CTH ADVANCE DIPLOMA IN HOTEL MANAGEMENT

MANAGEMENT ACCOUNTING ASSIGNMENT

Submitted To: Ms. Rama Prabha Mani Submitted By: Harish Fernando CTH Membership No: 27500 Date of submission: 08/08/2011

Table of Content

1. Introduction...........................................................................................Pg 2

2. Analysis..................................................................................................Pg 2

3. Industry Information...........................................................................Pg 3

4. Firm Specific Information

4.1 Ryanair the Company.............................................................Pg 4 4.2 Ryanair Business & Financials..............................................Pg 4 4.3 Easyjet the Company..............................................................Pg 6 4.4 Easyjet Business & Financials...............................................Pg 6

5. Understanding Auditing of Accounts

5.1 Balance Sheet of year 2008/2009 Ryanair............................Pg 8 5.2 Balance Sheet of year 2009/2010 Ryanair............................Pg 9 5.3 Balance Sheet of year 2008/2009 Easyjet.............................Pg 10 5.4 Balance Sheet of year 2009/2010 Easyjet.............................Pg 11

6. Financial Analysis and Evaluation of both Companies 6.1 Ryanair...................................................................................Pg 12 6.2 Easyjet....................................................................................Pg 12 7. Ratio Analysis of Ryanair and Easyjet.............................................Pg 13 8. References...........................................................................................Pg 14

Introduction
Management accounting is not a specific system of accounts, but could be any form of accounting which enables a business to be conducted more effectively and efficiently. Management accounting is a system that collects, classifies, summaries, analyses and reports information that will assist managers in their decision making and control activities. Unlike financial accounting, where the primary emphasis is on reporting outsiders, management accounting focuses on internal planning and control activities. Therefore management accounting requires the collection, analysis and interpretation not only financial or cost data, but also other data such as sales, price, product demands and measures of physical quantities and capacities. In the process, the system utilises all techniques of financial and cost accounting including marginal or direct costing, standard costing, budgetary control, etc. Management accounting therefore appears as the extension of the horizon of cost accounting towards newer areas of management.

Accounting is divided into two areas;

Financial Accounting Management accounting

Financial accounting in a nut shell is providing a broader overview of the performance and position of the organisation. The financial statements provided tend to be published relatively infrequently (annually, semi annually, occasionally or quarterly) and are in essence a financial history of the organisation.

Analysis
In this assignment we will be discussing on the auditing of accounts for years 2009 and 2010 of budget airlines Ryanair and Easyjet, understanding the financial performance and the position of the companies with commenting, comparing and contrasting for the years specified.
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Industry Information

Air travel remains a large and growing industry. It facilitates economic growth, world trade, international investment and tourism and is therefore central to the globalization taking place in many other industries. In the past decade, air travel has grown by 7% per year. Travel for both business and leisure purposes grew strongly worldwide. Scheduled airlines carried 1.5 billion passengers last year. In the leisure market, the availability of large aircraft such as the Boeing 747 made it convenient and affordable for people to travel further to new and exotic destinations. Governments in developing countries realized the benefits of tourism to their national economies and spurred the development of resorts and infrastructure to lure tourists from the prosperous countries in Western Europe and North America. As the economies of developing countries grow, their own citizens are already becoming the new international tourists of the future. World Airline Net Profits 1989-2006

Worldwide, IATA, International Air Transport Association, forecasts international air travel to grow by an average 6.6% a year to the end of the decade and over 5% a year from 2000 to
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2010. These rates are similar to those of the past ten years. In Europe and North America, where the air travel market is already highly developed, slower growth of 4%-6% is expected.

Firm Specific Information

Ryanair The Company Ryanair is an Irish low-cost airline with its head office at Dublin Airport, and with primary operational bases at Dublin Airport and London Stansted Airport. Ryanair operates 300 Boeing 737-800 aircraft on over 1,100 routes across Europe and Morocco from 45 bases. The airline has been characterised by rapid expansion, a result of the deregulation of the aviation industry in Europe in 1997 and the success of its low-cost business model. Ryanair was formed by Cathal, Declan, and Shane Ryan with 1 million from their father, Dr. Tony Ryan, chairman and CEO of Guinness Peat Aviation, the aircraft leasing giant. Ryanair began flying a 15-seat Bandeirante on scheduled routes between Ireland and the United Kingdom in June 1985. It entered the Dublin-London market the next spring, competing with British Airways (BA) and Dan Air as well as Aer Lingus. One million passengers a year flew Dublin-London before Ryanair; that number would triple in the next decade.

Ryanair Business & Financials In 2010 Ryanair traffic grew by 8% to 72.1m passengers with the average fare at just 39 and no fuel surcharges, despite a sharp increase in fuel costs. Ryanair took delivery of a further 40 new aircrafts as their fleet rose to 272 Boeing 737-800. They also opened 8 new bases in Barcelona El Prat, Gran Canaria, Kaunas, Lanzarote, Malta, Seville, Tenerife and Valencia as they grew to 44 bases and over 1,300 routes. Ryanair profits rose 26% to over 401m despite higher oil prices, the global recession, and volcanic ash disruptions in the spring. Ryanair was

also involved in charity as well launching their World famous Cabin Crew Charity Calendar (2011) which rose over 100,000 for the German charity Tafel. Ryanair, Europes largest low fares airline announced an 80% increase in half year net profits to 387m. Revenues fell by 2% to 1.8bn, as a 17% decline in average fares was largely offset by a 15% growth in traffic. Unit costs fell 27% due to lower fuel prices (excluding fuel, unit costs fell 5%) and rigorous cost discipline.

Summary Table of Results (IFRS) - in euro

Half Year Results Passengers Revenue

Sept 30, 2008 31.6m 1,811m

Sept 30, 2009 36.4m 1,767m 387.0m

% Change +15% -2% +80%

Adjusted Profit/(Loss) after Tax 214.6m (Note 1) Adjusted Basic EPS(euro cent) 14.44 (Note 1)

26.23

+82%

Highlights Included: Average fares down 17% to 39. Traffic growth up 15% to 36m pax. Net profit up 80% to 387m. Industry leading net profit margin of 22%. Ancillary revenues grew 8% to 20% of total revenues. Unit costs down 27% (ex fuel costs down 5%). 100% web check-in from 1st October. Fuel hedges extended for fiscal 2011, Q.1 to 50% and Q.2 to 50%

Easyjet The Company Easyjet was established on 18 October 95 and started operations on 10 November 95. It was launched by Stelios Haji-Ioannou with two leased Boeing 737-200 aircraft wet leased from GB Airways and operating two routes: London Luton to Glasgow and Edinburgh. Its early marketing strategy was based on 'making flying as affordable as a pair of jeans' and urged travellers to 'cut out a travel agent'. This caused much outrage among travel agents. In March 98 it purchased a 40% stake in TEA Switzerland, renamed Easyjet Switzerland. Easyjet was floated on the London stock exchange in October 2000. Operations were boosted in 2002 with the acquisition of rival airline, London Stansted based Go Fly. In December 2003 easyjet announced it would open a new hub in Berlin, at Schnefeld Airport, from which it started flying on 11 routes from May 2004. Easyjet's main shareholder is Haji-Ioannou whose family own 17%. It also holds a 49% stake in Easyjet Switzerland.

Easy jet Business & Financial The parent company, Easyjet plc, is listed on the London Stock Exchange (LSE: EZJ) and is a constituent of the FTSE 250 Index. As at 30 September 2009, it employed 8,000 people, based throughout Europe but mainly in the UK. Currently Easyjet has 19 European 'bases'. Despite Easyjet being a British airline, and having a significant presence there, it has a significant presence in France, Germany, Italy, Spain and many other European countries. The United Kingdom is its biggest market, containing the airlines largest base and nine others as well as a total of six other non-base airports. Its three largest British bases in order of size are London's Gatwick, Luton and Stansted airports.

The Easyjet fleet consists of the following aircrafts

Easyjet fleet
In Fleet

Aircraft

Orders Passengers Notes

Airbus A319-100 152 5 Airbus A320-200 32 Boeing 737700 2 Total 37 0

156 180 149

Largest A319 operator To be delivered in 2013 Being phased out

186 42

Easyjet, like Ryanair, borrows its business model from United States carrier Southwest Airlines. Both airlines have adapted this model for the European market through further costcutting measures such as not selling connecting flights or providing complimentary snacks on board. The key points of this business model are high aircraft utilisation, quick turnaround times, charging for extras (such as priority boarding, hold baggage and food) and keeping operating costs.

Easyjet Financial Performance Year Ended Passengers Flown Load Factor Turnover (m) Profit/Loss Net Basic EPS (p)

before Tax Profit/Loss (m) (m)

121.3

30 2010 30 2009

Sep 48,754,366

87.0%

2973.1

154.1

28.4

Sep 45,164,279

85.5%

2,666.8

54.7

71.2

16.9

Understanding Auditing of Accounts

Balance Sheet of year 2008/2009 Ryanair

Balance Sheet of the year 2009/2010 Ryanair

Balance Sheet of the year 2008/2009 Easyjet

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Balance Sheet of year 2009/2010 Easyjet

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Financial Analysis and Evaluation of both Companies

Ryanair Ryanair has restructured their business model by introducing new business strategies such as Low fare, better customer service and punctuality. Not only their business strategy but also their rapid expansion helped them throughout. They have frequently upgraded their planes by replacing their old planes with next generation Boeing 737-800 aircrafts. Ryanair now has the youngest fleet compared to their competitors. They have used all the investors investments to expand rapidly and without paying dividends for last 12 years. Ryanair is now serving more than 60 million passengers which is more than 29.3% of the total passengers with more than 1468 flights per day with 1151 routes and 160 destinations in 27 countries.

Easyjet Easyjet keeps costs low by eliminating the unnecessary costs and frills. Their business model meets the customers demand for a simple, budget-driven travel alternative. This is achieved in a number of ways. Pioneer in the use of internet: Easyjet was one of the first airlines to embrace the opportunity of the internet when it sold its first seat online in April 1998. Now over 95% of all seats are sold online, making Easyjet one of Europes biggest internet retailers, substantially reducing its distribution costs. The passengers who book online receive an email containing their travel details and confirmation number, rather than tickets through the post. Online buyers also benefit from paying the price of a local call, instead of the standard national rate of Easyjets booking line. Easyjets internet booking process is simple and straightforward for which it has won many awards. Easyjets operational policies were based on keeping costs to a minimum to allow the airline to offer the lowest fares possible. It adopted a number of practices that helped curb wasteful expenses and provided the best possible service within the limits prescribed by cost.

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Ratio Analysis of Ryanair and Easyjet

The low cost airline company Ryanair Holdings Plc reportedly increased passenger numbers by 11% to 72.7 million while Easyjet Plc boosted the number by 7.9% to 49.7 million last year, extending its lead over its UK rival British Airways plc in the European short-haul market. Easyjet had an average delay of 25.2 minutes of each flight between January and September 2010. The Ryanair had 12.5 minutes. Only 12.3% of the Easyjet flights were delayed during the period from January to November 2010 as compared with 3.8% for Ryanair. By looking at all the information it is evident that Ryanair is much better than Easyjet in all aspect by number of passengers flown, number of destinations flown and the number of aircrafts in its fleets. This is why Ryan air has been ranked at number 8 at IATA top airlines for 2010.

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Reference
Web: http://www.ryanair.com/doc/investor/2009/Annual_report_2009_web.pdf http://www.ryanair.com/doc/investor/2010/Annual_report_2010_web.pdf http://www.ryanair.com/en/about http://en.wikipedia.org/wiki/Ryanair http://web.mit.edu/airlines/analysis/analysis_airline_industry.html http://www.fundinguniverse.com/company-histories/Ryanair-Holdings-plc-CompanyHistory.html http://www.ryanair.com/doc/investor/2010/q2_2010_doc.pdf http://en.wikipedia.org/wiki/Easyjet http://www.lonympics.co.uk/new/easy.htm http://2009annualreport.easyjet.com/files/pdf/easyJet_AR09.pdf http://2010annualreport.easyjet.com/files/pdf/Full_Report_easyJet_AR10.pdf http://www.air-scoop.com/downloads/SWOT_easyJet_Air-Scoop.pdf http://topnews.us/content/232124-ryanair-and-easyjet-comparison http://www.tourismandaviation.com/news-9692-_Top_10_Top_Airlines_For_2010_According_To_IATA Text: Peter Atrill, Eddie McLaney, (1994), Management Accounting: An Active Learning, Blackwell Publishing, ISBN 0 -631-19538-6 Peter Belobaba, Amedeo Odoni, Cynthia Barnhart, (2009), The Global Airline Industry, John Wiley & Sons. Ltd, ISBN 978-0-470-74077-4 Total words 1995 = Assignment 1944 words + Reference 51 words
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