Additional Question 11 answer
Go to the database and find the data for both British Airways plc and easyJet plc that will allow you to calculate and comment on the following ratios:
| British Airways | easyJet | |||
|---|---|---|---|---|
| 31 March 02 | 31 March 01 | 30-Sep-01 | 30-Sep-00 | |
| Return on Capital Employed | -7.04% | 3.16% | 11.98% | 33.63% |
| Return on Total Assets | 0.57% | 2.74% | 7.50% | 11.01% |
easyJet's rates of return are far superior to those of British Airways (BA), the old, long established traditional airline. There are many reasons why easyJet should out perform BA, such as the fact that easyJet is a new, very dynamic company that is not facing stiff competition on cross-Atlantic routes. easyJet is a much smaller operation than BA with a fleet of aircraft that is only a fraction of the size of BA's. Hence easyJet's fixed costs ought to be far less than BA's and so on.
On the other hand, shouldn't we expect BA to enjoy economies of scale and managerial efficiencies that should help it to perform better than easyJet?
A key factor in BA's results is the consequence of the bombing of the World Trade Centre in September 2001 and the effect that had on world airline travel. At the time of writing, BA has just announced that this tragedy has only just begun to wear off. easyJet did not suffer the same problems as BA following the bombing, as it is an entirely Europe-centred airline.
Finally, we can see that easyJet's ratios have fallen in value from 2000 to 2001. 2002's results will be interesting from that point of view, to see whether they have continued to fall.
ADVANCED
| British Airways | easyJet | |||
|---|---|---|---|---|
| 31 March 02 | 31 March 01 | 30-Sep-01 | 30-Sep-00 | |
| Return on Fixed Assets | 0.70% | 3.37% | 17.60% | 13.96% |
| Return on Working Capital | -12.15% | -49.60% | 21.40% | -97.36% |
These ratios for BA and easyJet shed more light on their performances but overall they give us the same message. However, easyJet's management of its fixed assets and working capital have improved significantly over the two years. BA's performance here is still lacklustre!
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