British airways is the largest international scheduled airline of UK, functioning international as well as domestic scheduled and contract services for the carriage of travellers, shipping and mail and the endowment of ancillary amenities. The airline flutters to above 550 destinations internationally and is considered as the leading light in the airline business.
British Airways is the airline firm of the United Kingdom. It has its headquarter in Waterside which is close to its chief hub at London Heathrow Airport and it is the main airline in UK on the foundation of navy size. It is the second greatest hub is London Gatwick Airport. BA all nonstop overseas flights has been superseded from UK airports other than Heathrow, Gatwick and London City Airport. BA's UK customers generating at non-London airports duty now connect via London or custom other airlines with direct facilities.
As per the study it found that British Airways Group was designed on 1 September 1974. BA was designed by the union of two large London-based airlines, British Overseas Airways Corporation (BOAC) and British European Airways Corporation (BEA), and Cambrian Airways Cardiff and Northeast Airlines Newcastle were two much smaller air companies upon Tyne . BA according to the research was found as the only two airlines to run the supersonic Aerospatiale-BAC Concorde initiating the world's first supersonic traveller facility in January 1976. BA became the world's most profitable airline following its strategies under the slogan "The World's Favorite Airline".
Ans 1
Ratio analysis:
Ratio analysis is a widely used tool of financial analysis. The term ratio in it refers to the relationship expressed in mathematical terms between two individual figures or group of figures connected with each other in some logical manner and are selected from financial statements of the concern. The ratio analysis is based on the fact that a single accounting figure by itself may not communicate any meaningful information but when expressed as a relative to some other figure, it may definitely provide some significant information the relationship between two or more accounting figure/groups is called a financial ratio helps to express the relationship between two accounting figures in such a way that users can draw conclusions about the performance, strengths and weakness of a firm.
Classification of ratios:
A) Liquidity ratios
B) Leverage ratios
C) Activity ratios
D) Profitability ratios
A) Liquidity ratios:
These ratios defines the capability of the business unit to meet its short term obligation from its short-term resources (e.g.) current ratio, quick ratio.
i) Current ratio: defined as the relationship between current assets and current liabilities it is the most common ratio for measuring liquidity. It is calculated by dividing current assets and current liabilities.
Current assets
Current ratio = ------------------
Current liabilities
TABLE -1
CURRENT RATIO:
The above table and diagram shows that the current ratio in the year 2003-04 was 2.26 and then in increases to 3.38 in the year 2004-05, further move upwards to 3.80 and in the year 2006-07 it slashed down to 1.52 and finally in the year 2007-08 it again moved up to 2.91.
The normal current ratio is 2:1. The above table shows current ratio is more than 2% in all the first four years. But in 2006-2007 the current ratio is lower than the normal. This shows that the company is enjoying credit worthiness.
ii) Liquid ratio: refers to the ability of a firm to pay its short-term obligation as and when they become due. The term quick assets or liquid assets refers current assets which can be converted into cash immediately it comprises all current assets except stock and prepaid expenses it is determined by dividing quick assets by quick liabilities.
Liquid assets - stock
Liquid ratio = -------------------------
Liquid liabilities
TABLE-2
LIQUID RATIO:
Year
Liquid assets
Liquid liabilities
Ratio
2003-2004
47,782,491.51
20,073,088.54
2.38
2004-2005
55,809,100.59
25,805,580.98
2.16
2005-2006
54,831,547.34
20,615,801.31
2.65
Interpretation and Analysis:
The above table and diagram shows the liquid ratio during the study period except in the year 2007-2008 is more than the normal (i.e.) 1:1.It was 2.38 in the year 2003-04 and reached the highest in 2005-06 to 2.65 and then came down to .97 in the year 2007-08.
Hence the firm is controlling its stock position because there linear relationship between current ratio and liquid ratio.
B) Leverage ratios: The term 'solvency' refers to the ability of a concern to meet its long-term obligation. Accordingly, long-term solvency ratios indicate a firm's ability to meet the fixed interest and costs and repayment schedules associated with its long-term borrowings. (E.g.) debt equity ratio, proprietary ratio, etc….
i) DEBT EQUITY ratio:
It expresses the relationship between the external equities and internal equities or the relationship between borrowed funds and 'owners' capital. It is a popular measure of the long-term financial solvency of a firm.
Outsider's funds
Debt equity ratio = ------------------------------
Proprietor's funds
TABLE-3
DEBT EQUITY RATIO:
Year
Outsider's funds
Proprietor's funds
Ratio
2003-2004
21,220,083
53,331,692
0.40
2004-2005
55,125,897
63,576,119
0.87
2005-2006
40,741,814
65,810,599
0.62
Interpretation and Analysis:
The above table and diagram shows the debt equity relationship of the company during the study period. It was 0.4 in the 2003-04 and then reached its highest in the next year and from there it began to slope downwards and ultimately came to 0.38 in the year 2007-08.In all the years the equity is more when compared with borrowings. Hence the company is maintaining its debt position
ii) Proprietary ratio: relates to the proprietors funds to total assets. It reveals the owners contribution to the total value of assets. This ratio shows the long-time solvency of the business it is calculated by dividing proprietor's funds by the total tangible assets.
Proprietor's funds
Proprietary ratio = ---------------------------
Total tangible asset
TABLE 4
PROPRIETARY RATIO:
Year
Proprietor's funds
Total assets
Ratio
2003-2004
53,331,692
74,551,774
0.72
2004-2005
63,576,119
118,702,016
0.54
2005-2006
65,810,599
106,552,413
0.62
Interpretation and Analysis:
The above table and diagram shows the proprietary ratio during the study period. In all the years the owner's contribution to the total assets was appropriate and they maintain their share in the company's assets.
Except 2005-06 in all the years the proprietor's contribution in to the total assets is more than the 2/3. During 2004-05 it is more than 50%
C) Activity ratios:
These ratios estimate the use of the total capitals of the business concern along with the use of the constituents of total assets. They are planned to measure the efficiency of the assets management with the assets that are used would be reflected in the speed and rapidity with which the assets are converted into sales. The greater the rate of turnover, the more efficient the management would be (E.g.) stock turnover ratio, fixed assets turnover ratios etc….
i) Stock turnover ratio:
This ratio indicates whether investment is inventory is efficiently used or not it explains whether investment in inventories in with in proper limits or not.
Cost of goods sold
Stock turnover ratio = -----------------------------
Average stock/inventory
TABLE-5
STOCK TURNOVER RATIO:
Interpretation and Analysis:
The above table and diagram shows the relationship between costs of goods sold and average stock. During the year 2004-05 it is 66.17% which shows higher position of cost of goods sold. In the years of study it is shown above that the cost of goods sold are almost 35-65times of the average stock. But at the same time during 2007-08 it is only 6.95 which shows that more stock was remaining in the company.
ii) Fixed assets turnover ratio:
The ratio shows the extent to which the funds in fixed assets add towards sales. If associated with the previous year. It shows whether the investment in fixed assets has been wise or not.
Net sales
Fixed assets turnover ratio = -------------------
Fixed assets
TABLE-6
FIXED ASSET TURNOVER RATIO:
Year
Net sales
Fixed assets
Ratio
2003-2004
169,056,118
39,262,748
4.30
2004-2005
173,896,782
50,550,585
3.41
2005-2006
179,231,321
41,772,389
4.29
Interpretation and Analysis:
The above table and diagram shows the relation ship between the fixed assets and sales. The sale is 4 times more than the fixed assets 2003-04 and 2005-06. It is more than 3 times during 2004-05 and 2006-2007. It is more than 2 times during 2007-08. It can be observed that in the year 2006-07 the fixed assets value increased a lot and which shows that there is an additions made to the fixed assets, similarly the sales was also increased from 179,231,321(2005-06) to 225,250,870 (2006-07). However in the year 2007-08 it slashed to about 50% of the sales of 2006-07.
iii) Working capital turnover ratio:
Working capital turnover ratio shows the speed of the utilization of net working capital. This ratio shows the amount of times the working capital is turned over in the course of a year.
Net sales
Working capital turnover ratio = ----------------------------
Net working capital
TABLE-7
WORKING CAPITAL TURNOVER RATIO:
Interpretation and Analysis:
The above table and diagram shows the relationship between net working capital and net sales. During the years the sales is 2 to 7 times more than the working capital. It was 4.79 in the year 2003-04 and as there was more working capital the ratio sloped downwards and reached 2.77 in the year 2005-06. As the sales increased and working capital decreased the ration now moved up to 6.69 times and in the very next year as the sales slashed to 50% of the previous year the ration again decreased.
iv) Total assets Turnover RATIO:
This ratio is an indicator of how the resources of the organization utilized for increasing the turnover. It shows the ratio between the total assets and the net sales of the company. From this ratio one can understand how the assets are performing and being utilized in achieving the objectives of the company.
Total assets
Total assets turnover ratio = -------------------
Net assets
TABLE-8
TOTAL ASSETS TURNOVER RATIO:
Interpretation and Analysis:
The above table and diagram shows the relationship between the total assets to net sales. During all the study period years the relationship between sales to total assets is high. The ratio increased from 0.44 (2003-04) to 0.68 (2004-05) and then it was decreasing and reached to again 0.44 in the year 2006-07 and raised to 0.81 in the year 2007-08 due to the heavy fall in the sales. Thus the company's sales were almost directly proportionately in the first three years of the study and then in the year 2006-07 it was adversely affected.
D) Profitability ratios:
The profitability ratios of an industry can be calculated by the profitability ratios. These ratios focus on the end result of business accomplishments by which alone the overall effectiveness of a business unit can be refereed, (E.g.) gross ratios, Net profit ratio.
i) Operating ratio:
This ratio expresses the relationship between Earning before interest /tax and sales. It shows the efficiency of manufacture or trading procedure. A high Earing ratio is a good managing as it implies that cost of production is relatively low.
Earing before interest /tax
Operating ratio = ----------------------------------- x 100
Net sales
TABLE-9
OPERATING RATIO:
Interpretation and Analysis:
The above table and diagram shows the relationship between the gross profit and net sales in percentage. During 2003-04 the gross profit position was 12.95% and in the very next year it slashed down to 9.29% and again raised to 13.92% and since then it was decreasing and finally reached the lowest to 6.70% in the year 2007-08. However it can be noticed that the sales also reduced to about 50% in 2007-08 when compared to sales of 2006-07.
ii) Net profit ratio:
Net profit ratio establishes a relationship between net profit and sales. It is determined by dividing the net income after tax to the net sales.
Net profit
Net profit sales = ----------------- x 100
Net sales
TABLE-10
NET PROFIT RATIO:
Year
Net profit
Net sales
Ratio
2003-2004
10,699,894
169,056,118
6.32
2004-2005
9,472,578
173,896,782.3
5.45
2005-2006
231,044
179,231,321
0.12
Interpretation and Analysis:
The above table and diagram shows the relationship between net profit and net sales during 2003-04 it was 6.32% on sales and in 2004-05 it was 5.45. But in all other 3 years it is less than 1% and even negative in the year 2007-08. This means that either there is any defect in pricing the product or excess non-value added expenditures which reduces the net profit of the company. The sales of the organization are also decreasing and hence management must take care of the quality and market situations into consideration to resolve the issue so that it may bring good profits to the organization.
Ans 2. impact of recession on BA
Recession means :
· It is the situation of the economy falloffs; a extensive decline in the GDP and unemployment and trade enduring from six months to a year
· recess: a small concavity
· It is the extraction of the ministry and chorale from the chancel to the vestry at the completion of a church amenity
· It is the act of ceding back
wordnetweb.princeton.edu/perl/webwn
The financial presentation of BA business is connected with the general asset of the economies in the UK and through the world. BA had to manage with the sincere downturn in the worldwide economy in 60 years
With the recession and important market change primary to a sharp drop in BA revenues, BA have retorted rapidly by making substantial and permanent declines in its cost base. BA have vanished further and faster than anticipated. So far BA has been cost focused but critically, BA now have more well-organized base from which to attain greater levels of success in the future.
Challenges faced by BA
The airline industry is facing three powerful challenges
The first is recession: BA has been existing over in the last two years is the inmost downturn this business has ever faced. The International Air Transport Association (IATA) is estimating profits for the industry as a total will decrease by 15 per cent or $85 billion in 2009 and it anticipates total losses to sum of $9.4 billion. BA specific revenues have dropped by 11 per cent or £1 billion and verified losses for the second year successively.
Usually, airlines have been fairly good at wounding costs to counter economic recession. But they incline to lose restraint when markets expand. That's why the business has lived frequent cycles of boom and ruined .The airlines have appreciated only two years of effectiveness.
The organisation is now facing organisational as well as cyclical change and this has enlarged the danger it face.
The price of oil has grown from an usual of $48 to $83 a barrel which has affected BA a lot.
Secondly: There is a enduring shift in industry travel with companies now no longer keen to pay quality prices for their employees to make short tours below three hours.
Thirdly: access to financing - willingly and cheaply existing two years ago - got greatly tighter in the awaken of the banking crunch.
This enhances up to the inmost crisis BA business has ever challenged. BA saw no choice but to take instant action to respond the downturn and to create long-term organisational changes to counterpart the enduring structural changes executed on it. BA method will not just prepare it to deal with recurring economic deviations but will contribute to a well-organized base from which to attain much developed levels of effectiveness when conditions develop.
Impact of Recession on BA
.The impact of the recession is being compounded by important structural changes to its business.
Revenue decline
Customer revenue for the year was down by £856 million, a drop of 10.9 per cent. Starting of the year saw the maximum intense decline in revenue, as superior revenues were exaggerated by the unexpected and simple fall in demand as a consequence of the fluctuating economic attitude. Revenue underway to improve in the next partial of the year, as capability was better coordinated to request and earnings started to improve.
Decrease in Manpower
BA manpower (MPE) has dropped by nearly 3,800 to 36,832 since March 2009. This drop comes from production enhancements and natural erosion combined with unpaid redundancy, reduced overtime, an upsurge in part-time job and voluntary leave.
these savings combined with a near £600 million decrease in BA fuel bill associated with 2008/09, when oil prices smooth to $146 a barrel intended BA could balance the severe reduction in BA incomes.
Pensions financing expense and retranslation expenses
Pensions financing expenditure was £116 million associated to £17 million in the previous year. This was primarily due to the statement that BA adage a £160 million reduction in the return on possessions and a £37 million duty for the paying back of actuarial damages (mostly related to the New Airways Pension Scheme (NAPS)).
The retranslation of currency borrowings produced a safekeeping of £14 million, associated with a charge of £59 million for the previous year, unpaid to the fading of sterling, counterbalance by the designation of a percentage of BA yen responsibility.
Financial risk management
BA open to a diversity of financial risks, together with market risk, credit risk, liquidity risk and capital risk . BA whole risk management plan emphases on the irregularity of financial markets and pursues to minimise potential contrary special effects on its monetary performance.
Impact of competition
The fall in business is a strong pointer of how the recession is disturbing the aviation industry with decreasing passenger numbers and condensed cargo demands quoted as chief reasons overdue the losses.
The durable success has been the 'flag carriers' who have agonised enormously due to the fall in quality and business travel, combined with the severe rise in fuel rates. British Airways Plc in November dispatched a larger than predictable first-half loss and projected revenue would decline by one billion pounds by 2009 end. Germany's airline Deutsche Lufthansa AG in October delivered a depressed viewpoint for the airline industry and stated that its third quarter operative profit fell 21%. Air France-KLM dispatched a current operational loss of 543 million euros in end of September of six months, associated with a current operative profit of 592 million euros for the similar retro a year before.
As per the above statement it shows that recession has not affected BA more than its competitors Like Lufthansa AG has a fall in profit by 21%,on the other hand Air France current operating profit raise up to 592 million euros as compared to BA it was still in the phase of forfeiture.
Ans 3 what if
British airways was always organised and they were always adapt their plan to indicate the challenging conditions.
The condition of British airways would have been different in the years 2007 and 2008 than today, if there would have not been any financial downturn in the country .The downturn has affected the reputation of British Airways.
Lets make out what will be the condition of BA what if there was no financial downturn
There would be no raise in the prices of oil.BA could have maintained its position of being on top of the chart of airlines industry. There would not have been any cyclic change in the organisation due the delay in flights or flights being cancelled as lack of fuel.
If BA was not got affected by the financial downturn then it would have maintained its quality of services and there would not have been decrease in the demand of its customers and they would have paid quality prices for their short trips.
There would be no decline in the revenue of the BA employees. They would have been paid with good quality of earnings and bonuses plus. As of financial crisis in the organisation there was decrease in the manpower and less people were tend to do more work than expected on less wages or they remained unpaid for long period. If there was no financial downturn then things would have been different, employees would have been paid with proper wages with considerable work and more of new employees would have been recruited in the organisation.
Corporate responsibility, company with the ideas of open obligation to perform responsibly and to accomplish their environmental influence would have a better chance of constructing a trustworthy relationship with the customers. There would be an grater atmosphere of high competition in the market, BA would have all its competitors and as being on the top it would have taken the advantage of offering its customers with different quality of services or services of their choice at affordable prices which help it in attracting more customers.
Safety and Security as been the key priorities of British Airways. If the financial downturn has not occurred then BA would have its own advanced safety audit and there would have no accident happened in the year 2007 due to lack of proper safety.
Merger with Iberia would have not happened for British Airways, if the reason was not that it add to their success building a relationship with a expanding their effectiveness, teamwork and an exceptional network profile. Which was an intelligent move made by BA for its development.
Ans 4
Recommendation
The decelerating economies of both the UK and US intensely impacted BA, building the carrier very in danger to any financial commotion. Declining long-haul premium traffic due to the insolvencies in the banking sector in the US has seriously hit bookings and revenue growing. A change towards more profitable destinations like China, India and Brazil along with a stronger attention on online retailing and policies to recognise the market opportunities that are necessary.
BA had a strong brand image and name associated with services of best quality. The successions of financial and staff-related problems, however, have extremely smudged its reputation and customers perception and initiated enormous losses in lost reservations and concentrated travel volumes. BA, to rebuild its reputation in market I recommend:
• BA must focus on rebuilding its brand and avoiding the threat of regular strike action. It needs to address its staff problems and host a defensible plan for its pension scarcity.
•Growing competition from LLC requires BA to reduce its necessity on short-haul routes and increase its attention on long-haul flights. To increase demand, the BA must roll out value for money correspondences despite having to sacrifice limitations, which can help drive growth.
· BA must slash costs with regards to its crew in order to stay competitive and decrease the gap between the business and itself.
· BA should provide discounts for their corporate clients.
· BA should invest in the people to guarantee them that they will attain the excellence service they anticipate from British Airways.
· BA should invest in merchandises that will gain interest and uphold the most gainful customers, approving long-term effectiveness in the future.
· BA must continue to deal with the inadequacies and reduce costs by noticing and refining methods within the organization.
Conclusion
