Airline Revenue Management: ANA Group Financial Analysis Report

This report provides a comprehensive financial analysis of ANA Group, a major Japanese airline. It begins with an introduction to airline revenue management and a background of ANA. The core of the report focuses on a detailed financial analysis, evaluating profitability, liquidity, efficiency, and solvency ratios from 2017 to 2018. The analysis includes examination of the company's revenues, broken down by source, and its costs, highlighting factors that influence both. The report also explores the airline's revenue management strategies and offers recommendations for cost reduction and debt management to improve profitability. The report is based on the provided financial data and aims to demonstrate an understanding of airline economics and financial performance.

Running Head: ARLINE REVENUE MANAGEMENT
AIRLINE REVENUE MANAGEMENT
Name of the Student
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Table of Contents
Introduction................................................................................................................................2
Background of Company...........................................................................................................2
Financial Analysis of Company.................................................................................................3
Analysis of Revenues and Costs of Company...........................................................................5
Conclusion..................................................................................................................................8
Reference....................................................................................................................................9

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Introduction
Airlines are held up as epitome of the best practices in the revenue and pricing
management. This industry invests heavily in the development of sophisticated systems for
the forecasting demand, availability and managing of inventory and responding and
monitoring of the prices of competitor in market. Airlines have been leaders in the revenue
and pricing management through investing heavily in the applications of technology for the
higher yields and competitive advantage (Schosser and Wittmer 2015). Hence, this report
aims to discuss activities and business model of ANA Group. Further, analysis will be done
on financial performance of company. Lastly, analysis will be done on costs and revenue of
airline and based on that recommendations will be given on the way airline should manage
them.
Background of Company
All Nippon Airways is the Japanese airline company, headquartered in Tokyo. The
company operates services to forty-nine destinations in Japan and thirty-two destinations in
the international route. ANA is having extensive domestic route network, which covers
entirety of the Japan from Hokkaido in north to the Okinawa in south. The network of
international route extends through the Southeast Asia, Korea, China, US and Western
Europe (Ssl4.eir-parts.net. 2020).
ANA is largest Japanese airline by the number of passengers and its revenue. The
market capitalization of ANA is ¥972.62 billion. The company intends to leverage every
opportunities of business as tailwind that propels it towards the vision of management to
become leading group of airline and ongoing sustainable growth. These opportunities include
rise in demand for the air travel among emerging Asian economies, increasing demand for

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the travel to Japan as well as increase in the slots at the Tokyo metropolitan area airports
(Pineda et al. 2018).
Financial Analysis of Company
Profitability Ratio
The net profit margin ratio of ANA was 7% in 2017 that reduced to 5% in 2018.
During the year 2017-2018, the net profit margin of company reduced by 2%. It implies that
total profit that company has extracted from its sales has been reduced. Further, the ROA of
ANA airline was 6% in 2017 that reduced to 4% in 2018. During the year from 2017-2018,
the return on assets of company reduced by 2%. It means that the assets of airline are not
generating enough returns (Vogel 2016). Lastly, the ROCE of airline was 9% in 2017 that
reduced to 8% in 2018. Hence, during the year from 2017-2018, the return on capital
employed of company reduced by 1%. This implies that profitability and efficiency with
which capital is used has been decreased (Stepanyan 2014).
Net Profit Margin 2018 2017
Net Profit 111,837.00 145,638.00
Sales 2,058,312.00 1,971,799.00
Result 5% 7%
Return on Assets 2018 2017
Net Income 111,837.00 145,638.00
Total Assets 2,687,122.00 2,562,462.00
Result 4% 6%
Return on Capital Employed 2018 2017
Operating Profit 165,019.00 164,516.00
Capital Employed 1,958,520.00 1,899,558.00
Result 8% 9%
Profitability Ratio
ANA Airline
Table 1: Profitability Ratio Analysis

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Liquidity Ratio
The current ratio of ANA was 1.12 in 2017 that reduced to 1.02 in 2018. During the
year from 2017-2018, the ratio has been declined by 0.1. This implies that the ability of ANA
in paying its short-term obligations has been decreased over the years. Further, the quick ratio
of company was 1.02 in 2017 that reduced by 0.93 in 2018. During the year from 2017-2018,
the ratio reduced by 0.09. This means that company’s ability for paying its current obligations
with its most liquid assets has been reduced (Öztürk and Serçemeli 2016).
Current Ratio 2018 2017
Current Assets 700,230.00 723,493.00
Current Liabilities 685,933.00 648,080.00
Result 1.02 1.12
Quick Ratio 2018 2017
Quick Assets 638,100.00 661,023.00
Current Liabilities 685,933.00 648,080.00
Result 0.93 1.02
Liquidity Ratio
Table 2: Liquidity Ratio Analysis
Efficiency Ratio
The inventory turnover ratio of ANA was 23.27 in 2017 that increased to 25.04.
During 2017-2018, the ratio increased by 1.77. It implies that number of times the inventories
consumption during the given period has been increased. The average receivables turnover
ratio of ANA was 11.97 in 2017 that reduced to 11.62 in 2018. From 2017-2018, the ratio
reduced by 0.35. It implies that the efficiency of company in extending credit and collecting
the debts has been reduced (Min and Joo 2016).

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Inventory Turnover Ratio 2018 2017
Cost of Goods Sold 1,559,876.00 1,481,881.00
Average Inventory 62,300.00 63,691.00
Result 25.04 23.27
Accounts Receivables Turnover Ratio 2018 2017
Sales 2,058,312.00 1,971,799.00
Average Accounts Receivable 177,069.50 164,679.50
Result 11.62 11.97
Efficiency Ratio
Table 3: Efficiency Ratio Analysis
Solvency Ratio
The debt to equity ratio of ANA was 1.58 in 2017 that reduced to 1.48 in 2018. From
year 2017-2018, the ratio reduced by 0.10. It implies that the uses of debt of company is
higher in comparison to its equity (Treanor et al. 2014). Debt is less costly, but it is riskier.
Further, the interest coverage ratio was 18.96 in 2017 that increased to 23.59 in 2018. From
2017-2018, the ratio increased by 4.63. It implies that company’s ability to pay off its
expenses of interest has been increased over the years (Morrell 2018).
Debt to Equity Ratio 2018 2017
Total Debt 1,577,809.00 1,561,910.00
Total Equity 1,066,644.00 985,728.00
Result 1.48 1.58
Interest Coverage Ratio 2018 2017
EBIT 165,019.00 164,516.00
Total Interest Expenses 6,995.00 8,676.00
Result 23.59 18.96
Solvency Ratio
Table 4: Solvency Ratio Analysis

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Analysis of Revenues and Costs of Company
The consolidates results for fiscal years shows the operating revenue of 2,058.3b yen
and the operating income of 165.0 billion yen because of increase in the revenue mainly in
the transportation of air. This has reached the record level for fourth consecutive year. As it
can be viewed in the below consolidated income statement that revenues of the airline have
increased by 4% (Stalnaker, Usman and Taylor 2016). The revenue of ANA airline comes
from air transportation (domestic passenger service, international passenger service, cargo
service LCC and others in air transportation), travel services, airline related, travel and retail
and others. The highest revenue of airline comes from air travel, which has increased by 4%
in comparison to 2017. Moreover, it is because of strong and robust performance in the
international passenger services, the revenues have been increased mainly in the business of
airline (Bitzan and Peoples 2016). However, the cost of company has also increased by 5%.
This hike in the cost is mainly because of the factors such as increase in the crude oil prices
that results in passing on to the fares and other charges, fluctuations in the rates of foreign
exchange that is again passed on to the fare and the charges, increased compliance with
environmental regulation, increased competitive risks. Moreover, the cost also increases by
the factor such as increase in cost of raising funds, which significantly affects the
performance of ANA (Laurino and Beria 2014). These determinants affect the company that
ultimately results in increasing cost and decreasing profitability. However, in order to manage
these costs, ANA takes various steps such as hedging, currency options, foreign exchange
agreements, reducing indirect fixed costs (Ssl4.eir-parts.net. 2020).

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Table 5: Breakdown of Revenue
Table 6: Performance by Business Segment

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Conclusion
Therefore, this report concludes that ANA Group is one of the largest airline company
of Japan in terms of revenue and market capitalization. It has been analyzed that the
profitability of ANA has been reduced over the years. This reduction of profitability is
because of increase in cost of goods sold, increased expenses, assets not able to generate
higher income and more uses of debt. Further, the liquidity position of ANA has been
reduced but still ANA is able to pay-off its short-term liabilities. Moreover, ANA efficiency
in extending of credit and collecting the debt from the debtors has been reduced. The
solvency position of ANA indicates that company is able to cover its interest from its income,
however, the uses of debt by the airline is higher in comparison to the equity. As debt is
considered to be less costly, but it is riskier. Lastly, it has been analyzed from the revenue
cost management of ANA that the revenue of airline has been increased, especially in air
transportation, however, its cost has been drastically increased that have affected its
profitability. Hence, it is suggested to the ANA Group to reduce the cost of operations. It will
increase the profitability and justify the highest revenue of the company. Further, ANA
should reduce the uses of debt, as it is riskier than equity.

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Reference
Bitzan, J. and Peoples, J., 2016. A comparative analysis of cost change for low-cost, full-
service, and other carriers in the US airline industry. Research in Transportation
Economics, 56, pp.25-41.
Laurino, A. and Beria, P., 2014. Low-cost carriers and secondary airports: Three experiences
from Italy. Journal of Destination Marketing & Management, 3(3), pp.180-191.
Min, H. and Joo, S.J., 2016. A comparative performance analysis of airline strategic alliances
using data envelopment analysis. Journal of Air Transport Management, 52, pp.99-110.
Morrell, P.S., 2018. Airline finance. Routledge.
Öztürk, M. and Serçemeli, M., 2016. Impact of New Standard" IFRS 16 Leases" on
Statement of Financial Position and Key Ratios: A Case Study on an Airline Company in
Turkey. Business and Economics Research Journal, 7(4), p.143.
Pineda, P.J.G., Liou, J.J., Hsu, C.C. and Chuang, Y.C., 2018. An integrated MCDM model
for improving airline operational and financial performance. Journal of Air Transport
Management, 68, pp.103-117.
Schosser, M. and Wittmer, A., 2015. Cost and revenue synergies in airline mergers–
Examining geographical differences. Journal of Air Transport Management, 47, pp.142-153.
Ssl4.eir-parts.net. 2020. [online] Available at:
https://ssl4.eir-parts.net/doc/9202/tdnet/1696202/00.pdf [Accessed 29 Feb. 2020].
Stalnaker, T., Usman, K. and Taylor, A., 2016. Airline economic analysis. Oliver Wyman,
pp.1-68.

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Stepanyan, A., 2014. Traditional ratio analysis in the airline business: a case study of leading
US Carriers. AMIS 2014, p.841.
Treanor, S.D., Rogers, D.A., Carter, D.A. and Simkins, B.J., 2014. Exposure, hedging, and
value: New evidence from the US airline industry. International Review of Financial
Analysis, 34, pp.200-211.
Vogel, H.L., 2016. Travel industry economics: A guide for financial analysis. Springer.

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Appendix
Ratio Calculation
Net Profit Margin 2018 2017
Net Profit 111,837.00 145,638.00
Sales 2,058,312.00 1,971,799.00
Result 5% 7%
Return on Assets 2018 2017
Net Income 111,837.00 145,638.00
Total Assets 2,687,122.00 2,562,462.00
Result 4% 6%
Return on Capital Employed 2018 2017
Operating Profit 165,019.00 164,516.00
Capital Employed 1,958,520.00 1,899,558.00
Result 8% 9%
Current Ratio 2018 2017
Current Assets 700,230.00 723,493.00
Current Liabilities 685,933.00 648,080.00
Result 1.02 1.12
Quick Ratio 2018 2017
Quick Assets 638,100.00 661,023.00
Current Liabilities 685,933.00 648,080.00
Result 0.93 1.02
Inventory Turnover Ratio 2018 2017
Cost of Goods Sold 1,559,876.00 1,481,881.00
Average Inventory 62,300.00 63,691.00
Result 25.04 23.27
Accounts Receivables Turnover Ratio 2018 2017
Sales 2,058,312.00 1,971,799.00
Average Accounts Receivable 177,069.50 164,679.50
Result 11.62 11.97
Debt to Equity Ratio 2018 2017
Total Debt 1,577,809.00 1,561,910.00
Total Equity 1,066,644.00 985,728.00
Result 1.48 1.58
Interest Coverage Ratio 2018 2017
EBIT 165,019.00 164,516.00
Total Interest Expenses 6,995.00 8,676.00
Result 23.59 18.96
Efficiency Ratio
Liquidity Ratio
Profitability Ratio
Solvency Ratio
ANA Airline