An examination of trajectory analysis : the case of Air New Zealand Limited.

Abstract

Many studies have addressed the issue of company failure and the pioneering work done by John Argenti in 1976. Twenty one years later, Andrew McRobert and Ronnie Hoffman provided an update of Argenti's work for the 1990s. Their cumulative work involved a failure model and the failure trajectory theory (trajectory analysis). The failure model examines the defects, mistakes and symptoms that companies exhibit as they near failure. In contrast, trajectory analysis proposes three different pathways that companies can follow when they fail. Additionally because of the particulars of each pathway, trajectory analysis should have considerable value in company failure classification. However, the limited examination of trajectory analysis provides considerable scope for further research into their propositions. This thesis provides an examination of trajectory analysis. The examination involves firstly, an evaluation of the theory and discusses any deficiencies in trajectory analysis. Secondly, it produces a trajectory for a New Zealand case study: Air New Zealand Limited. Air New Zealand is a large important New Zealand company that could have failed in 2001 if not for the intervention of the New Zealand Government. Thus the case study chosen is a timely example of a large company collapse. Finally, the thesis determines the extent to which trajectory analysis is a failure classification model. The results show that it is possible to create a trajectory that generally follows Air New Zealand's financial performance over time. However, in this particular case, it seems that trajectory analysis is not a failure classification model, but instead has potential as an early warning system to prevent failure.