Documente Academic
Documente Profesional
Documente Cultură
Table of Contents
2
A Company Overview........................................................................................................4
2.1
Business model............................................................................................................5
2.1.1
2.2
2.2.2
SWOT Analysis....................................................................................................7
3.1.1
Income Statement.................................................................................................8
3.1.2
3.1.3
Income Statement...............................................................................................11
Horizontal Analysis...................................................................................................13
4.1.1
Income Statement...............................................................................................13
4.1.2
4.2
2.2.1
3.1
Full service carrier (FSC) and low cost carrier (LCC) models............................5
Vertical Analysis........................................................................................................16
4.2.1
Income Statement...............................................................................................16
4.2.2
Horizontal Analysis...................................................................................................19
5.1.1
Income Statement...............................................................................................19
5.1.2
5.2
Vertical Analysis........................................................................................................21
5.2.1
Income Statement...............................................................................................21
5.2.2
Key Ratios........................................................................................................................23
6.1
6.1.1
6.1.2
Return on Equity................................................................................................24
6.1.3
EBITDAR Margin..............................................................................................24
6.2
Risk Ratios.................................................................................................................25
6.2.1
6.2.2
Quick Ratio........................................................................................................25
6.2.3
References........................................................................................................................29
Appendix..........................................................................................................................30
A.1
A.2
A.2.1
Income Statement...............................................................................................32
A.2.2
A.3
A.3.1
Income Statement...............................................................................................34
A.3.2
A.4
A.4.1
Horizontal Analysis............................................................................................36
A.4.2
Vertical Analysis.................................................................................................36
A.4.3
A.4.4
Return on Equity................................................................................................36
A.4.5
EBITDAR Margin..............................................................................................37
A.4.6
Current Ratio......................................................................................................38
2
A.4.7
Quick Ratio........................................................................................................38
A.4.8
Debt to Equity....................................................................................................38
1 A Company Overview
Founded in the Queensland outback in 1920, Qantas has grown to be Australia's largest
domestic and international airline. Registered originally as the Queensland and Northern
Territory Aerial Services Limited (QANTAS), Qantas is widely regarded as the world's
leading long distance airline and one of the strongest brands in Australia. Qantas have built its
sup-groups below: QantasLink, Q Catering, Qantas Freight, Express Ground Handling,
Qantas Holiday and Jetstar.
Q a n ta s
G ro u p
Qantas Link
Q Catering
Qantas Freight
Express Ground
Handling
Quantas Holiday
Jetstar
QantasLink
QantasLink operates over 2000 flights each week to 56 metropolitan, regional and
international destinations across Australia and to Port Moresby in Papua New Guinea.
Q Catering
Qantas Catering Group Limited is a wholly owned subsidiary that operates two catering
businesses - Q Catering and Snap Fresh. Q Catering has catering centres in four Australian
ports - Sydney, Melbourne, Brisbane and Perth.
Qantas Freight
A wholly owned subsidiary of Qantas Airways within the Qantas Airports and Catering
Group, provides comprehensive ground handling services to Jetstar and several regional
airlines.
Qantas Holiday
Part of the Jetset Travelworld Group wholesale suite, is one of Australia's leading travel
wholesalers. Qantas Holidays markets an extensive range of competitively priced products
and services covering the Qantas network, including partner airlines and codeshare services,
as well as packages for other airlines under the Viva! Holidays brand. In addition to
destination specific promotions, Qantas Holidays sells packages to a number of special events
in Australia, such as popular stage shows and sporting events.
Jetstar
The Jetstar Group is a value based, low fares network of airlines operating in the leisure and
value based markets offering all day, every day low fares.
Full service carrier (FSC) and low cost carrier (LCC) models
Using their dual complementary airlines, Qantas and Jetstar, the Group focuses on its main
business as transportation of passengers and is committed to maintaining their leading
position in operating long-haul international, and short-haul domestic and regional services.
There are two business models in the airline industry, namely the FSC and LCC models. FSC
model is essentially based on a differentiation strategy that bears much heavier overheads,
while LCC model based on the cost minimisation strategy by significantly cutting costs
through reducing their overheads (Alamdari and Fagan, 2005). Qantas airline (both domestic
and international) is operating based on the FSC model, while Jetstar is operating based on
LCC model as a direct competitor to the low cost Virgin Blue in Australia (Hunter, 2006).
5
Qantas Group also possesses a broader portfolio of businesses and investments, including
Qantas Loyalty and Qantas Freight, which creates assorted revenue streams and generates
more values for customers and investors as a result (Details please see Appendix A.1).
Industry Competitors
Qantas observes severe competition from Virgin Australia domestically and a number of low
cost airlines internationally such as China Southern Airline and Malaysia airline. Qantas must
always revitalise its product offerings in order to be competitive and sustainable amongst
other players.
Extremely high fixed initial costs along with government regulatory requirements increase
the entry threshold for the air transportation industry. Therefore, the high barriers of entry and
the dominant powers of existing large players significantly reduce the number of new
entrants.
Other forms of transportation like railways, buses, ships and personal transportation are direct
substitutes for those who are not concerned about travelling fast. Indirect substitutes such as
teleconferencing, online chatting and VoIP (Voice over IP) will increase the threat of
substitutes as they save time and money for customers who are travelling.
Buyers for Qantas consist of business travellers, leisure travellers, budget travellers, travel
agents, and many others. The expectations of the customer have grown over time as they
demand more value for every dollar spent. In addition, technology development also allows
firms and individuals to communicate with ease which strengthens the bargaining power of
customers.
The aircraft suppliers for Qantas are the only two largest aircraft manufacturers: Boeing and
Airbus. Fuel will be supplied by companies like Shell and BP. Hotels and catering service are
also provided to the customers as well as crew members in different destination of its
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operations. In order to lower the cost, Qantas need to maintain a fairly good communication
with its suppliers to achieve the competitive edge.
1.2.2
SWOT Analysis
Qantas' strong dominance in Australian domestic market enables it to take advantage of the
local expertise to gain access to key markets as well as enhancing the quality of its services.
However, increased competition from the growing numbers of low cost and low fare airlines
could impact the group's market share especially in the Asian region.
F IGURE 2.2.2-1 SWAT ANALYSIS
OF
QANTAS
Strength
1. Strong support of Australian Government
2. One of the top and largest airlines operating in
Australia
3. Has been one of the historical airline operators in
the world
4. Has over 40 destinations domestically and
internationally
5. Good brand building exercises through advertising
and sponsorship
Weakness
1. Heavy concentration around the
Australia region
2. Costly and ineffective employee training
schedule
Opportunity
1. Due to the monopolistic nature of Qantas, it
reduces the chance of other airlines gaining
more market share in Australia
2. More potential international destinations in
Asia
3. Collaboration with international airlines
Threats
1. Increasing fuel prices
2. Rising Labor Costs
2. Increasing Competition in Australian
Market from new start ups
Based on the above SWOT analysis, it can be inferred that the strengths of Qantas make it a
well respected airline which infuses public confidence. Furthermore, its brand name gives
good selling prospects. However, due to the attribute of aviation industries, there are a lot of
challenges that contributes to the uncertainty of the financial performances.
Income Statement
In 2009-2014 timeframe, Qantas has experienced a low rate of growth in Revenue and Other
Income of 1.2% on average per year. Its highest figure was reached in 2013 when it was
$15,902m. However in 2014 Annual Report it declined to $15,352m (-3.2% YoY 2013-2014).
Revenue and Other Income are highly affected for a decline in Other (-10.2% YoY average
2009-2014) and a low rate of growth in Net passenger revenue (2.9% YoY average 20092014). Other account includes Frequently Flyer marketing revenue (-38%) and Contract work
revenue (-48%).
Qantas Expenditure has an average rate of growth of 6.3%. Fuel Expense, as one of the most
important expenditures in airline companies, has grown for most of the years (4.8% YoY
average 2009-2014). In 2014 this company did an impairment review that had a high impact
in the Income Statement, this program cost the company $2,849m in expense.
8
The growth of Revenue and Other Income between 2009 and 2014 was 5.5%. Yet,
Expenditure has grown 33.3% in the same period. As a result the Statutory profit shows a
declining trend. In 2014 Qantas attained the highest losses among the years analysed in this
report.
2.1.2
OF
10
Qantas assets have declined from $20,049m in 2009 to $17,318m in 2014 (-13.6%). This
event occurred due to the decrease in Property, Plant and Equipment (PPE) (-13.6%) and
Cash and cash equivalent (-17%). Major decrease in PPE account occurred in 2014 due to the
impairment review.
Liabilities have increased 1.2% from $14,284m in 2009 to $14,452m in 2014. An increase of
11.8% during 2014 in Revenue received in advance had a high impact in Qantas liabilities.
From 2009 to 2013, Qantas equity had no relatively large changes with an average of
$5,841m. However, in 2014, this company had recorded a high statutory loss that resulted a
50.9% decline in companys equity.
Vertical Analysis
2.1.3
Income Statement
Net passenger revenue has always been the major source of income for Qantas while Fuel
expense has been one of the largest components among expenditures. In 2014 Fuel consisted
29.1% of Revenue.
11
OF
PPE has been the largest assets in Qantas Statement of Financial Position as they ranged
between 60.6% and 69% of the total assets. In addition, the company always tends to have a
12
significant proportion of assets in Cash and cash equivalents, this account ranged on average
16.9% in the past 6 years.
Qantas has used Bank Loans as its long term financing source. Interest-bearing liabilities
account is on average 36.2% of the Total Liabilities. Revenue received in advance is an
important source of short financing for this company.
Income Statement
The financial statements of Virgin Australia showed that there has been an increase in
Revenue and Income over the years. In 2014 the Revenue hits $4,307m, which is 63% higher
than it was in 2009. The average rate of growth for the timeframe is 10.5%.
13
Virgins Expenditure has also increased for the past 6 years. Fuel Expense increased
moderately as the crude oil price rose over the years (10.1% YoY average 2009-2014).
Given that Virgin is a large sized public corporation, it has rather volatile statutory profits (or
losses) during the last 6 years and there is no clear trend. However, in 2014 Virgin reached
the highest level of losses ($356m).
14
3.1.2
OF
15
Virgins Total Assets have increased from $3,367m in 2009 to $4,679m in 2014 (39%). This
remarkable increase is mainly due to the growth in Cash and cash equivalents (15.6%
average increase YoY), as well as the growth in Trade and other receivables (20.6% average
increase YoY).
Total Liabilities have increased 30.2% in the last 6 years, despite that the non-current
liabilities have remained stable (average rate of growth 1.2%). On the other hand, the current
liabilities increased from $1,159m in 2009 to $1,921m in 2014. This large increase is due to
the fact that Virgin refinanced a collateralised pool of aircrafts and entered into new bank
loans in the recent years.
Income Statement
Virgins relative Income statement compositions have not changed much in the past 6 years.
As expected, Fuel and Labour expenses have the highest proportion in Virgins Expenditure.
On average, 27.5% of the revenue is spent in Fuel expense and 22.8% is spent in Labour and
staff expense.
16
3.2.2
OF
17
PPE as the most important assets in Virgin Statement of Financial Position, decreased from
78.6% in 2009 to 57.8% in 2014. Yet, Virgin increased the proportion of assets in Cash and
cash equivalents in 2014, this account had an average of 17.2% in the past 6 years.
Virgin uses Bank Loans as its long term financing source. Interest-bearing liabilities account
is on average 36.2% of the Total Liabilities. Revenue received in advance is an important
source of short financing for this company.
18
Income Statement
Being in the aviation industry, Qantas and Virgin have both suffered the same problems such
as rising Fuel price, in the past years. Both companies have positive rates of growth in the
timeframe of 2009-2014. However Virgin has a higher average than Qantas (10.5% and 1.2%
respectively). Total Expense for both companies increased, nevertheless, Virgin has a higher
average in Total Expenditure as well as in Fuel Expense and Labour Expense. This could be
explained by Virgins increasing Revenue.
19
4.1.2
In 2014, both companies performed an impairment review and it had a considerate impact in
PPE, with Qantas account decreased by 24.1% while Virgins declined by 11.8%. From the
numbers above it shows that Qantas and Virgin both use Revenue received in advance as a
short-term financing source. The comparison of the Statement of Financial Position reflects
that both companies experienced similar challenges in the past years.
20
Income Statement
Qantas and Virgin Australia have different market share proportions and the Vertical Analysis
comparison shows how close their performances are. On average, 50.3% of the Income was
expended in Fuel and Labour salaries (the difference between companies is non-existent).
Both companies have an increasing trend in the ratio of Operating Expenses/Revenue, this is
due to the increasing competition in the Australian Market.
21
4.2.2
The proportions in the Statement of Financial Position are pretty similar for both companies,
on average PPE is close to 65% of the Assets while Liabilities represent 75% of the creditside.
22
5 Key Ratios
Scarcity of resources is the primary drive for investors to determine the best alternative in
investing and various analysis can be performed by calculating the ratios, to measure the
return and risk of an investment.
Companies with good market position will have high Net Profit Margin and these companies
usually have a good cost control and small number of debt.
TABLE 6.1.1-13 NET P ROFIT MARGIN COMPARISON
The figures above demonstrate that the performance of Qantas has declined from year to year.
Based on CSI Market (www.csimarket.com) the average Net Profit Margin of 25 airline
companies in 2014 is 2.82%, which is above Qantas. Such a relatively low figure suggests
that the airline has high operating costs and the company operates in a highly competitive
market.
More specifically, the high operating costs were also due to the high debt to equity ratio,
leading to high spending on loans. Furthermore, the company's ability to control spending on
fuel is very limited. On top of that, operating in a competitive market makes it very difficult
for Qantas to raise flight fares.
In 2012, Qantas had a negative Net Profit Margin because of the restructuring of the
organization. It was problematic to work with the industrial union action, which forced the
company to stop operating its fleet. In 2014 the company had its assets restructured, which
led to assets impairment and added significant costs in its 2014 financial statements.
Overall, the performance of Qantas is better than Virgin Australian. The reason may be that
its brand name is stronger than Virgins, leading to a greater market share, and that Qantas
can manage its operating costs better than the competitor.
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24
5.1.2
Return on Equity
Return on equity (ROE) shows the rate return on the capital invested by shareholders.
TABLE 6.1.2-14 RETURN
ON
EQUITY COMPARISON
Based on data taken from Capital IQ & Bloomberg summarized by Aswath Damodaran,
published at Damodaran Online, the industry average ROE currently is 3%. For Qantas the
ratio is far below the average and it means that investors would lose 61 cents for every dollar
invested.
As mentioned earlier, the restructuring of its assets resulted in large costs. However, these
costs can be a sign that the company is changing for the better. Despite that, the figures
suggest that both Qantas & Virgins ROE performance are getting worse and it could be a
sign that the business is not profitable.
5.1.3
EBITDAR Margin
EBITDAR measures how much actual return earned by the company from sales before the
deduction of interest, tax, depreciation, amortization and airplane lease expense. This ratio
will measure the performances of the companies regardless of differences in interest
expenses, tax burden and lease expenses.
TABLE 6.1.3-15 EBITDAR M ARGIN COMPARISON
As above stated, both companies showed a decreasing trend. It could suggest that the airline
industry is an unfavourable industry. However Qantas shows a more stable EBITDAR than
the competitor. That is an indicator that their management has a better understanding in daily
operation and maintaining their operational expenses.
25
COMPARISON
Since 2010, Qantas has had better ability to fulfil all the current liabilities. In 2014 the current
ratio for Qantas is 66%, which means their current assets only cover 66% their current
liabilities. For most companies this ratio target is 120%-170% but in air transportation
industry the average current ratio is about 70% (www.csimarket.com). Qantas and Virgin
both outperform the industry average from 2012.
Current liabilities generally arise from procurement of current assets such as inventories
which if sold would result in current assets such as accounts receivable or cash. Therefore,
current assets would at least be able to meet current liabilities (100% ratio). In an air
transportation service company like Qantas, current liabilities are also included as part of
long-term liabilities in the form of rent payable maturities of less than one year, which is
quite large and does not directly contribute to improving the current assets of the company.
Overall, companies need at least above the average ratio to be consider as a less risk company
for investing.
5.2.2
Quick Ratio
The quick ratio measures the company ability to cover all the current liabilities by its current
assets minus inventory. Transportation companies do not necessarily pile up their inventory
since they get the revenue from providing services to customers.
For the cash ratio, a high value indicates that too much capital is being tied up in the business,
whilst the acid test or quick ratio indicates the companys ability to repay immediate
commitments using cash or near-cash. It excludes inventory in order to show the immediate
solvency of the company.
TABLE 6.2.2-17 QUICK RATIO COMPARISON
26
The average quick ratio for the transportation industry is around 40%, which is lower than
both Qantas and Virgin. Qantas and Virgin both have a good ratio but Virgins is better. Both
companies current assets are mostly cash equivalents and accounts receivable that can be
used instantly to fulfil their current liabilities.
5.2.3
As a firm's debt-to-equity ratio increases, it becomes more risky. This is because if the
company is less likely to meet its debt obligations, it will lead to higher chances of
bankruptcy.
TABLE 6.2.3-18 DEBT
TO
Airline companies are technological and capital intensive companies with high DER. The
ratio of Qantas is larger, which indicates higher risk for the company, compared to Virgin
Australia. Qantas has a total debt of 5 times larger than its shareholders equity, and for
Virgin, 3.5 times.
There are two benchmarks that can be used for comparison. Based on the calculations of
Aswath Damodaran, the average ratio of 142 firms in this industry is 303%. Another
reference that can be used is based on CSI Market, which is 142%. Both companies have
higher risk than the industry average.
27
28
29
8 References
30
A Appendix
A.1 Details of Qantas Groups Acquisitions and Milestones
June 1992
March 1993
June 1995
July 1995
1998
October 2001
November 2001
February 2002
September 2002
October 2002
December 2003
May 2004
September 2004
British Airways sold its stake (18.25 per cent at the time) in Qantas
December 2004
July 2006
November 2006
September 2007
May 2008
July 2008
Qantas Holidays and Jetset Travelworld merged and formed the Jetset
Travelworld Group with Qantas Group as a 58 per cent shareholder. The
Jetset Travelworld Group is listed on the ASX
February 2009
April 2009
New ownership structure for Jetstar Asia and Valuair announced 49 per
cent holding for Qantas Group (Newstar Investment)
June 2009
September 2010
October 2010
February 2011
Qantas Group acquired 100 per cent of the Network Aviation Group
August 2011
April 2012
July 2012
November 2012
Qantas Group acquired 100 per cent of Australian air Express and sold
its 50 per cent stake in Star Track Express
December 2012
March 2013
August 2013
Qantas Group announced the sale of its wholly owned subsidiary Qantas
Defence Services (QDS) to Northrop Grumman Australia
32
33
34
35
36
Net Profit
Total Revenue
Profit
Average Equity
37
EBITDAR Margin=
EBITDAR
Revenue
38
Current Assets
Current Liabilities
Current AssetsInventory
Current Liabilities
Total Liabilities
Total Equity
39