Business Analysis and Valuation Report: Qantas Airlines (BUS200)

This report provides a comprehensive business analysis of Qantas Airlines, a major player in the Australian airline industry. It begins with an executive summary outlining Qantas's market share and strategic alliances. The report then delves into Porter's Five Forces analysis to assess the competitive landscape, followed by a SWOT analysis to identify strengths, weaknesses, opportunities, and threats. The corporate strategy of Qantas in both domestic and international markets since 1992 is examined, along with an analysis of the company's accounting policies, specifically revenue recognition. Financial performance evaluations for 2013 and 2015 are presented, alongside a comparison highlighting similarities and differences. The report concludes with recommendations based on the analysis. Key aspects include the impact of competition, fuel prices, and the effectiveness of Qantas's frequent flyer program. The analysis incorporates market share data, revenue segments, and financial ratios to provide a detailed understanding of Qantas's business operations and performance.

Running head: BUSINESS ANALYSIS & VALUATION
Business Analysis & Valuation
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2BUSINESS ANALYSIS & VALUATION
Executive Summary
A detailed investigation of the operations of the business concern Qantas indicates the fact
that it is one of the primary airline operators of Australia that offers superior services to their
passengers. Qantas has a substantial share of the Australian airline industry and its functions
are essentially based on both domestic as well as transnational circuits. Fundamentally, the
business concern Qantas accounts for approximately 65% of the sector’s current market share
and has strategic association with diverse other transnational airlines operating across the
world.
The current report analytically evaluates specific strategies, financial assertions of the firm
Qantas along with the way the business entity performs in the airline market of Australia. The
business concern encounters fierce competition from other players in the industry and face
challenges; however, the management of the firm develop strategies to neutralize the
identified issues.

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Table of Contents
a. Analysis of Porter’s Five Forces: Qantas...............................................................................3
b. SWOT Analysis.....................................................................................................................6
c. Corporate Strategy of Qantas in domestic and worldwide markets since 1992.....................9
d. Two different accounting policies of the firm Qantas in the airline industry......................10
e. Evaluation of financial performance of Qantas during 2013:..............................................13
f. Evaluation of financial performance of Qantas during 2015................................................13
g. Recommendations (Similarities and Differences in performance during 2013 and 2015). .14
References:...............................................................................................................................16
Appendix..................................................................................................................................18
Qantas Market share:............................................................................................................18
Qantas revenue segments:....................................................................................................18
Qantas Revenue before Tax:................................................................................................19
Ratio Analysis of Qantas 2013.............................................................................................20

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a. Analysis of Porter’s Five Forces: Qantas
Porter’s five forces analysis is taken into account for comprehending the overall performance
of the firm Qantas Airlines and various factors that might perhaps affect the same.
Bargaining Power of Purchasers: For the purchasers, it can be considered to be a win-win
condition when it comes to selection of the airline service. The selection is based on the
condition of offering premium class service, low cost and level of comfort among many
others (Entwistle 2015). According to Moutinho and Huarng (2015), in today’s days
purchasers have different alternatives to select from and the subsistence of diverse service
providers in the airline sector offers them with augmented bargaining as well as purchasing
power.
Bargaining Power of Suppliers:
As rightly mentioned by Bolton et al. (2015), suppliers functioning in the airline industry
have comparatively less bargaining power since there subsists a higher number of suppliers
delivering somewhat identical services. Again, in case of Qantas Airlines, supplier’s power is
low since there is existence of other big players in the airline industry namely Virgin Airlines
Threat of Substitutes-
Airline industry truly enjoy a lower level of threat of substitution since it is a very rapid way
of travelling to different long distances that is not always to travel through waterways and
roadways. Customers avail the specific airline service even for short distance routes in a bid
to save time and enjoy comfortable journey (Wagner and Eggert 2016).
Rivalry among subsisting business concerns-

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Analysis of reports reveals that the Australian Airlines Industry can witness a tussle between
specifically the airline service provider Qantas Airlines and the Virgin Airlines in the
regional market. In this case, both the corporations suffer losses in operations due to
existence of intense competition (Armstrong et al. 2015).
Threat of Entry of New Players-
In Australian airlines industry, the threat of entry of different new players is normally low.
This is so because new corporations have the need of huge investments as per the requisite
infrastructure for designing the structure of the airline corporation, which sometimes is tricky
(Armstrong et al. 2015).
Competitor Analysis:
The Australian airline segment experiences strong competition among different airline
service providers. The airline operators essentially contest with each another for acquiring
higher share of the market. A detailed market research reflects the fact that Virgin Airlines
can be considered to be one of the most important rivals of the company Qantas that operates
in the Australian airline market, apparent from the price cuts for different services for
attracting new customers and retaining the existing customers (Armstrong et al. 2015).
Analysis of the current company declarations, both the business firms Qantas as well as
Virgin is experiencing losses and in spite of that there is steep decline in the overall number
of passengers owing to issues such as competitiveness of the industry as well as terror attacks
in US and many others.
Nevertheless, there are several measures that essentially make the airline service provider
Qantas an clear choice for diverse travellers. For example, the flyer program of the company
that is exclusive to the company helps in gaining customer loyalty. Again, the management of

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Qantas has also declared that the firm’s frequent flyer program has nearly 7 million loyal
members and it is developing with time. As such, the specific purpose of this program started
by the company Qantas is to inspire travellers to select Qantas for their requirement of airline
service (Armstrong et al. 2015). Again, if they necessarily go on gaining higher number of
points, the management of the firm can utilize it for different alliance stores for up gradation
of the baggage weights and for acquiring admittance to particularly OneWorld agreement
lounge for foods, drinks along with other lucrative provisions. Again, Qantas also relates the
firm’s frequent flyer program with yet another Australian player that is Woolworths and
through collect points of Woolworths Everyday Rewards that necessarily offers competitive
advantage to the two corporations (Investor.qantas.com 2017).

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b. SWOT Analysis
Strengths:
-Tough authority in the domestic market of Australia
The airline company Qantas have assumed multi brand stratagem that permit the
administration of the firm to position the effectual domestic network as the best operator. The
company can establish itself as the premium service provider that can potentially provide
business associated travels backed by the Jetstar delivering service at low fares
(Investor.qantas.com 2017).
-Diversified geographic market
The management of the firm Qantas delivers transportation services across diverse
geographical borders by means of two complimentary airline operators namely Jetstar and
Qantas, functioning globally and delivering domestic services.
Weaknesses:
-Disputes Present in diverse industrial activities
The business operations of Qantas are highly vulnerable to different rows related to industrial
activities. Particularly within the Australian market, extensive industrial exploits along with
union campaigns to discredit the Qantas brand caused notable harm to the corporation during
the financial year 2012. For instance, effort of the Transport Workers’ Union in utilizing
bargaining procedure for a new business concern contract for dictating the way definite parts
of Qantas need to accessed (Investor.qantas.com 2017). In addition to this, there is need to
ascertain the way business concern Qantas manages the employees of different subsidiaries
and discomforting Qantas from accessing.

8BUSINESS ANALYSIS & VALUATION

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Opportunities:
Development of Australian domestic market
Qantas Group declared about the up gradation of the fleet plan and capitalizes on rate of
growth in the domestic market in Australia. Particularly, under this arrangement, Qantas
leased five extra Boeing Aircraft together with this bought three Bonbardier Q400 aircraft
(Investor.qantas.com 2017).
Expansion of Jeystar
The main objective of Jetstar is necessarily to strengthen the position of the firm as a pan
Asian carrier. Presently the company has expended its operations in Singapore, Vietnam as
well as Japan by means of franchises. The transnational network of the Jetstar might
influence the overall growth of the company Jetstar that is a brand airline delivering the
traffic between Asia as well as Australia, strengthening the strong competitive position of the
corporation Qantas Airways in specifically the leisure travel area of Asia- Pacific’s
(Investor.qantas.com 2017).
Threats
Stiff Competition from different low cost carriers
The airlines industry in Australia is currently witnessing stiff competition with the existence
of low cost carriers operating in the East Asian district. Essentially, these low budget airline
service providers have the tendency to charge low fares, thereby making Qantas less
competitive (Levinson 2014).

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Increase in the prices of fuel
The cost of Jet fuel essentially plays an important role in forming the total cost of the
corporation Qantas. Particularly during the financial year 2012, the jet fuel increased from
approximately AUD 645 million to nearly AUD 4329 million recorded during financial year
2011 (Investor.qantas.com 2017).
c. Corporate Strategy of Qantas in domestic and worldwide markets since 1992
The core stratagem of the group is to enhance profitability of two different flying brands of
the company that includes the Qantas and the low cost carrier namely Jetstar. However, in
different premium markets, the company strengthens the position while Jetstar takes into
account both the regional as well as global leisure market. As such, the strategy developed by
Qantas helps in decreasing the overall capital strength by maintaining partnership with
diverse carriers in specific uneconomical segments. Essentially, during June 30, 2011, the
NOPAT of the business concern Qantas was enumerated to be $250 million with
considerable amount of revenue generated from certain ordinary services was documented to
be $14.8 billion (Investor.qantas.com 2017). Thus net profit after tax of the corporation
increased by approximately 8% as compared to the figure recorded during the previous year.
During the year 2011, the company Qantas invested around $2.4 billion for capital expends
(Investor.qantas.com 2017).
During the year 1992, the Australian Government allowed the airline corporation Qantas’s
bid of worth AUD 400 million for different Australian Airlines along with different
subsidiaries (Investor.qantas.com 2017). In addition to this, the government also declared that
the group can be completely privatised. As such, the merger of two different airlines also
enhanced the carrying potential of passengers, airline’s efficient utilization and maintenance
of economies of scale between transnational and domestic airline services.

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In addition to this, the corporation Qantas persistently evolved and attained growth. Again,
during the year 2002, the business firm Qantas established low cost regional airlines that is
the Jetstar. The company commenced the regional functions during the year 2004, pursued
after the Tasmanian services during the period December 2005 (Investor.qantas.com 2017).
According to the opinion of Bragg (2014), the Qantas Group has depended on fruitful
partnerships as well as successful alliances to acquire biggest share of the transnational
airline market. Besides services related to transportation of passengers, Qantas makes
available other services that include businesses portfolios such as engineering, freight
services as well as catering services.
The corporation also implements cost leadership strategy, concentrating on the stratagem of
differentiation in which the cost leadership policy stresses on the need of gaining competitive
advantage among the rivals in the industry. In essence, this refers to the fact that identical
products are delivered at low cost, something that Qantas follows for the Jetstar airways.
Additionally, at the time when a single segment of customer is targeted then the strategy is
more concentrated. Basically, Jetstar delivers similar service as that of the airline Virgin but
necessarily at a comparatively low cost (Bragg 2014).
d. Two different accounting policies of the firm Qantas in the airline industry
Recognition of Revenue
The policies followed for recognition of revenue necessarily varies founded on the nature of
service delivered by the company Qantas Airlines. On the whole, the treatment to passengers
and revenue from freight is also analogous. However, for the purpose of attracting more
number of customers, Qantas offers tickets of passengers well in advance of service. The

12BUSINESS ANALYSIS & VALUATION
entire amount accepted in advance can be taken into consideration for unjustified revenue
(Entwistle 2015).
Passenger and revenue from freight and travel
The business concern at fair value of the accepted consideration, discount on sales of the
firm, passenger as well as freight commission enumerates proceeds from passenger and
freight (Investor.qantas.com 2017). Again, other sales commission that are paid by Qantas
can be taken into consideration by Qantas as expenditure (Titman and Martin 2014).
Revenue Gained from frequent flyer
The accepted revenue is necessarily deferred as liability (accepted in advance) until these
points are transformed in case of Qantas Group. Essentially, redemption revenue is accepted
grounded on the approximation carried out by the administration of the anticipated fair value
rewards (DeFusco et al. 2015).
Receivable:
The receivables of the corporation Qantas comprises of trade debtors, acquired loan from
parties as well as other debtors. In addition to this, the net receivable is also recorded as its
unique amount after deduction of provision of specific debts that are not collected. The
management of Qantas Group also carry out approximations of different doubtful debt at the
time of compilation of entire amount is no longer attainable (Trugman 2016). However, bad
debts by the corporation are necessarily written off. Nonetheless, it can be regarded to be
risky on the part of the corporation for not specifying the provision of specific bad debts that
are in line with the credit sales percentage, thereby making it an unstable matter
(Jenkins and Williamson 2015).

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The complete idea of selecting these two facets takes into account different effects that they
essentially exert on the operations of Qantas in the Australian airline industry. The airline
also makes certain proper handling of the identified issues, influencing it internally.
Essentially, these policies can be considered as the primary factors that help in the process of
determination of performance of the corporation, company strategies and schemes that the
business concern implements (Phuong 2013).

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e. Evaluation of financial performance of Qantas during 2013:
Analysis of the financial assertions of the corporation Qantas Group reveals that the
business’s profit before tax stands at AUD 192 million, statutory tax is essentially AUD 17
million and Statutory Profit After Tax stands at AUD 6 million as on the period ending June
30 of the year 2013 (Investor.qantas.com 2017). Again, this outcome illustrates that
development of business strategy of Qantas is quite challenging as there is increase in cost of
fuel, stiff competition in the market as well as excessive capacity in the regional market.
Essentially, the accounting year witnessed a gain in operations of Qantas as well as Jetstar, on
the other hand Qantas successfully reduced its losses to approximately half the amount
(Easton et al. 2015).
The accounting year 2013 presents both positive as well as negative reflections. The
negatives of the business functionalities include carbon tax, transition of particularly Dubai
hub and pilot back reimbursement. Contrarily, the positive sides of the operations of the
business include the settlement of the Beoing’s with particularly AUD 134 million
(Investor.qantas.com 2017).
In essence, the business concern has fortified the financial position with positive net cash
worth AUD 372 million on June 2013 and liquidity worth AUD 3.4 billion and this consists
of AUD 2.8 billion cash and AUD 630 million is undrawn amenities of debt. However, the
net capital of expends was recorded to be approximately AUD 1.4 billion during 2013 that
represented a decline of nearly AUD 200 million as compared to prior year
(Investor.qantas.com 2017).

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f. Evaluation of financial performance of Qantas during 2015
Qantas declared an underlying PBT (profit before tax) of approximately AUD 367 million
and a statutory PAT (profit after tax) of around AUD 206 million (Investor.qantas.com 2017).
The company also experienced a decline of 4.8% in the related cost per unit and 2.1%
increase in the company’s revenue. As such, financial reports reveal that Qantas has made
swift advancement and progress and simultaneously recovered well is a stable environment
(Healy and Palepu 2012).
For the first time ever since the occurrence of GFC (global financial crisis), the company
Qantas International has acquired profit with EBIT of AUD 59 million approximated
biannually, with a turnaround of nearly AUD321 million as compared to year ago period
(Investor.qantas.com 2017).
g. Recommendations (Similarities and Differences in performance during 2013 and
2015)
It can be hereby mentioned that the growth has been stable although Qantas has serious
liquidity concerns, and the corporation has difficulties in acquirement of assets that can be
easily transformed into cash. As rightly put forward by Palepu et al. (2013), liquidity issue in
any business directs towards insolvency, however, the airlines is exclusively susceptible. The
corporation is gradually getting into grooves after few lean seasons and it does not represent
the financial position of the corporation. Again, the flying kangaroo necessarily could
manage to deal with losses specifically when the debt of the corporation is carrying a scrap
position.
Recommendation

16BUSINESS ANALYSIS & VALUATION
It can be hereby suggested from the standpoint of investor that Qantas Airways is having
huge potential compared to other airlines in the business with respect to efficiency,
commercial stability as well as productivity. However, in the current scenario, investment in
the firm Qantas can be considered to be very worthy and advantageous. The factors of
profitability and financial stability are developing with passage of time and this can be
regarded as a positive sign for financiers. The dividend was last disbursed by the firm during
2009. Detailed analysis of the overall financial position of the firm reflects that the
corporation could again start disbursing dividends in the upcoming years. Qantas can be
considered to be a risky corporation to invest in as share prices are increasing in straight line
in the year 2015. Essentially, the company traded at nearly AUD 3.5 in 2015 from a small
amount of AUD 1 in 2014. This is because shareholders are relying on the corporation again.
Particularly, the company also has the capability to improve and endeavour on their path to
success.

17BUSINESS ANALYSIS & VALUATION
References:
Armstrong, G., Kotler, P., Harker, M. and Brennan, R., 2015. Marketing: an introduction.
Pearson Education.
Bolton, L.E., Bhattacharjee, A. and Reed II, A., 2015, May. The perils of marketing weight-
management remedies and the role of health literacy. American Marketing Association.
Bragg, S.M., 2014. Financial Analysis: A Business Decision Guide. Accounting Tools.
DeFusco, R.A., McLeavey, D.W., Anson, M.J., Pinto, J.E. and Runkle, D.E.,
2015. Quantitative investment analysis. John Wiley & Sons.
Easton, P.D., McAnally, M.L., Sommers, G.A. and Zhang, X.J., 2015. Financial statement
analysis & valuation. Cambridge Business Publishers.
Entwistle, G., 2015. Reflections on Teaching Financial Statement Analysis. Accounting
Education, 24(6), pp.555-558.
Healy, P.M. and Palepu, K.G., 2012. Business analysis valuation: Using financial statements.
Cengage Learning.
Investor.qantas.com. 2017. Qantas Investors | Investor Centre. [online] Available at:
http://investor.qantas.com/investors/?page=annual-reports [Accessed 7 Sep. 2017].
Jenkins, W. and Williamson, D., 2015. Strategic management and business analysis.
Routledge.
Levinson, M., 2014. The Economist Guide to Financial Markets: Why they exist and how
they work. The Economist.
Moutinho, L. and Huarng, K.H. eds., 2015. Quantitative Modelling in Marketing and
Management. World Scientific.

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Palepu, K.G., Healy, P.M. and Peek, E., 2013. Business analysis and valuation: IFRS edition.
Cengage Learning.
Phuong, D.L., 2013. Business analysis & valuation Gia Lai Cane Sugar thermoelectricity
Joint Stock Company (Doctoral dissertation, International University HCMC, Vietnam).
Titman, S. and Martin, J.D., 2014. Valuation. Pearson Higher Ed.
Trugman, 2016. Understanding business valuation: A practical guide to valuing small to
medium sized businesses. John Wiley & Sons.
Wagner, S.M. and Eggert, A., 2016. Co-management of purchasing and marketing: Why,
when and how?. Industrial Marketing Management, 52, pp.27-36.

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Appendix
Qantas Market share:
Qantas revenue segments:
Figure4. Revenue Segments of Qantas from 1999-2014

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(Source: Investor.qantas.com 2017)
Qantas Revenue before Tax:
Figure2. Qantas 2015 report
(Source: Investor.qantas.com 2017)

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Figure1. Qantas 2013 report
(Source: Investor.qantas.com 2017)
Ratio Analysis of Qantas 2013
Ratio
(figures in $M)
Return On Equity= Net Income/Shareholders' Equity
2013
Net Income 6
Shareholders' Equity 5954
Ratio
0.00100772
6
Asset Turnover
Net Sales 15902
Average Total Assets 20200
Ratio
0.78722772
3
Profit Margin Ratio
Gross Profit 204
Total Sales 15902
0.01282857
5
Liquidity

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Current Ratio
Current Asset 5245
Current Liabilities 6370
Ratio
0.82339089
5
Quick Ratio
Quick Asset 2829
Current Liabilities 6370
0.44411303
Debt Leverage Ratio
Debt to Equity Ratio
Debt 6220
Equity 5954
1.04467584
8
Interest Coverage Ratio
Earnings Before Interest and Tax 204
Interest Expense 296
0.68918918
9