Business Analysis and Valuation Report: Qantas Airways (B01BAVA320)

This report provides a comprehensive business analysis and valuation of Qantas Airways. It begins with an introduction outlining the report's objectives, which include examining the airline's business through Five Forces and SWOT analyses, evaluating its corporate strategy and relevant financial regulations, and assessing its financial performance to offer recommendations. The Five Forces analysis reveals high customer bargaining power, low supplier bargaining power, a low threat of new entrants, high competition among existing competitors, and a low threat of substitutes. The SWOT analysis highlights Qantas's strengths, such as stable growth and high-quality services, and weaknesses, including challenges with international flight profitability and union relations. Opportunities include increased national business and cost reduction through lower oil prices, while threats involve intense competition and high business expenses. Corporate strategies since 1992 are discussed, including competitive advantages, national and international business development, brand investments, and cost base shifts. The report also examines changes in corporate strategies, such as brand portfolio enhancements and increased international presence, and discusses the impact of IFRS 15 and 16 on the airline. Financial performance is evaluated using revenue, expense, asset, liability, and equity data from 2013 and 2017. The analysis indicates improved financial performance with increased revenue and decreased expenses, but also a decrease in total assets, liabilities, and equity. Based on these findings, recommendations are made for investors to buy or retain Qantas shares. The conclusion emphasizes the importance of considering competitive forces and strategic development, as well as the implications of accounting standards.

BUSINESS ANALYSIS AND
VALUATION
Qantas Airways

INTRODUCTION
The main aim of this report is to take into consideration the analysis and valuation
of the business of Qantas Airways (Qantas). More specifically, this report
considers the five forces analysis and SWOT analysis of Qantas. After that, this
report involves analysing the corporate strategy and certain financial regulation of
the company. After that, the report considers the analysis of the financial
performance of Qantas in order to provide the recommendation

FIVE FORCES ANALYSIS
 Bargaining Power of Buyers: Qantas has to face high bargaining power from the customers
due to the presence of many airline companies in this Australian airline sector. They provide
affordable travelling cost, luxury and others.
 Bargaining Power of Suppliers: The presence of numerous suppliers can be seen in the
Australian airline industry providing the required materials to the airline companies. For this
reason, Qantas faces low bargaining power from their suppliers (E. Dobbs 2014).
 Threat of New Entrants: When entering into the Australian airline industry, the new
companies are needed to make huge investments and have to comply with many regulations
from the government. Hence, this threat can be considered as low for Qantas.

FIVE FORCES ANALYSIS
 Competition among Existing Competitors: The presence of certain large
airline companies can be seen in the Australian airline industry like Virgin
Airline and others that provide tough competition to Qantas. For this, this
threat can be considered as high for Qantas (afr.com 2019).
 Threat of Substitutes: Passengers can travel in the fastest possible manner
through airlines as it is the quickest way of travelling. For this, Qantas face
low threat related to the substitute products.

SWOT ANALYSIS
Strengths Weaknesses
 Qantas has been witnessing stable as well as
continuous growth in every business aspects
which is a major strength
 Qantas provides their passenger with high-
quality services when compared to other
airlines
 The cost cutting initiative of Qantas is a major
success for the company
 Introduction of Qantas Transformation
Program (qantasnewsroom.com.au 2019)
 Qantas has not been able to register high
profitability in their international flights and it
is a major weakness
 Qantas has to face problems regarding the
groups of unions which is a major weakness

SWOT ANALYSIS
Opportunities Threats
 Increase in the national business provides Qantas
with new business opportunities
 In the recent years, Australia has witnessed
reduction on the oil price and this reduction
provides Qantas with the opportunity to increase
their profitability by reducing the costs.
 Since there are many large companies operating in
the Australian airline industry, Qantas has to face
major competition from them which is a
continuous threat for Qantas (smh.com.au 2019)
 Qantas is facing certain difficulties while managing
the large business expenses and costs. This is
another major threat for Qantas.

CORPORATE STRATEGIES SINCE
1992
 Evolving certain major competitive advantages in order to create long-term values for their passengers
and integrated business portfolio has been the major business strategy of Qantas since 1992.
 Qantas has been putting equal importance for the development of both national and international
business.
 Qantas adopted the strategy to ensure sufficient investments in the brands of airline in their business
portfolio.
 Since 1992, one significant strategy that Qantas has been perusing is to develop a major shift in their
cost base through certain specific business transformation (investor.qantas.com 2019). These
strategies have been contributing hugely for the business success of Qantas.

CHANGES IN CORPORATE
STRATEGIES
Qantas was forced to bring certain changes in these strategies as the market condition has changed
drastically over the years.
 Qantas had to enhance their brand portfolio in the recent years because of the increase in
competition in both national and domestic market. The introduction of Qantas Loyalty and
Jetstar can be considered as the outcome of this strategy change.
 Increase their presence in the international airline market can be considered as another strategy
change as the international market is consisting certain major busies opportunities for them.
 In addition, Qantas has introduced more talent, effective leadership and diversity as improved
business strategies (qantas.com 2019).

TWO ACCOUNTING POLICIES
IFRS 15 Revenue from Contracts with Customers: The Australian airline
companies have to face certain changes while dealing with air tickets, cargo bills
and others in the introduction of IFRS 15 and thus, this regulation is considered.
Tickets are non-refundable under the current act.
However, new IFRS 15 will authorize the airline companies in recognizing the
revenues coming from tickets on earlier basis. Apart from this, the introduction of
IFRS 15 will make the airline companies able to recognize revenues before the
tickets expire (assets.kpmg 2019).

TWO ACCOUNTING POLICIES
IFRS 16 Leases: The Australian airline companies have to bring certain major fundamental
changes in their lease accounting due to the introduction of this standard and thus, this
standard is selected. Under the current accounting regulation, airline companies are using
off-balance sheet financing along with rating the required airline facilities.
However, the companies will have to show all the previously off-balance sheet leases in the
balance sheet under new IFRS 16 which will lead to the addition of trillions of dollars of
lease inabilities in the balance sheets of the airline companies of Australia (pwc.com 2019).
The auditors need to monitor this whole process very carefully as it provides the scope of
material misstatements.

FINANCIAL PERFORMANCE
EVALUATION
Qantas’s revenue increases from the year 2013 to the year 2017 which shows the
improvements in the business performance of the firm. In addition, the company
has been successful in reducing their expenses from 2013 to 2017
Particulars 2013 $m 2017 $m % Change
Revenues 15902 16057 0.97%
Expenses 15698 14687 -6.44%

FINANCIAL PERFORMANCE
EVALUATION
2017 witnesses overall decrease in the total assets of Qantas when compared to
the end of 2013. After that, total liabilities of Qantas also decreases at the end of
2017 when compared to the end of 2013. At the same time, decrease in total
equity of Qantas can be seen at the end of 2017 when compared to the year end of
2013
Particulars 2013 $m 2017 $m % Change
Total Assets 20200 17221 -14.75%
Total Liabilities 14246 13681 -3.97%
Total Equity 5954 3540 -40.54%