Business Valuation and Analysis of Qantas Airline Limited - Sample

Question: Discuss about the Business Valuation and Analysis of Qantas Airline Limited. Answer: Introduction: The Qantas airline limited is a global company. The head office of the company is in the Australia. The mission statement of the Qantas airline expresses the motive of the company that it wants to become the best airline company worldwide. This company started functioning in 1920 at Queensland. And currently, this company is recognized as the largest Australian airline firm. The key services of the company are its safety services, engineering services, proper maintenance, customer services and operational reliability. Above services are helping the company to achieve its mission. The main business functioning of the company contains the airline services internationally to the international clients (CAPA, 2015). This company has launched two brands in the market to manage this process which are Qantas and Jetstar. Apart from it, Qantas also manages various subsidiary businesses in other industries such as catering business, Flyer Frequent Flyer, Qantas Freight Enterprise and Qantas. This company has enjoyed the market in international market, home market and the local market. The case study of Qantas and thee annual report and website of the company depict that the various business opportunities are there in front of the company which is helping the company to manage the competitive aspect in the market and industry. This company has enjoyed the market in international market, home market and the local market. Through, it has been found that various up and downs had faced by firm in last few years. Still, the company has managed the operations and currently the company is in the top in airline industry (Whitley, 2017). Though, it could be said that competitive advantage of the company assists the company to manage the performance of the business. In this paper, various techniques and evaluation methods have been analyzed to find the performance of the company. Qantas Porters Five Forces Michael porter has expressed that a companys competitive advantages could be evaluated by an analyst through the 5 forces model. This model has been invented by the Michael Porter which depict about the competition among the already existed players, bargaining powers of buyers, bargaining power of suppliers, threats from competitors and the substitutes availability. In this case study, these models would be applied over the Qantas Airline Group to examine the competitive advantage. Competition among the already existed players Every organization accesses the functions of the company in a competitive environment. Similarly, the company, Qantas Airline business is also performing its functions into the competitive market. The main competitor of the company is Virgin Blue Airways and Tiger. Globally, this firm has faced huge competition from many companies such as British Airways (Coughlin et. Al. 2002). The already existed players in the market has made it easy to analyze the competition through analyzing the profits, market growth and competition cost. Though, airline industry has huge market to cover and thus various opportunities are there for the Qantas to grab the market and interact with new market and the new customers to achieve the mission of the company. Bargaining Power of Buyers Bargaining power in an industry depends over the buyer of the industry. In aviation industry, the power of buyers is quite high as the aviation industry is competitive and thus various options are available in front of the buyers. Mainly, the barraging power of vacation industrys buyer has been enhanced due to the cost strategy adopted by the Qantas and other competitive companies. Competition companies of Qantas are using the lowest cost strategy to grab the market and thus the buyers have opted the flight which offers the lowest fare. Thus the Bargaining power of customers is high and company must make the changes into the cost strategy to manage the market share (Datamonitor, 2009). Bargaining Power of Suppliers Bargaining power in an industry depends over the supplier of the industry. In aviation industry, the power of suppliers is quite high as the part of airplanes and air busses are quite costly and there are few suppliers in the market who offers the raw product of the aviation products. And thus various options are available in front of the suppliers. Mainly, the barraging power of aviation industrys supplier has been enhanced due to the few suppliers and high firms (Elmuti and Kathawala, 2001). Competition companies of Qantas are also buying the products from the market for their product. Thus the Bargaining power of supplier is high and company must adopt new strategy and look over the supplier who could provide qualitative product in low price. Threat of the Substitutes The case study of Qantas airlines limited has been analyzed and it is obvious that Qantas has faced huge competition which has been imposed due to the other already exited player in the market. This depict that various options are available for the customers to travel. Substitute products offer a threat to the company as more chances are there to grab the market from them. Qantas is facing substitute threat in global and local level. In local area, the substitute products of the company are railway transport, road transport, sea transport etc. whereas in international area, the substitute products of the company are sea transport. The global area of the company is threatened by British Airways (Fu, Oum and Zhang, 2010). The inferior presentation product depicted by other competitors and companies in the industry which makes it complex for the clients to change from service of Qantas to other offered services by the players. Otherwise, other firms in this industry provide low-quality goods which make it tough for the customers to switch to other products from the Qantas' products. The acceptance of substantial goods separation has been best for the company. The firm has distinguished its services and products by conniving dissimilar services from the competitive companies in the market. Through a report it has been analyzed that if the products or services are distinguished from the rivals. It becomes complex for the clients to discover other substitute products that could gratify their demands. Lastly, there are few substitutes available in the airline industry. The accessibility of some substitutes had impacted positively for Qantas in this industry. Threat of New Entrants Entrants are the new players in the industry. An organization always finds threat from the new entries in the market as the new players could affect the market and customers of the existing company. If an industry is achieving the heights than the entrepreneurs get more attracted towards to that industry so that the profit maximization could be done and the opportunities could also be grabbed by the company. There are various factors which make an impact over the new entrant in the industry such as regulations, interest rate, profit rate, other companies and others. At present, it is quite tough for the new companies to enter into the airline industry as high cost would be required and the industry is not performing very well. This has been found that investments high cost makes it little difficult for new entrepreneurs to make an entry. For instance, high operational cost like catering, security and IT are there. And it also impacts the decision of new entrant that aircraft must be taking on lease or should purchase it (Qantas Airways Ltd, 2017). Various other factors are also there which impacts the new entrant into the industry. Through the above analysis it has been found that there are few threat from the new entrant to the Qantas as company is performing absolutely good and entry is not that much easy in this industry. Qantas SWOT Analysis Study of SWOT analysis has been done over the firm to analyze the market and internal factor of the firm. Which are as follows? Strengths: Strength of Qantas Airline is connected to its sturdy products and the brands which are known by people on international level. In addition, its services also offer the diversification to it that offers an opportunity to the firm to keep on dominating the large market share internationally, domestically and local market (Sandilands, 2012). Weaknesses: The main weakness of Qantas is its reliability over the first class and business class passengers. It doesnt look over the economical class which impacted the revenue of the company and it also affected the business in the time of crisis. Opportunities: Various opportunities are there for the Qantas limited to enhance its global market. The company could concur with extra countries in different markets to enhance its global travels. Consequently, Qantas could expand its services and products to objective and convene numerous needs of customers (Sumers, 2013). Threats: Lastly, it has been found that the business operates in a vibrant surroundings; Qantas Airline limited is probable to understanding from the global financial disaster. As well, the firm business functions could be pretentious by various threats that have been posed by global terrorists. Qantas Corporate Strategy From 1992, the corporate policy and strategy of Qantas has offered various transportation ways to passengers through it brand named by Australian flagship airliner. From that time, this policies and strategies of the company have not been changed particularly in home division of the company where it has sustained offer various transportation services to Australians customers in low cost throughout its brand Jetstar division. For meeting the increasing travelers internationally, low costs services have been offered by the company, Qantas have enhanced its division of Jetstar business. Many other changes have also been made by the company in its strategies to contain the program of Frequent Flyer Loyalty. So that more customers could be attracted and low staff cost strategy has also been adopted. Accounting Policies Plant, Property and Equipment Valuation (PPE) Valuation Majorly the assets of airline industry are aircraft. Aircrafts are required to depreciate and impairment is also required. Mainly, various times, the industry values the assets over. The PPE technique helps the company to overestimate the final financial position and performance of the company. Thus, it is significant for auditors to analyze carefully and scrutinize the impairment methods and depreciation methods which have been used to determine whether they FASB (Financial Accounting Standards Board) regulations have been followed (Qantas Airways Ltd, 2017). Leasing Accounting Policy As discussion in this report earlier, invest into the aviation industry is more costly as it requires to purchase aircraft which are more expensive. From time to time, the airline industrys firms may discover it significant to lease an airplane than buy it. Though, this might be used as a chance to fiddle the stakeholders capital. Consequently, it is imperative for auditors to scrutinize the present leasing strategy to decide whether it correctly carried out. Depreciation Policy The first accounting strategy depict that major assets of airline industry (PPE) are lying on the front to be depreciated. Thinking in the mind, several depreciation methods are there such as straight line method (SLM) and double depreciation technique. But all of them could not be applied in the airline industry. Thus, the external auditors must examine to set up that whether the firms in this industry are using the right methods. Qantas Financial Performance and Position (2013) Financial Performance (Income statement) In 2013, company has received a profit worth of $15.9 billion. This time, the total cost of the company was $13.83 billion. Other incomes and costs have been increased and reduced income and expenses before the net profit of the company respectively to $1 million. A significant improvement has been analyzed in the performance of the company from 2012 as at that time, the net loss of the company was $245 million. The fastest growth of the firm has been investigated in the position of the company in last eight years. The development in the financial position and the performance were reinforced by the activities which were accepted by the firm during the year (Craigie Bekiaris, 2010). It includes the careful theory of capital expenditure. More, the financial performances growth has also been enhanced due to the growth of home business operations (Qantas Airways Ltd, 2013). Financial Position (Assets, Liabilities and Owners Equity) In 2013, total assets in balance sheet of company have been noticed to $ 20,032 million. The growth of total assets has been analyzed at -5.41%. More, total liabilities in balance sheet of the company has been analyzed $ 14,192 million and at the same time, the owners equity has been evaluated $ 5,840 total to $ 20,032. Few changes have taken place into the financial position of the company in 2012 which were ranging at $ 21, 178. In the year 2013, the liabilities of the company outmoded the owners equity which depict that the firm trusted more on debts funds and loans to funding thefinance for its operations (Qantas Airways Ltd, 2013). Qantas Financial Performance and Position (2016) Financial Performance (income statement) In year 2016, company has realized a net profit worth of $1.03 billion. This was a wonderful enhancement in the companys financial performance from last 10 years. The total expense of the company was worth of $15.71 billion (Qantas Airways Ltd, 2016). Financial Position (balance sheet) In year 2016, the total assets of the company were $ 16,705 million whereas the total growth was of -4.71%, asset turnover ratio of the company was 0.95 and ROA (return on average) of assets was of 6.01%. The company has enjoyed a high growth according to the asset performance from last few years (Qantas Airways Ltd, 2017). Though, the liabilities of the company have been amounted to $ 13,445 million and at the same time, the owners equity was $3, 360. Similarities and Differences in 2013 and 2016 Similarities In both the years, firm has made a profit as well as little enhancement in terms of financial performance which has been compared to the past years. The financial position of the company has also been improved. Differences In both the years, the difference in the net profit of the company was high and the liability of the company has also been reduced in 2016 than 2013. The financial position of the company is enhancing continuously. Recommendation to Investor Thus according to this study, this paper suggests the investors of the company must look over the potential share and the value of the company before making investment into that company. According to this study, investment could be done in this company as high returns could be got due to tremendous increment in profits and the enhancement in the corporations operations. References: CAPA Centre for Aviation. 2015. Qantas Airline Group. Retrieved from CAPA Centre for Aviation: https://centreforaviation.com/data/profiles/airline-groups/qantas-group Coughlin, Cletus C. and et. Al. 2002. Review. Aviation Security and Terrorism: A Review of the Economic Issues, 845, 9-16.finance Craigie, J. Bekiaris, M. 2010. Money. Qantas gets cosy with AirAsia, 2120, 16-16. Dallas, H, 2011. Strategic Management; competitiveness and globalization. Strategic management, Asia-Pacific 4th ed, pp 434-440. Datamonitor. 2009. Airline Industry Profile: Asia-Pacific. Airline Industry Profile: Asia-Pacific, 1-32. Elmuti, D. and Kathawala, Y. 2001. An overview of strategic alliances. Management Decision, vol. 39, no. 3, pp. 205-217. Fu, X., Oum, T.H. and Zhang, A. 2010. Air Transport Liberalization and Its Impacts on Airline Competition and Air Passenger Traffic. Transportation Journal, vol. 49, no. 4, pp. 24-41. Qantas Airways Ltd. 2017. Annual Financials for Qantas Airways Ltd. Retrieved from Annual Financials for Qantas Airways Ltd.: Annual Financials for Qantas Airways Ltd. Qantas Airways Ltd. 2017. Financial Position Annual Reports. Retrieved from Qantas Airways Ltd.: https://quotes.wsj.com/AU/XASX/QAN/financials/annual/balance-sheet Qantas Group. 2013. QANTAS 2012/13 Full Year Financial Results. Retrieved from Qantas Group: https://www.qantasnewsroom.com.au/media-releases/qantas-201213-full-year-financial-results/ Qantas Group. 2016. Our Company. Retrieved from Qantas Group: https://www.qantas.com/travel/airlines/company/global/en Sandilands, B. 2012. Harder times ahead for major Qantas competitors. Retrieved from https://blogs.crikey.com.au/planetalking/2012/05/11/harder-times-ahead-for-major-qantas-competitors/ Sumers, B. 2013. Qantas has claimed to be unconcerned by Virgin Australias Proposed Acquisition of a 60% Stake in Tiger Australia, Insisting its Position is Strong Enough to withstand the Deal's Impact on the Domestic Market. Retrieved from https://www.travelweekly.com.au/article/Qantas-asserts-domestic-position-as-competition-mo/ Whitley, A. 2017. Qantas Profit Dips Amid Overseas Competition. Retrieved from https://skift.com/2017/02/23/qantas-profit-dips-7-5-percent-amid-overseas-competition/