Airline Revenue Management: Comparing Financial Metrics and Suggestions for Improvement

This report compares the financial metrics of British Airways and EasyJet using ratio analysis and provides suggestions for improving their financial performance in terms of revenue and costs.

Airline Revenue
Management

Table of Contents
INTRODUCTION...........................................................................................................................1
PART 1............................................................................................................................................1
Background of the company .......................................................................................................1
PART 2............................................................................................................................................2
Compare the financial metrics of the company by Ratio analysis ..............................................2
PART 3............................................................................................................................................3
Comparing and contrasting the ratio of two company and suggestions for improvement .........3
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................5

INTRODUCTION
Airline revenue management is the technique designed to measure the financial
performance of the airlines in the terms of revenue and it is based on fares to provide the
excellent seats to the customer which pay high fare, in the airlines industry, they focus on various
segment to measure the financial position of the company in the Full service network carrier and
low cost carrier, full service airline is generally used by the airlines which provide full fight
entertainment, checked baggage include blankets, pillows and comforts in the ticket price. A low
cost carrier is an airline that is operated with high motive on minimize the operating cost and no
additional service is provided in fare (Kadatz, 2017). In this report, British Airways is taken for
the full service network carrier and for low cost carrier Easy jet airline is take to compare and
contrast the financial position by taking ratios of both company. Apart from these there is
suggestion also provide to improve the financial performance in respect to revenue and costs.
PART 1
Background of the company
First is the British Airways Plc, it is a British air transport company found in April, 1974
in the fusion of British overseas Airways Corporation, it is the largest international airline in the
world. It serves 95 million passengers in a year by using 441 number of airports in the 86
counties, it operate more than 1000 planes it is listed on the London stock Exchange and
generated more than 1 billion on a single air route in a year. In the economy background of this
airline, comes with hand luggage, freedom to choose own seat and in the financial background
IAG reported loss of 4.2 for the first half of year and passenger fell 98% between April to June
period. Their major subsidy include in this are continental Europe, OpenSkies and BacityFlyer.
Second is Easy jet, it is British multinational Low cost airline headquarter at London
Luton Airport, which is found in march in the year of 1995 by the businessman Stelios Haji-
loannou, at that time he is 28 years old. In this company first fight is from London- Luton to
Glasgow which took place on 10 November 1995. the takeover of the British Airways spin – off-
cost airline in Europe. It has total number of routes are 279 and 74 airports. Their financial
performance raise over 2.4 billion in the August 2020, 600 million is came from the Covid
corporate provided by the UK government and 400 million raised through shares. For the
economy they employed 15000 people in the UK. They make the group with the associate
1

companies are Easy Jet Europe, Easy Jet Switzerland. In 2014, they carried more than 65 million
passengers and make it second largest budget airline in the Europe by number of clients. They
use the business model used by Southwest Airlines, the key points of this model are high aircraft
utilization and quick turnaround times and operating low costs. Their strategy is to use of the
different approach to make accommodations for the unions (Tian, Ge and Xu, 2018).
PART 2
Compare the financial metrics of the company by Ratio analysis
Ratio analysis means the comparison of the financial statements of the two business of
same line, it is used to evaluate the issues of the organization in respect to liquidity, efficiency
and profitability, it is the process to ascertain the position in respect to their competitor in the
markets (Tse and Poon, 2017).
Ratio
analysis
British
Airways EasyJet
2018 2019 2018 2019
Current ratio
current assets/current
liability
Current assets 10093 11327 1999 2119
Current liability 11050 12748 -2060 -2668
current Ratio=
0.913393665
2
0.8885315
344
-
0.9703883
495
-
0.7942278
861
Gross profit margin Gross profit/sales
Gross profit 3487 2947 445 430
sales 24258 25506 5898 6385
Gross profit margin= 0.143746392 0.1155414 0.0754493 0.0673453
2

9 412 048 406
Net profit margin Net profit/ sales
Net profit 2897 1715 358 -108
sales 24258 25506 5898 6385
Net profit margin=
0.119424519
7
0.0672390
81
0.0606985
419
-
0.0169146
437
Operating profit
margin operating profit/sales
operating profit 3678 2613 463 970
sales 24258 25506 5898 6385
operating profit margin=
0.151620084
1
0.1024464
832
0.0785011
868
0.1519185
591
Debt ratio Total debt/ total assets
Total debt 876 1843 -968 -1324
total assets 28034 35661 6993 8163
Debt ratio
0.031247770
6
0.0516811
082
-
0.1384241
384
-
0.1621952
713
asset turnover ratio
sales/average total
assets
sales 24258 25506 5898 6385
total assets 28034 35661 6993 8163
asset turnover ratio=
0.865306413
6
0.7152351
308
0.8434148
434
0.7821879
211
3

PART 3
Comparing and contrasting the ratio of two company and suggestions for improvement
From the above ratio analysis, it has been interpreted that current assets of both the
company is decline from 2018 to 2019, it means company is maintaining its assets in the proper
ways and don,t pay out their current liability. In the comparing of the current assets, it sates that
Easy Jet required more improvement in the maintain the current ratio.
In the second ratio, Gross profit margin of the British Airways is decline in the year and
same as Easy Jet gross profit margin is also decrease. It means both company is not able to incurr
more sales and their direct expenses is incur very much. There is the need of the improvement
for Easy Jet because their margin is low as compared to British Airline.
In the third ratio, Net profit margin of both company is decline which means the main
reason is of COVID-19 from these, revenue become low and this effect the net profit because
maintenance charges are incurring on regularly basis of the airlines. There is the need of
improvement in the Easy Jet for increase the net profit (Ayvaz-Cavdaroglu, Gauri, and Webster,
2019), margin and debt ratio, there is incremental in both company because there is increase in
operating profit or net sales, and in debt ratio both are pay their debt time to time to manage the
total assets. But in compare of both there is the requirement of improvement in British Airways
in both ratio.
In the Asset turnover ratio, there is decline in the ratio of both company in the year 2019
as compare to 2018. because company is not able to increase its revenue as per the market
condition. There is requirement of improvement in British Airways to increase its asset turnover
ratio.
Suggestion for improvement
 current assets is improved by increase the available assets than the shirt term debt.
 Debt ratio is improved by relies more on debt than the assets, through this company
easily meeting its financial requirements.
 Asset turnover ratio is improved by management of the assets in the good way, they use
this for sell products which make the companies highly efficient.
4

 In the gross profit margin and net profit margin company have to eliminate all necessary
operating costs for increase the profitability of the organization (Pimentel, Aizezikali and
Baker, 2018).
CONCLUSION
From the above report, it has been concluded that Airline Revenue Management is use to
manage the revenue of the airlines in the UK. In this , there is the comparison of the ratio of both
the company which is based on the FSNC and LCC, after that there is the analysis of all ratio and
advices for the improvement of financial position of the company.
REFERENCES
Books and Journals
Kadatz, D., 2017.Uncertainties and Risks in Airline Revenue Management–Capacity Uncertainty
as a Showcase(Doctoral dissertation).
Tian, L., Ge, Y. and Xu, Y., 2018. A stochastic multi-channel revenue management model with
time-dependent demand.Computers & Industrial Engineering. 126. pp.465-471.
Tse, T. S. and Poon, Y. T., 2017. Modeling no-shows, cancellations, overbooking, and walk-ins
in restaurant revenue management.Journal of foodservice business research.20(2).
pp.127-145.
Ayvaz-Cavdaroglu, N., Gauri, D. K. and Webster, S., 2019. Empirical evidence of revenue
management in the cruise line industry.Journal of Travel Research. 58(1). pp.104-120.
Pimentel, V., Aizezikali, A. and Baker, T., 2018. An evaluation of the bid price and nested
network revenue management allocation methods.Computers & Industrial Engineering.
115. pp.100-108.
5

6