Financial Analysis
In this report an effort is being made to conduct a detailed study of the financial and operational performance of Norwegian Air Shuttle. The main purpose of the report will be to highlight the financial and operational issues faced by the airlines. In pursuance of that financial ratios will be used effectively and the corresponding implications of the results will be studied. Further, a SWOT analysis will be conducted for the purpose of determining the operational efficiency of the airlines.
Norwegian Air Shuttle or more popularly known and traded as Norwegian is primarily a low-cost airline. As a matter of fact in Europe it is the third largest low-cost airline currently operating and also the sixth largest low cost airline in the whole world. The airline provides transportation to wide range of destinations including business as well as holiday destinations (Van der Linden 2015). It offers flights to England as a business destination and in the category of holiday destinations it provides flights to Mediterranean and Canary Islands. It also provides high density flights between Finland and Scandinavia. In the year 2016 it transported around 30 million passengers.
The analyses of the financial performance of the airlines help of various ratios have been taken. The results of the ratios along with their pre-defined implications will determine the trend in the performance of the airlines (Eriksson and Steenhuis 2015). The analyses of the various ratios are given below:
Operating profit margin:
The analysis of the operating profit margin which draws the relationship between the profit generated from the core business operations of the entity and the total revenue of the entity gives out positive results (Baker 2015). It can be easily observed that the operating profit margin within a span of one ear has jumped up by around 5%. This affirms the profitability of the airline in the near future.
Net profit margin:
The net profit margin which reflects the relationship between the net profits as a percentage of the total revenue earned by the airlines seems to follow the same trend as of the operating profit margin of the company. it has increased significantly in a span of just one year. These suggest that the company is able to generate profits for its shareholders in an increasing trend over the years (Albers et al. 2017). It further emphasises the capability of the airlines to create value for its shareholders.
Operational Performance Analysis of the Entity
Current Ratio:
The current ratio gives us the relationship between the current assets and the current liabilities of the entity. It is seen that the ratio despite being significantly low is still decreasing over the years. A decreasing current ratio especially after the ratio being already on the lower side indicates that the company is facing crunch of current assets like cash and cash equivalents to pay off its current liabilities (Dekker et al. 2016). The company must endeavour to improve its current asset immediately because any number ratio less than one suggests that the company will not be able to repay its short term debts.
Debt-equity ratio:
The debt-equity ratio depicts the relationship between the total liabilities and the total stakeholders’ equity of the entity. It reflects the liquidity status of an entity and determines its capability of repaying back the debt by using the owner’s funds. It seems the firm is having a low debt-equity ratio (Fukui and Miyoshi 2017). The debt-equity ratio has risen over the period of one year, but, the same will not affect the liquidity of the firm adversely rather it will increase the returns of the equity shareholders by means of trading on equity.
The industry has some pre-determined key performance indicators which judges the operational capability of the company within the industry to perform as per the parameters set up by the industry itself. In pursuance of judging the operational performance of the entity a group of key performance indicators have been picked up and detailed analysis is being done on them. The key performance indicators along with their results are as follows:
Safety:
The company’s record in respect of safety of the aircrafts and its customers is nearly unbelievable. The company has been operating since 1993 and till date has not experienced any sort of serious damages or incidents which had caused it some serious monetary and non-monetary losses. The statistics of last 23 years stand testimony to the commitment of the company towards the safety of its customers (Turney 2017). Hence in this category of performance the company is performing brilliantly.
Customers:
The trend in the number of customers on a year on year basis shows that the company is boosting its performance with respect to increasing the number of customers. The number of customers in the year 2016 stood at 29 million as compared to 2015’s figure of 25 million customers that is a growth of 4 million passengers within a span of just one year (Rondinelli et al. 2017). This shows the growing popularity of the company among the passengers. Hence the company is doing a good job in terms of number of customers.
SWOT Analysis
Market share:
In terms of the market share the company has been able to increase its market share in Oslo. However, except that in case of other places it has just managed to retain its market share i.e. not letting the share to get reduced (Gegg et al. 2014). The trend is not adverse but not very satisfactory as the company should be endeavoured to increase its market share in the existing markets.
Revenue:
The revenue of the company has grown significantly over the period of one year. This is sync with the increase in the number of customers of the airline. Growth in revenue suggests the growing returns that the stakeholders can expect from the company in the future. the company should maintain the growing trend in revenue to ensure future viability and improvement in the market share of the company.
This analysis will highlight the strengths, weakness, opportunities and threats of the Norwegian airline and thus enable the determination the future viability of the operations of the company.
Strengths:
- The company has a growing trend when it comes to the number of customers. This indicates the growing influence of the company in the market.
- It possess a strong hold in the domestic market due to the virtue of high domestic flights being offered by it in the domestic market (Wagener and Ison 2014).
Weakness:
- The company is not part of any alliance of the airline companies. This may lead to company staying aloof to the new possibilities discovered by its competitors.
- The frequency of flights offered by the company in relation to international destinations is very low and this adversely affects the company’s customer loyalty (Johnston and McDonald 2017).
Opportunities:
- The company can reap the benefits of the experience it has gained in the domestic market and expand its operations in the international segment.
- It can easily become one of the leading low cost airlines.
Threats:
- The company is faced with the threat of rising fuel costs. This will significantly increase the cost of its operations and thereby, reducing the profitability.
- The rivals of the company are engaging themselves in an extensive marketing campaign; this might dilute the brand value of the company (Kousoulidou and Lonza 2016).
- The fact that one of its competitors i.e. SAS receives financial aids from the Scandinavian government gives an added advantage to it over the airline.
Subsequent to the detailed analysis of the financial and operational performance indicators of the airline and conducting the SWOT analysis of the company the following recommendations and suggestions can be made in respect of the company.
- The company should immediately increase its operations in the international market. The operational indicators of the company show a healthy state of present operations of the company except the fact that the market share enjoyed by the airline in most of the international destinations is very low. Hence, it should endeavour to increase that with immediate effect.
- The company should consider raising more money via debt in the near future. This is because of the fact the company’s debt-equity ratio is in a very healthy state and hence the company can utilise the funds raised from debt in increasing its current ratio. This will help the company to meet up its short term liabilities and also creating more value for the shareholders via trading on equity.
- The company should not only depend on its low cost tag rather should focus on increasing the customer satisfaction factor by bringing in factors like services provided to them are of premium quality and at par with that of the competitors. The company should improve the ground staff qualities who directly communicate with the customers to improve the customer loyalty factor of the airlines.
References
Albers, S., Baum, H., Auerbach, S. and Delfmann, W., 2017. Strategic Management in the Aviation Industry. Routledge.
Baker, D.M.A., 2015. Tourism and Terrorism: Terrorists Threats to Commercial Aviation Safety & Security. International Journal of Safety and Security in Tourism and Hospitality, 1(12), p.1.
Dekker, S., Dahlström, N., van Winsen, R. and Nyce, J.M., 2016. Crew resilience and simulator training in aviation. In Resilience Engineering Perspectives, Volume 1 (pp. 133-140). CRC Press.
Eriksson, S. and Steenhuis, H.J. eds., 2015. The global commercial aviation industry. Routledge.
Fukui, H. and Miyoshi, C., 2017. The impact of aviation fuel tax on fuel consumption and carbon emissions: The case of the US airline industry. Transportation Research Part D: Transport and Environment, 50, pp.234-253.
Gegg, P., Budd, L. and Ison, S., 2014. The market development of aviation biofuel: Drivers and constraints. Journal of Air Transport Management, 39, pp.34-40.
Johnston, N. and McDonald, N., 2017. Aviation psychology in practice. Routledge.
Kousoulidou, M. and Lonza, L., 2016. Biofuels in aviation: Fuel demand and CO2 emissions evolution in Europe toward 2030. Transportation Research Part D: Transport and Environment, 46, pp.166-181.
Rondinelli, S., Gardi, A., Kapoor, R. and Sabatini, R., 2017. Benefits and challenges of liquid hydrogen fuels in commercial aviation. International Journal of Sustainable Aviation, 3(3), pp.200-216.
Turney, M.A., 2017. Tapping diverse talent in aviation: Culture, gender, and diversity. Routledge.
Van der Linden, F.R., 2015. Airlines and Air Mail: The Post Office and the Birth of the Commercial Aviation Industry. University Press of Kentucky.
Wagener, F. and Ison, D.C., 2014. Crew resource management application in commercial aviation. Journal of aviation technology and engineering, 3(2),
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