Assess the Use of Accounting Information in Decision Making in the Aviation Industry

Topics: Airline, Southwest Airlines, Management accounting Pages: 16 (5394 words) Published: November 21, 2009
Table of Contents
Table of Contents1
Introduction. Decisions and Accounting.2
Aircraft development.6
Airport Receivables & passenger fees collection.8
Airlines Bodies participation. How ARC uses Ratio analysis to protect members10 Fuel hedging - Cost saving or Gamble?13
Collective bargaining, financial statements on the bargaining table.15 In-house or Outsource services – Caribbean Airlines Case - M&E & Revenue Accounting16 How do Airlines use CM and CVP?19
Fleet change and fleet type24
Critical Analysis; what does the accounting information mean – Low cost airlines26 Bibliography28
1.The Aviation industry29
2.IATA enhancement Financing services29
3.Airline Reporting Corporation, Carrier Financial Statement29
Introduction. Decisions and Accounting.

The aviation industry has been for the last decade one of the most dynamic industries in the world. The business structure of the aviation industry has evolved into one in which each major stakeholder can have a distinct impact on its fortunes. The aviation industry is not only the airline companies, it also includes airports that are either managed by regulatory government bodies or private companies, the cargo and express freight and package delivery companies, Passenger and Ramp handling companies, customer reservation system providers, aircraft manufacturers and aircraft leasing and financing companies, just to name a few of the major player. Recently the aviation industry has come to born some new players in recent years the push towards globalization and improvements in worldwide IT infrastructure and airport security requirements due the drug trade and terrorism, such and revenue accounting providers, outsourced aircraft maintenance and airport security and training providers. Appendix 1 presents a breakdown of the aviation industry.

Before we dive further into any analysis, let’s understand three important elements of our topic. 1)Decision making

A decision is a choice, a choice between available alternatives. Decision making is the process of identifying problems and opportunities and resolving them (Daft 1993). The key word in the last sentence would definitely be process. The decision making process can illustrated below (Daft 1993)

One of the key ingredients to this process is information. Information is data that are meaningful and alter the receiver’s understanding of events and facts (Daft 1993). For information to be useful it must have certain characteristics. It must be of good quality, which is the source data must be accurate and reliable. It needs to be timely. The sooner you have information on events, the faster it can be used in the decision making process. There would be no use to information on situations that have gone and cannot be changed. Completeness is a must for information, incomplete information in the decision process can lead to a non-optimal decision. The information must also be relevant. It should pertain to the problem at hand. It should not contain information that the user does not need for the present decision as this would slow down the decision making process as the user has to sort out for information relevant to the situation.

Accounting as described by the American Accounting Association is as following: "the process of identifying, measuring and communicating economic information to permit informed judgements and decisions by users of the information" (

Accounting is generally split into two areas, Financial accounting and Management accounting. Financial Accounts: geared toward external users of accounting information Management Accounts: aimed more at internal users of accounting information Although there is a difference in the type of information presented in financial and management accounts, the underlying objective is the same - to satisfy the information needs of the user. Below briefly looks at the...
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