Financial Analysis and Recommendations for Airline Company

The assignment analyzes the financial performance of an airline company, identifying areas for improvement and providing strategic recommendations to increase operational efficiency, reduce costs, and enhance customer experience. The report also includes a review of relevant literature from the airline industry, highlighting key concepts and best practices in fuel hedging, service quality, and productivity.

Running head: AVIATION MANAGEMENT
Aviation Management
Name of the Student:
Name of the University:
Authors Note:

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Table of Contents
Introduction................................................................................................................................3
Financial Analysis:.....................................................................................................................3
Operational performance analysis of the entity:........................................................................6
SWOT Analysis:........................................................................................................................9
Recommendations and suggestions:........................................................................................10
Reference..................................................................................................................................12
Appendix 1: Consolidated Income Statement..........................................................................14
Appendix 2: Consolidated financial position...........................................................................15
Appendix 3: Financial Ratio Analysis.....................................................................................16

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Introduction
In this report, an attempt is made to critically analyse the commercial and operational
performance of Virgin Atlantic. It is one of the most popular British airlines company. It is
the trading name of Virgin Atlantic Airways Limited and Virgin Atlantic International
Limited. Virgin Atlantic makes use of Boeing and Airbus wide-body aircraft for carrying out
the operations. It has operations in North America, Africa, Caribbean, Middle East and Asia,
which is conducted from its main head office at London Heathrow and Gatwick Airport. The
company is currently considered the main competitor of British Airlines (Grant, 2016). The
main aim of this report is to critically analyse the financial and other metrics in order to gain
an understanding of the position of the company as compared to industry. Further, the report
provides strategic recommendations.
Financial Analysis:
In order to conduct the financial analysis of the entity various ratios have been used. It
will be very effective and efficient way of finding out the current financial position and the
financial performance of the entity. The ratios are as follows:
Net profit margin ratio:
NET PROFIT MARGIN
Particulars 2015 2016
NET PROFIT 80.1 187.3

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TOTAL REVENUE 2781.9 2689.9
NET PROFIT MARGIN 3% 7%
This ratio indicates the profit earning ability of the company. This ratio further
indicates the operational efficiency of the company. In the present case, it is clear that the
company has been able to significantly increase its profitability from the year 2015 to 2016.
This indicates that the operational efficiency of the company has increased (Treanor et al.,
2014).
Return on equity ratio:
RETURN ON EQUITY
2015 2016
NET INCOME 80.1 186.4
SHAREHOLDERS EQUITY 100 100
RETURN ON EQUITY 80% 186%
This ratio indicates the ability of the company to earn profit by utilising the funds of the
investor. The company must ensure that the returns of offered by the company matches with
the expectations of the shareholders because that is the sole reason of investment of the
shareholders in the company (Vogel, 2014). In the given case, it can be seen that in the year
2016 the return on equity of the company has increased in comparison to the previous year.
This shows that the company has improved the ability to utilise the funds of the investors.
Current Ratio:
CURRENT RATIO
2015 2016
CURRENT ASSETS 970.1 895.7
CURRENT LIABILITIES 401.4 228.1
CURRENT RATIO 2.42 3.93

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This ratio shows indicates the ability of the entity to meet up its day-to-day current
liabilities with the help of its current asset. A good current ratio suggests that the company is
in a healthy situation and is capable of meeting up its operational liabilities. In the given case,
it can be seen that the current ratio of the entity is moving up from 2.42 in the year 2015 to
3.93 in the year 2016. It is a good sign that the company has enough current asset but also
noteworthy that the company might be in an over invested situation and need to invest more
judiciously in its working capital (Wiegmann & Shappell, 2017).
Debt-equity ratio:
DEBT EQUITY RATIO
2015 2016
TOTAL LIABILITIES 891.5 852.6
EQUITY 100 100
DEBT EQUITY RATIO 8.92 8.53
This ratio provides an idea about the capital structure of the entity and the liquidity
position of the entity. In the given case, it can be seen that the liabilities of the company with
respect to the previous year has decreased. At the same time the equity has remained same
this suggests that the liquidity position of the company has improved over the period of one
year.
Debt-Asset ratio:
DEBT ASSET RATIO
2015 2016
TOTAL LIABILITIES 891.5 852.6
TOTAL ASSETS 1697.6 1771.6
DEBT ASSET RATIO 0.53 0.48
This ratio highlights the relation between the total assets and the total liabilities of the
entity. In the case of the entity, it can be observed that the total assets of the company have

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increased and the total liabilities of the assets have decreased. This suggests that the liquidity
position of the entity has improved over the span of one year (Vasigh, 2017).
Operational performance analysis of the entity:
The operational performance of an entity can be judged from the trends presented via
key performance indicators and other important factors that play a critical role in influencing
the overall performance of the entity. Some of them are as follows:
Safety:
Figure 1: Safety
(Source: Virginatlantic.com, 2018)
In case of an airline company the safety of the passengers, become of paramount
importance. The number of accidents has reduced in the last two years to zero which is a big
relief for the customers (Berghöfer & Lucey, 2014).

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Customers:
Figure 2: Customers
(Source: Virginatlantic.com, 2018)
The revenue of the company directly depends upon the number of customers. Hence,
an increasing trend is always favourable. In this case, the customers plummeted last year but
have increased in the current fiscal by 5.0 pt.
Capacity:

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Figure 3: Capacity
(Source: Virginatlantic.com, 2018)
In order to increase the number of customers the company must focus on increasing
its capacity over the years. In this case, the company has not increased its capacity rather the
capacity of the company has gone down compared to last year. The company must take
initiative to increase its capacity by increasing its aircraft (Garg, 2016).
Revenue:
Figure 4: Revenue
(Source: Virginatlantic.com, 2018)
The revenue of any airline company comes from two sources i.e. The travelling
expenses charged from the customers and the charges with respect the load carried by them

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or transported by some entities (Saranga and Nagpal, 2016). In this case it can be seen that
the revenue passenger kilometres has reduced over the years and the passenger load factor
has not shown any steady trend and Is currently showing a small upward movement.
SWOT Analysis:
In this section, SWOT Analysis is conducted so that an appropriate recommendation
can be made.
Strengths:
 One of the main strengths of the Virgin Atlantic is that the brand reputation of the
company is immense. Its brand recognition took it to the sixth position in the ranking
done by AirHelp. It covered aspects such as speed of dealing with the customers,
punctuality and quality of service provided.
 The Virgin Atlantic has also modernised its fleet of aircrafts. It has also made efforts
in making new systems like mobile app and self-service air ticket booking service
(Borenstein & Rose, 2014).
Weakness:
 The company is dependent a lot on its owner Richard Branson who formulates the
entire picture of the company. The company might lose its direction after Richard is
gone. It must work on some succession plan.
 The company is facing strict competition from its competitors like the British
Airways, the American airlines and alarmingly from cash rich airlines like the Etihad
or Emirates that operate on the same routes as of the Virgin Atlantic.
Opportunities:

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 One of the most promising opportunities that have presented itself in front of the
company is that there has been a proposal to add an extra airstrip at the HEATHROW
airport. This can prove immensely beneficial for the company (Choi et al., 2015).
 The previous fiscal year was characterised by low fuel prices, interest rates and if
such favourable factors continue to occur, the company will definitely set sail for a
higher return.
Threats:
 There is a lot of uncertainty and threat to business with respect to the aftermath of the
Brexit.
 The weather condition of the UK is becoming worse day by day which includes
sudden dangerous storms and extreme water conditions (Wu, 2016).
Recommendations and suggestions:
After analysing the financial and operational performance of the entity, the following
recommendations are discussed below.
The company should increase the influence of its operations on a global scale by way
of promoting its brand value all over the market place. This will help the company to increase
the number of customers. By promoting its brand, the company is trying to capitalise on its
strength that is the ability to make use of its brand name.
Another strategy that can be recommended to the company is to improve its skill to
improve the experience of the customers and reduce their service costs while providing an
outstanding experience to the customers.
The company should focus on modernising its assets and its business strategy. This
will enable the company to reduce its operational costs and increase the profitability of the

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operations in a relatively short period of time. Due to the reduction in the cost of operation
the company will be able to enjoy profitability even if there is no substantial increase in the
customers immediately.
The company is increasing its current ratio over the years that shows that the company
is losing returns on a substantial amount of capital which is earning no return due to the fact
that it is remaining invested in the working capital of the firm instead of any other avenues
which would have earned good returns for the company.

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Reference
(2018). Virginatlantic.com. Retrieved 21 March 2018, from
https://www.virginatlantic.com/content/dam/vaa/documents/footer/mediacentre/
VAL_FY16_Annual_Report.pdf
Berghöfer, B., & Lucey, B. (2014). Fuel hedging, operational hedging and risk exposure—
Evidence from the global airline industry. International Review of Financial
Analysis, 34, 124-139.
Borenstein, S., & Rose, N. L. (2014). How airline markets work… or do they? Regulatory
reform in the airline industry. In Economic Regulation and Its Reform: What Have We
Learned? (pp. 63-135). University of Chicago Press.
Choi, K., Lee, D., & Olson, D. L. (2015). Service quality and productivity in the US airline
industry: a service quality-adjusted DEA model. Service Business, 9(1), 137-160.
Garg, C. P. (2016). A robust hybrid decision model for evaluation and selection of the
strategic alliance partner in the airline industry. Journal of Air Transport
Management, 52, 55-66.
Grant, R. M. (2016). Contemporary strategy analysis: Text and cases edition. John Wiley &
Sons.
Saranga, H. and Nagpal, R., 2016. Drivers of operational efficiency and its impact on market
performance in the Indian Airline industry. Journal of Air Transport Management, 53,
pp.165-176.

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Treanor, S. D., Simkins, B. J., Rogers, D. A., & Carter, D. A. (2014). Does operational and
financial hedging reduce exposure? Evidence from the US airline industry. Financial
Review, 49(1), 149-172.
Vasigh, B. (2017). Foundations of airline finance: Methodology and practice. Routledge.
Vogel, H. L. (2014). Entertainment industry economics: A guide for financial analysis.
Cambridge University Press.
Wiegmann, D. A., & Shappell, S. A. (2017). A human error approach to aviation accident
analysis: The human factors analysis and classification system. Routledge.
Wu, C. L. (2016). Airline operations and delay management: insights from airline
economics, networks and strategic schedule planning. Routledge.

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Appendix 1: Consolidated Income Statement

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Appendix 2: Consolidated financial position

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Appendix 3: Financial Ratio Analysis
NET PROFIT MARGIN
Particulars 2015 2016
NET PROFIT 80.1 187.3
TOTAL REVENUE 2781.9 2689.9
NET PROFIT MARGIN 3% 7%
CURRENT RATIO
2015 2016
CURRENT ASSETS 970.1 895.7
CURRENT LIABILITIES 401.4 228.1
CURRENT RATIO 2.42 3.93
DEBT EQUITY RATIO
2015 2016
TOTAL LIABILITIES 891.5 852.6
EQUITY 100 100
DEBT EQUITY RATIO 8.92 8.53
DEBT ASSET RATIO
2015 2016
TOTAL LIABILITIES 891.5 852.6
TOTAL ASSETS 1697.6 1771.6
DEBT ASSET RATIO 0.53 0.48
RETURN ON EQUITY
2015 2016
NET INCOME 80.1 186.4
SHAREHOLDERS EQUITY 100 100
RETURN ON EQUITY 80% 186%