Financial Statement Analysis

Qantas Case Study

The information provided below covers some important aspects of strategy, accounting and financial analysis for Qantas. Use the information provided along with the supplemented Excel spreadsheet ‘CS Qantas’ (available on Blackboard) to answer the following.

Required:

1. Analyse the competitive forces facing Qantas, using the ‘five forces’ framework from the strategy literature. Evaluate Qantas’ prospects for profitability and growth in the next five years.
2. Comment on Qantas’ financial performance and financial position at the end of 2013 using the provided financial ratios (available in the appendix of this document or in the ‘Ratios’ sheet in Excel).
3. Use the analysis and suggested forecasts presented in this case to prepare forecast financial statements for Qantas in 2014, based on the most likely forecasts. Use the provided ‘Forecasting (base)’ sheet in Excel to enter your estimates.

Introduction

Qantas is the largest operator within the Australian air transport industry. Various events and changes that have occurred within the industry over the past decade have resulted in high levels of both media and regulatory scrutiny for the company. Qantas offers a relatively generic product (i.e. passenger air transportation) operating in a domestic market in which it is dominant, as well as in international markets where there is more competition. Within both of these markets Qantas has worked hard at developing and maintaining a competitive advantage, to enhance profitability.

Background and history

Queensland and Northern Territory Aerial Services Limited (Qantas) was established in Queensland in 1920, and initially provided joy-riding and demonstration flights. Its operations were expanded in 1922 to include scheduled airmail services between the towns of Charleville and Cloncurry, subsidised by the Australian government. It was on this route that commercial passenger aircraft were first introduced to Australia in 1924. Qantas commenced overseas passenger services in 1935 with flights between Darwin and Singapore. Both the domestic and international operations of Qantas expanded significantly in the years leading up to World War II.

As the international air transport industry expanded so did the role of government in the management of airline operations. This included government involvement in the negotiation of air traffic rights, the determination of airfares between countries, and in the development of international standards for operations through organisations such as the International Civil Aviation Organisation. Such increasing involvement, along with a desire to see Australian control of this emerging mode of transport, led to the Australian Commonwealth government taking the decision to nationalise Qantas in 1947, through buying up all the shares in the company. Similar to many other international airlines, Qantas then developed as a wholly government owned organisation, operating in a highly regulated and protected international industry.