Financial Analysis Of Qantas Airways In 2017

Financial Analysis

Qantas Airways was founded in 1920. The founders of Qantas were Hudson Fysh, Paul McGinness and Fergus McMaster. in Winton, Queensland. It was initially registered as a Queensland and Northern Territory Aerial Services Limited (QANTAS). It is still operating for more than 95 years. The website name is Qantas.com. It is publicly listed company traded on Australia stock market (QAN.ASX). It is Sydney based company. After KLM and Avianca, the Qantas is the 3^rd oldest airline corporation. The Qantas is one of the strongest and providing longest distance airline services in Australia (Qantas, 2018). Qantas is operational in national and international lands covering 65 domestic destinations and 31 international destinations in 14 nations across Asia, Africa, America, Europe etc. The company is providing low budget airline services. Other business activities cover freight services, cargo services, hotels and aviation services (Qantas, 2018). The brand name of Qantas group is Qantas Cargo and Jetstar. Leigh Clifford was the chairman and Alan Joyce was the Chief Executive Officer of Qantas. Further, over 30,000 people with nearly 93 percent workforce employed and those are based from Australia (Qantas, 2018). The slogan of this company is “The Spirit of Australia”. In 2017, the number of aircrafts increased to 309 from 303 in comparison to 2016 financial year (Qantas, 2018).

Vertical Analysis

Consolidated Income Statement
For year ended 30 June 2017
Particulars Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper	2017 ($ million)	2017 (%)
Revenue and other Income
Net passenger Revenue	13857	86%
Net Freight revenue	808	5%
Other	1392	9%
Revenue and other Income	16057	100%
Expenditure
Manpower and staff related	4033	25%
Fuel	3039	19%
Aircraft operating variable	3436	21%
Depreciation and amortisation	1382	9%
Non-cancellable aircraft operating lease rentals	356	2%
Share of net loss of investments accounted for under the equity method	7	0%
other	2434	15%
Expenditure	14687	91%
Statutory profit before income tax expense and net finance costs	1370	9%
Finance income	46	0%
Finance costs	-235	-1%
Net finance costs	-189	-1%
Statutory profit before income tax expense	1181	7%
Income tax expense	-328	-2%
Statutory profit for the year	853	5%

Consolidated balance sheet
As at 30 June 2017
Particulars	2017 ($ million)	2017 (%)
Current Assets
Cash and cash equivalents	1775	50%
Receivables	784	22%
Other financial assets	100	3%
Inventories	351	10%
Assets classified as held for sale	12	0%
Other	97	3%
Total current assets	3119	88%
Non-current assets
Receivables	123	3%
Other financial assets	43	1%
Investments accounted for under the equity method	214	6%
property, plant and equipment	12253	346%
intangible assets	1025	29%
deferred tax assets	0	0%
other	444	13%
Total non-current assets	14102	398%
TOTAL ASSETS	17221	486%
Current Liabilities
Payables	2067	58%
Revenue received in advance	3685	104%
Interest bearing liabilities	433	12%
other financial liabilities	69	2%
provisions	841	24%
Total current liabilities	7095	200%
Non-current liabilities
Revenue received in advance	1424	40%
Interest bearing liabilities	4405	124%
other financial liabilities	56	2%
provisions	348	10%
deferred tax liabilities	353	10%
Total non-current assets	6586	186%
TOTAL LIABILITIES	13681	386%
Net assets	3540	100%
EQUITY
Issued capital	3259	92%
Treasury shares	-206	-6%
reserves	12	0%
retained earnings	472	13%
Equity attributable to the members of Qantas	3537	100%
Non-controlling interests	3	0%
Total Equity	3540	100%

From the above vertical analysis, following observations have been found:

In case of Consolidated Income Statement:

Considering 2017 financial year’s Consolidated Income Statement of Qantas Group, Net passenger revenue in 2017 was 86% of the total revenue of Qantas group which is remarkable. Further it has found that staff expenses and fuel expenses was only 25% and 19% respectively of the total revenue which means that company has expended only 1/4^th in manpower with the employment of more than 30000 people as a whole in Qantas group which shows that the company is making it better every day (Qantas, 2018). In addition to this, operating variable aircraft costs of the group was 21% of the total revenue. Finance costs amounting only 1% of the total revenue in 2017 financial year. 5% of the total revenue figured to Net profit of the year (Qantas, 2018).

In case of Consolidated Balance Sheet:

Considering 2017 financial year’s consolidated Balance sheet of Qantas Group, it has been analysed that cash and cash equivalent amounting $ 1775 million which comprises 50% of the net assets which signifies sound position (Qantas, 2018). Further property, plant and equipment amounts 346% of the total revenue which amounted to $12253 million. Receivables and payables of the group was 3% and 58% respectively. In addition to this, total equity consists of 92% of treasury shares in 2017 (Qantas, 2018).

Vertical Analysis

Horizontal analysis

Consolidated Income Statement
For year ended 30 June 2017
Particulars	2017 ($ million)	2016 ($ million)	$ change (B-C)	% change
Revenue and other Income
Net passenger Revenue	13857	13961	-104	-1%
Net Freight revenue	808	850	-42	-5%
Other	1392	1389	3	0%
Revenue and other Income	16057	16200	-143	-1%
Expenditure
Manpower and staff related	4033	3865	168	4%
Fuel	3039	3250	-211	-6%
Aircraft operating variable	3436	3346	90	3%
Depreciation and amortisation	1382	1224	158	13%
Non-cancellable aircraft operating lease rentals	356	461	-105	-23%
Share of net loss of investments accounted for under the equity method	7	0	7	#DIV/0!
other	2434	2411	23	1%
Expenditure	14687	14557	130	1%
Statutory profit before income tax expense and net finance costs	1370	1643	-273	-17%
Finance income	46	65	-19	-29%
Finance costs	-235	-284	49	-17%
Net finance costs	-189	-219	30	-14%
Statutory profit before income tax expense	1181	1424	-243	-17%
Income tax expense	-328	-395	67	-17%
Statutory profit for the year	853	1029	-176	-17%

Consolidated balance sheet
As at 30 June 2017
Particulars	2017 ($ million)	2016 ($ million)	$ change (B-C)	% change
Current Assets
Cash and cash equivalents	1775	1980	-205	-10%
Receivables	784	795	-11	-1%
Other financial assets	100	229	-129	-56%
Inventories	351	336	15	4%
Assets classified as held for sale	12	17	-5	-29%
Other	97	101	-4	-4%
Total current assets	3119	3458	-339	-10%
Non-current assets
Receivables	123	134	-11	-8%
Other financial assets	43	46	-3	-7%
Investments accounted for under the equity method	214	197	17	9%
property, plant and equipment	12253	11670	583	5%
intangible assets	1025	909	116	13%
deferred tax assets	0	39	-39	-100%
other	444	252	192	76%
Total non-current assets	14102	13247	855	6%
TOTAL ASSETS	17221	16705	516	3%
Current Liabilities
Payables	2067	1986	81	4%
Revenue received in advance	3685	3525	160	5%
Interest bearing liabilities	433	441	-8	-2%
other financial liabilities	69	203	-134	-66%
provisions	841	873	-32	-4%
Total current liabilities	7095	7028	67	1%
Non-current liabilities
Revenue received in advance	1424	1521	-97	-6%
Interest bearing liabilities	4405	4421	-16	0%
other financial liabilities	56	61	-5	-8%
provisions	348	414	-66	-16%
deferred tax liabilities	353	0	353	#DIV/0!
Total non-current assets	6586	6417	169	3%
TOTAL LIABILITIES	13681	13445	236	2%
Net assets	3540	3260	280	9%
EQUITY
Issued capital	3259	3625	-366	-10%
Treasury shares	-206	-50	-156	312%
reserves	12	-220	232	-105%
retained earnings	472	-100	572	-572%
Equity attributable to the members of Qantas	3537	3255	282	9%
Non-controlling interests	3	5	-2	-40%
Total Equity	3540	3260	280	9%

From the above horizontal analysis, following observations have been found:

In case of Consolidated Income Statement:

Considering 2017 and 2016 financial year’s Consolidated Income Statement of Qantas Group, total revenue amounted $ 16057 million and $ 16200 million in 2017 and 2016 respectively which means it dropped by 1% from 2016. Further manpower expenses rise by 4% whereas fuel expenses dropped by 6% in 2017 financial year. Further net finance costs decreased by 14%. In addition to this, in 2017, there was a decrement of 17% from 2016 net profit (Qantas, 2018).

In case of Consolidated Balance Sheet:

Considering 2017 and 2016 financial year’s consolidated Balance sheet of Qantas Group, it has been analysed that cash and cash equivalent amounting $ 1775 million and $ 1980 million which has decreased by 10% from 2016 year. Further receivables decreased by 8% and payables increased by 4% in 2017 (Qantas, 2018). Further, issued capital decreased by 10% from last year figures. In 2017, the company has increased its investment in property, plant and equipment by 5% with an increment of 13% depreciation and amortisation figures.

Ratio Analysis

Ratio analysis is performed from the data available in consolidated balance sheet, consolidated income statement and from consolidated cash flows. The data will be taken from 2017 annual report.

Liquidity ratios:

Current Ratio: The calculation is as follows:

Particulars	2017 ($M)	2016 ($M)
Total Current Assets	3,119	3,458
Total Current Liabilities	7,095	7,028
Current Ratio [Total Current Assets ÷ Total Current Liabilities]	0.44	0.49

Quick Ratio: The calculation is as follows:

Particulars	2017 ($M)	2016 ($M)
Total Current Assets	3,119	3,458
Inventories	351	336
Total Current Liabilities	7,095	7,028
Quick Ratio [(Total Current Assets less inventories) ÷ Total Current Liabilities]	0.39	0.44

Days receivable: The calculation is as follows:

Particulars	2017 ($M)	2016 ($M)
Receivables	123	134
total revenue	16,057	16,200
Days Receivable [Receivables*365]/total revenue	2.80 days	3.02 days

Days payable:

Cannot be calculated because the company has no purchases in 2017

Days inventory:

Cannot be calculated because the company has no cost of goods sold in 2017.

Summary:

It is summarised that the company’s liquidity ratio in 2017 was decreased as compared to 2016. This indicates that the company’s liquidity performance is not favourable as compared to last year (2016). Further, days receivable ratio is lower in current year which indicates favourable because collection process of the company is sound and also easily convert its revenue into cash. Days payables and days inventory cannot be calculated because company has no cost of goods sold in 2017 (Brigham and Ehrhardt, 2016).

Profitability ratios:

Return on Assets: The calculation is as follows:

Particulars	2017 ($M)	2016 ($M)
Net income	853	1029
Total assets	17221	16705
ROA [Net income/total assets]	4.95%	6.20%

Return on Equity: The calculation is as follows:

Particulars	2017 ($M)	2016 ($M)
Net income	853	1029
Shareholder’s Equity	3,540	3,260
ROE [Net income/Shareholder’s Equity]	24.09%	31.56%

EPS: The calculation is as follows:

Particulars	2017 ($M)	2016 ($M)
Net income	853	1029
No. of Shares	1808226377	1918801014
EPS [Net income/No. of shares]	$ 0.47	$ 0.54

PE ratio: The calculation is as follows:

Particulars	2017 ($M)	2016 ($M)
MPS	$ 5.72	$ 2.23
EPS	$ 0.47	$ 0.54
PE Ratio [MPS/EPS]	$ 12.17	$ 4.13

Summary:

It is summarised that the company’s profitability ratios in 2017 is better. Let us discussed in the following points:

Higher ratio is more favourable to stockholders because it depicts that the company is managing its assets effectively to produce more returns. Hence, this shows that ROA is not favourable (Routledge, Sargeant, Jay, 2014).

Consolidated Income Statement

ROE means returns earned by the company from the amount invested by the stockholders. Hence, in this case company’s ROE is lower from last year which depicts un-favourable for the company in generating income.

Higher EPS is better because this means the company is more profitable. Hence, EPS in 2017 is lesser as compared to 2016 which is also un-favourable.

Last but not the least, higher PE ratio is better because it signifies progressive upcoming performance of the company and this leads to rich investment by the investors.

Leverage ratios:

Debt Equity ratio: The calculation is as follows:

Particulars	2017 ($M)	2016 ($M)
Total Liabilities	13,681	13,445
Total Equity	3,540	3,260
Debt to Equity Ratio [Total liabilities/total equity]	3.84	4.12

Times interest ratio: The calculation is as follows:

Particulars	2017 ($M)	2016 ($M)
EBIT	1,370	1,643
Interest costs	243	268
Times interest Ratio [EBIT/Interest expenses]	5.64	6.13

It is summarised that the company’s leverage ratios in 2017 is better. Let us discussed in the following points:

In this case, debt equity ratio is lower as compared to 2016 which signifies more stable positon of the company. In other words, less risky to the investors.
In this case, Qantas group has enough money after paying off its interest obligations which is positive situation for a company (Tracy, 2012).

SWOT Analysis

Strength	1. Trustworthy and strongest airline company offering services to 65 domestic and 31 international destinations. 2. Recently it has new aircrafts in its fleet which were very fuel efficient and it is the first non-stop flight between Europe and Australia named “Boeing 787 Dreamliner”. “A380” etc. 3. The subsidiary’s brands are Jetstar group, Qantas holidays and Qantas link etc. 4. Over 30000 people are the part of Qantas Group.
Weaknesses	1. Industrial action clashes. 2. Group faces various threats in form of monetary and operating risks because of the negotiating power of the manpower. 3. Australia dependency is very high due to its location.
Opportunities	1. Leader in Australian market. 2. For combined services to the passengers, Qantas group have tied up with other airlines. 3. Offering services to many Asian destinations.
Threats	1. Operations are affected due to increment in the fuel prices. 2. Other airlines business are increasing affecting the Qantas airways business.

Swot Analysis is summarised as follows:

Strengths: Qantas business offers premium travel experience to the customers consistently with low fares. Another point can be added is that the Qantas group continuously to be the most profitable airline network in Australian market with nearly market share of 60%. The Qantas group has two airlines named Jetstar and Qantas providing services globally with approximately 65 destinations are domestic and 31 destinations are international across Australia, Europe, Asia, America etc. Recently it has new aircrafts in its fleet which were very fuel efficient and it is the first non-stop commercial flight between Europe and Australia named “Boeing 787 Dreamliner”. Further more than 30000 people working across the group make it every day phenomenal.
Weaknesses: Presence of Qantas airlines is very limited in international market due to other airline companies. Other issues such as price fixation, incidents are also weaknesses of the group. Further, Group faces various threats in form of monetary and operating risks because of the negotiating power of the manpower. In 2012 financial year, due to industrial clashes Qantas group have been disregarded which has caused damage and resulted into 70000 passengers have been disrupted and around 600 flights have been cancelled.

Opportunities: In recent years, more airlines in Asia have been started by the group. Another opportunity is to tied-up with many airlines for the purpose of offering combined set of services. The group is the leader in Australian market. Further for the regular customers, the group has started issuing points for many activities such as hotels, car rentals etc. and the customers are rewarded from time to time. This will boost the servicing effectiveness (New Horizons, 2016).

Threats:Operations are affected due to increment in the fuel prices. Failure of technology will lead to decrease in revenue and also customers will move to other leading airlines. Due to Regulatory conditions, non-compliance of the regulations would cause the group to fines, penalties etc. Further additional laws have been proposed which will increase costs and will Impact net margins.

Thus, from the above SWOT analysis it can be inferred that strengths make a Qantas well reputed airline company and for the weaknesses company must increase prices as per competition. Concerns must be resolved instantly to resolve the threats.

Competitor is one who engages its business activities in same or similar market or industry which offers same services or goods.

Competitor Analysis is done through variety of approaches whether in qualitative approach or in quantitative approach. Qualitative approach includes price elasticities, price correlations, performance characteristics and operating in same geographic market and it is tending to be ad hoc. Further, the tools for competitor analysis can also help managers to gain a deeper appreciation of what drives attack and response behaviour (Peteraf, Bergen, 2018). This will permit them to expect their competitor’s moves more precisely and to answer more wisely. Further analysis also helps executives to prospect new chances that others might not see so willingly, thus empowering them to move more rapidly and take benefit of them as they rise.

The list of Qantas group competitors are as follows:

Air India
Air France
Virgin Atlantic
United airlines
Malaysian Airlines
Etihad Airways
Qatar Airways
Singapore Airlines
Air New Zealand
British Airways
Emirates
Turkish Airlines etc.

Thus, all the above competitors are engaged in aircraft industry / market. Let us take one competitor and analyse the performance of Qantas group.

Example: British Airways

British airways are a UK based airline company offering services in global market that is 150 destinations across 6 continents. It has a fleet size of more than 260 aircrafts. British airways have strong international presence with sponsorship of events like Olympics etc. (British Airways, 2018). bring huge reputed brand image. The company has also excellent brand advertisement across the globe (Qantas, 2018). Thus, comparing SWOT findings of Qantas group with British Airways it is analysed that both have strong advertisement and marketing exercises across the world. Plus, both provides numerous facilities like business/ first class, lounge, in-flight entertainment, loyalty programs etc. (Peteraf, Bergen, 2018). As a result, executives learn to direct their viable environment with bigger proficiency, they should see improvements in both the modest position and performance of their ?rms, relative to more short sighted competitors.

Consolidated Balance Sheet

In simple words, Dividend means the part of profit which are distributed to the stockholders. Below we are discussing the types of dividend, conditions and set procedures for dividend pay outs.

There are some set procedures for dividend pay outs. These are as follows:

At Declaration date, company’s directors approved the payment of the dividend to the shareholders.
At Ex-dividend date, some stockholders are cut-off from the dividend entitlement. This is possible when the stockholder acquires shares on Ex-dividend date then in that case, shareholder is not entitled for the dividend. In other words, after this date new shareholders will not receive the dividend.
After the above date, holder of record date is the date in which entitled stockholders are announced who will receive dividend.
At the payment date, actual dividend is paid to the stockholders.

Dividend are entitled on equity and preference shares based on the rate decided by the investors of the corporation.

Interim dividend: Dividends confirmed and paid during mid of reporting year before the full year’s earnings are determined.

Final Dividend: It is announced in AGM and this becomes outflow to the company.

Note: Listed companies are required to inform to stock exchange market about the payment of dividend.

After the declaration, the dividend has to be paid within 30 days of declaration to the bank account. However, if the same has not been paid within the designated time then in that case directors of company will be held punishable and could expose for fines and penalties. In addition to this, interest as per annum basis is also liable to pay by the company.

As we know that, aviation or airline is the largest emergent industry. It enables economic growth, international business, travel and it is central to the globalisation for many other industries. The Qantas group is one of the most reputed brand in airline sector across the world. The tag line of this company is “the spirit of Australia”. In todays’ competition, the group has to focus on external environment factors to keep its position in the market.

The external environment has a massive influence on the aviation sector. It has been studied that international tourism market has declined after September 2001 US terrorist attack. The Qantas group is operating in many international locations including America, Asia, Europe, Australia etc.

The Qantas group is the Australian based company. The external analysis will be performed through PEST framework. This refers to Political, Economic, social and technological factors.

Political: This factor deals in government guidelines and its effects. It comprises of legal elements such government policies, tax regulations etc. Market has always been influenced by the government directly or indirectly. Thus, the company must be on their heels always due to the new competitors’ burden who have come with advanced ideas and discounted prices.
Economic: It has direct effect on all industries. These are inflation rates, Gross domestic rate, unemployment rate and exchange rates, bilateral trade etc. Further if the economy of a specific nation is going towards downward position, then it will suffer recession. The Qantas group has directed more than 50% capacity to Asian region.
Social: This factor impacts the values, beliefs, lifestyle of the world. Languages, cultures etc. of different nations must take into account.
Technology: To survive in the market, one has to keep itself updated and also opens up new opportunities. Further this reduces the production costs and increment in customer satisfaction.

Thus, the Qantas group must also have regulated with the taxation policies, government policies etc. Further, group must also keep focused on inflation rates, exchange rates, bilateral trade, GDP etc. to avoid recession. The group must also adopt various cultures of different nations due to operating globally. Technology must also be updated for the purpose of increasing customer satisfaction (New Horizons, 2016).

Conclusions:

Qantas group is an airline company of Australia and also one of the leading and strongest companies across globe. At present the company is operating in Australia, America, Europe, Asia etc. After conducting the financial analysis, SWOT analysis and external environment analysis it has been found that company’s liquidity position is not satisfactory due to lower numbers as compared to last year. Further assets of the group are well managed but the shareholders do not earn satisfactory returns due to low ROE from last year (2016). From SWOT analysis, it can be inferred that strengths make a Qantas well reputed airline company and for the weaknesses company must increase prices as per competition. Concerns must be resolved instantly to resolve the threats. From Competitor analysis, it was examined that SWOT findings of Qantas group with British Airways it is analysed that both have strong advertisement and marketing exercises across the world. Plus, both provides numerous facilities like business/ first class, lounge, in-flight entertainment, loyalty programs etc. From External environment analysis, it can be inferred that the Qantas group must also have regulated with the taxation policies, government policies etc. Further, group must also keep focused on inflation rates, exchange rates, bilateral trade, GDP etc. to avoid recession. The group must also adopt various cultures of different nations due to operating globally. Technology must also be updated for the purpose of increasing customer satisfaction.

As a whole, we can say that the company is well suited for investment purposes to earn sound and satisfactory returns

References

Brigham, E.F. & Ehrhardt, M.C. (2016). Financial Management: Theory & Practice. 15th ed. Boston: Cengage Learning.

Routledge, Sargeant A, Jay E. (2014). Fundraising management: analysis, planning and practice.

Tracy, A. (2012). Ratio Analysis Fundamentals. Ratio analysis. Net.

Australian Institute of Business. (2016). Financial Management. 7^thEd.

New Horizons. (2016). Qantas Annual report 2016. Retrieved on 10 May 2018 from https://www.qantas.com.au/infodetail/about/corporateGovernance/2016AnnualReport.pdf.

Peteraf, M.A., Bergen, M. (2018). ‘Competitor Identification and competitor analysis: A broad-based Mangerial Approach’. Journal of managerial and decision economics. pp. 157-169.

British Airways. (2018). About British Airways. Retrieved on 10 May 2018 from https://www.britishairways.com/en-in/information/about-ba.

Qantas. (2018). Our company. retrieved on 10 May 2018 from https://www.qantas.com/travel/airlines/company/global/en.

ASX. (2018). Qantas Airways limited. Retrieved on 10 May 2018 from https://www.asx.com.au/asx/share-price-research/company/QAN.

Qantas. (2016). Our company. Retrieved on 10 May 2018 from https://www.qantas.com/travel/airlines/company/global/en.

Qantas. (2018). About Qantas. retrieved on 10 May 2018 from https://www.qantas.com/travel/airlines/about-qantas/global/en.

Turn in your highest-quality paper
Get a qualified writer to help you with

“ Financial Analysis Of Qantas Airways In 2017 ”

Get high-quality paper

NEW! AI matching with writer

Order an Essay Now & Get These Features For Free:

Turnitin Report

Formatting

Title Page

Citation

Outline

Place an Order