Air Wisconsin Financial Analysis

Executive Summary 

The financial performance of the companies in the airline industry of the United States of America has highlighted the uncertainties that are experienced in the sector. One of the financially unstable companies is Air Wisconsin, a regional airline with its primary hub at Appleton International Airport near Appleton, Wisconsin, the USA. The airline has been in operations for more than half a decade with the last three fiscal years indicating that the company does not have a stable financial position on the market. The company has been reported to increase the number of employees and the numbers of aircraft over the years in a bid to attract more customers. From a technological approach, Air Wisconsin lags behind the other airlines in the sector. These include Allegiant Air, which is part of the disadvantages that the Air Wisconsin faces on the regional airline market. In as much as Air Wisconsin has opened up the smaller towns in the state of Wisconsin to connections with the bigger cities in the USA, the airline company still lags behind in regards to its financial performance. Air Wisconsin has shown a reduction in its profitability as the net income, the operating profits and the sales reduce. Some of the weaknesses that have attributed to the company's slow economic growth are the lack of diversification in the streams of income for the company and low technological integration in the marketing strategies. The solutions are to diversify the sources of income and integrate technology both in operations and marketing. 

Brief History 

Based at Appleton International Airport in Greenville, Wisconsin, the United States of America, Air Wisconsin is classified as a regional airline (Air Wisconsin, 2018). The airline has been in operation for the last fifty-three years and has hubs in O'Hare International Airport in Chicago, Illinois, USA, Washington Dulles International Airport in Washington, District of Columbia and Denver International Airport in Denver, Colorado. Air Wisconsin had around one thousand five hundred employees by 2017 (Air Wisconsin, 2018). Air Wisconsin has a fleet size of sixty-five planes and is a member of the Star Alliance (Air Wisconsin, 2018). The size of the company and its expansiveness in the country has contributed to its economic performance and especially with the increase in digitization and the popularity of air transport in the USA. Air Wisconsin, operating as United Express, serves seventy-five destinations, with three hundred and fifty flights per day and has been said to transport up to six million passengers across the various destinations within the USA. 

Liquidity Ratios 

Current Ratio 

The current ratio for the financial years of 2015, 2016, and 2017 at Air Wisconsin portrays notable trends. In 2015, the current ratio for the company was 1.17. In 2016, the current ratio was recorded as 1.17 (Air Wisconsin, 2018). Air Wisconsin's current ratio rose to 1.26 in the fiscal year 2017. The increase in the current ratio from 2016 to 2017 was an indicator of the improvement in the operational aspects of the company. Notably, the airline company was able to meet more of its financial obligations in 2017 compared to either 2015 or 2016 (Air Wisconsin, 2018). One of the competitors of Air Wisconsin, Allegiant Air had an average of 2.01 in the current assets for the three fiscal years (Air Wisconsin, 2018). One of the financial weaknesses that have seen Air Wisconsin performing poorer than Allegiant Air in regards to the current ratio is the lack of sufficient cash in the company to meet the short-term needs of the company efficiently. The weakness can be eliminated by the increase in liquid monetary resources at Air Wisconsin. The airline can do that by decrease the time taken to realize cash from a short-term project, which will ensure that the company has cash ready to meet the increasing economic obligations. The other solution to the weakness at Air Wisconsin regarding the insufficiency of the cash at hand is to reorganize the company's budgeting to ensure that part of the company’s revenue is used to meet the obligations. 

The other solution that Air Wisconsin can put in place to increase the current ratio is to pay off its liabilities. Debt in the company is treated as a liability; and, therefore, it reduces the current ratio by increasing the current liabilities. Due to the increase in the short-term debt at Air Wisconsin, the company has retarded in its growth of cash, which affects its liquidity position on the market. The management should implement convenient payment plans for the short-term obligations at Air Wisconsin. Timeliness in the payments of the debts will reduce the possibility of piling up of the financial obligations of the airline. Such solutions will place Air Wisconsin at the forefront of liquidity position in the airline industry of the United States of America. 

Asset Management Ratios 

Asset Turnover Ratio 

One of the ratios that indicate the efficiency of asset management at Air Wisconsin is the total asset turnover ratio, also known as the asset turnover ratio. 

Asset turnover ratio = net sales/total assets 

In 2015, the asset turnover ratio of Air Wisconsin was given by: 

Asset turnover ratio = 2306500000/785457500 

= 2.94. 

This value indicated the efficiency in the management of assets by Air Wisconsin. From the value, it can be inferred that $ 1 of the assets is worth $ 2.94 of revenue (Air Wisconsin, 2018). The asset turnover ratio of Air Wisconsin In 2016 was given by: 

Asset turnover ratio = 43948500000/981822000 

= 44.76 

A dollar in the value of assets was worth $ 44.76 of revenue at Air Wisconsin in 2016 (Air Wisconsin, 2018). There was an increase in the value of the asset turnover ratio for the company from 2015 to 2016, which indicated that assets were more effectively managed in 2016 compared to 2015. The following is the calculation of the asset turnover ratio for Air Wisconsin in 2017. 

Asset turnover ratio = 1286500000/1423641900 

= 0.90. 

A dollar worth of the assets was worth $ 0.90 of the revenue. Compared to 2016, the asset management ratio of Air Wisconsin in 2017 recorded a sharp decline in the value (Air Wisconsin, 2018). The significant decrease in the asset turnover ratio indicated that the company suffered financial constraints in the year 2017. The industrial average for the asset turnover ratio in the airline industry of the USA was 0.85 in the three fiscal years. Generally, the asset management at Air Wisconsin was better than most of the industrial players. Notwithstanding, the rate at which the asset management ratio is dropping at the company may lead to its lower performance than the industry averages for the fiscal year 2018 (Air Wisconsin, 2018). The reduction of the asset turnover at Air Wisconsin can be explained using the following reasons. Firstly, the drop in the sales of the company, according to the 2017 financial reports, led to the reduction in the turnover. The decline in the revenue of the company can be attributed to the business downturn caused by the increase in the level of competitive advantages in the competitors such as Allegiant Air. Secondly, Air Wisconsin had a high cash balance. The company recorded a steady increase in the value of total assets, which was a strength on the side of financial performance. However, the increase in the total assets made most of the company's assets sit in cash. The money used in the investment in the company reduced significantly. One of the recommendations to increase the asset turnover in the company is to boost sales. The sales of the company may be raised by increasing marketing and offering incentives to attract potential customers. The other recommendation is to release the cash that the assets have held. The release of the money can be done by investing in the assets of the company. 

Financial Management Ratios 

Return on Investment 

Return on investment (ROI) is the measure of a company's profitability based on its investments. ROI is calculated as follows. 

ROI = (gain from investment- cost of investment)/cost of investment ×100 

In the fiscal year 2015, the ROI for Air Wisconsin can be given by: 

ROI= (2306500000-2243000000)/2243000000×100 

=2.83% 

In the financial year 2016, the ROI was given by: 

ROI = (1903500000-1874700000)/1903500000×100 

ROI= 1.51% 

In the financial year 2017, the ROI was given by: 

ROI= (1286500000-1349000000)/1286500000×100 

ROI= -4.86% 

The downward trend of the ROI is a clear-cut indicator that the company is financially declining. Air Wisconsin has had a reduction in the three financial years under study with the fiscal year 2017 indicating that the company is incurring losses due to the negative ROI value. One of the weaknesses that would be making the company portend a reduction in its profitability is the lack of diversification in its projects. Owing to the rapid advancement of technology in the airline industry in the united states of America, the sector players have gone ahead to integrate technological ideas to their projects and thus attracting more customers who have by far led to an increase in their financial performance. A recommendation to address such a weakness would be to diversify the market approach of Air Wisconsin to place it at a competitive position in the USA (CSI Market, 2017). The management can organize the opening up of new branches for the company to serve more airline destinations. Furthermore, Air Wisconsin can integrate and develop electronic customer check-in services. The online check-in will not only appeal to the customers by saving the time they use to check in to a flight but also intensify the customer service efforts at the company which can be translated to economic growth over time. 

Profitability Ratios 

Net Profit Margin 

Net profit margin is calculated as follows. 

Net profit margin = net profit/net sales ×100 

Net profit margin for Air Wisconsin in 2015 is given by: 

Net profit margin = 63600000/2306500000×100 

= 2.76% 

In 2016, the net profit margin is given by: 

Net profit margin = 4706700000/43948500000×100 

= 10.82% 

In 2017, the net profit ratio for Air Wisconsin is given by: 

Net profit margin = -62400000/1286500000×100 

= -4.85%. 

Air Wisconsin has portrayed an unstable trend in its profitability based on the net profit margin. The net margin rose from the year 2015 to 2016 by 8% showing that the company had integrated strategies that would lead to improved profitability and better financial positioning in the company. Nonetheless, the company had a sudden reduction in the net margin in 2017 compared to 2016, which was an indicator of the strife that the company was going through in its financial sector. The industrial performance as far as the net margin is concerned is currently better than that of Air Wisconsin. In the financial year 2017, the airline industry of the US had a net margin of 9.47% and had a margin of 7.59% in the fiscal year 2016 (CSI Market, 2017). Unlike Air Wisconsin's performance, the industrial production has indicated hope in the stabilization of the profitability position in the American economy. Therefore, Air Wisconsin is underperforming compared to the airline industry in the USA. One of the weaknesses in the country that would be leading to a reduction in the net profit margin is the accumulation of debts at the airline. The increase in the obligations, both long term and short term, in Air Wisconsin has led to the dwindling of the company's net profits. The decrease has led to a lower net profit margin at the organization thus diversely affecting the profitability of the company. A recommendation to turn the tables in the net profit margin performance at Air Wisconsin is to come up with the plans that contribute to the reduction of the time taken to settle the company's loans. The company can also include additional projects not necessarily related to the airline sector such as opening up a restaurant at Appleton international airport to increase their interactions with the potential customers and provide the company with extra funds to clear its short-term and long-term liabilities. 

Airline Specific Ratios 

Passenger Load Factor 

In public transport, the passenger load factor, also known as the load factor, is a measure of the efficiency of the utilization of the airline services in the case of the analysis of Air Wisconsin. The load factor also compares how a transport company such as Air Wisconsin fills up their seats and generates the revenue from the passenger seats. In the fiscal year 2015, Air Wisconsin had an actual load factor of 78.43% (CSI Market, 2017). The breakeven load factor for the same year was 78.58%. The breakeven load factor indicted the ideal percentage that Air Wisconsin needed to fill for sustainable financial performance. To that end, Air Wisconsin performed slightly lower than the forecasted load factor for the fiscal year 2015. In the airline industry in the US, the airlines are characterized by a narrow profit margin. Therefore, the must strive to have a high load factor to maximize profitability and efficiency in investment. In the fiscal year 2016, the actual load factor for Air Wisconsin was 77.13%. The breakeven load factor for the same year was calculated as 77.45% (CSI Market, 2017). The company's actual load factor was still trailing behind just like in 2015. The load factor for the company had also reduced in 2016 compared to 2015. The reduction in the load factor was a cut and dried index for the decrease in the efficiency and profitability of the airline company in the sector. 

The load factor of Air Wisconsin in 2017 was 76.93%. The downward trend in the load factor was evident after having declined in the three fiscal years. The breakeven load factor for the airline in 2017 was 81.93% (CSI Market, 2017). In the same year, Air Wisconsin indicated its actual load factor to be lower than the breakeven load factor, and therefore the company was underperforming. One of the drawbacks that would have led to the reduction in the load factor for Air Wisconsin is the reduction in the intensity of marketing. The diminishment of the marketing operations in the company coupled with the insufficient use of technological tools to ensure that the airline services are communicated to the market brought about the continuous nosedive in the load factor. One of the solutions to address the weakness is to integrate telecommunications in marketing. It is time that Air Wisconsin became technological and had presences on social media platforms. The platforms have contributed to sustainable marketing goals and strategies in the digital era. The other solution is to purchase the new aircraft for the company's operations. One of the reasons that could be attributed to the decline in the load factor for Air Wisconsin is the poor quality of their flights. The purchase of new and larger aircraft will be inherent to the appeal to customers on the various media that the company will integrate for purposes of marketing. 

Answers to the Three Critical Questions 

Altman's Z-Score 

Altman's Z-score is a measurement used to indicate if a company has the probability of being bankrupt. The following are the Altman's z-score calculation of Air Wisconsin according to the 2017 financial reports. 

Z-Score = 1.2 A + 1.4 B + 3.3 C + 0.6 D + 1.0 E 

A = working capital / total assets 

B = retained earnings / total assets 

C = earnings before interest and tax / total assets 

D = market value of equity / total liabilities 

E = sales / total assets 

Z-score = 1.2(-0.15) + 1.4(-0.81) + 3.3(-0.20) + 0.6(0.01) + 1.0(2.30) 

Z-score = 0.31 

A score of lower than 2.5 on the Altman's Z-score indicates that the company is headed for bankruptcy. According to the Altman's z-score calculations for Air Wisconsin from their fiscal year 2017 financial reports, the company is headed for bankruptcy. Air Wisconsin's score also indicated the negative trend of financial performance. Elaborate efforts have to be implemented at Air Wisconsin to reverse the drastic drop in the financial performance of the company in the airline industry. Some of the efforts that the company requires to implement target its profitability are diversifying the sources of income, resulting to high margin services and reducing the expenses that the company is incurring including the long-term and short-term debt. 

Profitability of the Company 

One of the parameters that indicate the profitability of Air Wisconsin is the net income. The net income of the company is derived from the revenue of the company less all the costs that are involved in the organization. In the financial year 2015, the net income of Air Wisconsin was recorded as $ 46,300,000 (Air Wisconsin, 2018). The net income for the company in 2016 was stated as $ 11,900,000 (Air Wisconsin, 2018). The drop between 2015 and 2016 indicated a 74.3% nosedive in the net income of Air Wisconsin that indicated a reduction in the company's profitability in 2016. The net income in 2017 was recorded as -$ 65,700,000 (Air Wisconsin, 2018). The gradient of reduction between 2016 and 2017 was a significant one and attracted the attention of the stakeholders of the organization. The sharp decrease in the net income of Air Wisconsin over the three financial years would be attributed to the lowering of the company's sales and the increase in the cost of expenses. Due to the implementation of ineffective strategies to increase its customer base and financial position in the market, Air Wisconsin has used up lots of funds which have contributed to the rise in the expenses that the company has to cover. The increase in the costs has reduced the net income in the company. The drop in the sales of the company's services to the American customers has further exacerbated the issue and led to a more reduction in the net income. One of the recommendations to the decrease of the losses in the company is to come up with restrictive monetary policies within the organization that target to minimize the costs that the airline is incurring to have its operations complete. Effective Marketing strategies will also come in handy to offset the sudden decline in the net income of Air Wisconsin. 

Cash Situation 

One of the signs of the cash situation in an organization is the change in the operating profit. Air Wisconsin has had an excellent performance in the past. However, the situation is changing as the company nosedives in performance. The operating profit for Air Wisconsin in 2015 was $ 63,600,000 (Air Wisconsin, 2018). The following year, the operating profit was recorded as $ 28,800,000 (Air Wisconsin, 2018). The reduction in the operating profit for Air Wisconsin was an indicator of an unstable cash position of the company as it crossed to 2016. The decline in the operating profits was also a sign of the reduced financial profitability that Air Wisconsin had over the years. In the fiscal year 2017, Air Wisconsin recorded an operating profit of -$ 62,400,000 (Air Wisconsin, 2018). The continued reduction in the operating profit in the company can be attributed to its weakness in the sale of small margin services to its customers. The sale of such services includes lowering the plane fares to attract the number of customers to the company while the operating expenses remain constant or increase leads to the lowering of the profit margin. The low-profit margin services at Air Wisconsin may have replaced the high margin ones; and, therefore, the result is the reduction in the operating profit of the company. One of the recommendations to the raising of the operating profits at Air Wisconsin is the replacement of the low margin services with the high margin ones. The replacement will require skilled financial experts to begin by evaluating the financial capability of Air Wisconsin and then come up with a strategy that sufficiently explains how the company can replace the services and embark on a successful financial journey. The other recommendation is to optimize the plane fares to a level that is profitable for the company and at the same time appeals to the target customers of the airline. 

Summary of Report 

The American based Air Wisconsin has been involved in a financial crisis for the last three fiscal years. Notably, the company has indicated a reduction in the aspects of profitability, cash situation, and is gradually headed to bankruptcy. The financial ratios of the company suggest that the performance of the airline in the industry is lower than the industrial averages as well as the other players in the sector such as Allegiant Air. The liquidity of the company has severely been affected by the increase in the inability of Air Wisconsin to take care of its short-term financial obligations. The asset management ratios have proven that the company is inefficient in its investment in the American market. The company's financial situation is supposed to serve as a wakeup call for both the management and the employee base of Air Wisconsin to recover the former economic glory of the company. 

References 

Air Wisconsin. (2018). Profile . Retrieved from http://www.airwis.com/profile.html 

CSI Market. (2017). Airline industry efficiency, revenue per employee, inventory and receivable turnover ratios. Retrieved from https://csimarket.com/Industry/industry_Efficiency.php?ind=1102