British Airways performance is higher in comparison to Virgin and EasyJet. A key to BA’s success of them being market leaders may be because BA being on the international scene. BA holds a partnership with American airlines and others such as Cathay pacific and Finnair. Keeping hold of that market position, BA aims to be a transnational airline. In October 2005, BA airline services increased flights to India from 19 to 35 flights per week at London Heathrow. Showing that BA flights are in demand and the numbers of flights going abroad each week are rising. Whilst BA has already taken this step
Branson has quoted;
“We would like to see Virgin Atlantic grow its network and fly to more cities” ().
Virgin is looking to increase the number of flights from London to India from this December.
Profits are increasing for many companies in the airline industry. Despite this rise there are economical factors to take in to account as to why some airlines may not be achieving their desired profit.
Factors affecting performance of the business
An economic factor affecting airline performances is the ongoing soaring fuel prices that are continuing to dominate the industry and are expected to be £400(m) more than the last year.
A further economic factor that may influence the financial performance of an airline is the Air Cargo business, Subject to intense competition between different airlines and also an impact of high fuel costs. BA and Virgin are very successful in the air cargo business. Virgin Cargo business is one of the world’s most successful international cargo organisations. BA also carried 877,000 tonnes of cargo last year.
Both airlines are increasing what they have to offer for their customers, showing customer care is a primary focus.
EasyJet does not offer any cargo business and are a European operation. Even though EasyJet only operate in the UK and Europe they have been successful. Their success is due to the fact their prices are considerably cheaper in comparison to other airlines. EasyJet keep costs low by eliminating unnecessary costs which characterise traditional airlines. They have been very successful in reducing distribution costs by the use of the internet, 95% of EasyJets seats are sold over the internet making them one of Europe’s biggest internet retailers. By keeping costs down EasyJet can concentrate on higher profits. BA and Virgin use online booking system but do not rely on this for their selling.
Events such as 9/11, SARS, Iraq War and suicide bombings have had great political, social and environmental repercussions on the airline industry causing a sudden downturn in people travelling on planes. More recently, the Gate Gourmet incident influenced BA's business both financially and politically since the grounding of 900 flights cost them around £45m and stranded 100,000 travellers. This directly affected their reputation as a leading airline company.
Growth
A reason for such growth in the airline industry could be due to the fact that travelling has become much more popular with all people from society, for leisure and business purposes. This could be because interest rates are lower which allows for increased consumer spending and people having more disposable income.
Heathrow owners BA have decided to invest £4.2 billion into building terminal 5, which will alleviate the restriction of flights currently in place at Heathrow airport. This is a sure sign of confidence in business growth and a rise in customers, with the long-term intention of increasing their profit margins.
Each airline will tend to have similar goals to work towards and to be one of the top airlines. They are all in competition with each other and are the reason why flight prices are always being cut to compete with each other. Tim Ramage, British Airways general manager told journalists that; “They were forced to cut ticket prices to compete with Virgin Atlantic Airways” ()
Recommendations
BA’s performance is much greater then other companies such as Virgin and EasyJet. BA's current operating margin stands at 6.9% and they are determined to raise their performance closer to their target of 10% as stated in their annual report.
If market conditions are to remain unchanged, and the great potential that will be provided by the opening of terminal 5 BA will continue to be successful. BA has a good reputation and as long as they continue to maintain it, they will remain market leaders.
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For EasyJet to become a more successful airline they may want to introduce flights to other countries outside Europe. They provide very cheap flights and are very popular for their cheap prices but could be more widespread to increase profits and also customer loyalty.
Virgin have great potential in becoming as successful as BA, Richard Branson may need to focus on why and how BA are successful and consider adopting a new approach, introduce more facilities along with cheaper ticket prices.
Conclusion
I have come to a conclusion that although Ratios may show the financial performance of a company, they do not always show the bigger picture. BA have been doing exceedingly well with their profits and sales revenue, however are also a very highly geared company which could cause them a setback in the future if their gearing continues to rise.
EasyJet are a much smaller airline group then BA, this is why their profits are not as high as BA but still beyond their own expectations. Virgin compared to BA is more recent and was founded in 1984, whereas BA was founded in 1924 as imperial airways. Virgin have not had a chance to mature as a company like BA, which is why the may not be as successful.
There are many limitations of Ratio Analysis. Companies may manipulate figures to show that they are performing better then what they actually are. As a group we had some difficulties using the correct figures for BA, the FAME database figures were different compared to the annual reports we had sent to us by BA, in the end we chose to use the company’s annual report. Other limitations include restricted vision of non financial data; you cannot predict financial failure on the basis of current or pass performance.
The market is forever changing, also economical and political factors that I have discussed play a major part in affecting performance as they are usually unexpected. Such as the many events BA had experienced. Therefore, you cannot solely base a company’s performance/failure on financial figures, since external factors which influence performance in the industry must also be taken into consideration.
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References
Atrill, P. and Mclaney, E. (2005) Analysing and interpreting financial statements. Harlow. Pearson Education Limited
British Airways Plc. (2003/04/05) Annual Reports and Accounts. Harmondsworth
British Airways (online), available from
BBC News (online), available from
Easy Jet (online), available from
FAME Database (online), available via
Google Business (online), available from
Hoovers, D & B company (online) available from
The Independent (online)
Virgin Atlantic (online), available from
Yahoo Finance (online), available from
