Principles of Finance: Qantas Airways Investment Analysis Report

This report provides a detailed financial analysis of Qantas Airways (QAN) Limited, assessing its attractiveness as an investment. It begins with an introduction to key finance principles such as risk and return, time value of money, and cash flows. The main body examines the Australian transportation industry, highlighting the impact of technology, market outlook, and the industry's growth potential. The report emphasizes Qantas' position as a leading airline, its adaptability, and its contribution to the Australian economy. The analysis covers the company's market outlook, strategic enhancements, and its focus on the Asia-Pacific region as a key growth driver. The report uses data and insights from various sources to support its findings and recommendations. The report aims to help investment bankers and business entities to make informed decisions regarding investment and financing by critically evaluating the key factors that affect Qantas' attractiveness for investment.

PRINCIPLES OF
FINANCE

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
A) Industry and Market Outlook..................................................................................................1
REFERENCES................................................................................................................................4

INTRODUCTION
Principles of Finance mainly relate to Risk and Return, Time Value of Money, Cash
Flows, Profitability & Liquidity, Diversity and Hedging (Gitman, Juchau and Flanagan, 2015).
These principles act as a guiding light for both investment bankers and business entities by
helping them in taking more informed decisions in regards to investment and financing. The
main purpose of this analysis is to find out whether or not the S&P/ASX20 Listed
Transportation Company Qantas Airways (QAN) Limited is worth acquiring or not. Analysing
as well as critically evaluating the key factors that affect Qantas' attractiveness for investment,
important recommendations are made thereof.
MAIN BODY
A) Industry and Market Outlook
The Transportation Industry of Australia is highly affected by technology and
innovation, automation, Supply Chain and Omni-Channel Logistics (Transportation Industry of
Australia, 2018). Additionally, the market outlook of airline sector is highly feasible as it ranks
first out of 25 Asia-Pacific Countries included in the survey conducted by the World Economic
Forum. These include Ease of Travel, Cost competitiveness and infrastructure Quality.
1

Illustration 1: Bifurcation of Mode of Transport by Employability (Employment and
Transportation, 2019)
One can observe from the above graph that the highest level of employment generated by
Transportation Industry of Australia relates to Road with an almost equal contribution by
Warehousing & Storage Services, Rail as well as Air & Space. The Aviation transport industry
of Australia is mainly engaged in the operation of aircraft including freight and passenger travel.
Mainly the Transportation industry can be segregated into International and Domestic. There was
a decline in capacity growth recorded in 2018 which reduced to a 1.8% year-on-year growth for
two main Airlines viz. Qantas and Virgin Australia. The industry views Asia-Pacific region's
capacity to grow twice to approximately AUD$8.2 billion by 2037 (Industry's Market Outlook,
2019).
Among the Australian Airlines, Qantas ranks at the top which includes Qantas, Jetstar
and Qantas-Freight contributing 0.7% of the overall GDP of Australia (Economic Contribution
of Qantas in terms of employment, 2017). One of the main factor that makes it an attractive
investment is its ability to integrate complimentary firms by way of mergers and acquisitions.
This means that the internal business environment of Qantas is highly adaptable and agile
towards accepting changes brought in by such Business Combinations. It also provides direct as
2

well as indirect full-time employment, thus, possessing a highly skilled workforce developed
through rigorous training and learning programs.
Illustration 2: Qantas' Economic Contribution, 2016.
Qantas' Market Outlook in present day scenario is an optimistic one which is mainly
related to the long-term sustainability and strategic enhancement of their business models as well
as objectives. Thus, in order to achieve such goals, the airline leader has a much more open-
market approach implemented in comparison to its industrial competitors (Qantas' Market
Outlook, 2019). The company view Asia-Pacific Region as its key growth driver for current as
well as future financial years. This has resulted an increase in capacity for the passengers
travelling to and fro from Asia to Australia and vice-versa. In addition to this, the airline leader
opines that Singapore is its biggest international hub (International Hubs, 2019).
3

REFERENCES
Books and Journal
Gitman, L. J., Juchau, R. and Flanagan, J., 2015. Principles of managerial finance. Pearson
Higher Education AU.
Online
Employment and Transportation. 2019. [Online]. Available Through:
<https://nationalindustryinsights.aisc.net.au/industries/transport>
Transportation Industry of Australia. 2018. [Online]. Available Through:
<http://www.australianindustrystandards.org.au/wp-content/uploads/2018/02/TLI-Key-
Findings-Paper2018V5Web>
Industy's Market Outlook. 2019. [Online]. Available Through:
<https://www.cnbc.com/2018/11/12/qantas-ceo-alan-joyce-asia-pacific-is-a-growth-
opportunity.html>
Qantas' Market Outlook. 2019. [Online]. Available Through:
<https://www.cnbc.com/2018/11/12/qantas-ceo-alan-joyce-asia-pacific-is-a-growth-
opportunity.html><https://centreforaviation.com/analysis/airline-leader/australasian-
aviation-outlook-australasias-airlines-concentrate-on-financial-viability-457936>
Economic Contribution of Qantas in terms of employment. 2017. [Online]. Available Through:
<https://www2.deloitte.com/au/en/pages/economics/articles/economic-contribution-
qantas-group-australia.html>
Qantas' Economic Contribution. 2016. [Online]. Available Through:
<https://www.qantas.com.au/infodetail/about/company/DAE-final-report.pdf>
International Hubs. 2019. [Online]. Available Through:
<https://centreforaviation.com/analysis/airline-leader/south-pacifica-aviation-outlook-
2018-411231>
4