Qantas Airways Limited: A Comprehensive Financial Analysis Report

This report provides a comprehensive financial analysis of Qantas Airways Limited. It begins with an abstract highlighting the company's consistent performance and resilience in the competitive and volatile airline industry, followed by an introduction outlining Qantas's history and operational capabilities. The report then delves into a capital market analysis, presenting share price and volume data with reasons for stock performance, including the impact of premium and budget brands, cost management, and loyalty programs. A Porter's Five Forces analysis evaluates the competitive landscape, considering new entrants, supplier power, buyer power, substitute threats, and existing rivalry. The report also includes analyst views, a comparison of Qantas within the airline industry, and an examination of liquidity and debt-to-equity ratios. Finally, the report concludes with investment recommendations, suggesting a buying strategy based on market corrections and analyst ratings, with references to relevant financial data sources.

A Company Analysis
Qantas Airways Limited

Abstract
Qantas Airways Limited as a company has shown excellent set of numbers in last five years
for it investor and other stakeholders, though, there were some hiccup in between these
periods, but, Qantas has shown resilience and come out of these difficult time and remained
consistent performer all through these years.
Airline industry as a whole is very competeitive industry and operates in very uncertain
environment due to its dependence on crude oil, which mostly located in Middle East region
which remain always on boil. So, in this sense Qantas has done good job by keeping its profit
and operational efficiency intact even in adverse condition.

Introduction
Qantas Airline Limited of Australia is the world’s third oldest airline after KLM of the Netherlands
and Avianca Airline of Colombia. It was founded in the year 1920 and is based in Sydney, Australia.
Qantas has a largest fleet size in Australia and has shown excellent operation capability in last five
years or so.
Capital Market Analysis
Qanats capital market performance remain good in recent years, it share price movement remained
very stable even during downturn of economy. Following two diagrams clearly depicted Qantas
share performance in terms of price and volume wise.
Sep/18
Oct/18
Nov/18
Dec/18
Jan/19
Feb/19
Mar/19
Apr/19
May/19
Jun/19
Jul/19
Aug/19
5
5.2
5.4
5.6
5.8
6
6.2
Qantas Share Price Movement
Share Price
Month & Year
Share Price
Data Source: https://au.investing.com/equities/qantas-airways-limited-historical-dat
Aug-
19 Jul-19 Jnu-
19 May-
19 Apr-
19 Mar-
19 Feb-
19 Jan-
19 Dec-
18 Nov-
18 Oct-
18 Sep-
18
0
40
80
120
160
Qantas Volume month wise
Volume
Month & Year
Share volume (million $)
Data Source: https://au.investing.com/equities/qantas-airways-limited-historical-data

Qantas Share Price with Volume and % change
Date Closing Price Volume
(in million $)
Change %
Aug-19 6.11 - 7.01%
Jul-19 5.71 97.50M 5.74%
Jun-19 5.4 123.20M -2.70%
May-19 5.55 150.70M -1.07%
Apr-19 5.61 105.23M -0.88%
Mar-19 5.66 150.62M -1.22%
Feb-19 5.73 151.14M 5.33%
Jan-19 5.44 127.91M -6.04%
Dec-18 5.79 141.09M -2.85%
Nov-18 5.96 125.15M 8.96%
Oct-18 5.47 152.89M -7.29%
Sep-18 5.9 113.21M -8.24%
Aug-18 6.43 110.62M -4.32%
Source: https://au.investing.com/equities/qantas-airways-
limited-historical-data
Qantas Airways Stock market performance -Reasons
In last 5 years its price has risen to 370% which is unprecedented growth for such a long period of
time. Reason behind this astronomical return can be traced in following points:
 Qantas focus always remained on premium as well as budget customer.
 The use of the Qantas and Jetstar brands, Qantas has been able to apply outsized pressure
on the profitability to it main rival Virgin Australia.
 Qantas able to pass price fluctuation in oil cost to customers, which helped it to stay
financially healthy (Ronngard, 2017).
 Qantas give bonus to frequent flyers; it as 10 million members and give 25% profit to Qantas
(Prout, 2019).
 Qantas stock presently trades on a P/E ratio of about 10x earnings. It is identical to majority
of its competitors. Qantas trades on considerable discount to the Australian Stock Exchange
200 average.
Above all factors have influenced the stock price of company in recent year and it has shown
excellent growth in last 5 years or so.

Porter’s Five Forces Analysis
As per the Porter’s Five Forces analysis, which derived it name from its propounder Michael Porter a
famous researcher, it analysed companies performance keeping in mind five factor, these are the
followings:
The threat of new entrants
Any new entrants in market create new challenges for existing company, though Airline industry is
very capital intensive, but still even a few players entry create pressure on the financial of the
existing company in the market, in that perspective this challenges is always there. But being an
established player it also give advantage to Qantas. But, new entrant could create pressure by
providing value added service to customers. (O’Connell, 2016, p. 58)
The Bargaining Power of suppliers
Any company need to keep supplier in check by diversifying its supplier profile, instead of focusing
on any one supplier, there should be multiple suppliers for company’s need must be kept, so that
suppliers of company should not exert undue pressure on company.
The bargaining power of buyers
Buyers intention always is to get best product at minimum price or at less price, whoever, provide
customer best services or products at best price, customers generally moves toward that company.
These kind of consumers behaviours put pressure on company to offer competitive price in the
market ti its customer and also give loyalty bonus to its regular customer. In this way customer
bargaining power could be restricted (Lucarelli, 2014, p. 10).
The threat from substitute products or services
Any product or services sector threat from substitute products always remain there and same is the
case in this industry also exist. Competitors in any industry put lot of pressure on all stakeholder. So
this threat perception also poses risk for Qantas as well.
Rivalry among the existing player
Rivalry among existing competitor in Airline industry as in other industry, effect profit margin of
company and it needed to be dealt with proper strategy and skills. Airline industry is already very
competitive sector and operates in very stiff completion.
Finally, in conclusion, it can be said that Porter’s Five Forces application help industry to overcome
its shortcoming and remain competitive in industry for longer period of time.
Analyst Views on Qantas Share
As per the Investing.com, a prominent financial market advisor portal, majority of analyst has given
strong buy rating to the share price of Qantas Airways Limited. They view this company as excellent
investing opportunity with a long time horizon. Though, there are some recommendations of either
neutral rating or selling advice on the Qantas share, but majority of the recommendation are in
favour of buying this share of Qantas.

Airline Industry and Qantas – A comparison
Liquidity Ratio and Debt to equity ratios
As per the most recent quarter, Qantas liquidity ratio is remained healthy; also debt to equity ratio is
not in very uncomfortable position for industry like aviation, which operates in this kind of Debt to
equity ratio. Qantas Quick ratio is also lower that industry quick ratio and current ratio is also lower
than industry ration, two other parameters, that is Debt to equity ratio and total debt to equity ratio
in all four parameter Qanats Airways is far better placed than Airline industry as whole. It shows
sound liquidity position of Qantas, if compare it with industry as a whole. It can be seen in this
following given table.
Liquidity Ratio and Debt to equity Ratio
Ratios Company Industry
Quick Ratio 0.45 0.54
Current Ratio 0.49 0.59
LT Debt to
Equity 133.67% 153.89%
Total Debt to
Equity 152.17% 183.76%
Data Source: https://au.investing.com/equities/qantas-airways-limited-
ratios
Conclusion and Recommendation
Taking above all the analysis into consideration Qantas share can still be bought but when there is
some major correction happen in the stock price or it can be bought in a systematic manner in
tranches. Whenever there is fall in price try to invest at least 25% of investing amount. And buy it in
four or five instalment whenever there is correction of 5% or more. As per the analyst view and also
based on this report Qanats looks like good for investment with slightly medium to long term period.

References:
Lucarelli, G., (2014). The corporate strategy of Qantas Airways. A case study, La Trobe University Melbourne,
Australia.
O’Connell, J.F., (2016). Corporate rivalry and competition issues in the airline industry. Corporate Rivalry and
Market Power: competition issues in the tourism industry, pp.54-75.
Prout, L. (2019). The Qantas share price has flown 370% higher in the last 5 years | Motley Fool Australia.
Retrieved 11 September 2019, from https://www.fool.com.au/2019/03/25/the-qantas-share-
price-has-flown-370-
Qantas Airways Ltd (QAN) Historical Prices - Investing.com AU. (2019). Retrieved 11 September 2019, from
https://au.investing.com/equities/qantas-airways-limited-historical-data
Qantas Investors | Investor Centre. (2019). Retrieved 11 September 2019, from
https://investor.qantas.com/investors/?page=annual-reports
Qantas Airline Limited. (2019). Annual Report (pp. 2-3). Sydney: Qantas Airline Limited. Retrieved from
https://investor.qantas.com/investors/?page=annual-reports
Ronngard, H. (2017). How Did Qantas Share Price Soar More than 80%? - Money Morning. Retrieved 11
September 2019, from https://www.moneymorning.com.au/20171006/qantas-share-price-
soar-80-year.htmlhigher-in-the-last-5-years/