You are on page 1of 38

i

Contents

PART 1 Project Objectives and Overall Research Approach

1.1. Introduction 1

1.2. Reason for the topic 2

1.3. Research objectives and questions 2

1.4. Research approaches 3

PART 2 Information Gathering and Accounting/ Business techniques

2.1. Sources of data 4

2.2. Description of the methods used to collect information 4

2.3. Limitations of data gathering 5

2.4. Ethical issues 5

2.5. Explanation of the Financial and Business techniques 5

PART 3 Results, analysis, conclusions and recommendations

3.1. Results of Findings 10

3.2. Research Analysis 15

3.3. Conclusions 23

3.4. Recommendations 24

References and Bibliography 25

Appendix 30
1

PART 1: PROJECT OBJECTIVES AND OVERALL RESEARCH APPROACH

1. 1. INTRODUCTION

British Airways Plc (British Airways) is the largest operating international airline in the United
Kingdom (UK) with a significant presence at Heathrow Airport, Gatwick Airport and London
City Airport in London, England (British Airways Plc, 2010). British Airways possesses a
global flight network throughout the world with partners such as USAir in the United States,
Qantas in Australia, and TAT European Airlines in France. British Airways local operations
and those of its alliance partners serve an average of 95 million passengers a year using
441 airports in 86 countries and more than 1,000 planes (The Gale Group Inc, 2006).

British Airways has undergone various structural changes from its earliest predecessor,
Aircraft Transport and Travel Limited which inaugurated the world's first scheduled
international air service on the 25 August 1919. Amongst strong competition from subsidised
foreign airlines and its effect on the declining operations of British airlines, the Parliament in
1923 appointed the Civil Air Transport Subsidies Committee to form a single British
international air carrier from existing companies, this pave way for the emergence of Imperial
Air Transport (Imperial Airways) as a result of the merger of Daimler Airway, British Marine
Air Navigation, Instone Air Line, and Handley Page on Monday 31 March 1924 (The Gale
Group Inc, 2006). Imperial Airways was created to serve as Britains overseas air service,
however the competition faced by other airlines and the creation of British Airways from the
merger of three smaller airline companies in 1935 instigated the Parliament in 1937 to
nationalise and merge the operations of Imperial Airways and British Airways, this operation
that was completed on Friday 24 November 1939 formed British Overseas Airways
Corporation (BOAC) (Churchill David, 2005).

BOAC undergo various structural and strategic changes, this results to a profitability trend
that encouraged its merger with British European Airways to form British Airways Group on
Monday 1 April 1974 (The Gale Group Inc, 2006). In 1980, British Prime Minister Margaret
Thatcher appointed Lord (John) King as the new Chairman of British Airways, his mandate
was to prepare the airline for privatisation (sale to private stockholders which is limited to
51%). The preparation came with various challenges ranging from economic, political and
financial pressures however in 1985 British Airways was made a public limited company with
its stocks retained by the government until February 1987 when 720.2 million shares of
British Airways were sold to the public for 1.47 billion (The Gale Group Inc, 2006).

2

British airways has evolved from a government owned airline company to a public owned
airline company with its shares been traded on the London Stock Exchange (LSE) until
Friday, 24 January 2011 when it commenced trading under the name International
Consolidated Airlines Group as a result of its merger with Iberia. The privatisation marked a
dramatic change in its approach to business strategies and operations. British Airways
having gone through a long period of transformation appearing in different phases, the
airline is still faced with challenges with the emergence of its principal competitor, Virgin
Atlantic Airways, which compete with British Airways in mostly all of its operations.

1.2. REASON FOR CHOOSING THE TOPIC

I have based my research on British Airways as its history is unique and likewise its
business strategies and growth. British Airways has suffered setbacks over the recent years
with the effect of unfavourable weather condition, economic recession, increase in the cost
of aviation fuel and oil, increased competition from low cost airlines, dispute with employee
union and general risk associated with the aviation industry. British Airways has also being
on a loss making trend for two consecutive years (2008/2009 and 2009/2010 financial
periods) while its last profitable period was 2007/2008 financial year end with a remarkable
net profit of 694m. However, amidst the loss making era which is not unique to British
Airways, I want to evaluate British Airways Plc year on year financial and business
performance and compare same with its primary competitor Virgin Atlantic Airways.

1.3 RESEARCH OBJECTIVES AND QUESTIONS

1.3.1 RESEARCH OBJECTIVES

The research objectives are as follows;

a. To assess the business and financial performance of British Airways Plc
over the three year period 1 April 2007 to 31 March 2010.

b. To review the performance of British Airways Plc in view of assess its
external environment and strategic position.

c. To compare British Airways business and financial performance with its
primary competitor Virgin Atlantic Airlines.

3

1.3.2 RESEARCH QUESTIONS

The research questions are as follows;

a. What is British Airways Plcs business and financial position over the
three year period under review?

b. What is British Airways Plcs business and financial performance in
comparison to Virgin Atlantic Airways Limited?

c. How is British Airways surviving the recession and how applicable are its
strategies to take advantage of the period after the recession?

1.4. RESEARCH APPROACH

The approaches to be adopted in carrying out this research project are as follows;

a. Calculation of financial ratios including profitability ratios, liquidity ratios, financial
leverage ratios, shareholder ratios and other aviation industry specific ratios for
British Airways over three years period to determine the companys financial
performance.

b. Evaluate British Airways Plc business performance using balanced scorecards,
analysing its operations with the use of SWOT analysis and Porters 5 Forces
analyses models.

c. Review British Airways business and financial performance in comparison to its
primary competitor, Virgin Atlantic Airways.

d. Assess the adequacy of British Airways Plcs current strategies and how it will
affect its long term business growth and stability.


4

PART 2.0: INFORMATION GATHERING AND ACCOUNTING/BUSINESS TECHNIQUES


2.1 SOURCES OF DATA.

Sources of data used for a research may be either primary or secondary. Primary data are
collected by the researcher for the sole purpose of the research while a secondary data are
collected by the researcher from other sources other than for the sole purpose of the
research. Data used for this research are secondary data as they are obtained from sources
other than that which is primarily for this research, the choice for a secondary data are as a
result of the nature of this research project and the availability of the data required.

2.2 DESCRIPTION OF THE METHODS USED TO COLLECT DATA.

Various methods of data gathering for academic research purposes were deployed for the
purpose of this research and the methods deployed are depending on the type of data
required.

The financial statements for British Airways Plc for the period ended 31 March 2008, 31
March 2009 and 31 March 2010 were downloaded in portable document format (PDF) from
the student section of British Airways Plc website and to check accuracy and credibility of
the data obtained from the website, copies of the same financial statements were bought
from the Campanies House through the webcheck facility, a web-link to download PDF
copies of the financial statements was provided after the payment for my order was
authorised. The financial statements for Virgin Atlantic Airways Ltd for the year ended 28
February 2008, 28 February 2009 and 28 February 2010 were also ordered in PDF format
from the Companies House. I signed up for a year subscription of both the softcopy and
paper copy of Financial Times and The Economist magazine, this granted me access to both
current and past articles and financial news which are resourceful in this research project.

The use of library, including the digital library, was useful as data were collected from
journals and textbooks checked in the library. To gain a library pass, I requested a reference
letter from Oxford Brookes University, this letter was sent to me and I was able to present
the letter to the Libraries I intended to use for my research, a considerable access to the
library resources was granted to me. The use of the internet as a resource for this project
cannot be overemphasised as it was an instrumental tool in obtaining most of the information
gathered.
5

2.3 LIMITATION OF DATA GATHERING.

The major challenge to data gathering was the relevance and appropriateness of the data
obtained. Data obtained from a secondary source may get to broader or related questions
but not to the exact question posed by the researcher, also the lack of control over the
framing and wording of survey is a challenge (Thomas P. Vartanian, 2011). The aviation
industry is a specialised industry, gathering the necessary data was time consuming while
there was information overload in other aspect in which considerable time was used in
sorting the necessary data needed. Virgin Atlantic Airways Limited is a private company,
some data necessary for the research were not available.

2.4 ETHICAL ISSUES

The means by which the data used for this research were gathered has reduced the ethical
challenges that I may face as I do not have direct contact or request for information primarily
for the purpose of this research. However in gathering my data I paid attention to the ethical
view of data gathering and was mindful of the guidelines. Data used for this research are
willingly released by the respective owners and were properly referenced.

2.5 EXPLANATION OF THE FINANCIAL AND BUSINESS TECHNIQUES

This research is centred on evaluating the financial and business performance of British
Airways for a three year period. The techniques used for this research purpose are broadly
divided into two:

2.5.1: FINANCIAL PERFORMANCE TECHNIQUES

The evaluation of the financial performance of British Airways will be based primarily
on applying financial ratio analysis on its financial statements.

The ratios to be used are:

6

Profitability Ratios

Operating Profit Margin: This shows the relation of British Airways Plcs operational
profit or loss to its turnover. It reveals the percentage of production cost to revenue
generated. It is derived as;

Operational Profit/Loss before Taxation x 100
Revenue

Net Profit Margin: This is a ration of the net profit/loss for the year to total revenue
generated. A high net profit margin is desirable. It indicates that either sales prices
are high or that all cost are being kept under control (Kaplan Financial Limited, 2010).
It is derived as below;

Profit/Loss After Taxation x 100
Revenue

Return on Capital Employed (ROCE): This is a key measure of profitability. Its shows
the profit before tax that is generated from every 1 of asset employed (Kaplan
Financial Limited, 2010). It is derived as below:

Profit Before Interest and Tax x 100
Capital Employed

Asset Turnover: According to Bobbie Retallack (2011), Asset turnover shows how
efficiently management have utilised assets to generate revenue. When looking at
the components of the ratio a change will be linked to either a movement in revenue,
a movement in net assets, or both. It is derived as below;

Revenue
Total Asset Current Liabilities

Liquidity Ratios

Current Ratio: This ratio is used to determine the short term survival of a company
(Wayne A. Label, 2010). It compares the companys current assets with their current
liabilities as shown below.

Current Assets
Current Liabilities
7


Quick Ratio: Quick ratio is similar to Current Ratio but inventory is removed from the
current asset due to its poor liquidity however its measurement is similar to Current
Ratio. It is derived as below;

Current Assets - Inventories
Current Liabilities

Efficiency Ratios

Net Asset Turnover: According to Bobbie Retallack (2011), Asset turnover shows
how efficiently management have utilised assets to generate revenue. When looking
at the components of the ratio a change will be linked to either a movement in
revenue, a movement in net assets, or both. It is derived as below;

Revenue
Total Asset Current Liabilities

Total Asset Turnover: This ratio is similar to the net asset ratios but considered the
total asset of the organisation. It is derived as below;

Revenue
Total Asset

Financial Leverage Ratios

Debt to Equity Ratio: The gearing ratio is of particular importance to a business as it
indicates how risky a business is perceived to be based on its level of borrowing
(Bobbie Retallack, 2011). It is derived as below;

Total Interest Bearing Debt
Total Equity

Debt to Asset Ratio: This is similar to the debt to equity ratio however It measures the
proportion of assets financed by debt.

Total Interest Bearing Debt
Total Assets

8

Interest Cover: This ratio measures the ability of a company to pay the interest on its
debt from its operating profit. It is derived as;

Profit Before Interest and Tax
Interest Paid


Shareholders Ratios

Earnings per Share: This ratio measured the portion of a company's profit allocated
to each outstanding share of common stock. Earnings per share serve as an
indicator of a company's profitability. It is obtained as below;

Earnings Attributable to Ordinary Shareholders
Number of Ordinary Shares in Issue and Ranking for Dividend

Other Ratios: To enhance the presentation and analysis of the financial performance
of British Airways other aviation specific ratios have been computed. See Appendix 1.

Limitations of ratios:

1. Ratios are based on financial data that are historical in nature. For this reason,
analyst can only analyse past data and performance of a company which may not
really project the future of an enterprise.

2. Before a meaningful conclusion can be drawn from a ratio analysis, it must be
compared with similar ratios over a specific period. Ratios cannot be used in
isolation.

3. Financial statements on which financial ratios are based are subject to different
accounting policies, this makes comparison of ratios between different companies
difficult.

4. General interpretation of ratios is highly subjective.
9

2.5.2: BUSINESS PERFORMANCE MEASURE

Balanced Score Card

The balanced scorecard is a strategic planning and management system that is used
in business. It was originated by Drs. Robert Kaplan (Harvard Business School) and
David Norton as a performance measurement framework that added strategic non-
financial performance measures to traditional financial metrics to give managers and
executives a more 'balanced' view of organizational performance (Balanced
Scorecard Institute, 2011).

The balanced scorecard includes financial measures and non-financial measures as
well as external information (Advanced Performance Management, Kaplan Financial
Limited, 2011). It is considered under Customer Perspective, Financial Perspective,
Business Process Perspective and Learning and Innovation Perspective.

SWOT Analysis

SWOT analysis is a technique used to analyse the Strengths, Weaknesses,
Opportunities and Threats affecting an organisation. The strengths and weaknesses
are those variables that affect the company internally which the company has control
over while opportunities and threats are those variables which are out of the control
of the company. SWOT analysis will be used to ascertain British Airways strategic
position.

Porters 5 Forces

British Airways explore an open system organisation which constantly interacts with
the external environment. Porters 5 forces is a framework that can be used to assess
the external environment.

The American management writer Michael Porter describes the main external
competitive threats to be summarised by his five forces model. Essentially this model
determines the level of competition an organisation is facing by assessing the extent
to which the five forces are relevant (Sean Purcell, 2007). The five forces are
categorised as threat from new entrants, bargaining power of buyers, bargaining
power of suppliers, threat from substitute products and competitive rivalry.
10

PART 3.0 Results, Analysis, Conclusions and Recommendations.


3.1. RESULT OF FINDINGS.

The results gathered from my findings are presented under the two headings, financial
results and business operations results.

3.1.1. FINANCIAL RESULTS

Financial results are the results I generated from the financial statements of both British
Airways Plc and Virgin Atlantic Airways Limited for the years 2007/2008, 2008/2009 and
2009/2010. These results are quantitative in nature and show a trend in the financial
performance of the two companies. The financial results are presented under the following
heading;

Financial Ratios

According to Micheal C. Thomsett (2010), the two primary financial statements used in
business are the balance sheet and the income statement. These two primary financial
statements formed the basis on which financial ratios for this research are generated. See
Appendix 2 and 3 for a detailed presentation of the balance sheet and income statement for
British Airways Plc and Virgin Atlantic Airways Limited. The financial ratios calculated cover
the profitability, liquidity, activity, long term solvency and shareholder ratios.

The summary of the financial ratios for the period under review are provided in Table 1
below;
11




2009/2010 2009/208 2007/2008
British
Airways
Plc
Virgin
Atlantic
Airways Ltd
British
Airways
Plc
Virgin
Atlantic
Airways Ltd
British
Airways
Plc
Virgin
Atlantic
Airways Ltd
Profitability
Ratios

Operating Profit
Margin

-2.89%

-7.43%

-2.45%

0.29%

10.00%

-0.20%
Net Profit/(Loss)
Margin

-5.32%

-6.31%

-3.98%

1.61%

7.95%

0.82%
Return on
Capital
Employed

-5.68%

-25.84%

-3.74%

3.12%

12.02%

-1.29%
Efficiency
Ratio

Net Asset
Turnover
1.15
times
12.12
times
1.07
times
7.75
times
1.11
times
11.38
times
Total Asset
Turnover
0.75
times
1.43
times
0.72
times
1.50
times
0.79
times
1.47
times
Liquidity Ratio
Current Ratio 0.71 1.37 0.65 1.37 0.97 1.14
Quick Ratio 0.69 1.23 0.63 1.33 0.94 1.11
Gearing and
Shareholders
Ratio

Gearing Ratio 1.89 0.28 2.04 0.25 0.98 1.63

Interest Cover
-1.47
times
-10.85
times
-1.21
times
0.44
times
5.00
times
-0.19
times
Earnings Per
Share (pence)

-38.50

-2782.22

-32.60

800.00

62.10

364.44
Share Price 243.75 n/a 140.80 n/a 234.25 n/a
P/E Ratio - n/a - n/a 3.77 n/a
Table 1: Summary of financial ratios for British Airways Plc and Virgin Atlantic Airways Ltd.
12

Revenue Generated by Region

Geographical region of operations are broadly divided into six, United Kingdom, Continental
Europe; The Americas; African Middle East and Indian sub-continent; and Far East and
Australasia. (British Airways Plc, 2010). Table 2 and Chart 1 below show British Airways Plc
and Virgin Atlantic Airways Limited revenue by region.

2009/2010 2008/2009 2007/2008
Geographical
Regions
British
Airways
Plc
Virgin
Atlantic
Airways
Ltd
British
Airways
Plc
Virgin
Atlantic
Airways
Ltd
British
Airways
Plc
Virgin
Atlantic
Airways
Ltd

United Kingdom

3,636m

1,970m

4,197m

2,225.7m

4,357m

1,292.3m

Continental
Europe/Other

1,255m

180.3m

1,420m

162.1m

1,219m

138.8m
The Americas
and Caribbean

1,651m

331.1m

1,719m

336.2m

1,697m

356.8m
Africa, Middle
East, and Indian
Sub-continent

731m

125.7m

875m

124.0m

821m

90m

Far East and
Australasia

721m

146.4m

781m

133.7m

659m

120.1m

Total Revenue

7,884m

1,970m

8,992m

2,225.7m

8,753m

1,998m
Table 2: British Airways Plc and Virgin Atlantic Airways Ltd Revenue by Geographical
Region

13

-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
UK Continental
Europe/Others
The Americas Africa, Middle
East, and Indian
Sub-continent
Far East and
Australasia
British Airways Plc Revenue By Region ('m)
2009/2010
2008/2009
2007/2008

Chart 1: A Bar Chart showing British Airways Plc Revenue by Region

Revenue Generated by Segment

To further present a different view of the revenue generated by British Airways Plc, the
revenue for the period under review has been divided into segments. British Airways is a
global premium airline (British Airways Plc, 2010), its operations are not restricted to
passenger uplifts but include cargo uplift. Table 3 and Chart 2 below present the revenue of
British Airways by its operating segments.

Operating
Segments

2009/2010

2009/2008

2007/2008

Passenger

6,980m

7,836m

7,541m

Cargo

550m

673m

616m

Others

464m

483m

596m

Total

7,994m

8,992m

8,753m
Table 3: British Airways Plc Revenue by Operating Segments
14

-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
Passenger Cargo Others
British Airways Plc Revenue by Operating Segments
('m)
2009/2010
2008/2009
2007/2008

Chart 2. A Bar Chart showing British Airways Plc Revenue by Operating Segments

3.1.2. BUSINESS OPERATIONS RESULTS

Business operations are those ongoing recurring activities involved in the running of a
business for the purpose of producing value for the stakeholders. They are the foundation for
the financial performance of any organisation. Business operations is entangled with the
financial operations of any company, all business operations can be reduced to people,
product and profits, organisations can't perform effectively without the three in place. Results
obtained from the business operations of British Airways Plc and Virgin Atlantic Airways
Limited are presented below.

2010 2009 2008
Operation Capacity
Passenger Seat Used km (million) 109,724 110,340 112,313
Passenger Seat Available km (million) 139,346 146,734 148,344
Passenger Load Factor 78.74% 75.20% 75.71%
Passenger Carried (000) 31,852 33,177 34,613
Revenue per Aircraft km (million) 681 644 644
Revenue flights (000) 257 279 281
15

2010 2009 2008
Average Man Power 37,595 41,473 41,745
Punctuality Within 15 minutes (%) 81% 77% 63%
Table 4: Summary of British Airways Plc Business Operation Results

3.2. ANALYSIS

The analysis of the results and finding of this research is based on both the financial position
and operation performance of British Airways. To enhance a good understanding of this
analysis, I will present my analysis under two sections: financial analysis and business
analysis.

3.2.1 FINANCIAL ANALYSIS

Financial analysis is based on ratios obtain from the financial statements of British Airways
Plc and Virgin Atlantic Airways Limited. They are detailed below;

PROFITABILITY

British Airways Plc operating profit margin for 2008 was 10.0%, it however drastically
declined to -2.45% in 2009 and a further decline to -2.89% in 2010 while the net profit/(loss)
margin followed a similar trend as the net profit for 2008 was 7.95%, -3.98% in 2009 and -
5.32% in 2010. Virgin Atlantic Airways Limited operating profit margin for 2008, 2009 and
2010 was -0.20%, 0.29% and -7.43% respectively while its net profit/(loss) margin for 2008,
2009 and 2010 was 0.82%, 1.61% and -6.31%. Comparing the operating profit ratio and net
profit ratio for Virgin Atlantic Airways Limited, there is a slight increase as a result of its
finance income.

The operating profit margin and net profit margin recorded for British Airways in 2008 was a
direct result of the high operating profit of 875m and net profit of 883 made by British
Airways Plc in the 2007/2008 financial year. In 2007/2008, the percentage of operating cost
to revenue generated for British Airways was 90% while Virgin Atlantic was 102%, that is 2%
in excess of the revenue generated. In 2008/2009 and 2009/2010 the operating cost for
British Airways was 102.45% and 102.89%, that is in excess of revenue generated by 2.45%
and 2.89% respectively however Virgin Atlantic operating cost to revenue fell to 99.71% in
2009 but followed by a rise to 107.43%, which means operating cost was in excess of 7.43%
to revenue.
16

Analysis shows that the fuel and oil cost were a major cause of the fall in operating profit for
2008/2009 and 2009/2010 period. In 2007/2008 period, the fuel and oil cost represents
23.48% of the revenue generated. However, despite the opening of Heathrow Terminal 5 in
March 2008 and British Airways having a principal presence at Heathrow Terminal 5, an
insignificant increase in revenue of 2.73% was generated in 2008/2009 and a high
percentage of the total revenue was used for fuel and oil cost which represents 33.02% of
the total revenue generated. Operating activities for 2009/2010 was the worst the aviation
industry in UK has ever encountered as British Airways revenue fell by 998m and Virgin
Atlantic Airways revenue fell by 254.7m. The return on capital employed for British Airways
fell from 12.02% in 2008 to -3.74% and declined further to -5.68%, Virgin Atlantic Airways
return on capital was worse with a ratio of -25.84% in 2010 despite a higher asset turnover
for the period, the low return on capital employed is directly a result of the operating loss
recorded. Despite the loss recorded by British Airways for 2010 due to the fall in passenger
uplift due to the recession and high fuel and oil cost, British Airways profitability position is
preferable.

LIQUIDITY

The current ratio for British Airways was 0.97 in 2008, it fell to 0.65 in 2009 with an increase
in 2010 to 0.71, the liquidity ratio for the period follow the same trend as the quick ratio for
2008 was 0.94, 0.63 in 2009 and 0.69 in 2010. Virgin Atlantic Airways Limited is more liquid
financially as its current ratio was 1.14 in 2008, it increased to 1.37 in 2009 and remained
stable in 2010 while the quick ratio for 2008 was 1.11 and an increased to 1.33 in 2009, it fell
to 1.23 in 2010 as a result of its inventory.

Generally, Virgin Atlantic Airways Limited is more financially liquid compared to British
Airways Plc, this is as a result of the excessive trade and other payables held by British
Airways. The trade and other payables represent 77.81% of the total current liabilities in
2010 while in 2009 and 2008 it represents 67.5% and 79.84% respectively. Except for
2007/2008 financial period, the amount for trade and other payables is in excess of the total
current assets and receivables.

There is a trade off between profitability and liquidity, managers are to seek a balance.
Although British Airways is less financially liquid compared to Virgin Atlantic Airways, its
profitability status is better.
17

EFFICIENCY RATIO

Operations in the aviation industry have declined likewise the revenue generated from the
operation of the premium airlines. The ability of British Airways and Virgin Atlantic to
generate revenue from its assets is measured by Net Assets Turnover and Total Assets
Turnover. The net asset turnover for British Airways is 1.11 times for 2008, 1.07 times for
2009 and 1.11 times for 2010 while for Virgin Atlantic was 11.38 times, 7.75 times and 12.12
times for 2008, 2009 and 2010 respectively. A higher net asset turnover ratio indicates
effective use of available investments to generate revenue.

As revealed by the analysis, British Airways has not been maximising its assets to generate
revenue as compared to Virgin Atlantic, even the total asset turnover shows a similar trend
as British Airways total asset for 2008, 2009 and 2010 are 0.79 times, 0.72 times and 0.75
times respectively as against Virgin Atlantic total asset turnover of 1.47 times, 1.50 times
and 1.43 times for 2008, 2009, 2010 respectively. The low asset turnover for British Airways
despite possessing more assets when compared to Virgin Atlantic reflects less usage of the
assets in possession. Despite possessing the largest passenger-seat capacity in UK, British
Airways could only utilise 75.71%, 75.20% and 78.74% in 2008, 2009 and 2010 respectively
while Virgin Atlantic utilised 76.52%, 76.12% and 80.55% in 2008, 2009 and 2010. Virgin
Atlantic Airways efficiency can be linked to its high passenger-seat utilisation as a result of
better customer service and charging lesser fees than British Airways, however British
Airways can improve its profitability by increasing the efficiency use of its assets.

GEARING AND SHAREHOLDERS RATIOS

The constant decrease in revenue and increase in operating cost resulting to financial loss
has made it difficult for airline companies to service the interest on their debts. In 2008 the
interest cover for British Airways was 5.00 it fell to -1.21 in 2009 and further declined in 2010
to -1.47 while Virgin Atlantic Airways interest cover for the same period was -0.19 in 2008, it
improved to 0.44 in 2009 followed by a steep fall to -10.85. This reveals that both companies
are having difficulty paying the interest due on their debt and face a risk of bad credit rating,
however British Airways rating will be better when compared to Virgin Atlantic due to its
ability to return to profitability as indicated in the profitability ratios and interest cover ratio.

British Airways Plc debt to equity for 2008 is 0.98, this increased significantly to 2.04 in 2009
and followed by a considerable fall to 1.89 in 2010 however a debt to total asset for 2008
was 0.25, 0.25 in 2009 and 0.32 in 2010. Virgin Atlantic Airways debt to equity ratio was 1.63
18

in 2008, it fell to 0.24 in 2009 and followed by an increase to 0.28 in 2010. British Airways
business, in terms of capital structure, is riskier than Virgin Atlantic, the high debt ratio of
British Airways reflects that it has been aggressive in financing its growth with debt which is
a source of finance for organisations however interest paid on the debt will reduce the
shareholders earnings. As revealed in the ratio calculated, earnings per share for British
Airways has constantly declined over the three years, this is not only because of the cost of
capital but directly as a result of the loss recorded for the period.

3.2.2 OPERATIONS AND BUSINESS ANALYSIS

BALANCED SCORECARDS

Balance scorecard is a management system that enables an organization to set, track and
achieve its key business strategies and objectives. Once the business strategies are
developed, they are deployed and tracked through the four perspective (Chuck
Hannabarger, Rick Buchman and Peter Economy, 2007)
;
The four perspectives of a balanced scorecard will be used to analysis BA as below:

Customer Perspective

British Airways seek to create customers satisfaction as it is aware that the customers are
key factor to its existence and future profitability. It is known that premium air passengers do
not only seek a means to travel but also enjoy a remarkable travelling experience. The Key
performance indicator to measure British Airways performance is Customer
recommendation. In 2009/2010 a record of 63% customer recommendation was obtained as
against a target of 65%, in 2008/2009 65% customer recommendation was achieved as
against 52% target while in 2007/2008 a 59% customer recommendation was recorded
which is a 2% fall from the previous year. Customer recommendation is key to business
growth and also leads to customer loyalty. The major effect of the failure to meet the target
for 2009/2010 was as a result of better customer services, especially catering services,
provided by Virgin Atlantic Airways and also the industrial action strike by the union created
a miserable experience for passengers.
19

Financial Perspective

Revenue rose from 8,753 in 2007/2008 to 8,992m in 2008/2009 but fell by 998m to
7,994 in 2009/2010. Operating margin was at a record of 10.00% in 2007/2008 but a
drastic fall to -2.45% and -2.89% in 2008/2009 and 2009/2010 respectively. The liquidity
ratio also shows British Airways is gradually falling short of its capacity to meet its short term
financial obligation with a liquidity ratio of 0.94, 0.63 and 0.69 for 2007/2008, 2008/2009 and
2009/2010 respectively. The fuel and oil cost is a significant contributing factor to this
financial ratios and it highlights British Airways failure to effect comprehensive hedge
against the fluctuation in the prices for aviation fuel.

Business Process Perspective:

Punctuality is an important factor in aviation business, not only does it presents the airline as
credible and attract customer recommendation, it also saves commercial cost although there
are some lateness factors outside the control of the management. British Airways has a
clear and well communicated management strategy to improve its punctuality rate within the
scope that is controllable. The average punctuality rate in 2007/2008 was 34% against a
target of 44% 48%, this was a disappointing results in comparison its competitors but in
2008/2009 the punctuality rate rose to 53% a direct result of the Heathrow Terminal 5 where
British Airways possesses a significant presence, 2009/2010 punctuality rate was 59%
against a target of 52%. British Airways could attain this result amidst the severe winter
weather in UK due to its priority status in Heathrow Airport.

Learning and Innovation Perspective:

To enhance a bottom-top communication system, British Airways provided a platform called
SpeakUp! where employees are given access to make contributions to the development and
operations in British Airways. It also continued investing in premium service training. British
Airways in response to customers review, reconfigure its club Europe seats to enhance
comfort. Innovation is also achieved in 2009/2010 as British Airways enabled its passengers
to claim refunds online, this has shorten the refund claim timeline, and also enable
passengers to book flight, hotels and car rental.

SWOT ANALYSIS

The SWOT analysis for British Airways is detailed below;
20


STRENGTH

British Airways possess 238 aircrafts and an extensive network of 148 destinations and flight
slots are developing into other region. Its capacity presence at London Heathrow Terminal 5,
Gatwick Airport and London City Airport represent the strength it possess in the aviation
industry.

The merger with Iberia and the joint business agreement with American Airlines and Iberia
for transatlantic routes give British Airway a better chance to gain more market share and
improve diversification and coverage of geographical spread. It will also improve customers
satisfaction and enhance shareholders wealth.

British Airways online services creates a strong market position for its operation and the
access granted to customers to seek refund in situation of disruption lead to an increase in
customer recommendation and recognition of the British Airways brand.

The use of bio fuel aircrafts in its operation is a major success not only in reducing emission
but also the cost of fuel and oil will fall as it was noted that this cost represents a significant
portioned of the revenue.

WEAKNESS

British Airways had a pension deficit of 3.7billion as at 31 March 2010, although efforts are
being made by British Airways Plc to maintain annual cash payments of 330million to
schemes the financial conditions and the present economic recession may interfere with
these plans. This will lead to further strike actions by the union, causing a further loss of
revenue due to higher operating costs as crew members will have to be sourced from a third
party at an additional cost to British Airways.

Fluctuating fuel price is a major challenge for British Airways as a result of poor fuel hedging
system.

British Airways does not operate a low-cost airline so cannot compete locally with low cost
airlines.
21


OPPORTUNITY

United Kingdom remains one of the leading international tourist destinations in the world and
British Airways operations are centred in United Kingdom. This creates a chance for British
Airways to take advantage of increasing number of tourist travelling by air to United
Kingdom. Also, the 2012 Olympic scheduled to host in London provides British Airway
enormous opportunities as the main airport in London is Heathrow Airport where British
Airways possesses a significant presence.

The global aviation industry is on the road to recovery as recession is gradually fading away.
The worst of the recession seems to be over as there has been increase in premium air
traffic towards the end of the financial year.

Improvement and expansion of operation to growing regions can lead to additional revenue
being generated from these regions. British Airways can make a significant stride by
penetrating the growing regions market aggressively.

THREAT

Intense competition and aggressive price discounting from competitors especially the low-
cost/budget airlines like Easy Jet, Ryan Airlines etc affecting British Airways revenue. The
low-cost airline thrives on their strategy of offering air freight services to passenger at a
lower cost than the premium airlines.

Fuel and oil form one of the major resources used in running the aviation industry. The fuel
and oil prices are subject to market demand and supply; this explains the fluctuation in the
cost. Also increased political and economic unrest in the oil producing states influences the
rise in the cost of fuel and oil.

Concerns over the carbon emission by aircraft have been relayed by environmentalists over
the period and this is a major source of debate over the creation of the third runway in
Heathrow Airport. Kevin Anderson, a climate scientist at the University of Manchester's
Tyndall Centre, said that technologies will not arrive quickly enough to offset the projected
increase in air passenger numbers and that the only practical solution for the industry is to
curb the demand for flying (Guardian, 2008).

22


PORTER'S 5 FORCES ANALYSIS

The Threat from New Entrants

The threat of new entrants into the UK aviation industry, in which British Airways is a major
airline, is relatively low. This is as a result of significant barriers to entry, the entry barriers
include high capital outlay, product differentiation and strict regulations from the UK
government. Although capital can be sourced from the financial institution by way of a loan
but the current economic situation and the high interest rate may render the choice
undesirable.

Product differentiation is any way by which a new company presents its product and services
with properties distinct from its rivals to gain entrance into the aviation market. All airlines
provide basically the same services to their customers which is air freight, this creates a
barrier as a high level of innovation will be required for new entrants to gain market share.

Aviation industry is a high risk industry especially in terms of security and safety.
Government legislations are strict and enforced throughout the operations of the airlines,
although the UK government encourages competition which encourages new entrant to the
industry, the challenges of the strict regulations however form an entry barrier.

The Bargaining Power of Buyers.

The bargaining power of buyers in the airline industry is quite low, there are little or no
alternative sources of air freight and the customers are not concentrated. Also, there are
high costs involved with switching airplanes; however factors like aircraft punctuality, comfort
of the seats, catering services offered while on board, attitude and assistance of the air cabin
crew can influence the switch. It was concluded in a research on airline choice, switching
costs and frequent flyer programs by Fredrik Carlsson and Asa Lfgren (2004) that the cost
of switching an airline, compared to the ticket price, is quite substantial.

The Bargaining Power of Suppliers.

The airline supply business is mainly dominated by Boeing and Airbus, for this reason there
are no aggressive competitions among suppliers of aircraft. Also there is no substitute to the
23

supply of aircraft. It is unlikely that a supplier will integrate vertically into provision of air
freight services.

The Threat from Substitute Products.

The substitutes for air freight services over a regional distance exist, however substitutes for
transatlantic air freights do not exist. For regional and short distance trip, trains and cars are
substitute but time, money, convenience and personal preference for air travel will reduce
the threat. British Airways operates both the regional and transatlantic route, the aggregate
effect of these substitutes are not significant to its operations.

Competitive Rivalry.

British Airways faces rivalry competition from both premium airline and low-cost airlines. Its
principal competitor in the UK based premium airline is Virgin Atlantic Airways while some
low-cost airlines like Easy Jets and Ryan Airlines are competing aggressively in the regional
route using their price discount as a tool. The intensity of the rivalry will have an effect on the
revenue of British Airways.

3.3. CONCLUSION

British Airways has positioned itself as a global premium airline and it has been able to
sustain this position for several years of operations. Its historical background and corporate
structure have also provided a platform for its operations. The successful implementation of
its strategy and continuation of its relationship with its partners are all factors that contribute
to the continuity of its operations.

The effectiveness of British Airways strategic decision has been seen with the merger with
Iberia Airways and its continuous operations with its partners like America Airlines. This
merger is a step towards return to profitability and will increase shareholders wealth. It is
also a step to take advantage of the period after the economic recession as it creates an
opportunity for British Airways to remain the leading airline in the UK and also compete with
other airlines globally.

British Airways performance for the period under this research has shown a consistent fall in
profitability and liquidity. Their financial performances over the years with the exception of
2007/2008 period are declining. Despite the poor financial performance, British Airways is a
24

better organisation when compared to its primary competitor. Its management are sensitive
to its profitability issues and have made strategic decisions targeted at increasing the
companys operation and returning British Airways to profitability, the financial and business
performance of British Airways Plc is expected to improve in the future.

3.4. RECOMMENDATIONS

Based on the outcome of my research project I recommend British Airways Plc to resolve all
disputes with its work force and all strike actions should be averted. In operations, there are
needs for British Airways Plc to reduce its cost strategically without jeopardising the quality
offered to its customer. I would recommend a further reduction in its fuel and oil costs and
ways by which this cost could be reduced is by procuring more fuel efficient aircrafts like the
Boeing 747-400ER and Airbus A380-800. This will not only reduce operational costs but also
improve the brands image in terms of supporting lower emission.

British Airways should realise that its customer base is an important tool in generating its
revenue and should consider factors that could improve its customer base. One of the
factors that could improve a customer base is by enhancing the customers satisfaction and
this can be achieved by training more cabin crew, paying attention to seat comfort, relaxation
gadgets while onboard and better catering services rendered.

Finally, I would recommend British Airways to seek to acquire one of the low-cost carrier in
the United Kingdom. Basically, British Airways is a premium airline and cannot lower its
quality or provide an aggressive discount like the low-cost carriers. The low cost carriers are
basically regional airlines whose operations are concentrated in Europe. My analysis shows
that British Airways has recorded declined revenue from its UK region and this might
continue as further competition in this area is more intense. British Airways may consider the
acquisition of one of the low-cost airline and not necessarily use the British Airways brand as
in the case of Iberia Airways. This will enable British Airways to indirectly compete with the
low-cost airlines and gain more market share.

25

References:


Balanced Scorecard Institute, 2011. Balanced Scorecards Basic, [Online]. Available at:
http://www.balancedscorecard.org/BSCResources/AbouttheBalancedScorecard/tabid/55/Def
ault.aspx (Assessed 17 January, 2011).

Bobbie Retallack (2011), Performance Appraisal [Online]. Available at:
http://www2.accaglobal.com/students/acca/paperf7/syllabus_e/3346623 (Assessed 6 April
2011).

British Airways Plc, 2010. 2009/2010 Annual Report and Accounts for the year ended 31
March 2010 [Online]. Available at
http://www.britishairways.com/cms/global/microsites/ba_reports0910/pdfs/BA_AR_2010.pdf
(Assessed 24 March 2011).

British Airways Plc, 2009. 2008/2009 Annual Report and Accounts for the year ended 31
March 2009 [Online]. Available at
http://www.britishairways.com/cms/global/microsites/ba_reports0809/pdfs/BA_AR_2008_09.
pdf. (Assessed 24 March 2011).

British Airways Plc, 2008. 2007/2008 Annual Report and Accounts for the year ended 31
March 2008 [Online]. Available at
http://www.britishairways.com/cms/global/microsites/ba_reports/pdfs/BA_Report_2007_08.p
df (Assessed 24 March 2011).

British Airways Plc, (2005). Explore our past [Online]. Available at:
http://www.britishairways.com/travel/explore-our-past/public/en_gb (Accessed 17 January
2011).

Companies House, 2011. Company Details: British Airways Plc. [Online]. Available at
http://wck2.companieshouse.gov.uk/b7b0cd11de4684641c3066104869b2bd/compdetails.
(Assessed 24 March 2011).
26

Companies House, 2011. Company Details: Virgin Atlantic Airways Limited [Online].
Available at
http://wck2.companieshouse.gov.uk/b7b0cd11de4684641c3066104869b2bd/compdetails
(Assessed 24 March 2011).

Chuck Hannabarger, Rick Buchman and Peter Economy, 2007. Balanced Scorecard
Strategy for Dummies. Indiana: Wiley.

Churchill, David, 2005. Flying the flag. [Online]. Available at http://0-
web.ebscohost.com.brum.beds.ac.uk/ehost/resultsadvanced?sid=2345aed1-f6f2-47e2-
9c78-
4db03ab4e927%40sessionmgr115&vid=2&hid=107&bquery=(history+of+british+airways)&b
data=JmRiPWhqaCZ0eXBlPTEmc2l0ZT1laG9zdC1saXZlJnNjb3BlPXNpdGU%3d
(Assessed 31 March, 2011 ).

Civil Aviation Authority, 2011, Welcome to the UK Civil Aviation Authority, Available at
http://www.caa.co.uk/homepage.aspx (Assessed 17 January, 2011).

Fredrik Carlsson and Asa Lfgren, 2004. Airline Choice, switching costs and frequent flyer
programs. Working Papers in Economics, Gothenburg University
Harry Wallop, 2011. BA vote for strike: Easter flights could be disrupted [Online]. Telegraph.
Available at: http://www.telegraph.co.uk/travel/travelnews/8411772/BA-vote-for-strike-
Easter-flights-could-be-disrupted.html (Assessed 14 April, 2011).

Investopedia UCL, 2011, Earnings Per Share EPS [Online]. Available at:
http://www.investopedia.com/terms/e/eps.asp, (Assessed 22 March 2011).

Investopedia UCL, 2011, The Industry Handbook: The Airline Industry, [Online]. Available at:
http://www.investopedia.com/features/industryhandbook/airline.asp (Assessed 31 March,
2011).

Kaplan Financial Limited, 2010. Advanced Performance Management: June 2011. London:
Kaplan Financial Publishing.

Kaplan Financial Limited, 2010. Performance Management: December 2010. London:
Kaplan Financial Publishing.

27

Kevin Mayes, 2010. Shareholders Value, [Online]. Available at:
http://www2.accaglobal.com/students/student_accountant/archive/2000/11/36986 (Assessed
24 January, 2011).

Michael C. Thomsett, 2010, The Managers Pocket Calculator: a quick guide to essential
business formulas and ratios, Illinois: America Management Association

Nigel Evans, David Campbell and George, 2003. Strategic Management for Travel and
Tourisim. Stonehouse .

Oxford Brookes University, (2009). BSc (Hons) in Applied Accounting and
Research and Analysis Project Information Pack [Online]. Available at
http://www2.accaglobal.com/documents/bscinfopack.pdf (Assessed 14 November, 2010).

Sean Purcell, 2007. The Strategic Planning Process, [Online]. Available at:
http://www2.accaglobal.com/students/acca/exams/p3/technical_articles/2950934 (Assessed
16 April, 2011).

The Gale Group Inc, 2006. British Airways Plc [Online]. Available at
http://www.fundinguniverse.com/company-histories/British-Airways-PLC-Company-
History.html (Accessed:26 March, 2011 ).

Wayne A. Label, 2010. Accounting for Non-Accountants. 2nd edition. United States of
America: Sourcebooks.

Alok Jha, 2008. Airport expansion must be halted to meet CO2 target, say climate scientists:
Only practical solution to meet emissions target is for airline industry to curb demand for
flying, says climate scientist [Online]. The Guardian. Available at
http://www.guardian.co.uk/environment/2008/nov/18/climatechange-aviation-emissions
28

Bibliography


Civil Aviation Authority, 2010. UK Airlines Statistics: 2010-03 [Online]. Available at
http://www.caa.co.uk/docs/80/airline_data/201003/01_2_Size_of_UK_Airlines_by_Available_
Capacity.pdf. (Assessed 8 March 2011).

Civil Aviation Authority, 2009. UK Airlines Statistics: 2009-03. [Online]. Available at
http://www.caa.co.uk/docs/80/airline_data/200903/01_2_Size_of_UK_Airlines_by_Available_
Capacity.pdf. (Assessed 8 March 2011).

Civil Aviation Authority, 2009. UK Airlines Statistics: 2008-03 [Online]. Available at
http://www.caa.co.uk/docs/80/airline_data/200803/01_2_Size_of_UK_Airlines_by_Available_
Capacity.pdf. (Assessed 8 March 2011).

Luke Johnson, 2010. The biggest groups are ill with inefficiency [Online]. Financial Times.
Available at http://www.ft.com/cms/s/0/863409bc-5fca-11e0-a718-00144feab49a.html
(Assessed 6 April 2011).

Key Note Ltd, 2008. Industry Overview. Middlesex: Key Note Ltd.

Key Note Ltd, 2009. Business Ratio Report. Middlesex: Key Note Ltd.

Key Note Ltd, 2010. Business Ratio Report. Middlesex: Key Note Ltd.

The Economist, 2008. How to fix Heathrow [Online]. Available at
http://www.economist.com/node/10924139?story_id=10924139 (Assessed 6 April 2011).

Graham Keeley and David Robertson, 2009. BA and Iberia agree basis for merger [Online].
Available at
http://business.timesonline.co.uk/tol/business/industry_sectors/transport/article6913835.ece
(Assessed 6 April 2011).

Richard S., Rob D. and Andy E., 2004. British Airways - Climbing above the turbulence.
How British Airways countered the budget airline threat, Institute of Practitioners in
Advertising, Silver, IPA Effectiveness Awards 2004. pp 1-25.

29

Ibis Associates, 2011. Key Performance Indicator [Online], Available at
http://www.ibisassoc.co.uk/key-performance-indicators.htm (Assessed 14 April 2011).

Marketline, 2009. British Airways, Iberia agree to merge.

Marketline, 2009. American Express and British Airways renew strategic partnership.

Martin Corboy, 2002. Strategic Planning Models [Online]. Available at
http://www2.accaglobal.com/students/acca/exams/p3/technical_articles/2948653. (Assessed
6 April 2011)

Ben H., Emma H. and agencies, 2008. Terminal 5 opens as British Airways move in [Online].
The Telegraph. Available at http://www.telegraph.co.uk/news/uknews/1582832/Terminal-5-
opens-as-British-Airways-move-in.html. (Assessed 6 April 2011)



30


List of Appendices

Appendix 1: Other Ratios Computed
Appendix 2: British Airways Plc 2007/2008, 2008/2009 and 2009/2010 Financial Statements
Appendix 3: Virgin Atlantic Airways Limited 2007/2008, 2008/2009 and 2009/2010 Financial
Statements
Appendix 4: Analysis of Seat Capacity for all Airlines in United Kingdom as at 31 March 2008
Appendix 5: Analysis of Seat Capacity for all Airlines in United Kingdom as at 31 March 2009
Appendix 6: Analysis of Seat Capacity for all Airlines in United Kingdom as at 31 March 2010

31


Appendix 1: Other Ratios Computed




2009/2010 2009/208 2007/2008
British
Airways
Plc
Virgin
Atlantic
Airways Ltd
British
Airways
Plc
Virgin
Atlantic
Airways Ltd
British
Airways
Plc
Virgin
Atlantic
Airways Ltd
Changes in
Revenue

-11.10%

-7.43%

2.73%

0.29%

3.07%

-0.20%
Revenue to
Operating Cost

102.8%

-6.31%

102.45%

1.61%

90%

0.82%
Net Working
Capital (million)

1,066

214.30

1,445

295.10

96

118.40
Market Price 31
March (pence)

243.75

na

140.80

na

234.25

na
Price Earning
Ratio

na

na

na

na

na

3.77
32

Appendix 2a: British Airways Financial Statements (Summary)
Group Consolidated Income Statement
'm 'm 'm 'm 'm 'm
Revenue 7,994 8,992 8,753
Employee Costs 1,998 2,193 2,166
Restructuring 85 78
Deprciation, amortisation and impairment 732 694 692
Aircraft operating lease costs 69 73 68
Fuel and oil costs 2,372 2,969 2,055
Engineering and other aircraft costs 505 510 451
Landing fees and en-route charges 608 603 528
Handling charges, catering and other operating costs 997 1,021 977
Sellings costs 290 369 359
Currency differences ( 2) 117 6
Accommodation, group equipment and IT costs 571 585 576
Total expenditure on operations ( 8,225) ( 9,212) ( 7,878)
Operating Profit/(Loss) ( 231) ( 220) 875
Fuel derivative gains/(Losses) 15 ( 18) 12
Finance Costs ( 157) ( 182) ( 175)
Finance Income 20 95 111
Net Financing expense relating to pensions ( 116) ( 17) 34
Retranslation charges on currency borrowings ( 14) ( 59) ( 11)
(Loss)/profit on sale of property, plant and equipment and investments ( 16) 8 14
Share of post-tax (losses)/profits in associates ( 32) 4 26
Net charge relating to available-for-sale financial assets ( 12) ( 3)
Profit/ (Loss) befor tax ( 531) ( 401) 883
Tax 106 43 ( 187)
Profit/ (Loss) after tax ( 425) ( 358) 696
Balance Sheet
'm 'm 'm 'm 'm 'm
Non-current assets
Property, Plant and equipment:
Fleet 5,739 5,523 5,976
Property 920 871 977
Equipment 245 239 310
6,904 6,633 7,263
Intangibles:
Goodwill 40 40
Landing rights 202 163 159
Software 27 27 22
269 190 221
Investments in subsidiaries 2,368
Investments in associates 197 227
Available-for-sale financial assets 76 21 80
Employee benefit assests 483 483 85
Derivative financial instruments 27 27 80
Prepayments and accrued income 17 93 19
Total non-current assets 7,973 9,815 7,975
Non-Current assets help for sale 30 25 0
Current assests and receivables
Inventories 98 97 112
Trade receivables 499 486 586
Other current assests 289 376 308
Derivative financial instruments 74 74 278
Other current interest-bearing deposits 928 908 1,181
Cash and cash equivalents 786 756 683
Total current assets and receivables 2,674 2,697 3,148
Total assets 10,677 12,537 11,123
Shareholder's equity
Issued share capital 288 288 288
Share premium 937 937 937
Investment in own shares ( 4) ( 9) ( 10)
Other reserves 692 430 1,818
Total shareholder's equity 1,913 1,646 3,033
Non-controlling interests 200 200 200
Total Equity 2,113 1,846 3,233
Non-current liabilities
Interest-bearing long-term borrowings 3,446 3,074 2,751
Employee benefit obligations 208 191 330
Provisions for deferred tax 774 652 1,154
Other provisions 159 256 210
Derivative financial instruments 5 123 33
Other long-term liabilities 232 204 168
Total non-current liabilities 4,824 4,500 4,646
Current Liabilities
Current portion of long-term borrowings 556 689 423
Trade and other payables 2,910 2,796 2,590
Derivative financial instruments 12 471 57
Current tax payable 2 4 4
Short-term provisions 260 182 170
Total current liabilities 3,740 4,142 3,244
Total equity and liabilities 10,677 10,488 11,123
Source: British Airways Plc Audited Annual Report and Accounts 2007/2009, 2008/2009 and 2009/2010
2009/2010 2008/2009 2007/2008
2009/2010 2008/2009 2007/2008
33

Appendix 2b: Virgin Atlantic Airways Limited Financial Statements (Summary)
Group Consolidated Income Statement
'm 'm 'm 'm 'm 'm
Revenue 1,984.1 2,238.8 2,010.9
Cost of Sales ( 1,850.9) ( 2,004.6) ( 1,689.9)
Gross Profit 133.2 234.2 321.0
Administrative Expenses ( 316.5) ( 295.8) ( 292.5)
Other Operating (expenses)/income 35.8 68.0 ( 32.5)
Operating Profit/(Loss) ( 147.5) 6.4 ( 4.0)
(Loss)/profit on disposal of fixed assets ( 0.1) 15.0 ( 2.8)
Interest Receivable and Similar Income 2.7 43.0 34.1
Interest Payable and similar charges ( 13.6) ( 14.6) ( 21.3)
(Loss)/profit on ordinary activities before taxation ( 158.5) 49.8 6.0
Tax on (loss)/profit on ordinary activities 33.3 ( 13.8) 10.4
(Loss)/Profit for the financial year ( 125.2) 36.0 16.4
Balance Sheet
'm 'm 'm 'm 'm 'm
FIXED ASSETS
Intangible Assets 38.3 38.3 38.3
Tangible Assest 303.4 335.5 356.0
Investments 15.3 16.7 15.3
357.0 390.5 409.6
CURRENT ASSETS
Stocks 28.5 28.7 26.3
Debtors due within one year 385.0 636.4 272.8
Debtors due after one year 173.5 120.3 76.9
Casg at Bank and in hand 444.1 311.7 581.9
1,031.1 1,097.1 957.9
Creditors amounts falling due within one year ( 816.8) ( 802.0) ( 839.5)
Net Current Assets 214.3 295.1 118.4
Total Assets less current liabilities 571.3 685.6 528.0
Creditors amounts falling due after more than one year( 101.5) ( 106.3) ( 108.8)
Provisions for liabilities and charges ( 306.1) ( 290.4) ( 242.5)
Net Assets 163.7 288.9 176.7
CAPITAL AND RESERVES
Called up share capital 4.5 4.5 4.5
Share premium account 5.0 5.0 5.0
Other reserves 25.0 25.0 25.0
Profit and loss account 129.2 254.4 142.2
Shareholders' Funds 163.7 288.9 176.7
Source: Virgin Atlantic Airways Limited Audited Annual Report and Accounts 2007/2009, 2008/2009 and 2009/2010
2009/2010 2008/2009 2007/2008
2009/2010 2008/2009 2007/2008
34

Appendix 4: Analysis of Seat Capacity for all Airline in United kingdom as at 31 March 2010

Airline Name
Seat Available -
Kilometres (x 1000)
Percentage of all
Available Seat -
Kilometres (%)
Seat - Kilometres
Used (x 1000)
Percentage of all
Seat - Kilometres
Used (%)
Seat - Kilometres
Unused (x 1000)
Percentrage of
Seat - Kilometres
Unused (%)
BRITISH AIRWAYS PLC 139,346,327.00 38.49 109,724,376.00 78.74 29,621,951.00 21.26
EASYJET AIRLINE COMPANY LTD 55,596,533.00 15.36 46,515,074.00 83.67 9,081,459.00 16.33
VIRGIN ATLANTIC AIRWAYS LTD 48,178,985.00 13.31 38,805,839.00 80.55 9,373,146.00 19.45
THOMSON AIRWAYS LTD 35,461,923.00 9.79 32,007,174.00 90.26 3,454,749.00 9.74
THOMAS COOK AIRLINES LTD 29,338,061.00 8.10 27,137,530.00 92.50 2,200,531.00 7.50
MONARCH AIRLINES 18,248,940.00 5.04 15,330,274.00 84.01 2,918,666.00 15.99
BMI GROUP 14,158,813.00 3.91 9,823,906.00 69.38 4,334,907.00 30.62
JET2.COM LTD 6,304,967.00 1.74 5,189,386.00 82.31 1,115,581.00 17.69
FLYBE LTD 5,579,152.00 1.54 3,412,212.00 61.16 2,166,940.00 38.84
FLYGLOBESPAN 4,137,739.00 1.14 3,325,271.00 80.36 812,468.00 19.64
ASTRAEUS LTD 3,168,716.00 0.88 1,994,767.00 62.95 1,173,949.00 37.05
BA CITYFLYER LTD 841,283.00 0.23 447,489.00 53.19 393,794.00 46.81
EASTERN AIRWAYS 477,231.00 0.13 218,941.00 45.88 258,290.00 54.12
TITAN AIRWAYS LTD 418,136.00 0.12 263,974.00 63.13 154,162.00 36.87
LOGANAIR 249,150.00 0.07 141,334.00 56.73 107,816.00 43.27
AIR SOUTHWEST 195,831.00 0.05 114,685.00 58.56 81,146.00 41.44
AURIGNY AIR SERVICES 171,950.00 0.05 108,261.00 62.96 63,689.00 37.04
OPENSKIES 90,541.00 0.03 50,656.00 55.95 39,885.00 44.05
OCEAN SKY (UK) LTD 14,612.00 0.00 5,082.00 34.78 9,530.00 65.22
TAG AVIATION (UK) LTD 12,297.00 0.00 4,387.00 35.68 7,910.00 64.32
ISLES OF SCILLY SKYBUS 11,583.00 0.00 6,631.00 57.25 4,952.00 42.75
TWINJET AIRCRAFT 10,935.00 0.00 4,694.00 42.93 6,241.00 57.07
HIGHLAND AIRWAYS LTD 9,906.00 0.00 4,657.00 47.01 5,249.00 52.99
BRITISH INTERNATIONAL HELICOPTER SERVICES LTD 7,776.00 0.00 5,641.00 72.54 2,135.00 27.46
METROPIX UK LLP 3,338.00 0.00 1,216.00 36.43 2,122.00 63.57
EXECUTIVE JET CHARTER LTD 2,601.00 0.00 1,038.00 39.91 1,563.00 60.09
GAMA AVIATION 2,584.00 0.00 980.00 37.93 1,604.00 62.07
TRIAIR (BERMUDA) LTD 2,569.00 0.00 1,246.00 48.50 1,323.00 51.50
Industry Total 362,042,479.00 100.00
April 2009 - March 2010

Source: Civil Aviation Authority

35


Appendix 5: Analysis of Seat Capacity for all Airline in United kingdom as at 31 March 2009

Airline Name
Seat Available -
Kilometres (x
1000)
Percentage of all
Available Seat -
Kilometres (%)
Seat -
Kilometres Used
(x 1000)
Percentage of all
Seat - Kilometres
Used (%)
Seat - Kilometres
Unused (x 1000)
Percentrage of
Seat - Kilometres
Unused (%)
BRITISH AIRWAYS PLC 146,734,338.00 37.86 110,340,186.00 75.20 36,394,152.00 24.80
VIRGIN ATLANTIC AIRWAYS LTD 53,065,772.00 13.69 40,395,056.00 76.12 12,670,716.00 23.88
EASYJET AIRLINE COMPANY LTD 51,880,502.00 13.39 42,922,724.00 82.73 8,957,778.00 17.27
THOMSON AIRWAYS LTD 38,477,288.00 9.93 35,271,977.00 91.67 3,205,311.00 8.33
THOMAS COOK AIRLINES LTD 29,571,140.00 7.63 26,765,764.00 90.51 2,805,376.00 9.49
MONARCH AIRLINES 19,136,640.00 4.94 15,972,358.00 83.46 3,164,282.00 16.54
BMI GROUP 16,240,057.00 4.19 11,027,677.00 67.90 5,212,380.00 32.10
JET2.COM LTD 6,849,996.00 1.77 5,506,967.00 80.39 1,343,029.00 19.61
FLYGLOBESPAN 5,627,171.00 1.45 4,538,101.00 80.65 1,089,070.00 19.35
FLYBE LTD 5,321,731.00 1.37 3,309,870.00 62.20 2,011,861.00 37.80
XL AIRWAYS UK LTD 5,004,486.00 1.29 4,531,092.00 90.54 473,394.00 9.46
FIRST CHOICE AIRWAYS LTD 2,777,415.00 0.72 2,458,946.00 88.53 318,469.00 11.47
ASTRAEUS LTD 2,725,690.00 0.70 1,707,596.00 62.65 1,018,094.00 37.35
BA CITYFLYER LTD 1,094,390.00 0.28 465,022.00 42.49 629,368.00 57.51
TITAN AIRWAYS LTD 569,704.00 0.15 388,152.00 68.13 181,552.00 31.87
EASTERN AIRWAYS 460,071.00 0.12 218,372.00 47.46 241,699.00 52.54
FLIGHTLINE LTD 454,966.00 0.12 310,182.00 68.18 144,784.00 31.82
OPENSKIES 311,349.00 0.08 150,262.00 48.26 161,087.00 51.74
EUROPEAN AIR CHARTER 301,370.00 0.08 255,101.00 84.65 46,269.00 15.35
ZOOM AIRLINES LTD 227,979.00 0.06 131,954.00 57.88 96,025.00 42.12
LOGANAIR 223,081.00 0.06 119,302.00 53.48 103,779.00 46.52
AIR SOUTHWEST 177,792.00 0.05 104,841.00 58.97 72,951.00 41.03
SILVERJET AIR OPERATIONS LTD 166,479.00 0.04 112,875.00 67.80 53,604.00 32.20
AURIGNY AIR SERVICES 136,338.00 0.04 92,018.00 67.49 44,320.00 32.51
TWINJET AIRCRAFT 13,038.00 0.00 6,696.00 51.36 6,342.00 48.64
ISLES OF SCILLY SKYBUS 12,593.00 0.00 7,081.00 56.23 5,512.00 43.77
BRITISH INTERNATIONAL HELICOPTER SERVICES LTD 9,152.00 0.00 6,178.00 67.50 2,974.00 32.50
TAG AVIATION (UK) LTD 8,357.00 0.00 3,000.00 35.90 5,357.00 64.10
OCEAN SKY (UK) LTD 4,863.00 0.00 1,634.00 33.60 3,229.00 66.40
METROPIX UK LLP 4,744.00 0.00 1,954.00 41.19 2,790.00 58.81
EXECUTIVE JET CHARTER LTD 2,604.00 0.00 1,128.00 43.32 1,476.00 56.68
TRIAIR (BERMUDA) LTD 90.00 0.00 73.00 81.11 17.00 18.89
Industry Total 387,591,186.00 100.00
April 2008 - March 2009

Source: Civil Aviation Authority

36

Appendix 6: Analysis of Seat Capacity for all Airline in United kingdom as at 31 March 2008

Airline Name
Seat Available -
Kilometres (x
1000)
Percentage of all
Available Seat -
Kilometres (%)
Seat - Kilometres
Used (x 1000)
Percentage of all
Seat - Kilometres
Used (%)
Seat -
Kilometres
Unused (x
1000)
Percentrage of
Seat - Kilometres
Unused (%)
BRITISH AIRWAYS PLC 148,343,741.00 36.70 112,312,732.00 75.71 36,031,009.00 24.29
VIRGIN ATLANTIC AIRWAYS LTD 53,564,267.00 13.25 40,989,102.00 76.52 12,575,165.00 23.48
EASYJET AIRLINE COMPANY LTD 39,096,288.00 9.67 31,820,629.00 81.39 7,275,659.00 18.61
THOMSONFLY AND FIRST CHOICE AIRWAYS 26,477,676.00 6.55 23,027,173.00 86.97 3,450,503.00 13.03
FIRST CHOICE AIRWAYS LTD 18,276,456.00 4.52 16,935,450.00 92.66 1,341,006.00 7.34
MONARCH AIRLINES 18,111,108.00 4.48 15,031,866.00 83.00 3,079,242.00 17.00
THOMAS COOK AIRLINES LTD (TCX) 18,064,381.00 4.47 15,641,102.00 86.59 2,423,279.00 13.41
THOMAS COOK AIRLINES LTD (MYT) 15,426,344.00 3.82 13,769,701.00 89.26 1,656,643.00 10.74
BMI GROUP 14,922,177.00 3.69 10,060,534.00 67.42 4,861,643.00 32.58
XL AIRWAYS UK LTD 11,822,847.00 2.92 10,503,788.00 88.84 1,319,059.00 11.16
FLYGLOBESPAN 8,327,718.00 2.06 6,380,981.00 76.62 1,946,737.00 23.38
JET2.COM LTD 7,787,664.00 1.93 5,734,018.00 73.63 2,053,646.00 26.37
GB AIRWAYS LTD 7,582,336.00 1.88 6,261,117.00 82.58 1,321,219.00 17.42
FLYBE LTD 5,175,507.00 1.28 3,209,051.00 62.00 1,966,456.00 38.00
ASTRAEUS LTD 3,417,090.00 0.85 2,524,124.00 73.87 892,966.00 26.13
BMED 1,710,286.00 0.42 1,008,619.00 58.97 701,667.00 41.03
SILVERJET AIR OPERATIONS LTD 1,395,636.00 0.35 1,097,793.00 78.66 297,843.00 21.34
ZOOM AIRLINES LTD 1,019,198.00 0.25 771,029.00 75.65 248,169.00 24.35
FLIGHTLINE LTD 874,598.00 0.22 589,086.00 67.36 285,512.00 32.64
BA CITYFLYER LTD 866,430.00 0.21 407,754.00 47.06 458,676.00 52.94
TITAN AIRWAYS LTD 561,671.00 0.14 390,305.00 69.49 171,366.00 30.51
EASTERN AIRWAYS 453,761.00 0.11 215,080.00 47.40 238,681.00 52.60
EUROPEAN AIR CHARTER 370,679.00 0.09 298,357.00 80.49 72,322.00 19.51
LOGANAIR 209,989.00 0.05 117,011.00 55.72 92,978.00 44.28
AIR SOUTHWEST 148,469.00 0.04 95,830.00 64.55 52,639.00 35.45
AURIGNY AIR SERVICES 130,199.00 0.03 81,942.00 62.94 48,257.00 37.06
SCOT AIRWAYS 52,845.00 0.01 29,847.00 56.48 22,998.00 43.52
TAG AVIATION (UK) LTD 21,037.00 0.01 10,681.00 50.77 10,356.00 49.23
ISLES OF SCILLY SKYBUS 11,524.00 0.00 6,977.00 60.54 4,547.00 39.46
TWINJET AIRCRAFT 11,339.00 0.00 5,258.00 46.37 6,081.00 53.63
BRITISH INTERNATIONAL 10,105.00 0.00 7,124.00 70.50 2,981.00 29.50
METROPIX UK LLP 5,221.00 0.00 2,358.00 45.16 2,863.00 54.84
EXECUTIVE JET CHARTER LTD 2,226.00 0.00 981.00 44.07 1,245.00 55.93
TRIAIR (BERMUDA) LTD 1,199.00 0.00 387.00 32.28 812.00 67.72
Industry Total 404,252,012.00 100.00 2,311.52
April 2007 - March 2008

Source: Civil Aviation Authority
37