Business Valuation and Analysis Qantas Airway

Question: Discuss about the Business Valuation and Analysisfor Qantas Airway. Answer: Introduction: A Qantas airway is the largest airline in Australia by fleet size, international destination and international flights. Performance of the organization has been noteworthy, as it has returned $ 1 billion to shareholders over the past 12 months. Company provides generic products that are dominant in both national and international markets. Qantas was established in year 1920 and demonstration rights and joy riding was initial services provided to passengers. Operations were expanded to provide airmail services and the organization was nationalized in year 1947. At the international and domestic level, the main business of Qantas was passengers transportation. Qantas is in 10th position in total scheduled pattern kilometers flown and based on domestic scheduled passenger carried (Aulich 2014). Analysis of competitive forces of Qantas using Porters 5 forces: Supplier bargaining power- In the airline industry, bargaining power of suppliers is low and the reason is attributable to similar kind of services offered by large number of suppliers. Bargaining power of suppliers are lower due to presence of major airlines. Buyers bargaining power- With the increase in competition of airline industry and customers becoming more price sensitive acts as reducing the yield of Qantas. Threat of substitutes- Threat of substitutes is lower for airline industry such as Qantas as air mode is faster way of travelling compared to other mode. Threat of new entrants- Air transport markets in Australia have been profitable and have attracted many new entrants. Many of the competitors such as Virgin Australia have been competing in the market with Qantas by introducing intense competition through flight that is more frequent and larger capacity of Boeing 737 flights (Anderson 2013). Industry rivals- There have been many rivals of Qantas and there is intense rivalry among the airline industry in Australia. The par rates of Qantas have been redundantly high compared to Virgin Australia. These are low cost airlines as they are adapting to much flatter structure of fares. Revenue performance of Qantas is expected to come under increased pressure in future period due to restrictions in revenue growth (McDowell 2014). Evaluating Competitive Strategy using SWOTAnalysis: Strength- Within the Australian air transport industry, Qantas airways is the largest airways. Brand name of the or0ganization is an integral part of its revenue strategy. The acquisition of Australian operations by Qantas has led to balance between Ansett airlines and Australian airlines. It has been able to strengthen its competitive position by integration of timetable and structure of fare. Qantas captures a significant market share and its growth rate is recorded at 7.3%. One of the traditional strength of Qantas is demonstration of being able to offer integrated international and domestic travel. The revenue strategy adopted by Qantas is to position its product as premium by charging premium price (Nguyen 2015). Weakness-In year 2013, expense concerning staffs made up the expense of seconds largest category and achieving the cost reductions is one of the greatest potential of Qantas. There was staff redundancies faced by the organization, which is one of its weakness as it depicts incapability improve work practices and constraints remuneration. Wage rate of Qantas is not effective compared to its competitors as it exceeds by an unreasonable value. There is issue of existing outdated work practices. Opportunity- After the collapse of Ansett, there was major overhaul in market shares of Qantas. Organization can expand its operation in inland domestic and international routes. It can make use of loyalty bonus and netter online promotions to customers for increasing travels. In the huge price competition, operations of jet star competition have to be increased. During peak time of travels, Qantas is capable of achieving greater revenue yield. Threat- The segments of international and domestic passenger transport are subject to market volatility as it is dependent on world events and economic conditions of country. The competitive position of Qantas has been negatively impacted by increase in the international and domestic transport market. Growth of Qantas has been limited by significant expansion of operation of Virgin Australia and has led to creation of downward pressure on price (E. Dobbs 2014). Due to increased competition, the outlook for number of passengers has become limited. Corporate Strategy of Qantas since 1992: The strategy of Qantas since 1992 was to target low cost market and this was done by launching Jet star Airways, which was its wholly owned subsidiary. A two-brand strategy was run by Qantas where it targets the premium full service markets. The transportation of international and domestic passengers remained the main business of Qantas. Revenue strategy of Qantas is an integral part as it has intended to position itself as premium product while charging premium price. Accounting Policy Identification that are Closely Watched by Auditors in Airline Industry: Accounting policies identified by companies in airline industry are the procedures and basis for preparing their financial statements. Auditors needs to identify whether the financial reporting of company comply with International financial Reporting standards and under the historical cost convention, they are prepared on accrual basis. Accounting policy are applied consistently to all periods Revenue generated from aircraft chartering, other services are recognized in income statement, and the amount reflected is in proportion to fair value of services that is delivered in particular period. Financial statements of the company are prepared on convention of historical cost and this is used for valuation except for financial derivatives instruments that are recorded at fair value (Palepu et al. 2013). Evaluation of Financial Position of Qantas at the End of 2013: There has been a marginal increase in revenue yield of Qantas in year 2013. The total value of liabilities at the end of financial year stood at $ 15289 million. Valuation of total assets stood at $ 21178 million. $ 5889 million represent the value of net assets of company. Total value of equities comprised of $ 5889. Qantas generated total revenue of $ 5.5 million. Total revenue comprised of net freight revenue and net passenger revenue. Net passenger revenue comprise of $ 134 million and some of other revenue stood at $ 125 million. Jetstar while advancing its strategy witnessed a seven percent growth in revenue. Value of expense of Qantas stood at $ 15530 million. $ 106 million further drove up operating cost. Assets, revenue and expenses are recognized net of goods and services tax. Evaluation of Financial Position of Qantas at the End of 2015: The total valuation of assets in the financial year 2015 stood at $ 7015.8 million. Single assets does not represents more than 5% of total value of assets. Equities of Qantas comprised of Global equities, Australian equities and Private equities and the valuation of equities stood at $ 3152.9 million. The total value of revenue stood at $ 15816 million and profit before tax was generated by amount of $ 975 million. Value of total revenue and other income stood at $ 5828 million. Total value of expenditure stood at $ 14768 million at the end of financial year 2015. Total value of assets for financial year 2015 stood at $ 17530 million and liabilities value stood at $ 14083 million. $ 3447 represents net amount of vale of assets. Total value of equity comprised of equities that are attributable to Qantas members and equity in general. Analysis of Similarities and Difference in the Above Findings and Recommendation for Buying or Selling Existing Shares: When comparing the expense of Qantas for both financial years, it can be seen that the total expense reduced in year 2015 and the value fell by amount of $ 762. The value of total assets fell in the financial year 2015 and the amount changed by $ 14162.2 million. Value of liabilities fell in 2015 by amount $ 2016. Qantas witnessed a net increase in total revenue. The underlying profit before tax for the financial year 2015 of Qantas group witnessed an increment to $ 975 million as against $ 646 million in year 2013. Transformation program of Qantas has resulted in increased revenue in the year 2015 and revenue benefits stood at $ 2 million. Amortization and depreciation expense were lower in the financial year 2013 and the value stood at $ 195 million. This was due to non-cash impairment to international fleet of Qantas (Yang and Zhao 2015). It was reported in year 2015 that over the next two financial years, an amount of $ 1.5 billion could be returned to investors. A three percent rise in unit revenue was also reported. Qantas maintains strong balance sheet, announced buying back of $500 million shares and further $ 1 billion in year 2017. During the first half of this fiscal year, Qantas has excelled in its area of business and the company is trading on fully franked dividend of 5.6%. In the recent times, there was a fall in share price and nzit was back to same level and it can be said that shares of Qantas can be a great investment. Therefore, it is recommended to buy shares of Qantas compared to its competitors such Regional express holding limited and Virgin Australia. Conclusion: From the above discussion and analysis, it can concluded that Qantas airlines has performed strongly in both domestic and international segment. However, the organization is facing few threats from its competitors. The group is also witnessing an increase in profit from year to year. Reference: Anderson, P., 2013. The economics of business valuation: towards a value functional approach. Stanford University Press. Aulich, C., 2014. Airport Privatisation in Australia: A Tale of Three Cities. Applied Finance and Accounting, 1(1), pp.1-11. Bourjade, S., Huc, R. and Muller-Vibes, C., 2017. Leasing and profitability: Empirical evidence from the airline industry. Transportation Research Part A: Policy and Practice, 97, pp.30-46. Brooks, R., 2016. A General Option Valuation Approach to Discount for Lack of Marketability. 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