Calculator Allowed: Yes



Transcription of this question: 2.British Airways (BA)British Ainvays (BA) went from a record profit in 2008 to its biggest ever loss in 2009. Sales revenuedropped by 8% from IJSS9863 million. The company identified three factors for this change:• firstly, there was a fall in demand for its most important market segment: the business traveller• secondly, the global banking crisis resulted in a dramatic increase in BAS cost of borrowing• finally, the aviation fuel bills, which make up the largest percentage Of variable costs for BA,rose by 13%.TO address its financial problems, BA executives decided on several cost reduction methods.They will not award any pay increases. Managers will not receive any fringe payments.Furthermore, the airline imposed a retrenchment Of 2500 jobs, resulting in a monthly labour costsaving of USS180 million. Unions* have already complained about these cost reduction measures,and several workers and managers have also expressed their dissatisfaction. BA announced that itwould be reducing the number Of flights, and orders for five new planes have been cancelled.There is, however, one piece Of good news for BA passengers; the company announced that there willbe no ticket price increases. “Demand has become so fragile that any increase in ticket prices woulddamage our sales revenue.” The airline is now being forced into offering special deals; a position thatwas unthinkable only two years ago.Table 1: selected items from BAS profit and loss account for the year ended 30 April 2009(USS millions)Aviation fuel costsCost of goods soldDirect labour costsDividendsExpensesGross profitInterestNet fit after interest and taxNet profit before interest and taxOther operating costsRetained rofltSales revenueTax3000x2160100-120180-400-2204034-4009074unions: organizations of workers (“labour unions”) that defend or safeguard workets’ interestsTable 2: selected items from BA balance sheet as at 30 April 2009 (USS millions)Fixed assetsCurrent assetsCurrent liabilitiesLoan capitalRetained profitShare c ital814245081 1 204800—4001046(a)(b)(c)Define the following terms:(i)(ii)(i)(ii)(iii)variable costsretrenchment.Using the information in Table 1, calculate the cost Of goods sold(figure X) and construct a profit and loss account for BA for 2009.Using the information in Table 1 and Table 2, calculate the return oncapital employed (ROCE) and net profit margin (NPM) for BA (show allyour working).Comment on your results fromstimulus material.Examine the impact Of not awardingpayments for B-4.partpay(ii), using information from theincreases and managerial fringe[2 marks][2 marks][4 marks][4 marks][3 marks][5 marks]

Leave a Reply