1. Introduction This report will firstly evaluate the usefulness and limitations of the two investment appraisal methods, including the Payback and Net Present Value (NPV). Secondly the report will review historical financial information. Thirdly discuss the financial issues of debt and equity. Finally the report will provide recommendations of how the company’s investment should be finance. Barra Airways are having a board meeting regarding the financials of the company and advice on the new expansion plans. The new expansion plans are to expand into the Eastern European market, with 20 routes to still be established. Barra already offers cheap flight within Western Europe. The airliner does not offer other service such as meals during …show more content…
After all the calculations were completed the Net Present Values for both methods were calculated. 2.2 Procedure Cost as proportion of revenue was calculated by adding all the cost up from the profit and loss account, from all three years and then divided by the number of years. The net income was adjusted so that it is not reduced by depreciation expenses. According to McLany (2006a) Depreciation should not be included because it does not represent a cash inflow. Also maintenance cost was not included, as it will be taken into account in year 9. Interest and other tax are not included either, because it will be taken into account by discounting. The average revenue was taken from the profit and loss account for all three years, from seat sales and ancillary revenue, and then divided ancillary revenue by seat sales to get ancillary revenue and proportion of seat sales. Method one; revenue from seat sales by population was calculated from the assumption, the assumption were; Eastern Europe population* low cost flights per capita* market share* average seat prices. Ancillary revenue was calculated by revenue from seats sales * (f4) ancillary revenues as proportion of seat sales. Method two; revenue from seat sales by the number of seats and load factor, was calculated again from the assumption; (f4) number of passengers per aircraft* (f4) number of fleets* load factor*average seat price* number of one way flights per day*(f4)
The airline industry has long attempted to segment the air travel market in order to effectively target its constituents. The classic airline model consists of First Class, Business Class and Economy, and the demographics that make up the classes have both similarities and differences to the other classes. For instance there may be similarities between business class travellers on a particular flight, but they will not all be travelling for the same reason. An almost-universal characteristic of air travel is that customers do not fly for the sake of flying; the destination is the important element and the travel is a by-product, a means-to-an-end that involves the necessity of an aircraft that gets the customer from point A to point B.
The purpose of this memorandum is to address the profitability issues at Continental Airlines and to estimate the costs for 2009 to forecast the future outlook of the company. To address these issues, I used regression analysis to observe what effect the 11% reduction in flying capacity would have on the firm’s future operating costs. I also used the results from the regression analysis to verify the costs that, if reduced, would further comply with the implementation of cost-cutting initiatives and operational efficiencies that the company is striving for. Lastly, I consolidated the data to forecast Continental’s financial outlook for 2009, then provided insight
From the perspective of investor relations, the new tasks of the new confidence in the BA can only be beneficial. In addition, its signal is BA's business from last September, the recent studies about the efficiency of world tourism program of the future is not a one-off, but a new millennium as part of a larger plan. (Morrell, 1999)
• Airline’s profitability hinged on the fraction of its flown seats occupied by passengers- load factor
Improved Forecast Accuracy in Airline Revenue Management by Unconstraining Demand estimates from censored Data. Retrieved February 20, 2006 from http://www.bookpump.com/aps/pdfb U
In terms of major cities, American Airlines holds significant market share of many of the top domestic routes. According to the U.S Department of Transportation Bureau of Transportation Statistics, American Airlines holds 67.43% share of the Dallas/Fort worth Texas market, 67.46% of the Miami Florida market, 16% of the Chicago market, 16.49% of the Los Angeles market and 13.85% of the New York market; these are significant shares as these are cities within the top five domestic routes in the U.S (DOT, 2015a). American Airlines is also a major employer in the aviation industry. As of June 2015, American had 59,905 full time employees and 7,427 part time employees (DOT, 2015b). Although these numbers makes American the fourth largest employer among major carriers, these numbers are significantly lower from their highest levels of 107,311 full and part time employees reached back in August of 2002 (DOT, 2015b). The managerial accounting significance of this fact will be explored in the Activity Based Costing section of this
The implications of this analysis are that the focus on the Chinese market is justified. The Chinese air travel industry is booming, and indeed this is fueled by that country's rapid growth and the increased demand for
With its rich market data, students are also asked to make break-even analyses, estimates of customer acquisition cost, and estimates of customer lifetime value. XM, too, is considering a novel pricing structure, passing on advertising revenues and relying solely on subscription fees. As with the Virgin case, price level presumes pricing structure, and pricing structure follows targeting and segmentation, all informed with market research data. However, the XM case includes other complications, for it will need to establish partnerships with leading electronics manufacturers to provide radio receivers, and thus must consider trading off part of the subscription income to subsidize the manufacturers and lower the entry price for potential customers. There is also a discussion of some dynamic pricing possibilities. Dynamic pricing is the focus of Section 5. American Airlines, Inc.: Revenue Management, an HBS classic, gives a simple but rigorous introduction to dynamic pricing and revenue management, as it was practiced by the airline industry in 1990, subsequent to the deregulation of 1978. Revenue management is composed of pricing and yield management, and students learn through quantitative assignments that the two must be done in tandem to maximize revenue. The alternative case, Priceline.com: Name Your Own Price, extends airline revenue management into the online era. Priceline builds an
Etihad Airways on its fleet determined to Abu Dhabi Australia route, consists of, sevenA340-600 Airbus with 292 passenger capacity, and V Australia the international carrier of Virgin Blue with its three Boeing 777-300ER, considering the total costs for the flight, as the homogenous fleet will have lower operating costs that would have effect on the fare price. For that reason, Etihad has to fill most of the seats on the plane in sense of covering the operational costs. Depending in two variables: ‘Load factor’ the plane seating capacity that is actually sold, whereas, it was 74% for this route in the last year, and ‘Yields’ the revenue obtained for flying one passenger over one kilometer, while it increased by 20.1% year on year. Hence, using the load factor by Etihad as an indicator by its marketing department supporting its pricing strategy, hence the high load factor over (85%) is considered as a sign for Etihad to focus on low yields. For instance, by offering lower prices for this route, as the number of seats sold goes up depending on the effectiveness of its promotion activities the fare goes down. However, it has to cover up the operational cost either by high or low fare prices for its profitability. Moreover, usually it happens that two passengers
Aircraft companies are derived strongly from the airline production function, like the situation at ticket prices, operators cost and some elements variables specification such as satisfy of passengers and situation in the market competitive.
1998 Sales minus Cost of Goods Sold (60%) minus Operating Expenses Gross Profit minus Depreciation∗ Profit Before Tax minus Taxes (40%) Profit After Tax 1,000 −600 −50 350 −160 190 −76 114
Airlines industry is a highly competitive market with limited number of players. The data obtained to analyze are taken from research reports, papers and observations.
(a) Why is the investment appraisal process so important? ……….......................1 (b) What is the payback period of each project? If AP Ltd imposes a 3year maximum payback period which of these projects should be accepted? ………………………………………………….……..............1 (c) What are the criticisms of the payback period? ................................................2 (d) Determine the NPV for each of these projects? Should they be accepted? Explain why?
The North American airline market recorded slow growth during the review period (2009−2013) in comparison to the developing Asia-Pacific and Latin American markets. According to the International Civil Aviation Organization (ICAO), the region’s air traffic increased at rate of 1.3% in 2012 and 2.1% in 2013. Growth is expected to continue at a rate of 2.7% in 2014. The IATA expects the profit of airlines in North America to increase from US$7.0 billion in 2013 to US$9.2 billion in 2014.
The overall aim of my research is to generate new feasible ticketing strategies to an airliner in order to improve the revenue of the airliner. This research involves in understanding the current ticketing strategies and the change in customers’ behavior with the change in prices. This research creates a value to the airliner as a company by making profits and no loss at a least scenario, even if the airliner operates with unoccupied seats.