British Airways

Done By: Omar Jasem Al-Marzouqi ID: 1006175 Question 1) 1

First of all I would like to mention that what I have done is analyze the British Airways performance since 2005 and the current year 2008.We will see some changes that occurred whether it was in their return on asset, or Revenue, Current ratio, Shareholder equity and other more. Bear in mind that the number here are in £ million. Here I will be analyzing the British Airways and showing you some diagram stating how is British Airways financial condition, whether it is in good performance or no.

Performance

Performance

for the three

for the three

months ended

months ended

June 30, 2008 2,259 35 37 27 1,955

June 30, 2005 2059 176 124 90 1783

6.1 -80.0 -77.4 -78.0 0.1

2 7.10

8.3 6.09

-80.6 16.58

Total fixed asset Total equity

11336 3033

8492 2465

33.4 23

shareholders Total liability

8652

7890

9.6

Revenue Operating profit Profit before tax Profit after tax Net assets Basic earnings per share Passenger revenue

Change

per RPK

Financial Challenges: As you can see here for the operating profit it decreased a lot, by 80 percent and that’s because consumer confidence were weak, and this

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resulted in reduction traffic volumes. In addition to increase in fuel prices, employee cost, engineering cost, Landing fees and en-route charges, Handling charges and other operating costs increase due to costs linked with the delayed moves to Terminal 5, cargo handling and trucking charges, and the Stronger Euro, Accommodation, ground equipment and IT. Performance For the revenue there was small increase because, the ratio of selling costs/revenue was falling, and this prevents them in obtaining a great amount of revenues. Asset is so far in good condition, British Airways is always on time to purchase many Boeing Aeroplan in order stay in a good financial position, because the more asset the greater return of money

. You will see in this diagram, that so far for the performance over time, British Airways are in an uptrend, with a 1.5 percent increase since 2005.So British Airways are in good condion,but they might still be aware of economical changes, just like the financial challenges that was explains. Tool Analysis: Current ratio =Current asset/Current liability

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(Year 2008) =11336/8652=1.31 (Year 2005)= 8492/7890= 1.07 As you can see there is increase in the current ration, that mean British Airways are more capable the company is of paying its in addition to they will also be able to turn its product into cash. But this may need time, because of the challenges that they are facing now such as fuel and terminal 5 and others. And increasing in current ration also indicate that short-term liquidity has improved constantly throughout the period. Return on Assets (ROA) = Net Income/Average Total Assets In our case we will take Profit after tax because Net income mean income after deduction, and here tax is the expense that is deducted. Year 2008=27/11336=0.002 Year 2005=90/8492=0.010 Here in year 2008 the company is earning less money on their less investment. The higher the ROA number, the better, because the company is earning more money on less investment

Return on Equity (ROE) =Net Income/Total equity shareholder Year 2008=27/3033=0.0089 Year 2005=90/2465=0.0365 British Airways here is less likely to be is capable of generating cash internally. Position:

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British Airways is one of the largest airline, specially after some acquisition and opening subsidiaries this will lead it to be one of the top leader in the world capturing a huge market, thus being 1st largest international airline.Offcourse dedicating to deliver world-class service, whether in business class or econmomy.And lastly will be the highest in financial growth, either for profit or stockholder equity.

Question 2) In my opinion British airways to enter business only airline business is a posisitive impact and best move. Airline's strategy to business class is switching and would concentrate on business travel at the expense of the cut-throat economy travel market. British airways move is to concentrate more on the business traveler rather than chasing huge amount of discounted traveler within the economy class. They even found that people who want manage and organize their live and business affair in many 5

countries need peace of mind, and need a solution to transfer money wherever they are And what they did is had opened a subsidiary called Open skies, The first step towards a freedom US-EU aviation market which mean that any people now can fly anywhere where in US to Europe destination. and in which they offer an incredible product packages and with a great value of customer money. They are able to do that because they only got business class passengers. In addition, there is a big gap in the market and demand for their product .Every business man would like to have a great customer benefit package. And business people are very big market. And the reason they opened the subsidiary is to reduce the reliance on their Heathrow Airport and that’s by taking off between the US and cities founded in continental Europe

British Airways Subsidiary open skies will be traveling through Europe – North America. and why is that ,is it because Europe-North America international market is the largest air transport market in the world, And as you can see that a large market to catch up with. In this Subsidiary, British airways will be able to get a more profit than ever before. What British airways did here, is they subcategorized the classes into economy level, biz level, Prem + And they will be able to benefit from a relationship with one of the world's largest and most esteemed airlines to create a totally new, premium airline. 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 6

entertainment systems, and more comfortable seating are just some of the product enhancements being introduced to attract and retain customers. British airways will also be able to appeal to prospective shareholders and that off course by being more efficient and competitive. In addition they will able to tackle their costs and improve their products, thereby securing a strong presence in the key world aviation markets. They will be having a unique culture in airline, in a way they are a very customer focus, everything they do is driven by listening to customer, and they act on it. Huge market will be attracted from such a strategy, in which they will make their services different as possibly from any other airline; in which it is really innovative, really different. And by providing good product and value for money(good cost and stress free journey).

Another good strategy for British airways is purchasing the Lavion Paris airline so that it works with their other subsidiary Open Skies, from Paris to New York only. In addition to this , it will keep Open skies mission in expanding the British airways, in operating landscape under the agreement adopted by US and European union(open Skies agreement).British Airways had to take this move ,because their business class had collapsed after Silverjet airline took place in business class leader . And once both Open skies and Lavion are working together, they will provide the best experience benefit to customer, and thus increasing sales. And by then they can provide more packages and privileges clubs. Both Lavion and Open skies will keep hold of two products so diverse. Such strategies will build be a great success as we build the strength of British Airways brand, both US and Europe. In addition to it will enable 7

airline to grow faster and strengthen their base too. Both Open Skies and Lavios will even let them compete on other international routes outside of the UK.See buying Lavio is a great strategy, because there is a huge market for such flight to Paris(attracting over 30 million foreign visitors per year) and New York, and it is Lavion is the first business class airline in French. So Having it and Openskies will have a competitive advantage over others.

Question 3)

British airways so far is doing its best in order to stay one of the major player in the global airline, in which it is are being more creative ,opened to alliances ,and acquisition. See in order for them to be top player, they have and must be in full potential to reach for any opportunity that is waiting for them .Such as opening in new subsidiaries' to gain new niche market. In which they will also concentrate on business class passenger, offering them the best customer package, leading them to gain huge revenues return. They always watch out for ways to minimize their 8

expenses and get a value for their money and shareholder money. Doing so, leads them to cost savings, and finally making them to stay on the top competitive the desire to stay on top in an increasingly competitive environment. British airways are always prepared; they always adapt their plan to indicate the challenging conditions. What they have done is reduced the volume in the winter arrangement without conflicting their network .They also are rich with the flexibility in business in getting the most out of when conditions get better. In addition to buying many Boeing 777-300ERto reduce their expense, because it is sais that these fuel will reduce their fuel about 23% and by that they will get more profit leading them to be a the big airplane cost saver and an environmental plane .These plane believed to be more flexible in long run. This move ,will indeed place them to be one of the major player in the airline, because what make a company profit is not only generating profit ,but trying to reduce as much expanses as possible. Even though there is an increase in fuel British Airways still know how to manage that through adding extra charge on tickets sold. By that the company is still in good financial position.

Merger with Iberia, was a brilliant move for British Airways, the reason is they can add to their many year of success a relationship with a doubling their efficiencies, teamwork and an outstanding network shape.

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British Airways have also released Terminal 5, in which they said it had been functioning well with more than 6 million passengers traveling through it. They even carried on in implementing the Terminal 5 to build an a nice feeling experience to customer, with a place to dine,relax,shop and the most important is giving out real value to their customer . Terminal 5 have many advantages to British Airways in keeping them in which they will be able to make things easier for their processes, guarantee faster trip links. For example, now it takes only 20 minute to move off from the plan and to get to other flight. Connections of flights occur in Terminal 5.And this had increased the speed of transfer process, by eliminating out needless walking. So here Terminal 5 do have a major role in keeping the British Airways ahead from the other competitor.

Being creative as mentioned above, is other way British Airways are trying to be. Creating an application for Iphone (Apple), in which it let people to access real time schedule of British airways flights. They did state, since the time customer use the Iphone the passenger number doubled in one day. And that’s a nice strategy, because this move will increase their sale. And by that day by day it will promote them to be the top airline over the globe. As we all know first mover first advantage, and British Airways was the first to launch such service, and so that will make them unique from the others. Along with Openskies strategy ,in which their target are business passenger are one of the best move they have done, Here as explains before, the OpenSkies will be available for any passenger to fly from US to Europe in any city. In addition to Lavio acquisition, making them to

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have double business airline, here Lavion will be delivering passenger only USA to Paris. See this is a big market, here British Airways have captured huge customer, in return for a big profibiilty sales. In conclusion, we could see that all what it is done so far by British Airways is for its own benefit and their shareholder. And by time British Airways will be the most favorable airline and best airline ever. And what make it a success is their hard work commitment to deliver values to customer and shareholder.

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References:

1. http://www.britishairways.com/ 2. http://www.business-sale.com/ba-has-bought-french-airline-lavion-

bsr-aquisitions-12592895A.html 3. http://www.fly.co.uk/news/heathrow-expansion-necessary-says-

british-airways-boss-198239.html

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4. http://en.wikipedia.org/wiki/British_Airways 5. http://www.britishairways.com/travel/openskiesdif/public/en_gb 6. http://news.bbc.co.uk/2/hi/business/7256487.stm 7. http://edition.cnn.com/2008/BUSINESS/08/01/ba.profit.ap/index.ht

ml 8. http://edition.cnn.com/2007/TRAVEL/08/21/BT.openskies/index.ht

ml 9. http://www.highbeam.com/doc/1G1-141639845.html 10. http://www.bashares.com/

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