Business Analysis and Valuation of Qantas: A Comprehensive Overview

This report presents a comprehensive business analysis and valuation of Qantas, examining its competitive forces, SWOT analysis, and corporate strategies. The analysis delves into Qantas's strengths, such as consistent growth and superior service quality, while also addressing weaknesses like union issues and challenges in international flights. Opportunities include increased business travel and lower fuel prices, whereas threats involve intense competition and cost management difficulties. The report also explores Qantas's corporate strategies since 1992, including maximizing its integrated portfolio and pursuing earnings growth. Furthermore, it evaluates Qantas's financial performance, highlighting changes in revenue, expenses, assets, liabilities, and equity from 2013 to 2017. The analysis also covers crucial accounting policies like IFRS 16 Leases and IFRS 15 Revenue from Contracts with Customers and concludes with recommendations for investors, emphasizing the company's revenue growth and expense management. The report uses data from various sources, including Qantas's investor reports and industry publications, to provide a well-rounded view of the airline's business and financial standing.

BUSINES ANALYSIS AND
VALUATION A Case of Qantas

COMPETITIVE FORCES ANALYSIS OF QANTAS

COMPETITIVE FORCES ANALYSIS OF QANTAS
Threat of New Entrants: Threat of new entrance is low in the Australian airline industry in
the presence of the fact that there is a need of huge investment for the new players for
entrance.
Bargaining Power of Suppliers: To Qantas, the bargaining power of the suppliers is low as
large number of suppliers provide similar kind of products in the Australian airline industry.
Bargaining Power of Buyers: Bargaining power of the buyers is high for Qantas and for the
Australian airline industry as the buyers have the choice to select from such as low cost air
travelling companies, luxury class airline services and others.

COMPETITIVE FORCES ANALYSIS OF QANTAS
Threat of Substitutes: The threat of substitute is lower for Qantas as well as for the airline
industry as the model of airline travelling is the fastest way of travelling.
Rivalry Among the Existing Companies: Rivalry among the existing companies has created
a major threat for Qantas in the presence of large companies in the Australian airline industry.

SWOT ANALYSIS OF QANTAS
STRENGTHS WEAKNESSES
• Steady and consistent growth of the
business
• Superior quality of services as compared
to competitors
• Major success in cost cutting programs
• Presence of Qantas Transformation
Program (businessinsider.com.au 2019)
• Increase in the domestic business
• Issues related to union groups
• Low level of profitability in international
flights
• The presence of directorates

SWOT ANALYSIS OF QANTAS
OPPORTUNITIES THREATS
• Increase in business travels
• Lower in the fuel price in the recent years
• The presence of intense competition
• Difficulties in the management of major
business costs

CORPORATE STRATEGY OF QANTAS
The corporate strategies of Qantas across its domestic and international market since 1992 is shown
below:
The main corporate strategy of Qantas is to develop competitive advantage along with the creation
of long-term values by the maximization of their integrated portfolio of businesses and brands.
Another major corporate strategy of Qantas is put emphasis on the earnings growth from both the
domestic as well as international operations.
Another corporate strategy of Qantas pursue growth with the help of major investments in different
airline brands of the company.
One crucial strategy of Qantas from 1992 has been to create a shift in the company’s cost base
along with competitive position across the company with the help of major transformation
(investor.qantas.com 2019).

CHANGES IN THE CORPORATE STRATEGIES
OF QANTAS
There has been certain changes in the corporate strategies of Qantas over the years due to the
change in the market condition and other aspects.
Over the years, in the presence of increased competition from the other companies, it was
required for Qantas to increase their brand portfolio. As a result, the introduced Qantas,
Jetstar and Qantas Loyalty.
Qantas has changed their corporate strategy by entering into the international market with the
aim to grab the opportunity to serve huge international customer base.
In addition, Qantas has consider certain other aspects related to their business for sustaining
in the Australian airlines industry such as diversity, leadership and talent, impact of their
business on the environment and others.

CRUCIAL ACCOUNTING POLICIES IN THE
AIRLINE INDUSTRY
Introduction of IFRS 16 Leases: Auditors in the airline industry are needed to closely watch
the new lease accounting policy that is IFRS 16 Leases as it will fundamentally change the
accounting transactions for leases.
In the Airline Industry, financing aircraft through off-balance lease models have been a well
established accounting practice. In addition, companies rent the airport facilities that are
needed for their business operations.
The introduction of IFRS 16 Leases will put the obligation on the airline companies to put all
the leases in the balance sheet and it will add trillions of dollars of additional lease
arrangements in the balance sheer of Airline companies (pwc.com 2019).

CRUCIAL ACCOUNTING POLICIES IN THE
AIRLINE INDUSTRY
IFRS 15 Revenue from Contracts with Customers: The introduction of IFRS 15 Revenue
from Contracts with Customers will bring major changes for the airline company to deal with
the air tickets, cargo airways bills, loyalty points and other contracts.
The existing standard for revenue from tickets for the airline companies states that the
revenue from tickets is non-refundable and it is concluded that the likelihood of the customer
requiring is for fulfilling performance obligation is remote.
As per the new IFRS standard, the airline companies have the right to recognize the revenue
from ticket on earlier basis. At the same time, the airline companies will be able in
recognizing this revenue before the expiry of the tickets (assets.kpmg 2019).

EVALUATION OF QANTAS’S FINANCIAL
PERFORMANCE
Particulars 2013 ($M) 2017 ($M) Change in %
Revenues 15902 16057 0.97%
Expenses 15698 14687 -6.44%

EVALUATION OF QANTAS’S FINANCIAL
PERFORMANCE
Particulars 2013 ($M) 2017 ($M) Change in %
Total Assets 20200 17221 -14.75%
Total Liabilities 14246 13681 -3.97%
Total Equity 5954 3540 -40.54%