Business Valuation and Analysis: Qantas Airline Case Study

This report offers a comprehensive business valuation and analysis of Qantas Airline. It begins with an executive summary, followed by an introduction outlining Qantas's history and mission. The core of the analysis employs Porter's Five Forces and SWOT analysis to evaluate Qantas's competitive advantages and disadvantages, examining factors such as rivalry, buyer and supplier power, and the threat of substitutes and new entrants. The report then delves into Qantas's corporate strategy, highlighting key changes since 1992 across its domestic and international divisions. It also identifies critical accounting policies for auditors in the airline industry, including plant, property, and equipment valuation, leasing, and depreciation. Finally, the analysis assesses Qantas's financial performance and position, reviewing revenues, expenses, assets, liabilities, and owner's equity for 2013 and 2016, providing insights into the company's financial health and potential investment value.

Running head: BUSINESS VALUATION AND ANALYSIS- QANTAS AIRLINE CASE STUDY 1
BUSINESS VALUATION AND ANALYSIS- QANTAS AIRLINE CASE STUDY
Name
Institution

BUSINESS VALUATION AND ANALYSIS- QANTAS AIRLINE CASE STUDY 2
Executive Summary
This report explores the competitive strategy of Qantas Airline Company. The report is
based on the several case studies that show that the success of Qantas has been full of ups and
downs. The Qantas competitive evaluation is based on industry Five Forces and SWOT analysis.
The reports find that Qantas has a competitive advantage that it can use to improve its business
operations both in the domestic and international markets. Additionally, the analysis of
company’s financial performance and position suggests that it is worth for the potential investors
to purchase its shares.

BUSINESS VALUATION AND ANALYSIS- QANTAS AIRLINE CASE STUDY 3
Table of Contents
Executive Summary.........................................................................................................................2
Introduction......................................................................................................................................4
Qantas Porter’s Five Forces.............................................................................................................4
Qantas SWOT Analysis...................................................................................................................7
Qantas Corporate Strategy across Domestic and International Divisions since 1992.....................7
Three Accounting Policies that Auditors should watch for any Airline Industry...........................8
Qantas Financial Performance and Financial Position at the end of 2013......................................8
Qantas Financial Performance and Financial Position in 2016.......................................................9
References......................................................................................................................................11

BUSINESS VALUATION AND ANALYSIS- QANTAS AIRLINE CASE STUDY 4
Introduction
The Qantas Airline is an International company with a headquarter office in Australia.
The company mission statement explains its purpose of becoming the best airline in the World.
Qantas Airline was founded in Queensland in 1920 and since it has grown to be the largest
Australian local and international airline. Qantas has established its image on key principles and
values such as customer service, maintenance, engineering, operational reliability, and safety.
(CAPA Centre for Aviation, 2015) These have been the major concepts behind the business
operations and the success of Qantas.
The major company business involves the transportation of both domestic and
international customers using two complementary brands, which are Jetstar and Qantas. Besides,
Qantas operates subsidiary businesses comprising of other airlines as well as in specialists
markets such as catering. The company subsidiary business majorly involves Qantas, Flyer
Frequent Flyer and Qantas Freight Enterprise. Qantas enjoy its wider market regionally,
domestically and internationally than other airlines operating in the region (Qantas Group, 2016).
The above summarization about the Qantas business operations and brands makes it clear
that the company has had a lot of growing business opportunities through its competitive
advantage. The company products and business strategies outperform other companies in the
region. However, from the various case studies it has been evident that Qantas success has been
faced by ups and downs. However, the company has been able to recover from the downturns
through its competitive advantage. Therefore, it can be argued that it is the Qantas Airline
competitive advantage that has kept its business. It is out of this observation whereby this report
will use different evaluation techniques to undertake the Qantas Airline business valuation and
analysis.
Qantas Porter’s Five Forces
According to the Michael Porter, the competitive advantage of the business can be
analyzed based on the five forces (Dälken, 2013). Michael Porter identified these forces as the
rivalry among the existing players, buyers’ bargaining powers, suppliers’ bargaining power,
competitors’ threats and the availability of the substitutes. This report will apply these forces to
analyze the competitive advantage attributable to the Qantas Airline Group.

BUSINESS VALUATION AND ANALYSIS- QANTAS AIRLINE CASE STUDY 5
Rivalry among the Existing Players
Businesses operate in a competitive environment (Oraman, 2011). Likewise, the Qantas
Airline business environment is characterized by competition from other airlines in the region
such as Tiger and Virgin Blue Airways. Internationally, the company is facing fierce competition
from other international airlines such as British Airways (Whitley, 2017). The existing
competition exhibited by the players in this industry has facilitated into slow market growth,
diluted profits and the high cost of competition. However, bearing in mind that airline industry is
a big one, there are opportunities of Qantas Airline to expand because the existing players in the
industry can expand their business without interfering with the market share of the other.
Bargaining Power of Buyers
In the Qantas' industry the bargaining power of the buyer is very high. This is because
Qantas is operating in a competitive industry where there is stiff competition. The competitors in
this industry apply cost leadership strategy whereby they focus on charging customers the lowest
cost as possible. This competition strategy increases the buyers’ bargaining power as they can
choose which company to travel with either based on the quality or price. Therefore, customers
can switch from the Qantas’ brand to the competitors’ products. This affects the company profit
as well as reducing its market share.
Bargaining Power of Suppliers
Ideally, the main factors affecting suppliers’ bargaining power comprise of suppliers’
concentration, the threat of backward and forward integration, substitute suppliers and switching
costs (Rahman, Azad, & Mostari, 2015). Bearing in mind that airline industry calls for huge
investment the suppliers in this industry are very few. For example, the major suppliers of the
Qantas aircraft are Airbus and Boeing. Suppliers being few in the market prevents Qantas and
other players in the industry from exercising their control over them. Therefore, the suppliers
have the higher bargaining power that the Qantas Airline. According to Wheelen & Hunger
(2010) low supplier concentration has long-term negative effects on firms. This is because it
reduces the firm’s value. Qantas is negatively suffering from the low supplier concentration
consequences.

BUSINESS VALUATION AND ANALYSIS- QANTAS AIRLINE CASE STUDY 6
Threat of the Substitutes
From the case studies, it is evident that Qantas is faced with stiff competition exhibited
by the other players in the industry. This means that there are other alternatives for traveling.
Threat of the substitutes appears to be more intense in the domestic and the regional market than
in the international market. This is because there are limited alternatives for international
traveling. Domestically, the threat of substitutes is posed by other modes of transport such as
road, rail, and sea. In the international arena, the substitute threat is posed by other international
competitors such as British Airways.
The lower performance product portrayed by other players in the industry makes it
difficult for the customers to switch from Qantas service to other services offered by the
competitors. Alternatively, other services providers in this industry offer low-quality products
making it hard for the buyers to switch from the Qantas' products (Sumers, 2013). The adoption
of the substantial product differentiation has worked best for the Qantas. The company has
differentiated its products by designing different services from other players in the industry.
According to Saleh Jaradat, Almomani, & Bataineh (2013) when services or products are
differentiated from the competitors it becomes difficult for the customers to find other close
products that can satisfy their needs. Finally, there are a limited number of substitutes in the
airline industry. The availability of few substitutes in this industry has had positive impacts for
Qantas.
Threat of New Entrants
The success of any industry will attract more entrepreneurs who will want to take
advantage of the existing opportunities. This is encouraged by the number of factors such as low
investment cost, favorable government regulations and others (Porter, 2008). Currently, it is very
difficult for the new competitors to enter the airline industry. This is attributable the high cost of
investment that makes it difficult for the new investors to enter the industry (Sandilands, 2012).
For example, high airline operational cost such as catering for the security and security measures
and high costs of either buying or leasing an aircraft makes it expensive for the new investors
who may want to enter the industry.

BUSINESS VALUATION AND ANALYSIS- QANTAS AIRLINE CASE STUDY 7
Other factors hindering competitors to enter the airline industry include weak distribution
network. According to Porter (2008) when the industry has weak distribution it means it
expensive to distribute products, and therefore some products may never reach to the end
customer. Additionally, Tehrani & Rahmani (2014) adds that for the new entrants to enter the
industry, a strong distribution network must exist. The geographical location of Qantas hinders
the entry of the new competitors. This because Qantas Airline has already established itself in the
continent of Australia. Finally, the high learning curve exiting the industry makes it expensive
and time-consuming for the competitors to study before competing effectively. This prevents the
Qantas industry from the threat of the new entrants.
Qantas SWOT Analysis
Strengths: Qantas Airline strength is linked to its strong brands that are globally recognized.
Besides, the diversification of its services gives the company an opportunity to continue
dominating large market share locally, regionally and in the international markets.
Weaknesses: Qantas profitable operations rely heavily on the business and first class passengers.
During global financial and economic crisis it becomes difficult for the company to earn
revenue. This is because the demand for the business class services goes down.
Opportunities: There are opportunities for the Qantas Airlines to grow its international market.
The company can agree with more states in different continents to increases its international
travels. Alternatively, Qantas can diversify its products to target and meet many needs
customers’ as possible.
Threats: Provided that business operates in a dynamic environment, Qantas Airline is likely to
suffer from the global financial crisis. Besides, the company business operations can be affected
by the threats posed by the international terrorists.
Qantas Corporate Strategy across Domestic and International Divisions
since 1992
Since 1992, Qantas corporate strategy has been providing passengers’ transportation under the
Australian flagship airliner. Over the year, this strategy has not changed especially in the
domestic division where the company has continued of offer transportation services to the
Australians at low costs through Jetstar division. To meet the rising international travelers’ needs

BUSINESS VALUATION AND ANALYSIS- QANTAS AIRLINE CASE STUDY 8
of having the low costs services, Qantas has extended its Jetstar business division. Other
strategies that the company has changed to include the Frequent Flyer Loyalty program to attract
more customers and adopting the low staff cost strategy.
Three Accounting Policies that Auditors should watch for any Airline
Industry
Plant, Property and Equipment Valuation (PPE) Valuation
The airline industry major assets are aircraft. These assets are prone to depreciation and
impairment. Most of the times the industry overvalues the PPE to overestimate the financial
position of the business. Therefore, it is important for the auditors to carefully scrutinize the
depreciation and impairment methods used to ascertain whether they are in line with Financial
Accounting Standards Board (FASB).
Leasing Accounting Policy
As noted in the earlier discussion in this paper, investing in the airline industry is very
costly because it requires purchasing aircraft which are very expensive. Sometimes the
companies in the airline industry may find it worth to lease an aircraft than purchasing it.
However, this may be used an opportunity to swindle the stakeholders’ wealth. Therefore, it is
important for the auditors to examine the current leasing policy to determine whether it properly
carried out.
Depreciation Policy
In the first accounting policy this paper has found that major airline assets (PPE) are
prone to the depreciation. Bearing in mind, there are several depreciation methods such as
straight line and double depreciation methods not all of them are applicable in the airline
industry. Therefore, the external auditors should investigate to establish whether the companies
in the airline industry are applying the right depreciation methods.
Qantas Financial Performance and Financial Position at the end of 2013
Financial Performance (Revenues and Expenses)
In August 2013, Qantas realized a profit of $15.9 billion. This revenue generation was
supported by the costs of 13.83 billion. Other costs and incomes reduced and increased income

BUSINESS VALUATION AND ANALYSIS- QANTAS AIRLINE CASE STUDY 9
before net income respectively to $1 million. This was a significant improvement from the 2012
net loss of $245 million (Qantas Airways Ltd, 2017). This was the fastest growth in the company
performance in the past eight years. The improvement in the financial performance was
strengthened by the actions that were adopted by the company during the year including the
prudent approach to capital expenditure and reducing debt (Qantas Group, 2013). Additionally,
the growth in the financial performance was also attributable to the growth of domestic business
operations.
Financial Position (Assets, Liabilities and Owners’ Equity)
At the end of 2013, the Qantas total assets amounted to $20, 032 million. The total assets
growth was at -5.41 percent. On the other total liabilities were $14, 192 million and owners’
equity was $5, 840 total to $20, 032. This was a slight decline from its financial position in 2012
that was ranging at 21, 178 (Qantas Airways Ltd., 2017). In 2013, the company liabilities
superseded the owners’ equity. This means the company was relying more on debts and loans to
finance its operations.
Qantas Financial Performance and Financial Position in 2016
Financial Performance
In 2016, Qantas Group realized a net income of $1.03 billion (Chung, 2016). This was a
tremendous increase in the company financial performance over a decade. This revenue was
matched with an expense of $15.71 billion.
Financial Position
In 2016, the Qantas Group total assets were $16, 705 million with a total growth of -4.71
percent, asset turnover 0.95 and return on average assets of 6.01 percent. This was notable
growth on the company asset performance over the years. On the other side, the company
liabilities amounted to $13, 445 million and owners’ equity totaled $3, 360 (Qantas Airways
Ltd., 2017).
Similarities and Differences between 2013 and 2016 Financial Years
Similarities

BUSINESS VALUATION AND ANALYSIS- QANTAS AIRLINE CASE STUDY 10
In both years, the company has realized a revenue as well as improvement in the financial year
compared to the respective years. Again, there has been financial performance improvement in
both years.
Differences
In 2013 the revenue realized was much lower compared to the 2016 profits. Besides, the
company liabilities have reduced from $14, 192 in 2013 to $13, 445 million in 2016.
Additionally, performance in the company assets has continued to improve.
Recommendation to the Potential Investor
Based on the 2016 report, this report recommends that it is worth for the potential investor to
purchase shares in the Qantas Group. The tremendous growth in profit and the improvement in
the company domestic operations which are a major contributor to the company revenue are
indications that the company will perform better in future and therefore its share value is likely to
increase.

BUSINESS VALUATION AND ANALYSIS- QANTAS AIRLINE CASE STUDY 11
References
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Centre for Aviation: https://centreforaviation.com/data/profiles/airline-groups/qantas-
group
Chung, F. (2016, August 24). Qantas posts record $1.53 billion full-year profit. Retrieved from
News Limited: http://www.news.com.au/finance/business/travel/qantas-just-had-its-best-
year-ever/news-story/f19ad5ddc1320591487eec0a5ffab7ab
Dälken, F. (2013). Are Porter’s Five Competitive Forces still Applicable? A Critical
Examination concerning the Relevance for Today’s Business. Netherlands: University of
Twente.
Oraman, Y. (2011). The Firms’ Survival and Competition through Global Expansion: A Case
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33.

BUSINESS VALUATION AND ANALYSIS- QANTAS AIRLINE CASE STUDY 12
Saleh Jaradat, Almomani, S., & Bataineh, M. (2013). The Impact of Porter Model`s Five
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