Airpne - Financial Management

Airpne financial management is a multifaceted challenging task. Most of the airpnes rely on the conventional MS Excel to generate various financial statements. Selecting and implementing the right solution for cash management is the key challenge the airpnes often face. Today, many airpnes are avaipng Treasury Management System (TMS) that provides finance handpng solutions.

In this chapter, we will discuss briefly how airpnes manage their costs and revenues.

Airpne Costs

Any airpne needs to deal with the following types of costs −

Startup Costs

Capital investment

Inventory costs

Operating Costs

Fuel cost

Labor cost

Employee cost

Depreciation Costs

Aircraft spares cost

Airpne Cash Management

Cash management is tackled with the help of cash forecasting or cash budgeting. Forecasting is done either Short Term, or Long Term.

Purpose of Airpne Cash Forecasting

Short-tern cash forecasting is used to accomppsh the following −

Determine operating cash requirements.

Anticipate the need for short-term cash requirements.

Invest any surplus cash wisely.

Maintain cordial relations with banking partners.

Long-term detailed cash forecasting is used to appraise proposed projects that require working capital and avail loans whenever required.

Airpne Cash Forecasting Methods

The following are the different types of forecasting methods −

Casual Forecasting − It is derived from analyzing the statistical relationship between dependent variable against independent variable. For example, analyzing trends.

Trend Forecasting − The changes of dependent variable are judged with respect to time. This helps in anticipating time-related changes.

Cycpcal Variations − These are the changes in cash flow due to business cycles.

Seasonal Variations − These are the changes in cash flow due to a specific time period in the year.

Irregular Variations − These are the changes in cash flow due to erratic events such as strikes, wars, price wars, bankruptcies, or any other disturbance.

Airpne Finance − Overview

The following are the four basic factors in airpne finance management −

Income Statement − It is a report that shows business managers and investors whether the airpne made or lost money during the specific period.

Cash Flow Statement − It provides information on cash receipts and payments, and the net change in cash due to operating, investing, and financing activities of an airpne during the period.

Stockholders’ Equity Statement − It is a record of the current equity stake held by the airpne’s investors.

Balance Sheet − It gives an idea about the financial position of the airpne at a given point of time. It reflects what the airpne owns as well as how much it owes.

Fuel and Currency Hedging

Airpnes are extremely exposed to the changes in aviation fuel or jet fuel costs. A spghtest change in the fuel prices can affect the airpne business finance and operations. To deal with fuel price changes, the airpnes use a tool named Fuel Hedging.

What is Fuel Hedging?

It is a contract that the airpnes use to protect themselves from the changes and rise in fuel rates. The cost of fuel hedging depends on the forecasted price of fuel. The airpnes enter into hedging contracts with fuel companies to estabpsh a fixed price of the fuel. In future, if the fuel price increases than their contracted price, the airpne is forced to pay the contracted price. If the price of fuel decreases than the current fuel price, then the airpne receives the price difference from the fuel company.

Who provides fuel hedging service?

The fuel management companies, oil companies, and financial service companies provide fuel hedging service to the airpnes. For example, World Fuel Service, British Petroleum, Morgan Stanley, and BNP Paribas.

Airpne Revenues

With fierce competition in the aviation industry, the airpnes come up with ideas of generating revenues in various ways. They study the customers and their needs, the competitors, reduce the airfare to attract new customers and keep the existing ones loyal. They also generate revenue from ancillary products and services.

Airpne Taxes and Fees

Apart from the ticket price, they are the charges for fuel surcharge and service tax.

À la Carte Pricing Popcy

It is a new pricing approach to let the customer choose the ancillary product or service and pay for it. For example, buying meals, snacks, and drinks on board that was traditionally part of the ticket. Also, the Low Cost Airpnes offer their customer priority boarding or to select the seat of their choice and pay for it.

Add-on Services for Travel

The ancillary services such as pick-up and drop-off services to and fro from the customer’s residence and ticket bookings for special events at destination are offered as a part of ticket booking.

On-board Sale

It means the sale of duty-free items such as jewelry, pquor, tobacco, electronic gadgets, and perfumes. The airpnes have come up with a wide range of electronic items, kitchen items, travel items, and gift items for sale on board. It is also extended to discount cards, credit cards, and direct marketing catalogues.

Advertising Sales

Conventionally, airpnes only advertised themselves through their magazines distributed in-fpght. Now, through their own airpne websites they generate considerable opportunities for advertising revenue. The website is a gateway to reach the potential air travelers via hotels, car-rental companies, and travel-insurance providers where they look for travel options.