BB104 Introductory Accounting | Business Activities of Management

2.The information required to write the business report is found in the company’s Annual Report, which is available online. Information from any other source including the company’s website can also be used. All the above companies are listed on the Australian Stock Exchange (ASX).

 

3.The report should include the following:

Introduction

This report will provide the information on the business activities of Qantas Airways Limited for the financial years 2015 and 2016. This report will use the ratio analysis technique to recommend whether the potential investor should invest in the company or not. This report will begin with company profile followed by business activities and its ratio calculation for 2015 and 2016 and ends with recommendations and conclusions.

Company Profile

Qantas Airways was founded by Hudson Fysh, Paul McGinness and Fergus McMaster. in Winton, Queensland in 1920. It has been part of the world for more than 95 years. It was initially listed as a Queensland and Northern Territory Aerial Services Limited (QANTAS). It is public listed company traded on Australia stock exchange (QAN.ASX). Its head office is located in Sydney. It is the third oldest company in the airline industry comes after KLM and Avianca. Qantas is considered as a leading airline company in long distance and one of the biggest airlines in Australia. The key people are Leigh Clifford, he is the chairman of the company and Alan Joyce, he is the Chief Executive Officer of the company. This company provides domestic and international airline services with low cost. Qantas employs more than 30,000 people with more than 93% workforce is based on Australia. It is also called as “The flying kangaroo” (Qantas, 2016).

Business activities

Business activities include those activities carried by the company for generating profits.  Following are the elements included in the Business activities of the Qantas Airways Limited.

Main Business Activity:

Transportation of Passengers is the main and foremost activity of Qantas Group.

The Qantas Group:

Main business activities of Qantas Group are the hauling of passengers using two main brands of airline – JetStar and Qantas. Qantas is the world’s best finest airline whereas Jetstar is a low fair airline.

• Qantashas the following subsidiaries:

Qantas Airways and Qantas Link.

• Qantas Airways:

A leading airline company in long distance and one of the biggest airlines in Australia. Further, this airway provides domestic as well as international airline services with low cost.

Qantas Airwaysis a member of One world alliance which comprises Cathay pacific, British airways, Finnair, American airlines etc.

• Qantas Link:

It is the wholly owned subsidiaries of Qantas Airways operates over 1900 flights each week across Australia. QantasLink connect local businesses and leisure explorers.

• Jetstar:

It was launched in 2004 with the low fair of domestic airline and has expand its operations in Tasman services in 2005, international services in 2006 andstarted New Zealandlocal services in 2009.

It has following brands:

• Jetstar Asia: Qantas owns 49% in Jetstar Asia which operates intra-asia airlines in Singapore.
• Jetstar Pacific: It holds 27% in Jetstar pacific which runs in Vietnam.

Fleets:

Total fleet of 298 aircraft comprises of Qantas Domestic, Qantas International and Jetstar Asia.

It includes 126 fleets in Qantas, 65 fleets in Qantas Link, 14 fleets in Network Aviation and 93 fleets in Jetstar Asia in 2016.

Further, Qantas freight owned 4 dedicated aircraft and has 1 freighter aircraft on lease in 2016.

Fleet additions and retirements:

• Jetstar:
• A320neo: Qantas expected to take delivery of 99 A320neo in 2017. This aircraft will replace older A320s and some will be converted to A321neo orders.

Currently it has six A321s fleets in service.

• Qantas:
• The Qantas group also examines to replace Boeing 737-800 with Boeing 737 Max and Airbus A320neo. Currently 737-800 will add 6 additional seats to increase capacity in economy cabins.
• One Boeing 747-400 will be retired in 2016 but two A330-200 aircraft were returned to lessors.
• Eight Boeing 787-9 will be delivered in 2017. This will retire Boeing 747-400s.
• Qantas Link:
• Qantas link fleet will add two Boeing 717-200s in mid 2016.
• Bombardier Dash 8-Q300, Three aircraft transferred to Jetstar New Zealand.
• Fokker 100s will be acquired.

Highlights of 2015 and 2016:

• Qantas has 8 new destinations in 2015 whereas in 2016 it was increased to 14.
• Qantas has acquired 29 aircrafts in 2015 and 19 aircrafts in 2016.
• In 2015, Qantas has launched new global brand campaign and in 2016, Oryx international school was launched.

Group Route Network:

Qantas served 182 destinations which include 59 destinations in Australia and 123 destinations in other countries (Qantas, 2016).

Other Business Activities:

Qantas Frequent Flyer:

It is the loyalty program with more than 6 million people having membership. Program has more than 400 members and they allow people to combine points from flying, hotels, cars, travel, restaurants, business, entertainment, finance, real estate and grocery shopping in one account. On an Approx more than 11000 people join this program every week (New Horizons, 2016).

Qantas Engineering:

Qantas operates aircraft engineering and maintenance organizations. Qantas engineering provides a range of supply chain, training and support services, and maintenance work and safety facilities for all aircraft types, engines and components and also provides safe and high quality services with spirited cost.

Qantas Aviation services:

Aviation services include 5 associated services. These are: Defense services, ground services, fleet presentation, ground service equipment and LTQ engineering. These are the specialist services provided by the Qantas to the group and to outsiders.

Airports:

Qantas group operates approx 57 airports in Australia and around 30 international airports. Airport services include check-in services, baggage handling and slope services and also operates lounge facilities.

Qantas Catering services:

Qantas group provides high quality meals to the airlines and their customers. Snap Fresh and Q catering are the catering business of the Qantas group. It was the first multi-site flight caterer.

Qantas Freight Enterprises:

It operates handling facilities, freighter aircraft, air cargo products, alliance facilities, Qantas courier etc.

Training services:

Qantas group employs approx 2300 pilots. Qantas group provides training services to the pilots to maintain high standards of expertise. There are approximately 18000 training classes.

Ratio Analysis

Financial performance of the company can be analyzed through a quantitative concept called ratio analysis. Ratio analysis will help in making comparisons from the past results. The data required for performing ratio analysis is available from balance sheet, income statement and statement from cash flows. This report has analyzed liquidity ratios and profitability ratios (Brigham and Ehrhardt, 2016).

• Liquidity Ratios:

It defines the capacity of the enterprise to meet its existing obligations from current resources as and when they fall due. Liquidity ratios are also called as short-term solvency ratio. Liquidity ratio assesses the short-term solvency performance of the enterprise. Hence, current ratio is a part of liquidity ratio. This ratio is measured in times (Tracy, 2012).

Current ratio: This ratio states the link between current assets and current liabilities of the enterprise. It is calculated by dividing current liabilities from current assets.

Where,

Current Assets include cash and cash equivalents, accounts receivables, inventories, assets classified as held for sale and other financial assets.

Current Liabilities include payables, provisions, interest bearing liabilities and other financial liabilities etc.

The mathematical formula is:

Current ratio = Current Assets ÷ Current Liabilities

Data taken from the consolidated balance sheet:

(Source: Appendix)

Liquidity performance evaluation:

Having said that, higher the liquidity ratios, better is the liquidity performance of the company. As per the above calculation it is seen that current ratio of Qantas Airways limited in 2015 was 0.6759 and in 2016 it was 0.4920. Thus, it is observed that Qantas is not in position to pay off its current obligations within due time and this resulted into high financial risk in the organization. Therefore, short-term solvency performance is not sound.

• Profitability Ratios

The overall objective of the company is to earn adequate profits and through this ratio overall profitability position can be measured. Return on Investment is a part of profitability ratio and it is computed in percentage forms (Routledge, Sargeant and Jay, 2014).

Return on Investment (ROI):  This ratio is calculated by comparing profit earned and capital employed. This ratio is also called as ‘return on capital employed’ and ‘rate on return’(Australian institute of business, 2016).

It is computed as below:

Return on Investment (ROI) = Earnings before interest and taxes ÷ capital employed

Where,

Capital employed = Non-current assets + Working capital

Data taken from consolidated income statement and consolidated balance sheet:

(Source: Appendix)

Profitability performance evaluation:

Since, it is already said that ROI measures the overall profitability position of the company. As per the above calculation it is seen that Return on capital employed of Qantas airways limited in 2015 was 10.42% and in 2016 it was 16.98%. Thus, it can be said be that Qantas has paid good amount of return to shareholders over 2015.

• Earnings per share

Earnings per share are also called as net income per share. It defines the net income earned per share. It outlines company’s profitable position on the basis of shareholder (Roth, 2017).

It is calculated as below:

EPS = Net income less dividends ÷ Weighted average number of shares

Data taken from consolidated income statement:

(Source: Appendix)

Performance evaluation on the basis of EPS:

It is the income earned by the shareholders from each share. As per the above calculation it is seen that EPS of Qantas airways limited in 2015 was 25.4 and in 2016 it was 49.4. Thus, Qantas trend is improving which means the company is distributed more profits to their members as compared to last year. In addition to this, many investors does not consider EPS in their investment decision making.

Conclusion

The ratio analysis has been measure to evaluate the financial performance of the Qantas airways limited which provides clear vision whether investors should invest or not.

Thus, it can be concluded that Qantas short-term performance is not satisfactory as they are not able to meet its current obligations on time. On the other hand, Overall profitability performance is quite sound because company has paid more returns to investors as compared to 2015.

Recommendations

It is recommended that potential investors should invest in Qantas airways limited because the profitability position of the Qantas is satisfactory and will enable the investors to earn more returns.

References

A strong, sustainable future. (2015). Qantas Data Book 2015. Retrieved on 19 May 2017 from https://investor.qantas.com/FormBuilder/_Resource/_module/doLLG5ufYkCyEPjF1tpgyw/file/data-book/2015qantasdatabook.pdf.

Roth, M. (2017). Top Stocks 2017: A Sharebuyer's Guide to Leading Australian Companies. John Wiley & Sons.

Brigham, E.F. and Ehrhardt, M.C. (2016).  Account Finance. Cengage Learning. pp.1-549.

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 19 May 2017 from https://www.qantas.com.au/infodetail/about/corporateGovernance/2016AnnualReport.pdf.

A strong, sustainable future. (2015). Qantas Annual report 2015. Retrieved on 19 May 2017 from https://qantas2015-annualreport.reportonline.com.au/.

Qantas. (2016). Our company. Retrieved on 19 May 2017 from https://www.qantas.com/travel/airlines/company/global/en.

New Horizons. (2016). Qantas Data Book 2016. Retrieved on 19 May 2017 from https://investor.qantas.com/FormBuilder/_Resource/_module/doLLG5ufYkCyEPjF1tpgyw/file/data-book/2016qantasdatabook.pdf.

ASX. (2017). Qantas Airways limited. Retrieved on 19 May 2017 from https://www.asx.com.au/asx/share-price-research/company/QAN.