The Times 100 Business Case Study News

High oil prices affecting airelines

Gordon Wilson - gordon@mb-a.biz — Tue, 10 Jun 2008 00:00:00 GMT

High oil prices affecting airelines

These are difficult times for many businesses and those for whom external influences such as fuel costs are a major item are being hit hard. Sound financial planning is necessary to keep the business on track and enable it to survive downturns and make a profit or at least break even.

Michael Oâ??Leary, chief executive of Europeâ??s largest airline Ryanair and known for an aggressive management style, says he welcomed high oil prices as it would drive â??crappy competitorsâ?? out of business. So far this year, more than a dozen airlines worldwide have gone out of business because of the cost of fuel and Mr Oâ??Leary expected that only five carriers â?? Ryanair, EasyJet, British Airways, Air France and Lufthansa would survive. (The Times, 4 June 2008)

However, some of Ryanair's decisions have not been fool-proof, as with the decision to take only minimal hedging against rising oil prices. This has left the airline almost completely exposed to oil at more than $130 a barrel, whereas some other airlines have hedged and bought ahead. In addition, Ryanair also embarked on increasing its fleet of aircraft, taking delivery of 30 extra last year and adding a further 40 this year in the face of the rising prices and falling consumer demand. Mr Oâ??Leary argues that these additional aircraft will allow him expansion options although he is planning to ground 20 aircraft during the winter to cut capacity. Ryanair has also announced that it would take a â?¬92 million write-down on its investment in Aer Lingus. The airline bought a 29.2% stake last year but has been blocked from buying Aer Lingus outright for competition reasons. (The Times, 4 June 2008)

Although predicting that fares would rise by 5%, Ryanair says it expects only to break-even next year if oil prices stay near $130 a barrel. Last month the airline advised that it would increase its check-in charges by £1 to £4 per passenger and by £2 to £8 per bag to try to reduce its airport costs. Mr Oâ??Leary said: â??We are trying to persuade passengers to carry hand luggage and to fly in a way that cuts our costs to a minimum. If you want additional services like checking in a bag or using a credit card to pay, you have to pay for those services.â?? (BBC News, 3 June 2008)

He rejected the suggestion that these charges were fuel surcharges in disguise and said Ryanair would not make its customers pay fuel surcharges. He added: â??It's a guarantee - oil at $150, $200 dollars a barrel, there will be no fuel surcharges on Ryanair.â?? (BBC News, 3 June 2008)

See the Times 100 theory on business planning, an essential requirement if a business is to succeed and on calculating the break-even point.

Sources:

The Times Online - Ryanair predicts oil price will hit rivals, 4 June 2008

The Times Online - Behind Ryanair's bravado, mistakes were made, 4 June 2008

BBC News - Ryanair to 'break even in 2009', 3 June 2008

The Times 100 Edition 12 Theory Page -Business planning

The Times 100 Edition 12 Theory Page - Calculating the break-even point

Potential Questions:

What is a business plan and for whom is it written?
What factors should be included in a business plan?
What are the key points that need to be taken into account in calculating break-even point?
Identify which Times 100 case studies demonstrate the kind of forward planning a business should undertake in a difficult economic climate.

Commercial property values fall

Gordon Wilson - gordon@mb-a.biz — Wed, 04 Jun 2008 00:00:00 GMT

Commercial property values fall

The adverse effects of the credit crunch on property values is spreading from Europe and the US to the rest of the world and reports over the past month can only be described as gloomy. Financial turmoil has sent demand for retail and industrial sites almost everywhere into decline, according to the first global commercial property survey by the Royal Institution of Chartered Surveyors (RICS).

According to the City Corporation, seven million sq ft of building is under construction in London, about 8% of its total office space. This does not include some large schemes yet to start. This expansion coincides with the worst downturn in a decade and a half for city financial institutions. (The Times, 31 May 2008)

A veteran property man, Chris Bartram thinks that the City is seriously over-supplied with offices. However, he is not expecting the market to go into freefall. Mr Bartram believes developers will hold their nerve and scale back or delay some very big schemes. They will use the downturn to move tenants from less appealing premises to other buildings and renovate the resulting vacancies before any upturn. He said: â??In the City thereâ??s going to be at least a 40% fall in rents from their peakâ?¦Because speculative development is in the hands of groups with very deep pockets â?? for example, Land Securities, Hammerson, one or two big funds â?? itâ??s not in their interest to dump it.â?? (The Times, 31 May 2008).

Two weeks ago, it was reported that Land Securities, Britainâ??s largest commercial property company, had written down the value of its shops and offices by £1.28 billion. This is the largest and steepest decline in the value of the companyâ??s buildings over such a short period, worse even than at the height of the 1990s recession. (The Times, 15 May 2008)

A report a week later noted that British Land had also written down the value of its shops and offices by £1.9 billion. British Land's 10.8% holding in Canary Wharf was hit hardest, marked down â??for accounting purposesâ?? by 27.5% to £185 million over its financial year to 31 March. (The Times, 21 May 2008)

See The Times 100 case study on Land Securities. This focuses on Land Securities' business strategy. It describes how the company uses planning processes to provide a clear direction for the organisation. Land Securities has a rolling five-year plan that helps it look forward in order to meet its customersâ?? future needs.

Sources:

The Times Online - Property expert Chris Bartram says investors should sit tight on their City office space, 31 May 2008

The Times Online - Canary Wharf likely to acquire markdown, 21 May 2008

The Times Online - Land Securities writes down assets by £1.28bn, 15 May 2008

The Times 100 Edition 12 Case Studies - Land Securities, Using strategy and planning to measure, monitor and report performance

Potential Questions:

Give two examples of â??macro-economic factorsâ?? affecting the national economy at the present time.
What are the phases of the business cycle?
What usually happens to interest rates in periods of recession and slump and why?
How might a company like Land Securities meet the challenges of this type of economic change?

The search for an alternative fuel

Gordon Wilson - gordon@mb-a.biz — Fri, 30 May 2008 00:00:00 GMT

The search for an alternative fuel

The rising price of oil is pushing the search for an alternative source of energy. Manufacturers have displayed dozens of fuel-cell concept cars but have been reluctant to put them into mass production without an infrastructure to support them.

Andrew McCree, chief executive of AEA, an energy consultancy that reports to the Department for Business, believes the rising price of oil will lead to the use of alternative sources of energy, particularly hydrogen. He said: "With oil at $200 a barrel, the economics of hydrogen energy look increasingly compelling." (The Times, 24 May 2008)

Vehicles can be powered by hydrogen in two ways - by using a modified internal combustion engine or in fuel cells that generate electricity directly from the gas. The latter is more efficient and releases more energy by volume. Hydrogen can be manufactured as a green fuel by extraction from water using electrolysis driven by nuclear, solar or wind power. It could also be made from biomass or produced by genetically-modified algae. Because it can be obtained from water, there is a compelling energy security argument. Unlike oil and gas, it would not need to be imported from world trouble spots. (The Times, 24 May 2008)

Martin Green, development director at Johnson Matthey Fuel Cells said: "The real challenge is building the infrastructure to support an economy based on hydrogen." (The Times, 24 May 2008)

Britain's first hydrogen fuel station opened at Birmingham University in April this year. This is the first stage of a technology revolution offering drivers the prospect of pollution-free motoring. The university is conducting trials with a fleet of five fuel-cell vehicles. Another three hydrogen stations are planned for London and there will be at least twelve stations countrywide by 2010, paving the way for the commercial production of cars powered by fuel cells. (The Times, 16 April 2008)

Air Products, the company that installed the fuel station, is also working with Transport for London to build fuel stations for a fleet of 70 hydrogen-powered vehicles to be introduced from next year. London's first hydrogen station will open next year at a bus garage in East London. (The Times, 16 April 2008)

See the Times 100 case study on Go-Ahead. The company was created as a result of bus privatisation and deregulation in 1986. Previously buses had operated in the public sector controlled by local authorities. Go-Ahead typically operates in densely populated areas, such as London, where its expertise lies in getting people to places on time in a clean, reliable and fuel-efficient way

Sources:

The Times, 24 May 2008(print edition)

The Times Online - Energy adviser puts forward powerful case for hydrogen, 24 May 2008

The Times Online - Hydrogen fuel stations for cars land in Britain, 16 April 2008

BBC News - Hydrogen car project begins, 17 April 2008 (video clip - Birmingham Fuel Station)

The Times 100 Edition 12 Case Studies - Go Ahead, Meeting needs in a competitive sector

Potential Questions

What are the stages of new product development?
What are some of the reasons why new products fail?
Read the source articles in full and discuss what benefits could be gained by a bus company using hydrogen fuel rather petrol/diesel.

External influences affecting food prices

Gordon Wilson - gordon@mb-a.biz — Tue, 27 May 2008 00:00:00 GMT

External influences affecting food prices

External influences - economic, technological and even climatic - can affect production in industry, for example, food crops harvested for the production of biofuels. The effects of unfavourable climate conditions on crop growing coupled with a rising demand from developing countries has contributed to food shortages and higher prices.

Food prices are rising worldwide. A top level report compiled by the United Nations and the OECD (Organisation for Economic and Co-operative Development) predicts that food prices could remain at record levels until 2017. The report said that droughts, poor harvests, low stocks and a growing demand were to blame for price rises. (The Times, 23 May 2008)

The demand for wheat and coarse grains (cereals other than wheat and rice) was nearly twice the rate of production, due in part to the demand from developing countries. From 2005 to 2007, demand for wheat and coarse grains grew at nearly twice the rate of production, with more than half the increase of both cereals and vegetable oils attributable to the biofuels industry. The UN OECD report called for a co-ordinated relief effort to help developing countries and for a review of the growing use of biofuels. (The Times, 23 May 2008)

A Food and Agriculture Organisation (FAO) report says that production has responded fast and it is expected that rice, wheat, corn and other coarse grains production will be higher this year. However, increased production of coarse grains will be outstripped by rising demand due to the use of corn to make biofuel. The use of crops, land and other agricultural resources to make biofuels will be one of the subjects on the agenda of a world food crisis summit hosted by the FAO in Rome early in June. The FAO Food Outlook report in the news today said collective international action was needed now to develop agriculture and fight hunger.

See two Times 100 case studies of companies that use food crops as their raw materials:

The first case study shows how McCain, in a fast-changing external environment, needs to identify the likely impacts of such changes on its business. A company's ability to meet its objectives depends on two main groups of factors - the internal strengths of the organisation (for example being able to make the right products in an efficient way) and being able to identify external influences in the business environment and on its consumers and adapt accordingly.
The second case study focused on Kellogg looks at how aims and objectives help to create a strategy to give Kellogg a unique position in the minds of its consumers. In preparing a strategy, Kellogg needs to be clear about what it wants to achieve. It also needs to know how it is going to turn desires into reality in the face of intense competition. Setting clear and specific aims and objectives is vital for a business to compete.

Sources:

The Times Online - No quick fix for escalating food prices, Alistair Darling told, 23 May 2008

The Times 100 Edition 12 Case Studies - Kellogg's, Using aims and objectives to create a business strategy

The Times 100 Edition 12 Case Studies - McCain, How McCain responds to changes in the external environment

Potential Study Questions:

Give two examples of how technology provides opportunities for businesses and two examples of how technology can be a threat to them.
The legal environment also affects businesses Ã¢ï¿½ï¿½ give two examples.
Analyse what possible impacts the current demand for food crops might have on the two companies above.

Competition for banking jobs

Gordon Wilson - gordon@mb-a.biz — Fri, 23 May 2008 00:00:00 GMT

Competition for banking jobs

A recent survey showed that more people were looking for jobs in Londonâ??s financial services industry last month than at any time in the past three and a half years. About 11,840 people were looking for banking jobs in April, 20% more than in March and outnumbered the 8,946 finance jobs advertised. The survey also showed that the average time taken to get a new job has increased to almost 57 days in April â?? up from 50 days a year ago. (The Times, 17 May 2008)

As a result of the sub-prime crisis, financial companies in the United States and Europe have cut at least 70,000 jobs. Experian, the data provider, expects the final could be 240,000 by the end of the year. According to JPMorgan Chase, job losses in London banks may total 40,000 by the year end. Robert Thesiger, the chief executive officer of Imprint, Morgan McKinleyâ??s parent company, said: â??Market sentiment and confidence is of paramount importance within the City and there will need to be continued improvements before robust levels of hiring are restored.â?? (The Times, 17 May 2008)

US-based Citigroup, one of the worldâ??s biggest banks, has suffered huge losses as a result of the sub-prime crisis and announced 13,200 jobs cuts since the credit crisis struck and is proposing to close two of its companies - Future Mortgages and CitiFinancial. Bert Pijls, business manager for Citiâ??s UK consumer business said: â??Future Mortgages and CitiFinancial were not identified as areas for strategic growth. We are committed to ensuring that staff who are potentially impacted by these proposals are treated fairly and made aware of all the options open to them.â?? (BBC News Online 19 May 2008)

See The Times 100 case study on Experian, which provides credit information to banks, and that on Lloyds TSB, an old established bank which recognises the benefits of diversity in its employees to meet the needs of its diverse customer base.

Experian operates in more than 60 countries. It has over 20 yearsâ?? experience in providing financial, statistical and marketing information to businesses and consumers. Building partnerships with companies is Experianâ??s core business. For example, when banks, credit card companies and other financial services organisations lend money, they need information they can rely on. Lending money involves an element of risk. Experianâ??s information helps them with the decisions they have to take.

The origins of Lloyds TSB stretch back to 1765, when John Taylor and Sampson Lloyd set up a private banking business in Birmingham, England. Over the years, Lloyds Bank expanded through a series of mergers and by 1923 had made some fifty take-overs. In 1995 Lloyds Bank Group merged with TSB Group to form Lloyds TSB Group plc.

Sources:

The Times Online - Bankers are taking 57 days to get new posts, 17 May 2008

BBC News - Citi move puts jobs under threat, 20 May 2008

The Times 100 Edition 12 - Experian, Entering a new market with a new product

The Times 100 Edition 12 - Lloyds TSB, The business benefits of diversity

Potential Study Questions:

Give four pieces of information which a Human Resources Management Department might use to predict how many workers are needed.
What methods can a business use to reduce the size of the workforce?

Bids for a stake in British Energy

Gordon Wilson - gordon@mb-a.biz — Tue, 20 May 2008 00:00:00 GMT

Bids for a stake in British Energy

The deadline for bids for a stake in British Energy was 9 May 2008, at which time EDF (the French state-controlled utility) was the sole bidder. Since that date, two further bidders have put forward proposals. These are two utilities RWE (German) and Iberdrola (Spanish) who submitted a joint proposal and Suez (the French industrial group), which it is believed is more interested in a collaborative deal to help construct new nuclear power plants in the UK. (The Times, 17 May 2008)

British Energy operates eight nuclear power stations in the UK and also runs a coal-fired power station. The company said it had reviewed the proposals and decided that talks should continue with all bidders. A spokesman said: â??The board wishes to stress that each of the proposals requires further development and that the process is therefore likely to continue for a number of weeks.â?? (BBC News, 16 May 2008)

Industry sources believe that EDF remains the most credible bidder. Its offer is the furthest advanced. The Government is insisting that any buyer of British Energy would have to sell some key sites to ensure proper competition. (The Times, 17 May 2008)

The Government wants to stimulate a competitive auction for British Energy, which it expects to play a key role in the push to build a new generation of nuclear plants in the UK. It wants to use the sale of its 35% stake in the company to kick-start the construction programme for new reactors in Britain. (The Times, 17 May 2008)

See two connected Times 100 case studies:

RWE npower is an integrated energy company. It is the third largest supplier of electricity through its npower brand and one of the largest electricity generators. It is part of the RWE Group, which is one of the largest European energy Utilities. Energy companies have a responsibility to maintain supplies of energy 24/7.
The Nuclear Decommissioning Authority (NDA) was set up by the government and started to operate in April 2005. Its purpose is to manage a UK-wide plan to clean up existing public sector nuclear sites. This case study shows how the NDA is working to a well-organised planning framework to achieve its objectives.

Sources:

The Times Online - Takeover battle at British Energy hots up, 17 May 2008

BBC News - British Energy mulls bid offers, 16 May 2008

The Times 100 Edition 12 Case Studies - RWE npower, Managing risk through effective team-based decision making

The Times 100 Edition 12 Case Studies - NDA, The business of nuclear decommissioning

Potential Study Questions:

Define â??fair competitionâ?? in a market. Give two examples of unfair competition.
What are the main features of a very competitive market?
What are the main features of a monopoly?