Financial Performance Analysis and Valuation Report: Qantas Airways

This report provides a comprehensive business analysis and valuation of Qantas Airways. It begins with an introduction and then delves into the Five Forces framework and SWOT analysis to assess the competitive landscape and internal strengths and weaknesses. The report examines Qantas's corporate strategy, including changes implemented over time, and discusses relevant accounting policies, specifically IFRS 15 and IFRS 16. A detailed evaluation of Qantas's financial performance is presented, comparing revenue, expenses, assets, liabilities, and equity over specific periods. The findings are analyzed, highlighting similarities and differences in the financial data. Finally, the report offers recommendations for potential investors and concludes with a summary of key findings and strategic implications.

Running head: BUSINESS ANALYSIS AND VALUATION
Business Analysis and Valuation
Name of the Student
Name of the University
Author’s Note

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Table of Contents
Introduction................................................................................................................................2
Five Forces Framework..............................................................................................................2
SWOT analysis...........................................................................................................................3
Corporate Strategy of Qantas and Changes in the Strategies.....................................................4
Two Accounting Policies...........................................................................................................4
Evaluation of Qantas’s Financial Performance..........................................................................5
Differences and Similarities in Findings....................................................................................6
Recommendation........................................................................................................................7
Conclusion..................................................................................................................................7
References..................................................................................................................................9

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Introduction
It is necessary for the managers of the companies and the users to consider analysing
the financial performance along with its valuation as this obtained information helps them in
making the decision of whether they can invest in the company or not. 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 Framework
The following discussion shows the competitive forces analysis of Qantas:
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.
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

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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
The SWOT analysis of the business of Qantas is discussed below:
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
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

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major threat for Qantas.
Corporate Strategy of Qantas and Changes in the Strategies
Qantas has employed certain specific corporate strategies for their national and
international business 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. In order to achieve this, Qantas has been
putting equal importance for the development of both national and international business. For
this, 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.
However, 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
The two accounting policies are shown below:

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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).
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.
Evaluation of Qantas’s Financial Performance
The following table shows the changes in Revenue and Expenses of Qantas at the end
of 2013 and 2017:
Particulars 2013 $m 2017 $m % Change
Revenues 15902 16057 0.97%
Expenses 15698 14687 -6.44%
As per the above table, 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

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company has been successful in reducing their expenses from 2013 to 2017. This is a
condition when companies can increase their overall profitability (Delen, Kuzey and Uyar
2013). Hence, increase in financial performance of Qantas is evident in 2017 as compared to
2013.
The following table shows the changes in Qantas’s assets, liabilities and equity from
the end of 2013 to the end of 2017:
Particulars 2013 $m 2017 $m % Change
Total Assets 20200 17221 -14.75%
Total Liabilities 14246 13681 -3.97%
Total Equity 5954 3540 -40.54%
It can be seen from the above table that 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. Thus, the decrease in total assets and total liability is not good for the business of
Qantas (Ngary et al. 2014).
Differences and Similarities in Findings
As per the findings of the previous section, it can be seen that the decrease in total
expenses as well as increase in the total revenue indicates towards the enhanced or improved
financial performance of Qantas in the recent years. This aspect leads to the increase in
profitability of the firm in the recent years (Malatji, Zhang and Xia 2013). However, when
discussing about the components of the financial position of Qantas that are assets, liabilities
and equity, reduction in these substances in 2017 as compared to 2013 shows the

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unimpressive financial performance of Qantas. However, improvement in the financial
position of Qantas is evident from the slight decrease in the total liabilities of Qantas in 2017
from 2013 (Levy 2015).
Recommendation
It can be seen from the above discussion that Qantas has a mixed performance in 2017
as compared to 2013 when the financial performance and financial position is considered.
The financial performance of Qantas is effective in 2017 but the company’s financial position
has not improved in 2017. Based on this information, two recommendations are provided
below:
1. Improve in financial performance of Qantas implies the increase in revenue and profit
while decrease in expenses. It implies that Qantas is managing their revenue and
expenses in an effective manner for increasing profitability. For this reason, it is
recommended to the potential investors to buy the shares of Qantas due to effective
financial performance; and the existing shareholders should retain the shares.
2. On the other hand, assets, equity and liabilities decreases in 2017. Decreases in total
equity indicates the decrease in the number of shareholders; and reduces number of
shareholders increases the proportion of company’s profit that the shareholders
receive. On the other hand, decrease in liability is goods for the company. Hence, in
the presence of these aspects, it is recommended to the potential investor to buy the
shares of Qantas and the existing shareholders should retain the shares of the
company.
Conclusion
It can be seen from the above discussion that Qantas has to take into consideration the
effects of their competitive forces at the time of the development of business strategies. At

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the same time, Qantas needs to consider the strengths, weaknesses, opportunities and threats
of their businesses for strategy development. The above discussion also states that the
auditors of the Australian airline companies are needed to consider the introduction of IFRS
15 and IFRS 16 in their business as these can create material misstatements in the financial
statements. It can also be seen from the above that the company has improved financial
performance; there is decrease in assets, liabilities and equity. However, in spite of effective
financial performance, the investors are recommended to buy or retain the shares of Qantas.

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References
Assets.kpmg. (2019). [online] Available at:
https://assets.kpmg/content/dam/kpmg/xx/pdf/2017/06/ifrs15-airlines-application-
guidance.pdf [Accessed 28 Feb. 2019].
Australian Financial Review. (2017). Australian aviation not for the faint-hearted . [online]
Available at: https://www.afr.com/brand/chanticleer/australian-aviation-not-for-the-
fainthearted-20170628-gx0dms [Accessed 28 Feb. 2019].
Delen, D., Kuzey, C. and Uyar, A., 2013. Measuring firm performance using financial ratios:
A decision tree approach. Expert Systems with Applications, 40(10), pp.3970-3983.
E. Dobbs, M., 2014. Guidelines for applying Porter's five forces framework: a set of industry
analysis templates. Competitiveness Review, 24(1), pp.32-45.
Hatch, P. (2017). Qantas profit slides as international competition revs up, stoking
'unprecedented airfare' discounts. [online] The Sydney Morning Herald. Available at:
https://www.smh.com.au/business/companies/qantas-profit-slides-as-international-
competition-heats-up-20170223-guj5x5.html [Accessed 28 Feb. 2019].
Investor.qantas.com. (2019). [online] Available at:
https://investor.qantas.com/FormBuilder/_Resource/_module/AH_NGR9NxUaXc0W8Qv3Kf
g/docs/QantasAnnualReview2017-06-Delivering-Against-Clear-Strategic-Pillars.pdf
[Accessed 28 Feb. 2019].
Levy, H., 2015. Stochastic dominance: Investment decision making under uncertainty.
Springer.
Malatji, E.M., Zhang, J. and Xia, X., 2013. A multiple objective optimisation model for
building energy efficiency investment decision. Energy and Buildings, 61, pp.81-87.

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Ngary, C., Smit, Y., Juan-Pierré, B. and Ukpere, W.I., 2014. Financial performance measures
and business objectives attainment in fast food SMMEs in the Cape metropolis: a preliminary
liability and suitability analysis. Mediterranean Journal of Social Sciences, 5(20), p.909.
Pwc.com. (2019). [online] Available at:
https://www.pwc.com/gx/en/audit-services/ifrs/publications/ifrs-16/ifrs-16-implications-for-
the-airlines-industry.pdf [Accessed 28 Feb. 2019].
Qantas News Room. (2019). Qantas Group Strategy Update. [online] Available at:
https://www.qantasnewsroom.com.au/media-releases/qantas-group-strategy-update-2/
[Accessed 28 Feb. 2019].
Qantas.com. (2019). Our strategic plan | Qantas. [online] Available at:
https://www.qantas.com/us/en/qantas-group/looking-ahead/our-strategic-plan.html [Accessed
28 Feb. 2019].