The Explain How to management accounting can supply information to assist the management of the organisation of AIR FRANCE AIRLINE ?
Background of the company
Air France which is stylized as AIRFRANCE is a French airline headquartered in France. It is the subsidiary of Air France – KLM group. As of the data of 2013, AIR FRANCE serves 36 destinations in France. It operates worldwide scheduled passenger and cargo services to 168 destinations in more than 90 countries. Air France operates 1500 flights on a daily basis in France, Europe and worldwide (Airfrance.fr, 2015). Since 2004, Air France and KLM is one of the leading air transport groups of Europe. The two airlines work in collaboration and cover 230 destinations in more than 100 countries. They have their hubs in Paris and Amsterdam.
The fundamental assets of Air France are its balanced network that operates from Paris. It is considered as the most powerful hub in Europe. Air France offers innovative range of products. The need of the customers is identified while strategizing the business operations of the company. The strategy of Air France is to make the sky the best place on earth. They offer discounts during lean period. Air France is a member of Sky team. Sky Team has membership of 20 airlines. It helps to travel the world in a trouble free way. The International team can be flexible and travel around the world (Airfrance.fr, 2015). It will make the process of Journey along the globe flexible. Among the various other members of the Sky Team, Air France follows the policy of providing good quality and innovation (Royalairmaroc.com, 2015). They offer innovative products to their customers by providing them with regular discounts. The operating revenue of the company is EUR 25.6 billion. Since 2004, Air France and KLM Royal Dutch Airlines has become the largest group in European airline. They are one group that has two airlines and has three businesses. But the airlines has retained their identity, existing trade name and the brand image. The major businesses of these two airlines are Passenger Business, Engineering and maintenance and Cargo business. The business operations of the two airlines are from their own destinations. They are Paris for Air France and Amsterdam for KLM. KLM and Air France employ more than 100,000 people (Skyteam.com, 2015). The shares of Air France and KLM are listed in the Paris Exchange and the Amsterdam exchange. In 2009, Air France KLM and Alitalia entered into agreement in order to strengthen their partnership. Air France KLM has 25% stake in the Alitalia. It enabled the airline company to have a strong position in the Italian market (Static.skyteam.com, 2015). Italy is considered as the fourth largest market in Europe. Both the airlines are members of the Sky Team alliance. It is considered as a global airline alliance (Klm.com, 2015).
The major competitors of Air France airlines are Lufthansa and its acquired company Swiss International Airways , American airlines Group Inc, International Consolidated Airlines Group SA and Deutsche Lufthansa. Air France and KLM have been providing innovative service to their clients. The airline company strategizes its business to meet the need of the customers and following the path of the competitors like British airways.
Review of Management Accounting
Management accounting can be defined as the process of accounting used by managers who use the information of accounting to make their key decisions. This will help the managers to have better understanding of the organization and perform the control functions more effectively. The financial as well as non financial decision making of the managers. Management accounting extends in three main areas. They are –
Strategic management – The strategic management decisions of an organization can be taken by the manager of the organization using management accounting.
Performance management – The performance of the organization can be managed by using management accounting. It will help in taking the key decisions of the organization.
Management of Risk – Management accounting will provide a framework that will help in the identification, management and risk reporting. This will be helpful in meeting the organizational objectives.
The key techniques of management accounting are as follows –
- Management of Inventory
- Just in time
- Make or buy decision
- Process of preparation of Budget
- Analysis of Variance
- CVP analysis
- Activity based costing
- Enterprise cost management
- The Make or Buy decision helps to ascertain whether an item will be produced by the organization or whether the organization will purchase it from any supplier outside to the company.
- The JIT technology is used to ascertain that the level of production is equal to the sales volume. There is no raw material storage in the inventory.
- Management of inventory helps to make the purchasing decisions, operation decisions and decision of sales. A distribution analysis is done to manage the level of inventory.
- Budgeting helps in planning for the future by the allocation of resources.
- Variance determines the difference between the actual and the estimated. Variance analysis helps to ascertain the difference of the actual production or sales to the estimated production or sales. It assists in better decision making for the organization.
- CVP technique helps in break even analysis which is important to make the investment in production. At the point if break even the profit is zero.
- ABC costing provides managers with the necessary information for decision making in an organization. The decisions are made based on the capacity of the organization (Maher, Weil and Stickney, 2015).
- Enterprise cost management is the process in which the cost incurred for the production of goods in an organization is managed (Powers, Needles and Crosson, 2010).
Mahfar and Omar ( 2004) has stated that management accounting is integral process for the decision making of the organization. The information can be used by the organization for its key decision making like planning, evaluation of a decision and control of the decision. However traditional form of accounting focus only on the internal process of the business organization. It did not deal with the external problems faced by the organization. The external problems that are faced by the organization include management of the competition, creation of customer value and maintaining competitive advantage. There has been rapid change in the business environment due to globalization. The business environment has become turbulent. In such a turbulent business scenario, Air France has to use innovative management accounting techniques for the growth of the organization. The advanced techniques of management like the Total Quality Management Technique (TQM) and the Activity Based Costing (ABC) can be used as a tool to make the key decisions of the organization. Cost determination and budgeting has been the key concern of the organizations. Rapid changes in the information technology have resulted in availability of information throughout the organization. The management accountants enter into partnership with the managers assisting them in key decision making of the organization. Budget is considered as most important tool of management. Air France can use the process of budgeting, cost variance analysis and standard costing method to make their key management decisions. In case of large scale companies like Air France, Budget can be used as an effective tool for the growth of the organization. Apart from budgeting, ratio analysis can be used as an effective tool to analyze the financial position of the organization. The profitability ratios will serve as a tool for determining the performance of the organization. The solvency of the organization can be determined from the current ratio and the quick ratio. The company can find a trend of its performance based on the analysis using the key ratios. This will help the company in identifying the strengths and weakness. The company will be able to make its future investment decisions based on its financial performance. This will ensure long term sustainability of the organization. Air France can make strategic decisions based on its past financial performance. This will help the organization in the long run. It is important tool to determine the success of the organization (Sunarni, 2013).
Air France is one of the highest airline revenue earners in Europe. The share of revenue of the company has increased with its merger with KLM Royal Dutch Airlines. It has 27 % of the revenue share of the Association of European airlines. 62 % of the long haul destinations in Europe are offered by Air France.
In the present report I gave a brief overview of the Organization and its major decisions. I gave an overview of the key management processes that can be used by the organization for its long term survival and key decision making. The strengths and weakness of my report are as follows –
I provided a detailed overview of Air France airlines. Information was provided regarding the merger of the organization with KLM airlines. The role of management accounting in making the key decisions of the organization was identified. An analysis of the use of management accounting in the decision making has been presented.
The analysis of management accounting suitable for a business organization was presented by me based on assumptions. I performed secondary research to determine the key management process used by organization for decision making.
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Airfrance.fr, (2015). Cheap tickets Air France flights best fare to 800 destinations in the world. [online] Available at: https://www.airfrance.fr/cgi-bin/AF/FR/en/common/home/home/HomePageAction.do [Accessed 15 Jan. 2015].
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Maher, M., Weil, R. and Stickney, C. (2015). Managerial Accounting: An Introduction to Concepts, Methods and Uses. pp.70-90.
Powers, M., Needles, B. and Crosson, S. (2010). Principles of financial and managerial accounting. Mason, Ohio: South-Western.
Royalairmaroc.com, (2015). Air partners : Air France, Iberia, Delta Airlines, Emirates, Air travel Morocco - Royal Air Morocco. [online] Available at: https://www.royalairmaroc.com/us-en/Travel-Info/Before-the-travel/Partners [Accessed 15 Jan. 2015].
Skyteam.com, (2015). SkyTeam - Member Airline Air France. [online] Available at: https://www.skyteam.com/About-us/Our-members/Air-France/ [Accessed 15 Jan. 2015].
Static.skyteam.com, (2015). SkyTeam. [online] Available at: https://static.skyteam.com/cdn-1cf3de49794d49a/Global/Press/Facts%20and%20figures/2014%20Jan%20update/Fact_Sheet_SkyTeam_2014_update_5mar14.pdf?_ga=1.165432699.558126921.1421297136 [Accessed 15 Jan. 2015].
Sunarni, C. (2013). Management Accounting Practices and the Role of Management Accountant: Evidence from manufacturing Companies throughout Yogyakarta, Indonesia. [online] sibresearch.org. Available at: https://sibresearch.org/uploads/2/7/9/9/2799227/riber_b13-243_616-626.pdf [Accessed 15 Jan. 2015].