B01BAVA320 - Business Analysis and Valuation: Qantas Airways Case

This case study provides a comprehensive business analysis and valuation of Qantas Airways. It begins with a competitive forces analysis using Porter's Five Forces, assessing the threats of new entrants, bargaining power of suppliers and buyers, the threat of substitutes, and rivalry among existing companies. A SWOT analysis identifies Qantas's strengths, weaknesses, opportunities, and threats, followed by an examination of the corporate strategies implemented since 1992, focusing on competitive advantage and international/domestic market growth. The report suggests two key accounting policies (IFRS 16 Leases and IFRS 15 Revenue from Contracts with Customers) for auditors to analyze the organization's revenues and profitability. An evaluation of Qantas Airways' financial performance between 2013 and 2017 reveals improvements in revenues and a decrease in expenses. Finally, the report provides recommendations for Qantas to maintain sustainable operations and enhance profitability in the competitive airline industry.

Running head: BUSINESS ANALYSIS AND VALUATION
BUSINESS ANALYSIS AND VALUATION
Name of the Student
Name of the University
Author Note

1BUSINESS ANALYSIS AND VALUATION
Executive Summary
The report is based on the analysis of the industry in which Qantas Airways operates and the
levels of competitiveness in the industry as well. The internal environment of Qantas Airways
has been analysed in the report in detail. The corporate strategies which have been
implemented by the organization are considered to be an important part of the analysis. The
report is able to suggest the two major accounting policies that can be used by the auditors for
analysing the operations of the organization. The performance of Qantas Airways between
the years 2013 and 2017 has been discussed in the report and this has been able to show the
improvement of revenues and profitability levels of Qantas Airways.

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Table of Contents
Competitive forces analysis of Qantas Airways............................................................3
SWOT analysis of Qantas Airways................................................................................4
Corporate strategy of Qantas Airways...........................................................................5
Two accounting policy choices for the organization.....................................................6
Evaluation of financial performance of Qantas Airways...............................................7
Differences and similarities in the findings in part (e)...................................................9
Recommendations........................................................................................................10
References....................................................................................................................11

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Competitive forces analysis of Qantas Airways
Competitive forces in the environment that can influence an organization can be
analysed with the help of Porter’s five forces tool. This analysis plays an important role in
examining the external environment and industry in a detailed manner. The industry in which
Qantas operates can be analysed in the following way,
Threats of the new entrants – The threats based on entry of new organizations in the
airlines industry are low. The requirement of huge levels of investment is considered to be a
major factor that is able to affect the entry of new organizations. The development of
infrastructure by the organization requires huge levels of investment and is able to affect the
ways by which the operations can be developed in the airlines industry (Assets.kpmg. 2019).
Bargaining power of the suppliers – The bargaining based power of the suppliers in
airlines industry is lower due to the availability of huge number of suppliers who are able to
offer similar services to the organizations. The suppliers are thereby not able to affect the
prices of services that are offered by Qantas Airways. The presence of major organizations in
the same industry can be considered to be another major reason behind the lack of power of
the suppliers of Qantas Airways (Barros, Hernangómez and Martin-Cruz 2016).
Bargaining power of the buyers – The bargaining based power of the buyers in the
airlines industry is high due to the availability of huge number of options related to services
that are offered to them. The customers in the industry are provided with options related to
premium services and low cost based air travelling services as well. The service providers are
thereby able to offer the services which have been able to increase purchasing power of the
buyers (Business Insider Australia. 2017).
Threats of the substitutes – The threats based on substitutes in the airlines industry
are low as airlines can be considered to be the fastest method of travelling between

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destinations. The levels of convenience that are offered by this mode of travelling are able to
reduce the threats that are related to substitutes. Other modes of transport are not able to
provide the levels of convenience to the customers like that of the airlines based
organizations. Long distances can be travelled by the customers within lesser time by availing
the services that are offered by airlines based organizations (Daspit et al. 2017).
Rivalry among existing companies – The rivalry levels among the existing
organizations in the airlines industry of Australia has been able to pose a major threat to the
operations and profitability of Qantas Airways. The direct competitor of Qantas Airways in
the industry is Virgin Airlines which provides tough the competition to the organization in
the domestic areas. The competition has started becoming so severe in the industry, that the
organizations have started facing huge losses (Demir, Wennberg and McKelvie 2017).
SWOT analysis of Qantas Airways
Strengths – The growth that has been shown by Qantas Airways in the airlines
consistent and steady and this has been able to act as a major strength of the organization.
Quality of the services that are offered to the customers is also quite high in comparison to
the competitors. The programs based on cost cutting that have been organized by Qantas
Airways have become highly successful and have been able to increase domestic business
related revenues. The leadership position that has been developed by Qantas Airways in the
industry is considered to be a major strength of the organization (Durand, Grant and Madsen
2017).
Weaknesses – The decline that has been depicted in the performance levels of the
company is a major weakness of Qantas Airways. The leadership position of Qantas Airways
in the industry has not been able to stop the decline in performance levels of the organization.
The profitability levels of the organization in international flight operations are low. Qantas

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Airways has also faced major issues that are related to the presence and operations of the
union groups. This has been able to affect the reputation of the organization and the
profitability levels of Qantas Airways as well (Dyer et al. 2015).
Opportunities – The growth in business travel is a major factor which provides
opportunities to Qantas Airways. The organization needs to tap growth based opportunities
which are offered with the proper alternation of the strategies. The reduction of fuel prices is
also considered to be a major opportunity that is provided to Qantas Airways in order to
increase the levels of profitability in an effective manner (Engert, Rauter and Baumgartner
2016). Qantas Airways can thereby increase its revenues and profitability in the industry by
reduction in the costs of services that are offered to the customers.
Threats – The high levels of competition in airlines industry of Australia are able to
pose major threats to Qantas Airways. Qantas Airways faces fierce competition from other
organizations in the industry. Virgin Airlines is able to provide toughest levels of competition
to Qantas Airways based on the prices at which services are offered to the customers. High
levels of competition are provided to Qantas Airways in the domestic airlines industry
(Ethiraj, Gambardella and Helfat 2018). The prices of services are affected by the
competition levels that are faced by the organization in the airlines based industry of
Australia.
Corporate strategy of Qantas Airways
Corporate strategies implemented by Qantas Airways in the international and
domestic market since the 1992 have played a key role in the successful operations of the
organization in the competitive industry. The most significant corporate strategy of Qantas
Airways is based on the development of effective competitive advantage in the industry. The
long term based values which have been gained by the organization are also maximized by

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Qantas Airways with the help of different brands and businesses that are a part of the
integrated portfolio of the company (Frynas and Mellahi 2015). The emphasis that is
provided by Qantas Airways to the growth of the levels of earnings from the international as
well as the domestic business operations as well. The growth of different brands of the
organization are pursued with the help of huge levels of investment. Another vital strategy
that has been implemented by Qantas Airways from the year 1992 is based on the shift of
cost base with the help of effective transformation of the organization (Hill, Jones and
Schilling 2014).
Qantas Airways has implemented many changes in the corporate strategies of the
organization based on different aspects and the conditions in the market. The levels of
competition in the industry have increased and has been able to affect the corporate strategies
that was implemented by the organization. The major change that was implemented in the
corporate strategy of Qantas Airways based on the development of new services including,
Qantas Loyalty and Qantas Jetstar (Michael, Storey and Thomas 2017). The organization has
changed the corporate strategy by expanding its operations in international market for the
purpose of grabbing the opportunity based on increasing the international base of customers.
On the other hand, the sustainability based aspects of the business can be improved with the
help of different factors including, talent and leadership, diversity and impact of the business
on the environment and on others as well. The changes in corporate strategy are considered to
be important for the ways by which Qantas Airways can maintain its sustainable operations
for a longer time in the airlines industry (Qantas.com.au. 2019).
Two accounting policy choices for the organization
Accounting policies are considered to be important for the ways by which the
profitability levels and the revenues of Qantas Airways can be analysed by the auditors. The

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two major accounting policies that can be implemented by the organization in order to
analyse the revenues are as follows,
Introduction of IFRS 16 Leases: The auditors in airline industry have to watch the
new lease accounting based policy that is also known as IFRS 16 Leases, as this policy will
be able to change the accounting based transaction for leases in a fundamental way. The
process of introduction of the IFRS 16 Leases is able to provide the obligation on different
airline organizations in order to put the leases in balance sheet of Qantas Airways. This will
be able to add trillions of the dollars of the additional lease based agreements in balance sheet
of the airline organizations (Investor.qantas.com. 2019).
IFRS 15 Revenue from Contracts with Customers – Introduction of the IFRS 15
Revenue from Contracts with Customers is able to bring significant levels of changes in the
airline company based on the deal that is made with the cargo airways related bills, air
tickets, loyalty points and various other contracts. The existing revenue based standards from
the tickets is considered to be non-refundable in nature. The likelihood of requirements of the
customers is based on the fulfilling performance based obligation. According to new
standards that are related to IFRS are able to recognize revenues that are earned from the
tickets on an early basis (Investor.qantas.com. 2019). The organizations in airlines industry
will also be able to recognize the levels of revenue before expiry of tickets.
The above two accounting standards can be used by the auditors of Qantas Airways in
order to analyse the profitability of organizational operations. The accounting standards have
been implemented by the organization in an effective manner in order to examine the changes
that have taken place in the market policies (Pwc.com. 2019). The management of the
organizational operations is dependent on the accounting based methods that are
implemented and used by the auditors.

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Evaluation of financial performance of Qantas Airways
Particulars 2013 2017 % Change
Revenues 15902 16057 0.97%
Expenses 15698 14687 -6.44%
2013 2017
0
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35000
Expenses
Revenues
Figure 1 – Financial performance of Qantas Airways
Source – Created by author
Particulars 2013 2017 % Change
Total Assets 20200 17221 -14.75
Total Liabilities 14246 13681 -3.97

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Total Equity 5954 3540 -40.54
Total Assets Total Liabilities Total Equity
0
5000
10000
15000
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40000
2017
2013
Figure 2 – Financial performance of Qantas Airways
Source – Created by author
The analysis of revenues and expenses levels of Qantas Airways is able to depict that
the organization has been able to improve its revenues from the year 2013 to 2017. The
improvement of revenues is considered to be a positive factor for the future sustainable
operations of Qantas Airways in the airlines industry of Australia. The expenses on the other
hand have decreased which is considered to be positive for the operations of Qantas Airways.

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The assets, liabilities and equity based levels of the organization have decreased from 2013 to
the year 2017 (Investor.qantas.com. 2019).
Differences and similarities in the findings in part (e)
The findings that have been shown in the analysis of financial performance of Qantas
Airways is based on 0.97% enhancement in the revenues of the organization. On the other
hand, percentage of decrease in the expenses is 6.44%. The total assets of the company have
reduced by 14.75% and the decrease in the levels of liabilities is 3.97%. The total equity
levels of Qantas Airways have decreased by 40.54% from the year 2013 to the year 2017
(Investor.qantas.com. 2019).
Recommendations
The major recommendations can be provided to the existing and potential investors of
Qantas Airways are to purchase the shares of the company based on reasons that are
mentioned below,
The revenues of Qantas Airways have increased between the year 2013 to
2017 which is considered to be a positive sign.
The decrease in expenses in the operations of Qantas Airways is also
considered to be effective for the investors.
The organization has been successful in reducing the total amounts of
liabilities in current year of operations of Qantas Airways.
The levels of total equity of Qantas Airways has been able to indicate that the
organization has been able to distribute major parts of the dividend in the
current environment.

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The shareholders can be recommended to buy the shares of Qantas Airways
based on current performance which is shown by the organization or the future
growth based prospects as well.