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Strengths and weaknesses of financial ratio analysis
A study on financial performance using ratio analysis
Strengths and weaknesses of financial ratio analysis
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Airline Cost and Distress In this research, Hansen, Gillen and Tehrani (2011) airline costs structure model has been adopted. Hansen et al. (2011) applied estimate airline cost functions that include NAS performance metrics as arguments, to investigate the relationship between the performance of the U.S. National Airspace System (NAS) and airline costs. According to Gudmundsson (1999), there are numerous financial indicators are used to predict financial distress and failure. As cited in Gudmundsson (1999), various methodologies have been applied such as ratio analysis (Hickman, 1958), univariate ratio analysis (Beaver, 1967), multiple discrimination analysis (Altman, 1968; Deakin, 1972; Edminster, 1972; Blum, 1974; Libby, 1975), logit/probit and logistic regression models (Santomero and Vinso, 1977; Ohlson, 1980; Scott, 1981), theoretical gambler's ruin models (Wilcox, 1971) and neural networks (Tam and Kiang, 1992). Gudmundsson (1999) conducted exploratory study of failure and distress prediction models is proposed based on a qualitative survey among new-entrant airline managers ...
It all started in 1924, at Macon, Georgia and back then it was not called Delta. It went by the name of Huff-Daland Dusters. Its main purpose was for aerial crop dusting to fight against insect infestation on cotton fields. The idea of deploying chemical from above to treat the infestation problem was introduced by a government entomologist Dr. Coad. After a brief research period, a contract was awarded to Huff-Daland Manufacturing to design an aerial delivery method. Huff-Daland designed and produced duster biplanes based on the Petrel 5, which was used by the navy. In 1923, Mr. Woolman, an agricultural engineer came to Huff-Daland from The Department of Agriculture. Three years later the company moved to Monroe, Louisiana. Since the crop dusting business was periodic, Mr. Woolman looked for other ways to maintain their business practices. As a result, they decided to add Peru into the mix since the seasons were opposite. During his mission in Peru, he saw another opportunity to expand the company’s business, by providing passenger air travels service. After while things started to go down hill for the company due to the political change in Peru. As a result, Mr. Woolman sold most of the crop dusting equipment and some of the Air travel assets to Peruvian company (“Huff-Daland Duster,” n.d.).
Southwest Airlines strategy of focusing on short haul passenger and providing rates as low as one third of their competitors, they have seen tremendous growth in the last decade. Market share for top city pairs on Southwest's schedule has reached 80% to 85%. Maintaining the largest fleet of 737's in the world and utilizing point-to-point versus the hub-and-spoke method of connection philosophy allowed Southwest to provide their service to more people at a lower cost. By putting the employee first, Southwest has found the key to success in the airline business. A happy worker is a more productive one as well as a better service provider. Southwest will continue to reserve their growth in the future by entering select markets only after careful market research.
JetBlue Airways entered the market in 2000 from a position of financial strength, leadership capability and several rare advantage points uncommon to others in the industry: 1) David Neeleman, the founder, had several years of industry experience as a result of having successfully launched and sold an airline (Morris Air), bringing both explicit and tacit knowledge into the his new venture; 2) Neeleman was afforded the opportunity to work directly with his idol, Herb Kelleher, at Southwest Airlines (the king of the low-cost leaders) after Southwest purchased Morris Air from Neeleman; and 3) Substantial financial support from venture capitalists who had funded Neeleman's previous ventures and were more than willing to support and capitalize on his idea for a new low-cost passenger airline.
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).
Southwest Airlines is competing with "Shuttle by United" head to head in about 9 routes. United has just announced that it is discontinuing its Oakland - Ontario route and hiking the fares in all the 14 routes by $10, which calculated to be 14.5% increase in the fare. Southwest has to respond effectively to these unexpected developments and has to act accordingly while maintaining their current low fare image and increasing their daily operating profits. We have considered the elasticity of the market to be 1.15.
While sitting in Atlanta’s Hartsfield International Airport, one cannot help but to notice and feel an overwhelming dominant presence of one particular airline. Delta as we know it today, traces its roots way back to 1924. Huff Daland Dusters was founded as the world’s first aerial crop dusting organization. In 1928 the company became Delta Air Service, and the following year Delta carried its first passengers over a route stretching from Dallas, Texas to Jackson, Mississippi with stops in Shreveport and Monroe, Louisiana. In 1941, the company moved its headquarters from Monroe to Atlanta, Georgia.
United Airlines is one of the largest airlines in the United States and worldwide. Also, it is ranked as the oldest commercial airline that was founded by Walter Varney. United Airlines started as an Air Mail Service and then extended its services to be an Air Carrier. In 1927, William Boeing started his own airline, Boeing Air Transport, and started buying any other air mail companies, which included the Varney’s Air Mail Company. After a while, Boeing started manufacturing aircraft and parts, which allowed him to extend his company to a bigger organization. Also, within Boeing’s company, he bought several airports to expand his organization. In 1929, Boeing’s company has changed its name to be United Aircraft and Transport Corp. (UATC).
In the airline industry, Southwest Airlines is considered a true innovator. By shaking up the rules of flying and improving upon inefficient industry norms, Southwest has quickly grown by leaps and bounds. From the very start, Southwest Airlines' goals were to make a profit, achieve job security for every employee, and make flying affordable for more people (Southwest,2007). Southwest has not strayed from these goals. It does not buy huge aircrafts, fly international routes or try to go head to head with the major carriers; and thanks to a great planning, Southwest airlines has become the most successful airline company in the U.S., if not the world.
Airline and travel industry profitability has been strapped by a series of events starting with a recession in business travel after the dotcom bust, followed by 9/11, the SARS epidemic, the Iraq wars, rising aviation turbine fuel prices, and the challenge from low-cost carriers. (Narayan Pandit, 2005) The fallout from rising fuel prices has been so extreme that any efficiency gains that airlines attempted to make could not make up for structural problems where labor costs remained high and low cost competition had continued to drive down yields or average fares at leading hub airports. In the last decade, US airlines alone had a yearly average of net losses of $9.1 billion (Coombs, 2011).
The article Financial Ratios, Discriminant Analysis and the Prediction of Corporate Bankruptcy was written in 1968 by Edward I. Altman. The purpose of the article is to address the quality of ratio analysis as an analytical technique. At the time some academicians were moving away from ratio analysis and moving toward statistical analysis. The article attempted to determine if ratio analysis should be continued, eliminated and replaced by statistical analysis or serve together with statistical analysis as cofactors in financial analysis. The example case used by the article was the prediction of corporate bankruptcy.
Government and SIA had invested in the Changi Airport together. It includes facilities such as hangar, maintenance center, and catering center, those facilities can be used by SIA, but also the customers of other airline company. So those services in Changi airport are not unique for SIA. Airport service is valuable and important for SIA or other airlines company. Low unique and high valuable, then it is not SCAs.
To buttress the implication of the model, Porter explained why the airline industry is the least profitable amongst industries owing to the high threat of the competitive forces. The airline industry players compete heavily on price. Most custom...
Singapore Airlines (SIA) was created in 1972 and was fully state owned. The company expanded rapidly, and with a strategy of concentrating on customer needs by providing exceptional in-flight service, the airline quickly became a noteworthy competitor in the market. During its formative period in the 1970s, SIA developed all the hallmarks that made it one of the most successful and consistently profitable airlines in the world. Through a constant investment in personnel skills and other sources, the company has achieved a sustainable competitive advantage, as well as a reputation for classy elegance.
The International Air Transport Association (IATA). 2014. Airline Cost Performance. IATA Economics Briefing. [report] IATA, p. 31.
Airline industry is affected by no. of factors such as fuel price fluctuations, high fixed costs, strong influence of external environment and excessive use of marginal costing by carriers. Recessions in the industry tend to last longer, while recovery periods are generally shorter. Over the past nine years, it is observed that industry has made losses for five years and during the profitable years margins were on a lower end. The airlines industry is acutely sensitive to external events such as wars, economic instability, government policies and environmental regulations.