MAJOR ISSUE From the perspective of Ryanair, the major issue facing the firm is its valuation in the long-term, known as its economic value. Although the firm maintains a bullish outlook, there are diverging opinions regarding the valuation of the firm among investors. The valuations of the firm vary widely, with stock price estimates ranging from 3.05 to 7.57. This range reflects discrepancies on whether Ryanair has solid business model and fundamentals as well as numerous issues that plague not only Ryanair, but the airline industry as a whole. These issues are as follows: · Competition: Regulation permitted the entrance of start-up carriers, which, when combined with the excess capacity and the potential for high returns, has led to increased competition. Increased competition has and will continue to force Ryanair to reduce fare prices. · Costs: Regulation, although beneficial in some regards (cut-price deals), has also been costly for Ryanair. An unfavorable ruling by the EU in February 2004 put pressure on Ryanair's stock price and raised uncertainty among investors. Of more concern are rising costs associated with labor and fuel, which could increase fares and reduce margins and overall profitability. · Macroeconomic environment: The airline industry has proven particularly sensitive to phenomena such as terrorist attacks, wars, outbreaks (SARS), drastic currency fluctuations, and the like. These phenomena tend to have a significant impact on the cost of fuel, overall demand for air transportation, tourism, etc. To determine the economic value of Ryanair, these issues must be assessed with an appropriate time frame, passenger capacity, and discount rate. ANALYSIS To calculate the valuation of Ryanair, the firm's future revenues and costs, as well as the firm's current accounting value must be calculated. To account for a range of possibilities, three different valuations have been calculated through 2012. These are called Annual Report, Valuation 1, and Valuation 2. Descriptions of each of these valuations will develop as the revenue and cost modeling are discussed. A description of the valuations will conclude the Analysis portion of this document. FUTURE REVENUES Revenues on Per-Passenger Basis: For simplicity, and clarity, all models were generated using per-passenger revenue information. Using this marginal revenue calculation as opposed to a disaggregated marginal and total revenue model offered the advantage of compensating for data that was not fully contained within the case. This allows assumptions to be made about continuous and linear marginal revenue curve.
The market in this article is the airport. Heathrow airport is the supplier of places for airlines, and they charge certain amount of price for the service. However, Heathrow Airport argues that the maximum price will decrease the quality of service airlines which can be provided, and the airlines argue that it is a justified intervention, since it will keep the consumers’ price low.
These operating cost have not been pasted on to the consumer (Motif Investing (2016). However, in manufacturing Boeing and Airbus hold a large proportion of the market and with other player joining the market it is unknown at this time if this trend will continue for Boeing and Airbus as consumers may take a benefit with new competitors surfacing (Motif Investing (2016). The concern and problem extend to government regulations placing local and foreign market competitive constraints along with the future fuel market is yet to yield. In looking into the current trends and future competition as (Motif Investing (2016) discusses “consumer confidence is may be as important as any of them” (Motif Investing (2016). It may boil down to consumer preference and being on the front line in customer service may in fact be the deciding factor for company growth. According to (Wahlen, Baginski, & Bradshaw, (2014), asses the financial statements and deduction is that it is evident that Delta Airlines has a higher shareholder equity as well as cash flow in operations and investments. Cash and short term investments have been relatively the same compared to Deltas showing a growth and double the revenue and less liabilities per capita in shareholder equity. Southwest has nearly double less activity in investments.
According to the International Air Transport Association, 2001 was only the second year in the history of civil aviation in which international traffic declined. Overall, it is believed that the IATA membership of airlines collectively lost more than US$12 billion during this time (Dixon, 2002).
Their attitudes are changing according to their preferences as they are able to compare different model of transport more easily. They are more easily able to choose between airlines as their preferences inform their choices, leading passengers to demand low cost from airlines. Competition in the market has given customers choices. This factor does not have negative impact on Ryanair’s as their dominance in the market has been boosted by been keenly aware of their customers’ attitudes amidst the increasing competition and recovering EU economy. Ryanair has made a decision to instil in customers the confidence that despite the economic performance over recent years it can continue to provide low cost fares reinforcing their commitment to provide the cheapest
volatile and potentially rising fuel costs. Even though a drop in fuel prices reduce air fare pricing
There are many challenges that Brexit have caused major companies in the UK and Ireland. One of the most important challenges that Ryanair faces is the disruption of their flights: “We fear that should the U.K. leave Open Skies, there may not be sufficient time, or goodwill on both sides, to negotiate a timely replacement bilateral, and this could result in a disruption of flights between the U.K. and Europe for a period of months from April 2019 onwards” (investor.ryanair.com, 2017). This challenge will cause major issues for the company and customers as both will be impacted by Brexit. Ryanair will lose major profits if flights are disrupted and the customers will be affected due to flight cancelations and delays. Ryanair have also threatened to start cancelling some flights if they do not receive clarity from the government before the beginning of 2018.
The Economist. 2014. Price or quality—pick one. [online] Available at: http://www.economist.com/blogs/gulliver/2014/02/ryanair [Accessed: 26 Mar 2014].
The airline industry activity is very sensitive to macroeconomic environment, the demand is highly seasonal and it responds to the general economy in an exaggerated way. For example, the air traffic in peak month can be roughly twice of the all-time low month. Also, this industry is controlled by overhead and capital costs, which diverse factors are contributed to. Such as the size of aircraft, flight distances, the seat occupancy rate and so on.
The United Kingdom has one of the most advanced and complex aviation systems in the world. London, the kingdom capital, is the world most internationally connected city given the range of destinations available from airports located within the city. Furthermore, majority of UK citizens (more than 70 percent of the population) live within less than an hour’s journey from an airport that offers flights to numerous destinations across the world. Nonetheless, the UK aviation industry has experienced major changes in the past two decades. Foremost, the industry was liberalized in 1997 that increased competition in the industry leading to the emergence and growth of low-cost airlines. Prices have drastically gone down especially for short-haul flights. The choice and value available to consumers brought about by intense competition among commercial aviation operators has made the current century a golden age for UK passengers and businesses that rely on aviation. The UK has become an increasingly challenging environment for airlines to operate in. industry deregulation, oil crisis, terrorism threat, global financial crisis, euro crisis and numerous industrial actions are some of the challenges that have confronted the industry. Consequently, a number of UK airlines did not survive and others merged with or were acquired by other airlines. The trend of airlines consolidation is evident in the decreased number of commercial airlines registered in the UK from a high of 56 in 1973 to 33 in 2011. The players in the industry have felt the pressures of increasing costs and dwindling market share especially after the entry of low-cost airlines. As a result, mergers and acquisitions have been utilized as the best tools to survive in the rapidly ...
The Economic environment plays a large part in the market for Diamond Aircraft. The sales of their aircraft could be affected by many factors in the economy. One such factor is the issue of user fees. The user fee has led to a near end to general aviation in other countries like Germany or Australia (Sickward, 2007, p20). The user fees are being proposed as a way to pay for the much needed upgrade of the current air traffic control system (Sickward, 2007, p20). However, most general aviators would prefer other methods to pay for it such as increased tax on fuel (Sickward, 2007, p20).
The first part of the decade, the airline did lose £20 million, but they were able to reinvest, relaunch under new management and offer the lowest fares in any market (Ryanair, 2015). They also had to cut their routes back, but began making a £293,000 per year profit. Their jet fleet was increased to seven jets in response to a 45% growth in traffic, despite a decrease in routes (Ryanair, 2015). In 1994, Ryanair buys their first Boeing 737 and starts launching more routes due to servicing an annual 1,666,000 passengers. The Ryan family continued to increase their Boeing 737 fleet as more and more routes are added (Ryanair, 2015). In 1997, Ryanair finally becomes a public company with “successful flotation” on the stock exchanges in New York and Dublin (Ryanair, 2015). In 1998, Ryanair was voted “Airline of the Year,” and had purchased 45 Boeing 737-800 series and even more routes (Ryanair,
Ryanair is an Irish low fare airline which was founded and named by Ryan family in year 1984 with bases at Dublin and Stansted airports. Ryanair was bought into operations in the year 1985. From a small company, it has grown to a big carrier company across Europe. At first, the aircraft used to carry 15 seats from Waterford to Gatwick airport and back again for short distances. Passengers began to increase and they expanded their business from one country to another thus spreading across the whole Europe. In 1987, Michael O’Leary was appointed as tax and financial advisor of the company. In 1991, the company faced a lot of losses even when the passengers for their airlines were increasing. So the work was given to Michael O’Leary
We have analyzed the inherent risks and control risks of Qantas airways for the year 2011 and we have reached to a conclusion that Qantas may likely to misstate its financial results fin terms of competition, industrial strikes, higher fuel prices, technological failures, increased debt burden, lower credit rating, and reputational risk for the year 2012, mainly because of reputational risk and strong competition prevailing in the market. Auditors may find plenty of information from the financial results to evaluate the misstatement of financial results. Although if proper control plans are implemented and top management focus on developing strategies that affects the growth and profitability factors.
To prevent the American Airlines loss from the business, he decided to make SABRE a strategic management tool, where he introduced the Ultimate Super Saver Fare plan. To overcome this problem Bob Crandall recognised two factors which would affect their revenue to increase the first reason was the average cost and the other reason was the market value. Both the factors were very well specified by Bob Crandall to improve the rev...
The increased competition from low-cost carriers has lured away passengers with their low price ticket as Malaysian Airlines (MAS) is on a slow road of recovery after the case of missing of flight MH370 and the crash of flight MH17 at the year of 2014. According to Bursa Malaysia’s financial statement in 2014, Malaysia Airline’s profit has decreased by 60% (RM496.7 million) as compared to previous year. The incident of MH307 and MH17 has affected its reputation and customers began to switch to other airlines. Although Malaysia Airline System maintained its leading position with a retail value share of 28% in 2015, it witnessed a slight decline in its value