BSTR/441: Frontier Airlines Case Study and Financial Analysis

This case study provides a comprehensive financial and strategic analysis of Frontier Airlines. It begins with a detailed ratio analysis of the airline's financial performance in 2005, including profitability, efficiency, liquidity, and solvency ratios. The analysis highlights the company's ability to generate profit, its liquidity position, and its debt-to-equity ratio. Following the financial analysis, a SWOT analysis is presented, evaluating the company's internal strengths and weaknesses, as well as external opportunities and threats. The SWOT analysis includes a weighted assessment of key factors and their impact on various strategic alternatives such as market penetration, market development, and product development. The case study also references relevant literature on financial accounting and the travel industry to support the analysis. The assignment concludes with a discussion of the competitive landscape, including the re-entry of Southwest Airlines into the Denver market, and its potential impact on Frontier Airlines.

Strategic Management

STRATEGIC MANAGEMENT 1
Ratio Analysis
Financial Analysis of Frontier Airline
Ratio's
Frontier
Airline
AUD in Million 2005
Profitability Ratio
(Net) Profit margin (a/b) Net Profit 23430186
Net Sales 833639441
3%
Return on Assets Net income 23430186
Total assets 792010671
3%
Efficiency Ratio
Days Debtors (a/b) Receivables (a) 37748785
sales *365 (b) 833639441
16.53
Days Creditors (a/b) Payables (a) 37240376
Sales*365 (b) 833639441
16.31

STRATEGIC MANAGEMENT 2
Liquidity Ratio
Current ratio (a/b) Current assets (a) 275,549,741
Current liabilities (b) 233,850,351
1.18
Quick ratio (a/b) Quick assets (a) 209543557
Current liabilities (b) 233,850,351
0.90
Solvency Ratio
Debt (to assets) ratio (a/b) Total Liabilities (a) 554090365
Total Assets (b) 792010671
69.96%
Debt to Equity Total Debt 282792222
Total equity 792010671
36%
As per the evaluation of ratios of 2005, it is observed that the airline has the ability to generate
the profit as the net profit margin is 3%. It states that the company can operate the business
smoothly as its ability to generate the net profit is good (Schroeder, Clark, and Cathey, 2019).
According to efficiency ratio, it has been estimated that the liquidity position of the airline is
good as it has high amount of current assets as compare to current liabilities. The amount of

STRATEGIC MANAGEMENT 3
current assets is high which helps to pay the current liabilities with the ratio of 1.18. The quick
asset ratio of the company is also 0.60 as the amount of quick assets is high as compare to the
current liabilities (Vogel, 2016).
As per the debt to equity ratio, it has been seen that the airline finance its operating activities
through equity instead of long term debt. It is beneficial for the company to borrow the money on
debt instead of issuing the shares (Accounting Tools, 2018). The amount of equity is high as
compare to the debt amount due to which the debt to equity ratio is 36%. The amount of debt is
282792222 and the total amount of equity is 792010671 which improve its solvency ratio. As per
the debt to assets ratio, the amount of assets is high as compare to the amount of debt which
represents that the company has the capability to pay the liabilities by using the assets such as the
percentage is 69.96%.
SWOT Analysis
Strategic Alternatives
Market
Penetration
Market
Development
Product
Development
Key Factors Weight AS TAS AS TAS AS TAS
Key Internal Factors
Strength
Brand Image of Frontier
Airlines
0.13 2 0.16 3 0.39 3 0.39
Hire new leader with the less
age for the new era to tackle
the management activities. It
0.15 3 0.45 3 0.75 3 0.75

STRATEGIC MANAGEMENT 4
helps the company to attain
the successful growth in the
market. Addoms stake is one
of the largest individual
shareholders in Frontier
The Airline organizing the
ad. Campaigns related to
animals that makes its brand
unique and also helps to
attract the 50% of
consumers. This
advertisement campaign
develops as brand
Recognition in the market
0.15 3 0.45 2 0.45 2 0.45
The strategy of booking or
providing the services
through coding helps the
company to grasp the market
share
0.13 2 0.36 2 0.36 2 0.36
Key Internal Factors
Weaknesses
Airline were also hit by
increased fuel, insurance,
0.13 3 0.49 2 0.26 2 0.26

STRATEGIC MANAGEMENT 5
and mandated safety
regulations
Fuels are the main assets of
fuel but the prices of fuels
are fluctuated due to which it
is difficult to predict their
prices
0.16 4 0.60 3 0.48 3 0.48
The company faces the
competition as the
competitors sets the low
prices in order to attracts the
consumers but frontier
airline is confused while
setting the prices
0.15 3 0.45 5 0.75 5 0.75
100%
Key Internal Factors
Opportunities
Online services reduces the
cost of airline which helps
the company in further
investment
0.18 3 0.54 3 0.54 4 0.72
The amount of revenue has
been increases from the
0.16 5 0.80 4 0.64 3 0.48

STRATEGIC MANAGEMENT 6
previous year such as $84.3
million from $11.2 million
It involved in 15 companies
for operation and now it has
the opportunity to expand
the business with more
companies
0.15 2 0.30 3 0.30 2 0.30
Key Internal Factors
Threats
Jets are Hijacked by the
terrorist
0.16 3 0.48 3 0.48 3 0.48
Re-entry of Southwest into
the Denver market and its
expansion into American
market arises the serious
threat for the company.
0.17 4 0.68 5 0.85 4 0.68
The company also has the
threat of competitors such as
Western Pacific, Prolonged.
0.18 3 0.54 2 0.36 3 0.54

STRATEGIC MANAGEMENT 7
Prolonged is the competitor
that affects the prices in
terms of profitability
100%

STRATEGIC MANAGEMENT 8
References
Accounting Tools . (2018) Solvency ratio. Available from:
https://www.accountingtools.com/articles/solvency-ratio-definition-and-usage.html [Accessed
18/3/2020].
Schroeder, R.G., Clark, M.W. and Cathey, J.M. (2019) Financial accounting theory and
analysis: text and cases. John Wiley & Sons.
Vogel, H.L. (2016) Travel industry economics: A guide for financial analysis. Springer.