Airline Industry Monetary Position Analysis

This assignment involves analyzing the monetary position of an entity in the airline industry, focusing on aspects that affect profit-earning capacity. It requires utilizing various tools for profitability and competitiveness assessment, along with suggesting recommendations to enhance organizational performance and improve future strategies.

AIRLINES FINANCIAL
ANALYSIS REPORT

Table of Contents
INTRODUCTION...........................................................................................................................1
A) ANNUAL REPORTS OF VIRGIN AUSTRALIA....................................................................1
B) FINANCIAL PERFORMANCE ANALYSIS OF VIRGIN AUSTRALIA AIRLINES............6
C) RECOMMENDATIONS TO IMPROVE FINANCIAL PERFORMANCE ............................7
CONCLUSION................................................................................................................................8
REFERENCE...................................................................................................................................9

Index of Tables
Table 1: Profitability ratio analysis for Virgin Australia.................................................................1
Table 2: Liquidity ratio analysis for Virgin Australia....................................................................4

INTRODUCTION
Financial statements of any organisation analysed that shows economic position that
generates different ideas for improving them. It is essential for organisation's effectiveness and
improving its services. The present report is based on analysing financial position of Virgin
Airlines. It is growing wide spread airline service provider headquartered is in California. In this
regard, annual data of the entity is to be described through ratio analysis of last 5 years from
2012 to 2016 to analyse its economic position. However, critical evaluation on monetary position
of Airlines can be evaluated that generates different ideas for further implementations. In
addition to this, suggestions to improve financial position is to be presented. Thus, students are
able to understand concept of financial statement analysis for Airlines industry and manner to
improving economic position of the entity through this report.
A) ANNUAL REPORTS OF VIRGIN AUSTRALIA
Annual report of the entity shows its profit earning capacity and liquidity position for
further operations and implementations at higher level. In this regard, decision maker of the
Airlines evaluates ratios to present monetary position as profitability, liquidity, efficiency, capital
gearing ratio and so on (Lee and et.al., 2017). However, different ratios can be analysed as
below:
 Profitability ratio: Profit earning capacity of Virgin Australia is evaluated by gross
profit margin, net profit margin, return on assets. However, monetary position of entity
can be analysed as different ideas are generated for improving it (Thompson and Craven,
2017). In this regard, profitability for Airlines can be evaluated as below:
Table 1: Profitability ratio analysis for Virgin Australia
Profitability ratio Formula 2012 2013 2014 2015 2016
Revenue 3920 4020 4307 4749 5021
Gross profit 1408 1209 1186 2323 2948
Gross profit margin
(Gross
profit/revenue)*100 35.92 30.07 27.54 48.92 58.71
Operating income 412 740 1354 228 761
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Operating profit
margin
(Operating
income/sales)*100 0.11 0.18 0.31 0.05 0.15
Gross profit margin: It is percentage of gross profit to gained revenue of the entity.
Through analysing gross profit margin for Virgin Australia, it is analysed that from 2012 to
2016, it is increased at high level. Therefore, gross profit margin of the firm can be analysed as
below:
Here, blue represents profit margin for year 2012 as well orange, yellow, green and
maroon represents years from 2013 to 2016 respectively. It is interpreted that in 2012, this ratio
was 35.92% which got slow down because of decreasing in demand for destinations worldwide.
Further, from 2015, this ratio got increased till today which shows effective profitability of
Airlines in Australia. In 2016, this ratio is evaluated as 58.71% which remains effective and in
2
35.92
30.07
27.54 48.92
58.71
1
2
3
4
5

favour of further business operations. According to this analysis, it can be forecast that entity can
enhance its profitability efficiently in future time period which influences its productivity and
competitiveness. Therefore, gross profit margin of the entity is quite effective and in favour of
organisation that can be improved at higher level in further years.
Operating profit margin: It is calculated as percentage of operating income to net sales
of the organisation. Thus, by analysing this ratio, several ideas are generated for further
operations and improving profitability of Virgin Australia (Prince and Simon, 2017). However,
operating profit margin for Airlines entity can be expressed as:
Interpretation: As per comparing all years' operating profit margin, it is evaluated that
in 2014, Virgin Australia has gained profit at the highest level as of 0.31%. However, earned
operating income from expenses on business operations is in accordance to it but there is
requirement to create innovations in business operations for improving its profitability.
Therefore, it is analysed through this ratio that Virgin Australia should work upon its
effectiveness and operations for increasing in demand for destination from different countries
globally.
 Liquidity ratio: It includes current ratio, acid ratio and so on which shows liquidity
position of Australian Airlines. Including this, cash of the entity is analysed which
3
1 2 3 4 5
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
Row 9

generates idea for adequate fund allocation and improving liquidity position of the firm
(Yildiz, Gzara and Elhedhli, 2017). For this purpose, comparison of last years' liquidity
performances of Airlines can be expressed as:
Table 2: Liquidity ratio analysis for Virgin Australia
Liquidity ratio Formula 2012 2013 2014 2015 2016
Current assets 1032 970.9 1234.9 1586 1713.7
Current liabilities 1591.6 1793.1 1920.6 2299.8 2779.8
Current ratio
(Current assets/
current liabilities) 0.65 0.54 0.64 0.69 0.62
Inventory 30 60 72 82 85
Prepaid expenses 90 141 153 144 163
Total assets 3995.2 4426 4679.3 5779.6 6040.8
Total liabilities 3066 3386 3631 4647 5116
Acid/Quick ratio
[(Total Current
assets-Inventory-
Prepaid expenses)/
Current liabilities] 0.57 0.43 0.53 0.59 0.53
Current ratio: It is essential to analyse liquidity position and profitability of the entity
by which forecasting for further years is created. An ideal ratio for any organisation is considered
as 2:1 which shows positive and efficiency of the organisation. For Virgin Australia, current ratio
of the Airlines entity is expressed as below:
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Interpretation: Here, current ratio for different years 2012 to 2016 is presented that
which can be analysed for organisation's effectiveness. Through this ratio analysis, it is
interpreted that current ratio of the firm is moderate and in favour of entity's effectiveness. It can
be increased by preparing strategies in accordance to entity's growth and efficiency. For
increasing in liquidity position and better quality services, Virgin Australia can implement its
effectiveness and proper management of the all operations can be done systematically.
Quick ratio: It is evaluated by using formula as [(current assets-inventory-prepaid
expenditure)/ current liabilities]. It is also useful to identify liquidity position and profitability of
the organisation (Schweitzer, 2017). For Virgin Australia, determined quick ratio can be
presented as follows:
5
1 2 3 4 5
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
Row 35

Here, presented different colours show quick ratio of Virgin Australia for last 5 years as
from 2012 to 2016. In this regard, blue colour is for 2012 and further orange, yellow, green and
maroon are for 2013 to 2016 sequentially. It is analysed that in 2015, firm's liquidity position
was quite high and in favour of organisation's effectiveness which is 0.59%. As per critical
evaluation on data analysing, it is recognised that liquidity position of Virgin Australia is flexible
which requires to maintaining and improving for its growth and proper implementation.
B) FINANCIAL PERFORMANCE ANALYSIS OF VIRGIN AUSTRALIA
AIRLINES
Ratio analysis is a financial component helpful to identify financial performance of the
entity. It shows organisation's performance in all context including profitability, liquidity
efficiency and so on. However, it generates variety of ideas for better quality services and
increasing profit earning capacity of Virgin Australia effectively. In accordance to this,
forecasting for further operations and strategies are prepared for implementation of the entity.
However, various tools are used for recognising monetary performance including incurred
expenses, gained revenue on business operations. For this purpose, decision maker of the entity
evaluates ratio analysis like profit margin and liquidity ratios which shows profit earning
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0.57
0.43
0.53
0.59
0.53
1
2
3
4
5

potential and competitiveness of the entity (Vonder, 2017). In order to this, comparison of last 5
years performances from 2012 to 2016 of Virgin Australia is analysed. Moreover, reasons behind
fluctuations and firm's fluctuate positions are obtained that can be improved and maintained for
further years' operations and effective profitability. In addition to this, various tools are used for
better quality services and improving competitive strategies systematically.
According to mentioned ratio analysis and their interpretations, it is identified that
organisation's performance is quite well and in favour of destination services (Yanto and Liem,
2017). However, it is recognised that entity has improved its effectiveness from last 5 years by
adopting new technologies and challenges occurred at workplace. In addition to this, various
implementations are presented for improving profitability and competitiveness of the entity for
longer time period. Along with this, it is also recognised that Virgin Australia has invested fund
on business operations at increasing level continuously that resulted to increasing in profitability.
However, demand for its destination from different countries get enhanced on large scale that
influences profitability and further operations. Moreover, it is forecast that in future time period,
Airlines services for destination can be increased which linked with further profit equity and
efficiency of the entity for sustainability at higher level. Similarly, by creating innovations in
services to satisfy customers at maximum level, effective profitability and implementation of the
entity can achieve. However, on the basis of ratio analysis, it is interpreted that Virgin Australia
ca improve its efficiency and services for long term sustainability in competitive market for
longer time period (Tolbert, Yoo and Ragauskas, 2017). In addition to this, various strategies are
determined for its effectiveness and profitability. In addition to this, through analysing different
ratios of the entity for its performance, several ideas are generated for optimum utilization of
resources and fund as well allocating them more efficiently. Thus, ratio analysis on behalf of
financial statements of the entity shows favourable response in context to its further operations
and effectiveness. Hence, through analysing all ratios critically, it is needed for entity to improve
its financial position which affect further operations and increasing profit earning capacity.
C) RECOMMENDATIONS TO IMPROVE FINANCIAL PERFORMANCE
At present, financial position of Virgin Australia is moderate which is required to be
improved (Warnock, O'Connell and Maleki, 2017). For this purpose, following
recommendations can be followed on can express as below:
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 Costing aspect is one of the foremost things which must be lower over the financial years.
Lower the cost when incurred at the working environment then management able to boost
up level of profitability up to the greater extent. Hence, it can be recommended to the
Virgin Australia Airlines company that, it needs to frame several kinds of cost
management strategies and implement at the workplace. When cost is managed and
reduced then it able to increase overall profit and improve financial performance in the
overall Airlines industry.
 Apart from this, the cited enterprise needs to avoid debt source in order to raise fund from
external market. The reason is that, cost of finance of the debt is higher as compare to
others which is in terms of interest amount. Further, it can be suggested to Virgin
Australia firm that, it should raise capital by considering equity financing source. Under
this, it is not mandatory to bear cost of finance which is in terms of dividend.
 In regard to this, management of Virgin Australia organisation should manage those
expenses which are unproductive for it and create financial burden. When such kind of
expenditures are declined from the workplace, then it easily able to increase liabilities
and assets. Therefore, it will be able to grab the standard ratios of current and quick
which are like 2:1 and 1:1 respectively.
 It can be suggested to Virgin Australia firm that, it requires to use risk management
strategies and techniques at the working environment which supports to reduce problems
related to cost improvement. Further, it should use highly effective as well as attractive
kind of marketing and promotional methods. By doing this, Virgin Australia easily able
to attract more customers and boost up level selling up to the higher level.
CONCLUSION
Through studying this report, it is concluded that financial position of Virgin Australia
can be improved by analysing it critically and creating innovative ideas for better destination
services to a million customers worldwide. In this regard, various tolls and strategies are
determined for increasing economic position and its competitiveness systematically. Moreover,
ratio analysis as comparison of last 5 years' performance of the firm is interpreted for generating
ideas regarding further operations. However, analysis of monetary position of the entity is
presented that affect profit earning capacity and different tools for profitability and
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competitiveness in future time. Including this, various recommendations for improving
performance of the organisation are suggested for increasing profit earning capacity and
competitive strategies adequately through this report.
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REFERENCE
Books and Journal
Lee, B. L. and et. al., 2017. Sources of airline productivity from carbon emissions: an analysis of
operational performance under good and bad outputs. Journal of Productivity Analysis,
pp.1-24.
Prince, J. T. and Simon, D. H., 2017. The impact of mergers on quality provision: Evidence from
the airline industry. The Journal of Industrial Economics. 65(2). pp.336-362.
Schweitzer, B. L., 2017. Jet Fuel Hedging and Modern Financial Theory in the US Airline
Industry (Doctoral dissertation, Walden University).
Thompson, G. and Craven, A. E., 2017. Lost opportunity: Fear of flying, airline profits, and the
economy. Journal of Economic & Financial Studies. 5(01). pp.41-50.
Tolbert, A. K., Yoo, C. G. and Ragauskas, A. J., 2017. Understanding the Changes to Biomass
Surface Characteristics after Ammonia and Organosolv Pretreatments by Using Time-of-
Flight Secondary-Ion Mass Spectrometry (TOF-SIMS). ChemPlusChem. 82(5). pp.686-
690.
Vonder Haar, L., 2017. The Financial Analysis and the Application of US GAAP Principles
(Doctoral dissertation, University of Mississippi).
Warnock-Smith, D., O'Connell, J.F. and Maleki, M., 2017. An analysis of ongoing trends in
airline ancillary revenues. Journal of Air Transport Management. 89(7). pp.90-99.
Yanto, J. and Liem, R. P., 2017. Efficient Fast Approximation for Aircraft Fuel Consumption for
Decision-Making and Policy Analysis. In AIAA Modeling and Simulation Technologies
Conference. pp. 3338.
Yildiz, B. C., Gzara, F. and Elhedhli, S., 2017. Airline crew pairing with fatigue: Modeling and
analysis. Transportation Research Part C: Emerging Technologies. 74. pp.99-112.
Online
Ratio Analysis. 2016. [online]. Available through:
<http://educ.jmu.edu/~drakepp/principles/module2/fin_rat.pdf>. [Accessed on 5th August 2017].
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