The SSA Airline Finance and Economics Seminar

Today, airline managers must have an understanding of the financial and economic characteristics of the aviation industry.  These charateristics will have a crucial bearing on such aspects as the raising of finance, pricing and revenue management, the full exploitation of demand and the effective control of costs.

Such knowledge will also be needed on the part of those whose job it is to market products or services to airlines.  Effective industrial marketing can only be based on a full understanding of the business problems and strstegic issues being faced by clients, with the task to demonstrate how the firm can contribute to the resolution of these issues.

SSA has a well-established presence in the field of training in Airline Finance and Economics.  An open course in this subject has been given each year since 1989.   In-house, adapted versions of the course have also been presented on many occasions to airlines, aircraft manufacturers and leasing companies.

The course is offered in two two-day modules.  The aim is to offer increased flexibility to those who find it difficult to be away from their jobs for four consecutive days.

MODULE ONE: Airline Financial Analysis

Course Director: Richard Delahoy  Managing Director, Signal Training and Consultancy Services.   Senior Associate SSA

Today the airline industry has a clear dividing line.  Some carriers are able to achieve consistant profitability and have the capability to access the capital markets in order to fund growth and development.  Others seem to  perpetually struggle on the edge of bankruptcy or depend almost entirely on state subsidies for their continued existence.  Those that are successful have two features in common: sound financial management and strong operational cash flows.

A similar dichotomy affects banks, leasing companies and others with a financial relationships with airlines.   Some took excessive risks in the bull market for aircraft finance in the late 1980's and subsequently paid a heavy price as asset values collapsed and leases were terminated early.  Other players have been able to achieve beneficial and mutually profitable long term relationships with their client airlines through a prudent approach based on a reasoned understanding of the financial position of those clients.

There is a widespread need for better financial awareness, but the necessary information is not always easy to obtain and interpret.  Airline financial statements are often designed to confuse and obscure, rather than to shed light!  Therefore the starting point for any analysis must be to understand what makes up the financial statements and how they relate to the underlying business.  This does not mean becoming an accountant, but rather underatanding how to interpret the key financial statements of an airline - its profit & loss account, balance sheet and cash flow statement.

This SSA programme has been specially designed to help industry practitioners to assess the strength of an airline through an analysis of those financial statements, seen in an appropriate industry and competitive context.  The programme will develop a framework to show how a practical credit assessment can be undertaken using published data and industry knowledge.

Content:

1. Financial Statements:                                           General principles.  Uses and shortcomings
2. Airline Accounts:                                                Evaluation of the: - profit and loss account  - balance sheet.
3. Off-Balance Sheet Items:                                            Why the balance sheet does not reflect all assets and liabilities.   The critical importance of operating leases.
4. Trend Analysis:                                                Introduction to the key ratios to track an airline's financial performance.
5. Cash Flow Data:                                                            The importance of cash flow.  Analysing cashflow statements and projecting trends.
6. International Accounting:                                          How and why financial statement presentation can vary dramatically from country to country.
7. Case Study:                                                       Introducing a framework for risk appraisal.  Practical application to a typical carrier.

MODULE TWO: Airline Economics

Course Director Stephen Shaw Managing Director,SSA

The subject of airline economics is becoming an increasingly contentious one.  The forces of deregulation and liberalisation are lowering barriers to entry into the industry and widespread trend towards the privatisation of goverment-owned aairlines is allowing for a freer play of market forces on many routes.  Debates continue, though, in such areas as airline pricing policy,, on the economics of allocating airport slots, on the best ways for carriers to control their costs, and on the actions they should take in order to adapt to the ups- and-downs of the trade cycle.

This module will describe the jargon and business issues associated with problems such as these and will give delegates opportunities for discussion and questioning regarding the directions in which solutions may lie.

Content

1. Airline Demand: Measuring output,ASK's RPK's etc.                                                                  Definitions:                                                                       -price elasticity                                                                 -income elasticity                                                             -cross-elasticity                                                                -derived demand                                                             -"status" goods                                                                -"peaking" and perishability.
2. Airline Strategies:                                              Porters "Five Forces" and their application to the airline industry.                                                        "Cost Leader" strategies.                                       "Differentiator" strategies.                                      "Focus" strategies.                                                   "The Lost in the Middle" position.                          Consolidation amongst the world's airlines.         "Mega-carriers". Airline Alliances.
3. Pricing and Revenue Management:          "Uniform" vs "Differential" pricing.                                 The management of discount fairs.                              Pricing in regulated and unregulated markets.             Revenue management: history and current status.

4. Airline Costs:                                                       Airline cost classification                                                -input costs                                                                      -fixed and variable costs                                                -output-related costs                                                       -unit costs                                                                         Factors explaining cost differences between               airlines  Benchmarking.                                                  Cost management                                                           -commission and distribution costs                               -ownership costs                                                              -labour costs.                                                                   

5. Aircraft Economics:                                                     Aircraft preformance                                                       -payload-rangediagrams-fieldlength-range diagrams.                                                                          Parameters affecting aircraft fleet planning.                 Tradeoffs between aircraft size and frequency.

Who Should Attend?

The Seminar will benefit people from the following groups:

Guest Lecturers

The following give guest lecturer presentations to this Seminar:

Louis Busuttil                                                           Revenue Technology Devlopment Manager          CATHY PACIFC

Paul Clark                                                                                 General Manager Market Development and Training       AIRBUS

Brien LaBelle                                                                           Manager, Product Planning and Development EMIRATES

Simon Morris                                                               General Manager - Commercial                                 VIRGIN ATLANTIC AIRWAYS

Peter Morrisroe                                                       Managing Director                                                   AIRPORT CO-ORDINATION LTD.