Capital Market Research: Qantas Airways Share Price and Market Effects

This report provides a capital market research analysis of Qantas Airways, focusing on the impact of the airline being named the safest to fly with in 2019. The study examines how this announcement influenced the company's share price, which reached a monthly high with significant trading volume. It differentiates the effects of this news from the January effect. The report includes an overview of market forces, the impact of information on share prices, and specific events affecting Qantas, such as increased flight capacity and its stance against Perth Airport's charges. To further analyze the share price boom, the report recommends company fundamental and valuation analyses, including intrinsic and relative value assessments, risk evaluations, and core earnings analysis. The conclusion emphasizes the need for additional research to confirm the announcement's causal effect and offers recommendations for a more comprehensive analysis of Qantas Airways' financial standing.

Running head: CONTEMPORARY ACCOUNTING: CAPITAL MARKETS RESEARCH
Capital Markets Research - Qantas Airways
Name of the Student:
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Executive Summary
The objective of this report is to conduct a capital market research on Qantas Airways. The
study revolves around the announcement of the company as the safest airline to fly with in
2019. Taking into consideration that changes in share prices are influenced by release of non
speculated information, the paper showcases the changes in share price which ultimately
reaches a monthly high with a high volume of sales. Through the study, further measures and
analysis to be carried out in order to firmly differentiate the cause of the price boom from the
January effect has been enumerated. The two types of analysis that is discussed in the study
are Company Fundamental Analysis and Company Valuation analysis.

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Table of Contents
Introduction................................................................................................................................3
Study Summary......................................................................................................................3
Information leads to change in share price............................................................................4
Scenario in Qantas..................................................................................................................4
Effect on the market...............................................................................................................5
Recommendation....................................................................................................................6
Conclusion..................................................................................................................................7
REFERENCES...........................................................................................................................8

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Introduction
A financial market in which shares and equity are bought and sold on a long term
basis is known as a capital market (Piketty 2015). It is a system which consists of individuals
looking to make productive investments on shares and bonds of various public and private
companies (Kuehn and Schmid 2014). The investments thus made in bonds and shares are
utilized by the companies who make productive use of the capital that is accrued by making
long term investments. Companies generally issue both shares and bonds, whereas public
companies issue only bonds. The bonds and shares are bought by the public who can acquire
a company’s shares at fractional prices of the total value. The shares which the individuals
acquire fairly cheaply can be sold at will in exchange for the current market price of the
share. A change in share prices is generally triggered by information (Chang 2015). Negative
information leads to fall in share price whereas any positive information or good news leads
to a share price hike. This aim of the report is to prepare a capital market report of Qantas
airways following a major announcement.
Study Summary
On 5th January 2018, Qantas airways were named the safest airline to fly with n the
upcoming year of 2019 by airlineratings.com, which is a website based solely on airline
related safety and component review (independent.co.uk 2019). Qantas airways are an
Australian company founded back in 16th November, 1920 (www.qantas.com 2019). Even
though the company is almost hundred years old, the quality of their service ensured that they
were on the top spot of the list of safest airlines in the world. Factors that came into play
while naming them the safest where criteria such as records related to crashes, average age
for which each flight vessel are used and audit reports of various industrious and governing

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bodies. The company topped among a pool of names which included the likes of Fly
Emirates, Qatar Airways and the British Airways.
Information leads to change in share price
The general market forces affect the how the demand and supply for a particular share
will be (Keynes 2018). If demand for a particular stock increases that is if more people are
willing to purchase any particular share, its price is subject to increase as a result. On the
contrary, if people are unwilling to buy a company’s shares and the rest who possess the
company’s share sell it, the result is decrease of market demand for the share and thus share
price falls (Rognlie 2016). This willingness and unwillingness of people to buy and sell such
shares are influenced by information. Such information can be any form of news article, any
major announcement such as resignation of the CEO, mergers, acquisitions, product or
service price reduction, rumuours and that is the idea. Any good news such as new product or
service launch, enhanced corporate governance, favourable report of earnings, acquisitions
and good political as well as economic factors lead to increase in demand which in turn leads
to a higher stock price. Any negative publicity of the company, selling the company to
another company, resignation of company big shots and outbreak on the news leads to
reduced demand and a fall in price. It is known that share prices in markets are subject to
speculation. Since there exists a future share price expectation, the impact of the information
or news depends on how exclusive and unanticipated the information is (Walentin 2014).
Scenario in Qantas
The year ending of 2018 has been fairly favourable for the airline company. The
month of December saw Qantas add more seats to their flights which would boost the number
of passengers. This announcement stated that there would be n increase of each flight
capacity by two thousand and six hundred (qantas.com 2019). Another major announcement

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involved the company announcing that unlike the other airline companies; they would not
support the Perth Airport who are willing to charge more from the airline companies. The
airports can charge extra provided that there is some evidence to show considerable
development in any venture. This was not the case for the Perth airport as they were not
introducing anything new; neither were there any infrastructural development. Qantas
Airways rightfully declared that they would not support the Airport’s motive since it realized
that additional expenses would lead to increased prices of the tickets which would further
hamper the tourist inflow to Western Australia. Qantas airways thus paid homage to the
Australian tourism industry with such a noble act. The aviation giants also initiate the first
flight to Hong Kong, China. The above information helped the company to end the year on a
high with earning per share increasing by 21% as compared to last year(investor.qantas.com
2019). The increase resulted in the final valuation of the shares rising by 56 cents each.
Effect on the market
After the announcement that named Qantas Airways as the safest airlines that one can
travel with, the share prices of the company were soon seen to be increasing. As discussed
earlier, this was the effect of information on people’s psychology that leads to them opting
for the company’s share after speculating a change in price.
Date Opening
Price in $
Closing Price
in $
Highest value
in $
Lowest Value
in $
No. of Shares
(volume)
8th Jan ‘19 5.82 5.90 5.91 5.78 4,807,112
7th Jan ‘19 5.67 5.79 5.83 5.66 2,960,672
4th Jan’19 5.65 5.69 5.72 5.54 4,405,253
3rd Jan ‘19 5.75 5.74 5.84 5.70 3,122,836

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Figure: Share price history ( nsx.com.au 2019)
(Table as created by the author)
The announcement was made on 5th January and was a Saturday. Since stock markets
do not operate on Saturdays and Sundays, changes in the share price were reflected in the
table on 7th January. The days prior to the announcement are characterized by stable closing
values with negligible or marginal price differential. On Friday January 4th, the price closed at
$5.69 and started at $5.67 on the following Monday. From that point, it was a firm way
downhill where the share prices saw a considerable hike. The company closed at a high of
$5.90 with sales volume reaching almost 5 million.
One might argue that this impressive performance has been showcased because it is
January which led to the “January Effect” (Patel 2016). The January effect is said to be a
periodic boom in stock sales. The possible explanation of the January effect is that the share
holders cash in the additional year-end bonuses that they receive at the end of the calendar
year. According to analysts, the surplus that is thus formed as a result of the bonuses is used
by the shareholders to buy additional shares. To analyze the strength of the current earnings a
detailed company valuation analysis will help. It should involve multiple criteria for valuing
the company and should include intrinsic value analysis, relative value analysis and risk
assessment followed by establishing intrinsic value through risk assessment ranking.
Furthermore, using supervisory analyst review to up close interview with a management
official can help in arriving at a stand point to decide and recognize the outcomes of the
announcement and it’s affects on the share price and equity market as a whole. Core earnings
and corporate governance will help in deriving the final earnings model.

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Recommendation
A monthly high of $5.90 with volume amounting to 4,807,112 makes the current
equity value $28,361,960.80. Further research has to be undertaken to prove that the price
hike has been the causal effect of the announcement. Company fundamental analysis is to be
undertaken with an aim to cover important aspects such as macro environment screening,
reviewing public information such as annual reports although it is far from the date of
publishing. Other than the Earnings per Share that has been already considered, screening the
company’s balance sheet, earnings forecast and cash flow statement would also be necessary.
The above, together with general scenario assessment will help in arriving at a decision.
General assessment involves the nature of studying the management, studying and analyzing
the competition, contemporaries or threats that is the competitive environment in general.
Further study on the consumer behavior which includes studying the behavior of the supplier,
the buyers, availability of substitutes and barriers to entry will enhance understanding of the
prevalent situation in the market. If all the above mentioned components are catered to in a
correct manner, it will result in ease of formation of the final earnings model.
Conclusion
Thus it can be concluded that Qantas airways ended the year on a high after the
statements to disagree with the Perth airport’s decision to levy more charges from aviation
operators that is from the companies, that would increase the prices, and by introducing extra
provision to carry increased number of passengers. These events helped the company to end
on a high last year and the advent of the first week of the New Year saw Qantas being named
the safest airline to fly with and thus resulted in a price hike in per share value with sales
volume also reaching a high. Further study such as company fundamental analysis and

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company valuation analysis would help to arrive in to a conclusion which would help to
differentiate the effect of the announcement from the January effect.

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REFERENCES
Chang, T., Chen, W.Y., Gupta, R. and Nguyen, D.K., 2015. Are stock prices related to the
political uncertainty index in OECD countries? Evidence from the bootstrap panel causality
test. Economic Systems, 39(2), pp.288-300.
independent.co.uk (2019). These are the safest airlines for 2019. [online] The Independent.
Available at: https://www.independent.co.uk/travel/news-and-advice/safest-airlines-2019-
qantas-flights-airlineratings-flybe-air-new-zealand-a8711101.html [Accessed 8 Jan. 2019].
investor.qantas.com (2019). Qantas Investors | Investor Centre. [online] Investor.qantas.com.
Available at: https://investor.qantas.com/investors/?page=data-book [Accessed 8 Jan. 2019].
Keynes, J.M., 2018. The general theory of employment, interest, and money. Springer
KUEHN, L.A. and Schmid, L., 2014. Investment‐Based Corporate Bond Pricing. The Journal
of Finance, 69(6), pp.2741-2776
nsx.com.au (2019). Share Prices. [online] National Stock Exchange of Australia. Available
at: https://www.nsx.com.au/marketdata/prices/ [Accessed 8 Jan. 2019].
Patel, J.B., 2016. The January effect anomaly reexamined in stock returns. Journal of Applied
Business Research, 32(1), p.317
Piketty, T., 2015. About capital in the twenty-first century. American Economic
Review, 105(5), pp.48-53.
qantas.com (2019). Annual Report 2018. [ebook] Qantas. Available at:
https://investor.qantas.com/FormBuilder/_Resource/_module/doLLG5ufYkCyEPjF1tpgyw/
file/annual-reports/2018-Annual-Report-ASX.pdf [Accessed 8 Jan. 2019].

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Rognlie, M., 2016. Deciphering the fall and rise in the net capital share: accumulation or
scarcity?. Brookings papers on economic activity, 2015(1), pp.1-69.
Walentin, K., 2014. Expectation driven business cycles with limited enforcement. Economics
Letters, 124(2), pp.300-303
www.qantas.com (2019). Our Company | Qantas. [online] Qantas.com. Available at:
https://www.qantas.com/travel/airlines/company/global/en [Accessed 8 Jan. 2019].