Assessing British Airways Financial Performance: A SWOT Analysis

This report presents a SWOT analysis of British Airways' financial performance, focusing on key financial ratios and indicators. The analysis begins with an introduction outlining the background of British Airways, including its establishment and mergers. The core of the report involves a detailed ratio analysis, covering profitability (operating profit, net profit), liquidity (current ratio, quick ratio), solvency (debt to equity), and efficiency ratios (asset turnover, fixed asset turnover, inventory turnover, ROTA). The report provides calculations for 2014 and 2015, highlighting strengths and weaknesses, and identifying threats and opportunities. The financial issues are discussed, like royalties, security deposits, deficient currency, and increasing current liabilities. The report concludes that British Airways' financial performance is strong but needs improvement, offering insights into its operational and financial strategies within the airline industry. References to books, journals and online sources are provided.

Write an essay as a SWOT analysis
assessing the financial performance of an
airline of your choice
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Table of Contents
INTRODUCTION...........................................................................................................................3
Background..................................................................................................................................3
Ratio analysis...............................................................................................................................3
CONCLUSION................................................................................................................................9
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INTRODUCTION
Financial performance measures the outcome of the firm's operational activities in the
financial aspects. For the present essay British Airways has been chosen in order to analyse the
SWOT analysis on the financial performance of this entity. Furthermore, it has also focused on
calculating the different ratios that measures the financial performance of the company in the
airline industry.
Background
British airways counts among the largest airlines bin the whole United Kingdom in terms
of Fleet size which will carries large base of customers in the same flight. This airline was
established with the cooperation provided by the government of the UK (Dženopoljac, Janoševic
and Bontis, 2016). This airline managed to segment their whole firm into two divisions with the
financial support enjoyed by this entity in order to get competitive advantage over its rivals who
are operating in the same stream. The British airways will later on after its establishment get the
support of four different companies to enhance its financial and the operational base. The
companies which were merged in the British airways includes British Overseas airways, British
European Airways, Cambrian airways and North-east airways. This merger will showcase the
ability of the current entity who got financial and the personnel support from all these
organizations. The airport hubs currently are under this business is Gatwick and Heath row
which are famous airports of the London.
Ratio analysis
It is regarded as one of the important tool used to assess the existing financial strengths
and weaknesses of this entity by comparing their performance with the previous year facts and
the figures. The ratio analysis will emphasis on different categories such as profitability,
liquidity, efficiency and solvency ratios to identify the existing weaknesses which can be cover
up by the strengths of an organization in order to beat variety of rivals who posing threats
externally. This tool will also help in assessing the financial statements framed by an enterprise
such as income and balance sheet.
Particulars Formula 2014 2015
Net sales 11719 11333
Operating 975 1239
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profit
Net profit 702 2508
Operating
profit ratio OP/Net sales*100 8.32% 10.93%
Net profit
ratio Net profit/Net sales*100 5.99% 22.13%
Table 1: Calculation of Profitability
Profitability ratios- Financial management focuses on the assessing the income statement that
support them in managing the net income or profit that earned by the airline company through
executing their activities and operation within the industry. It has been assessed that the total
expenditure incurred by the entity reduces or lower the business profit. There are numerous of
the categories within the profitability ratio that are enumerated as follows-
Operating profit- The foremost ratio within the profitability ratio is operating profit that results
after accomplishing all the expenditure and expenses related with selling, distribution etc. from
the above calculated ratio it has been assessed that operating profit of British Airways is
increasing over the years in the year 2014 it was around 8.32% while in the year it was 10.93%
that is the company is using effective promotional strategies for targeting mass of audiences
(British Airways Plc, 2017). Along with this, the operating profit is earned by the company
through lowering the expenses related with general administrative department, cabin crew etc.
Net profit- Another ratio that is calculated within the profitability ratio include net profit that is
been taken into the consideration by the entity after excluding the taxation figure from the
overall profit amount. Therefore, with the above calculation it has been assessed that in 2014 the
net profit ration was 5.99% while in the year 2015 it was around 22.13% that is constant
increases. With the increasing net profit company would attain the effective financial
performance in the aviation industry.
Financial issues (Weaknesses)
There are various issues discovered by this ratio analysis which is given as below:
 Royalties and security deposit paid by an entity to the government of the United kingdom
which reduces their final profit.
Strengths of British airways on the basis of Profitability ratios
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 The higher gross profit shows the higher generation of sales and the revenue generated by
an entity over the years.
 Additional services provided to facilitate tourists to feel comfortable while taking the
services of these airlines.
 The higher sales will show the higher customers base achieved by an entity which raises
their sales level and enhances the brand image of the business.
Threats
 Reducing the overall prices of the airline fare will cut down their customer base
Opportunities
The key opportunity for the firm is that it must engage in expanding their operations in the
different markets.
Liquidity
ratios 2014 2015
Current
assets 3655 3472
Current
liabilities 6831 6971
Inventory 136 129
Quick asset current assets-inventories 3519 3343
Current ratio Current assets/Current liabilities 0.5350607525 0.4980634055
Quick ratio Quick asset/current liabilities 0.5151515152 0.4795581696
Liquidity ratio- The liquidity of an entity showcases the storage of monetary value for the long
time period so that it may easily return the short term obligations of the company.
Current ratio- The current assets are measure in quotient with the current liabilities incurred
within the airline company. From the above calculation the current ratio is decreasing over the
year that showcase that airline is unable to meet their duty and responsibilities (Fact Sheets,
2017).
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Quick ratio- It is the ratio in which the management focuses on analyzing the quick ratio
through eliminating the inventory amount so that it would easily convert into the cash. From the
calculated table quick ratio is decreasing that do not meet the future obligations in terms related
with quick liabilities.
Financial issues (Weaknesses)
 Deficient currency
 Fleet size of carriers within the British Airways act as the key weakness.
 Current assets is reducing current liabilities.
Strengths of BA in terms of Liquidity ratios
 Cash is available to meet the survival goals of the British Airways
 Another strength is company
Threats
 Increasing current liabilities act a threat for the firm as it increases the debt that need to
be overcome.
Opportunities
 British Airways has adequate financial amount that act as opportunity for firm to invest in
the new services with the aviation industry.
Solvency ratio
Debt 5825 5108
Equity 1795 4201
Debt to equity Debt/equity 3.2451253482 1.215900976
Solvency ratio- This ratio has prepared by an entity in order to assess it internal capabilities in
relation to the external market obligations in form of debt obligations (British Airways Plc.
2017). The capital of British airways need to be compare with the long term debt incurred in the
same entity.
Debt to equity- This ratio analyses the proportionate relationship among two variable which is
widely used in assessing the business performance. The debt is danger sign for an entity whose
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weapon is equity which is used to fight against the complexities. This ratio has decreases from
one period to another which showcases an enterprise's deficiency.
Financial issues
Debt imposition blocks the current equity
The capital structure is inclined towards downward position with a heavy pressure of debts hold
by an entity in the same entity.
Strengths
Lower equity will decrease the burden of paying dividend
Equalizes the capital structure by utilising the current shareholders
Threats
Higher interest paid on debt will reduce the profitability
Opportunities
Profit can be maximized by reduces the debt and equity in equal proportion
Efficiency ratios
Total assets 14451 16280
Net sales 11719 11333
Inventory 136 129
COGS 10744 10069
Fixed asset 10791 12804
Receivables 516 527
Asset turnover ratio Total assets/Net sales 1.2331256933 1.4365128386
Fixed asset turnover Fixed asset/Net sales 0.920812356 1.1297979352
Inventory turnover Inventory/COGS 0.0126582278 0.0128116
Efficiency ratios- The capabilities of the business enterprise are assessed on the basis of assets
currently hold by an entity in reducing the liabilities (British Airways Plc, 2017). The efficiency
of the firm are assessed in relation to the external complexities faces by an individual.
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Asset turnover- This ratio is used to evaluate the assets held by an entity in achieving higher
amount of sales and the revenue. British airways can enhance their current level of sales by using
their aircraft in transporting passengers. The ratio has increases that shows that an enterprise has
applied efforts in promoting their airline services by marketing their services.
Fixed asset turnover-The non-current asset has contributed in generation of higher amount of
sales and the revenue. The fleet size held by an entity are used in producing higher sales and the
brand image of this entity help in boosting the existing level of sales. The ratio is increases that
shows the ability of the firm.
Inventory turnover- The uses of inventory frequently in generating higher level of sales and the
revenue will enhance the efficiency of the inventories. The British airways is utilising their
luxury and comfortness of their aircraft in getting customer satisfaction.
Strengths
Highly efficient assets in form of aircraft
Financial support of government
Financial issues
Lack of marketing services in attracting customers
Traditional aircraft practices
Royalty given to the government
Threats
Less competitive spirit as expenses borne by government
Opportunities
Higher support of customers
ROTA
EBIT 859 2628
Total assets 14451 16280
ROTA
EBIT/Total
assets
0.05944225
31
0.16142506
14
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This ratio analyses the returns generated by an individual by utilising all their assets over a
particular year. This ratio is increasing which shows that an entity has produces higher returns by
using accurately all their assets.
Compound growth
CAGR of the British airways is around 3.7% which is compounded on various factors
such as revenue and the employee factor. This is a collaborative rate which considers all the rates
of the multiple periods. This rate is forecasting rate which helps in analyzing the existing fields
of business operations.
CONCLUSION
It can be concluded from the above project that the current financial performance of
British airlines is strong enough but still require further improvement. The weaknesses in form of
financial issues will help an organization to curtail negative aspects by using positive things.
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REFERENCES
Books and Journals
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operations. Journal of Operations Management. 42. pp.39-51.
Kim, K. Y., Atwater, L., Patel, P. C. and Smither, J. W., 2016. Multisource feedback, human
capital, and the financial performance of organizations.Journal of Applied Psychology.
101(11). p.1569.
Dženopoljac, V., Janoševic, S. and Bontis, N., 2016. Intellectual capital and financial
performance in the Serbian ICT industry. Journal of Intellectual Capital. 17(2). pp.373-
396.
Isaksson, L. E. and Woodside, A. G., 2016. Modeling firm heterogeneity in corporate social
performance and financial performance. Journal of Business Research. 69(9). pp.3285-
3314.
Xiong, B., and et.al., 2016. Virtuous nexus between corporate social performance and financial
performance: a study of construction enterprises in China. Journal of Cleaner Production.
129. pp.223-233.
Aba, E. K., Badar, M. A. and Hayden, M. A., 2016. Impact of ISO 9001 certification on firms
financial operating performance. International Journal of Quality & Reliability
Management. 33(1). pp.78-89.
Kapoor, R., Tan-Koi, W. C. and Teo, Y. Y., 2016. Role of pharmacogenetics in public health and
clinical health care: a SWOT analysis. European Journal of Human Genetics. 24(12).
pp.1651-1657.
Online
Fact Sheets. 2017. [Online]. Available
through:<http://mediacentre.britishairways.com/factsheets>. [Accessed on 19th January,
2017].
British Airways Plc. 2017. [Online]. Available through:<http://www.investegate.co.uk/british-
airways-plc--53nu-/rns/annual-financial-report/201503191304459196H/>. [Accessed on
19th January, 2017].
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