Qantas Case Study Analysis
Added on 2020-03-13
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Running Head: ANCILLARY REVENUES IN QANTAS AIRLINES 1Ancillary Revenues in Qantas Airlines
Ancillary Revenues in Qantas Airlines 2IntroductionIn the last few years, the civil aviation industry has grown dramatically. The technological developments along with the growing income of the middle-class and reduced energy and fuel costs have drastically increased the demand of the services. Despite of the increased demand, theprofitability in the airline industry is comparatively low. The primary reason for this is that the competition in the airline industry has increased drastically and the companies are forced to lower their prices even when the cost to the organization is constantly rising. The prices offered to the customers’ plays a critical role in the development of the customer base and it is a crucial factor in developing a competitive advantage over the competitors. The air transportation industry is a dynamic industry with several different factors influencing the total cost to the company. Therefore, it is important to gain significant knowledge of different factors which might impact on the cost to the organization. In this regard, the present report will discuss the revenue source and cost structure of Qantas Airways. Qantas is one of the largest and oldest airlines by the fleet size. It provides flights and services to a large number of international destinations. Currently, the company has more than half of the market share in Australian market and is the most preferred brand for international services. The headquarters of the company are located in Sydney and has a large number of subsidiaries which provide passenger services to different locations like Asia, Europe and other parts of the world. Its subsidiary Jetstar Airways currently operated as the low-cost carrier of the company. Qantas offers various in-flight services to its customers. Some of the common services provided to its customers are audio-video entertainment, streaming entertainment to the iPads of the customers, providing a selection of movies, TV, music and e-mail and web browsing services to the customers. The services of the organization are divided into first class, business class and economy class. In first class, the services provided to the customers are exclusive and in proportion to the cost charged to the customers (Qantas. 2017). Similarly, the services offered to the customers declines with the cost to the company. The report will also discuss the importance of the ancillary (non-flying) servicesto the organization in increasing the revenue of the organization. Revenue Source and Cost Structure of QantasQantas is one of the leading airlines company in the aviation industry. Over the years, thecompany has performed exceptionally well which reflects the robust strategy of Qantas Group which has increased the margin for the domestic and the international operations of the company.The return on invested capital is about 23% which shows the robust performance of the organization. The Qantas Transformational Program is an effective program which has increasedthe cost and revenue benefits to the organization since its inception in 2014. The company has adopted a robust financial framework which guides the organization in creating value for different stakeholders. The goal of the financial framework is to maintain specific target in earning and deliver specific shareholder return throughout the financial year. There are three
Ancillary Revenues in Qantas Airlines 3primary aspects of the financial framework, namely, maintaining an optimal capital structure andachieving more than 10% on return on invested capital. In addition to it, the framework is also directed to increase the disciplined investment and through it grow the invested capital. Optimal Capital Structure The organization established an optimal capital structure wherein there was no debt at theend of year. The credit metrics of the company was appreciable and better than investment metrics of the organization. The return on invested capital (ROIC) of the company is 23% which is more than the intended target of the organization of 10%. The main reason for high delivery ofROIC is efficient allocation of capital, efficient utilization of the fleet and transforming the business according to the changes in the business environment. Qantas Transformation Qantas Transformation Program is a program which is focused on changing the organization structure so that the profitability of the company can be increased. The transformation model is based on simplifying the fleet of the planes and creating a unique customer brand for the organization. The organization also focuses on a better allocation of the capital. The group should focus on using cash rather than the short-term liquidity. It also refinanced the maturing aircraft leases and the funds obtained from the operations of the organization were directed towards the repayment of debts and distributing the funds among the shareholders. Qantas Airlines is a part of the aviation industry. The cost structure of company is similar to other aviation companies wherein fuel is a major component of the cost structure of the company. The 40% of the total cost of Qantas and 60% of the total cost of Jetstar is dependent upon fuel cost. It shows that fuel is the major cost to the organization. In addition to it, the wagesof the employees is another major expenditure source to the organization. The company pays higher wages in comparison to its middle-eastern counterparts or business organizations (The Conversation, 2012; Massola, Kenny & Aston, 2014).
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