Retail Travel For Flight Centre Group Limited

Business Strategy Analysis

Describe about the Retail Travel for Flight Centre Group Limited.

Flight centre group limited is an Australian based company which has been regarded as the Australia’s largest retail travel outlet in the country. The company has been operating domestically within the country as well internationally. The company currently has its operations working in United States, Australia, United Kingdom, Canada, China, Hong Kong etc. The company has been listed on the stock exchange functioning in Australia. The company in the recent years has crossed the turnover of $17 billion which is an achievement within itself. The company through the help of its 2500 retail stores operating in more than12 countries has captured a wide range of customers. The company opened its first flight centre store in Australia in the year 1982. The company further during the year 1990 has opened its stores in other countries including New Zealand, United states etc. However, during the Gulf war, the operations of the company was impacted but later on the same gained momentum and the company expansions took place by taking over certain different online site across the globe. The company has been well known across the globe for its services. The company as result has been awarded multiple times during the last decade for its services. The company has won major leisure, corporate and wholesale travel awards in the year 2012 AFTA National Travel Industry Awards.

The management of the company believes in providing quality services to their customers. They believe that their company should be at the top, leading the aviation industry in the country. For their customers, the management believes in providing multiple options so that among them they can make a choice so as to enjoy better travel experience Further, they are willing to provide these services at affordable prices so as to make it within the reach of everyone. They have special concern for their employees and they consider their people as their own responsibility. They want their people to be happy at the work place and enjoy job and financial security in all means. The management further focus on ensuring that the employees of the company feel the success of the company and thus, they should have a share in the profit that has been earned by the company. The management has an objective of retaining its employees and recognizing them on timely basis for their efforts through the help of awards. They believe in developing the incentive structure which is transparent in nature. The company is further targeting of making the company global in both offline and online means.

SWOT analysis of Flight Centre

There are multiple external factors which are uncontrollable but influence the decision making that takes place within the organization. These external factors at the same time affect the performance and the business strategies of the company in the long run. These external factors includes: political, legal, social, changes, technological changes, prevailing natural forces etc. There are certain specific examples for the macro environment includes changes that took place in the interest rates, change in the taste of the customers, change in weather and any updation that took place in the regulations of the government. In the case of Flight centre group limited being incorporated in Australia would have multiple external factors that would be impacting the decision making a strategy formation of the company. Being the company is pertaining to the aviation industry, the regulations etc. would be expected to be very rigid and stringent which are required to be adhered by the management of the company. These regulations etc. would be impacting the balance sheet as well the profit and loss numbers of the company. In the year 2015 and 2016 there has been no major macro-economic factors impacting the business in long run.

The competition is very important for an industry to grow. In the airline industry, there is tough competition where the companies strive for better services to the customers at reasonable prices. There are basically five forces of Porter’s that is being used for carrying out the competitive analysis of Flight centre group limited.

Competitive Rivalry: In the current times the airline companies are entering into mergers acquisitions as result of which the competition in the industry is increasing. The Flight centre through the help of its 2500 retail chain all across the globe has been trying to knock down this growing competition.

Entry Barriers: There has been huge capital involved and there are restrictions imposed by the government which has let to barriers in entering into the industry. On the other hand, the profit margin in the airline industry has decreased as well which has made it a bit more difficult for the companies to enter. On the other hand, in case of Australia, the landing slots for the aircrafts are limited. The already established airline companies have already reserved the landing slots making the entry of new companies at the same time more difficult.

Threat of substitutes: The number of substitutes has increase for the customers like travel by car, taxis, train etc., which has increased the competition for the airline companies.

Evaluation of the Airline Industry

Bargaining power of supplier: The Flight centre is more concern about spending more on the fuel efficient aircrafts rather than spending more on carrier aircrafts. Thus, being they are more concerned on fuel efficient aircrafts, thus their profit margin is very much impacted by the movement in the oil prices. Thus, this may let to high bargaining power of oil supplies.

Bargaining power of buyer: Now days, the bargaining power of the consumers has increased. The customers prefer selecting the option that provides more value to them for their money. With most of the information available on internet, the customers can compare the different flight options and then accordingly based on the one that provide best service in low price would be selected.( Nhuta S)

SWOT analysis stands in for Strengths, weaknesses, opportunities and treats.

The major strengths of the company are as follows:

• High profits earned by the company.
• Skilled labor force working in for the company.
• Less labor cost

The major weaknesses of the company are as follows:

• The debt rating of the company in the future is quite high
• The current cost structure of the company is alarming for the management of the company.

The coming opportunities of the company are as follows:

• The availability of new market.
• The availability of new products and services

The alarming threats of the company are as follows:

• The increasing cost of the product and services
• The increasing rate of interest
• Changes taking place in the tax rates
• Change in government regulations
• Technological changes

The airline industry in Australia has been deregulated in the year. This deregulation has opened new gates which has let new airline companies to enter into the Australian market. This has impacted companies like Qantas who re old players and are going to get very much impacted by this regulation. Overall the airline industry has shown a growth since last one decade. The preference of the travelers keep on changing over the period from one airline to another but still with the increased pay and value of money, the choice of people in order to travel through air has increased.

Looking at the past performance of the company, it is evident that the company in the next 5 years will defiantly find new growth areas. The sales of the company since last 5 years have been increased consistently on an average at the rate of 10%. This has a direct impact on the gross profit of the company which has again remained consistent and is increasing with a steady pace of 7%-10%. With the movement in the sales and gross profit, the net profit of the company is quiet volatile; this depends on the movement and inflation taken place in the prices which has in overall times impacted the net profit of the company. Thus considering these points it is evident that the growth of the company in the coming 5 years is going to be consistent and would be in line with the past years unless and until something exceptional happens.

Accounting Analysis

The accounting policy that has been followed in by the company is in line with the applicable Australian Accounting Standards and interpretations issued by the Australian Accounting Standard Board and the Corporations Act 2000. In the case of Flight centre, AASB 9 i.e. financial instrument provides information about the measurement, classification and de recognition of financial assets and liabilities in the books of accounts. The accounting standards sets up rules that are being used in for hedge accounting and at the same time introduces a new model for impairment loss. As per the pronounced date, the policy is expected to be effective from the year 2018. However, the management of the company has decided to adopt the accounting policy from the year 2016 itself. As result of the above change in the accounting policy, the valuation of the financial assets and financial liabilities has undergone changes. This change has impacted the retained earning section. As result of the above re measurement in line with AASB 9, the retained earnings for the company has change in the retained earnings been $1,088,000 downside. Being this was an early adoption of the accounting standard by Flight centre management in order to ensure that they portray correct picture going forward to their shareholders and stakeholders. This will likely to affect the interpretation of the financial report in the future when the same will be compared to the past. However then in that case it would be important to read the financial report with the notes in the report for AASB9.

In case of inventory valuation, in a manufacturing concern, the same is value at cost or NRV whichever is less. In the case of Flight centre, again the inventory is valued at cost or NRV which is lower but the cost here refer to as average cost.

The above accounting policies are considered to key in respect to their adoption prior to their adoption by the companies working in the industry. Being this was an early adoption of the accounting standard by Flight centre, the management is likely to ensure that they portray correct picture going forward to their shareholders and stakeholders. This will likely to affect the interpretation of the financial report in the future when the same will be compared to the past. However then in that case it would be important to read the financial report with the notes in the report for AASB9. On the other hand, the valuation part of the inventory is again challenging. In ordinary sense, the inventory is valued at cost or NRV whichever less is but in case of flight centre, the cost is the average cost which requires clarification from the management to the users of the financial statements.

The management of Flight centre group limited has decided to adopt the provision of AASB9 in the books from the year 2016 in spite to the fact that as per the law the same would be effective form the year 2018. This has been down with the motive of incorporating the hedge accounting in the books from 2016 itself. The management at the same time decided to impact the retained earnings of the company to incorporate the impact that would come in the books as result of the above adoption. Thus, the management of the company has the flexibility of ignoring the adoption in the year and should wait till the year 2018 so as to get more clarified before adopting the change. This can at the same time could be assumed to be as a challenge that the management of the company has adopted to meet out first as compared to the other companies. From the perspective of the valuation of inventory, there does not seems to be any flexibility as such, the management as reflected in their accounting policies is expected to value the inventory in the same perspective in all means. However, if required they can propose a change in the accounting policy which would have its impact in the books.

The Qantas limited has been expected to the biggest competitor of Flight centre in Australia. Qantas has been regarded as the largest airline in terms of fleet in Australia.  This airline has been further regarded as the third oldest airline in the world. The airline has been established in the year 1920. By the year 2014, the Qantas airline captures nearly 65% of the domestic market in the country and around 15% of the international market for the passengers travelling from and in Australia. The management of the Qantas limited has viewed that the impact of the AASB9 would be immaterial for them and thus they have decided to ignore their implication form the year 2016. Being the effective date of AASB9 is from the year 2018, but the management has assessed that they would prefer waiting till the year 2018 rather than making a prior implication.

On the other hand, the management agreed to value the investor at cost or NRV whichever is less where cost does not mean average cost. Thus the accounting policies adopted by the Flight centre in some cases are different as compared to Qantas limited.

The accounting policies that have been adopted by both the companies are similar in most of the respects. The accounting policy that has been followed in by the companies is in line with the applicable Australian Accounting Standards and interpretations issued by the Australian Accounting Standard Board and the Corporations Act 2000. These both are airlines companies. The difference just comes up in the approach in some of the aspects which might be different for example the application of AASB9. In other sense the accounting policies of both the companies are more or less similar.

The financial ratios of flight centre have been discussed as follows:

On the other hand, the financial ratios of Qantas Limited are as follows:

Looking at the financial ratios of both the companies, it looks like both are companies are quite strong. From the perspective of the liquidity ratios of the companies, it looks like that the Flight centre turns out to be stronger. From the angel of current ratio and quick ratio, the flight centre looks strong from the Qantas limited.  The Qantas limited has taken debt for meeting out its operations which is very high. The Qantas limited company is relying more on the debt rather than on equity. Further, the return on equity and return on asset is consistent enough in case of Flight centre whereas the same is volatile enough in case of Qantas limited. From the perspective of gross and net margin, the same for flight centre is consistent enough when compared with Qantas limited.

The return on equity refers to the net income that has been calculated in percentage of equity that has been invested by the equity shareholders. It checks the return that has been realized by the equity shareholders in relation to their investment made in by the company.

Return on equity = Net income/ Shareholders funds

The return on equity and return on asset is consistent enough in case of Flight centre whereas the same is volatile enough in case of Qantas limited.

The return on equity for the Qantas limited was on a lower side. But there has been some higher movement in the return on equity from the past two years which has made a higher overall impact whereas in case of flight centre, the return on equity is consistent enough. The major driver of consistency in case of flight centre is the consistent growth rate of sales of the company. The sales and the operating expense expenses of the flight limited are consistent enough as compared to the Qantas limited.

Considering the financial performance and position of the company, both the companies are financially strong.

Financial performance of both companies since last 8 years.

The flight limited is a relatively new company as compared to the Qantas limited. The sales revenue of flight limited is consistent as compared to the Qantas limited. At the same time, the cost of sales of the company is also in line with the sales. As result of which operating profit ratio for the flight limited is consistent enough.

The operating, cash and financial management of the company is good enough. The operating and financial management of the company is visible enough from the financial performance and ratios of the company. On the other hand, the cash management of the company is visible from the cash flow statement of the company. The net cash flow from operations is positive enough to meet out the cash outflow that would be required in for the financial and investment activities of the company. At the yearend, the cash flow of the company is positive which ensures that the company has effectively done the cash management.

Conclusion

The flight centre is a financially sound company with efficient management. The company has consistently performing. The financial position of the company is sound with high cash and cash equivalent sanding in the books. The current and quick ratio of the company speaks the story of consistency of the company. Thus, considering all these points, the stocks of the company is recommended to the investors.

References

Nhuta S, AN ANALYSIS OF THE F0RCES THAT DETERMINE THE COMPETITIVE INTENSITY IN THE AIRLINE INDUSTRY AND THE IMPLICATIONS FOR STRATEGY, Retrieved from ijmra.US, https://www.ijmra.us/project%20doc/IJPSS_SEPTEMBER2012/IJMRA-PSS1711.pdf, Viewed on 14^th Oct 2016, 

SWOT analysis of Flight Centre, Retrieved from SWOTAnlysis 24, https://www.swotanalysis24.com/swot-f/41067-swot-analysis-flight-centre.html, Viewed on 14^th Oct 2016

Qantas.com, Annual report Qantas Limited 2016, Retrieved from Qantas.com, https://www.qantas.com.au/infodetail/about/corporateGovernance/2016AnnualReport.pdf, Viewed on 14^th Oct 2016

Flight Centre.com, Annual report Flight Centre Limited 2016, Retrieved from Flight Centre.com, https://www.fctgl.com/sites/fctgl.com/files/01%20FLT%20FY16%20Annual%20Report.pdf, Viewed on 14^th Oct 2016

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