economic lives of a number of assets. The number of aircraft they had on operating leases reduced during the year and this, along with lease renegotiations and the weaker US dollar, resulted in their aircraft operating lease costs reducing by £13 million compared with last year.
Record fuel prices drove their fuel and oil costs up by £124 million compared with last year. This increase was after the benefits of hedging of $392 million, and the favorable exchange impact of the weaker US dollar.
Group's engineering and other aircraft costs, at £451 million, increased by 8.9 per cent compared with last year. This was partly due to contractual price increases on their flying hour engine maintenance contracts and partly due to prior year inventory provision releases on the back of a sustained improvement in the control environment. We also had an increased number of wet leases (aircraft with crew) in year 2008, and additional short haul freighter costs. These increases were partly offset by reduced fleet insurance rates due to the soft aviation market.
Landing fees and en route charges cost us £528 million, up
2.1 per cent. This was partly due to rate increases and adverse exchange movements, primarily the stronger euro.
Handling charges, catering and other operating costs increased by 5.1 per cent compared with last year. The increase was primarily down to the costs of repatriating mishandled baggage and compensation, following the baggage issues we had in the summer and more recently following the opening of Terminal 5.
3.3.13 Liquidity Ratios
Liquidity ratios are used to determine a company's ability to pay off its short-terms debts obligations. Generally, the higher the value of the ratio shows the larger the margin of safety that the company possesses to cover short-term debts. A company's ability to turn short-term assets into cash to cover debts is of the utmost importance when creditors are seeking payment. Bankruptcy analysts and mortgage originators frequently use the liquidity ratios to determine whether a company will be able to continue as a going concern.
BA treasury maintains flexibility in funding by maintaining availability under committed credit lines.
3.3.14 Current Ratio
Calculation: Current Assets / Current Liabilities
Current Ratio measures a company's ability to pay its short-term obligations. The ratio gives an idea of the company's ability to pay back its short-term liabilities (debt and payables) with its short-term assets (cash, inventory, receivables). The higher the current ratio, the more capable the company is of paying its obligations. A ratio under 1 suggests that the company would be unable to pay off its obligations if they came due at that point.
Group's current ratios suggest that organization needs improvement in the current ratios. Their competitor has maintained good amount of current assets. However it also shows that group is good at using other people money. Sustainable growth in operating margins also shows that organization meets its obligations on time.
3.3.15 Leverage Ratios
Leverage ratios are used to calculate the financial leverage of a company to get an idea of the company's methods of financing or to measure its ability to meet financial obligations. There are several different ratios, but the main factors looked at include debt, equity, assets and interest expenses.
3.3.16 Debt to Equity Ratio
Calculation: Total Liabilities / Shareholders Equity
Debt to Equity Ratio is a measure of a company's financial leverage. The debt/equity ratio also depends on the industry in which the company operates.
Group's performance in this matter is very good and getting better although net debt was increased but ratio is quiet acceptable.
Net debt at March 31, 2008 amounted to £1,310 million, an increase of £319 million compared with March 31, 2007. This is net of cash and cash equivalents and other interest-bearing deposits totaling £1,864 million. Despite their increase in net debt, the net debt/total capital ratio at March 31, 2008 was 28.8 per cent, a 0.3 point reduction on last year. This was mainly due to growth in retained profits.
Including operating leases, our net debt/total capital ratio was
38.4 per cent, a 1.2 point reduction from last year. Net debt at March 31, 2007 amounted to £991 million, a reduction of £650 million compared with March 31, 2006. This is net of cash and cash equivalents and other interest bearing deposits totaling £2,355 million.
The net debt/total capital ratio at March 31, 2007 was 29.1 per cent, a 15.1 point reduction versus last year mainly due to the reduction in net debt and growth in retained profits. Including operating leases, net debt/total capital ratio was 39.6 per cent, a 13.4 point reduction from last year.
3.3.17 Efficiency Ratios
Efficiency ratios measure a company's effectiveness in various areas of its operations, essentially looking at maximizing its use of resources.
3.3.18 Asset Turnover
Calculation: Net Sales / Total Assets
Asset turnover ratio measures the efficiency of a company's use of its assets in generating sales revenue to the company. A higher asset turnover ratio shows that the company has been more effective in using its assets to generate revenues.
Increasing in the asset turnover shows that organization is getting better and is obtaining desired results. Also Company is using its assets to generate sales better than its competitor.
3.3.19 Capital Employed Turnover
Calculation: Net Sales / Shareholders Equity
Capital employed turnover ratio measures the efficiency of a company's use of its equity in generating sales revenue to the company.
The Group has significant growth in shareholder's equity in year 2008. However its key responsibility of the shareholders to ensure sustainable returns on the capital employed in their business and can invest for future growth. Company's sales growth has affected positively to the
4.0 SWOT Analysis
4.1 Strengths
Group's financial strength has been significantly improved over the last few years and their results put them in a good position to deal with the extremely difficult climate which is now gripping the industry - caused by economic slowdown and record fuel prices.
Achieving 10 per cent operating margin was a major milestone for our Company. It has been our goal since 2002 and one of the necessary triggers for the restoration of the dividend. The other was addressing the
High performing global premium organization
Market focused strategy
Always Growing Market share
Handsome Investment for improving customer service
Record customer rate of satisfaction 77% either extremely or very satisfied.
Investment in new leadership training;
Implementing clear communication programmers;
Punctuality - 'Ready to go' they achieved record breaking punctuality and customer recommendation scores.
4.2 Weakness
Pension's deficit, was one of the biggest deficits of the FTSE 100 companies.
No base pay increase and offer of unpaid leaves can loose key human resources.
BA is shifting its strategy to concentrate on dearer business class traffic, while there is strong growth in demand from the public for cheaper flights.
High fares than competitors
4.3 Opportunities
Maintaining of market share can improve sales.
Industry analysts have said the market could triple in the next five years.
Investment in new services to prepare for new opportunities in our markets.
4.4Threats
Highly competitive market
Extremely difficult climate which is now gripping the industry - caused by economic slowdown and record fuel prices.
The continuing rise in the price of fuel.
Transitional costs relating to our move to Terminal 5 will all contribute to a reduction in our operating margin in 2008/09.
The Group is exposed to changes in interest rates on floating debt and cash deposits.
The Group is exposed to currency risk on revenue, purchases and borrowings that are denominated in a currency other than sterling.
Reducing passengers
Merger activity is threatening to change the face of BA's competition. As groups of airlines form alliances to try to gain strength in numbers, BA's attempt to join up with American Airlines was turned down by the US authorities.
5.0 Conclusion:
After making whole analysis we come to the point where we can say that British Air ways has done wonderfully well particular in 2008 where organization achieved its major goal of 10% operating margin.
However in the last quarter of 2008 world's economic recession went to its peak situation. 2009 seems quiet hard and challenging for the organization. They have put zealous efforts to maintain such performance. However strong capital growth in last few years has put them in a position where they can better face the upcoming challenges. It seems that all the organizations in the world have to face the music in next few years. Organization has to perform particularly well at each level. Strong planning is required from the management side. Over all organization has performed well in most of departments that's why they are the leading Air line in UK.
6.0 Recommendations:
Company should devise a recovery plan to rebuild our reputation worldwide and restore the trust of our customers in British Airways.
Staff should rise to the challenge of delivering the service that customers deserve, despite the difficulties of working across three terminals at Heathrow. Company should train their people for the purpose
Dividend was not paid in the past few years company should develop a policy to award dividends to its shareholders and employees.
In the upcoming difficult situation company should look for the alliance or strategic partnership.
Company should cut its other expanses to maintain operating margins as fuel prices are predicted to go high.
Diversification is very important for the success of any organization so company should plan to diversify. It actually can minimize the risk.
Company should devise plan to minimize the exchange rate exposure to improve shareholders wealth, a proper hedging system can minimize this risk.
