Flashcards in Case Studies - Qantas Deck (16):
Qantas: Finance and Human Resources
Human Resources Qantas spends $275 million a year on staff training such as Qantas College online which teaches staff to interact with Customers therefore relationship marketing and creating long term relationships as the staff are the 'face of the business'
Qantas: Finance and Marketing
In recent years Qantas has introduced the Qantas 747 which Qantas has used to market their luxury economy flights which appeals to older customers and has lead to an increase in 10% market share / increased revenue
Qantas: Finance and Operations
Qantas has budgeted to spend billions over the next 10 years on fleet renewal, to implement planes that include more efficient usage of space to allow more room for economy flyers which in turn increases the Quality of their flights.
Qantas: Profitability Objectives
- Qantas’ struggling international operations, high fuel prices and weaknesses in the domestic market pushed the airline into debt in 2014. Qantas reported a loss of $650 million.
However, in 2015 Qantas reported a massive $1.6 million turnaround to post a profit of $980 million.
In 2016 Qantas’ profit had increased a further 60% posting a massive and record profitability of $1.5 billion.
In 2017 Qantas backed this up with a $1.4 billion profit, confirming the success of Qantas’ recent financial strategies, especially the continued benefits of its cost cutting (transformation) program.
Qantas: Liquidity Objectives
-Qantas’ low liquidity rate of 0.49:1 indicates an inability to meet its short-term debts and is ranked lower than 77% of companies in the AIrlines Industry
However, it operates on a negative working capital position.
Qantas holds very little cash reserves and uses the cash received to pay long term debt, thus reducing interest costs.
Qantas has facilities in place (including a standby facility of $300 million and the issue of short term notes) to draw cash when needed to pay creditors.
Qantas: Solvency Objectives
Qantas’ gearing increased rapidly to 3:1 in 2014 due to its falling profitability and purchase of new aircraft
The turnaround in profitability enabled Qantas to reduce its net debt by $1 billion in 2015, $750 million in 2016 and a further $440 million to make the gearing ratio 1.5: 1 in 2017 reducing its gearing and making the airline more financially stable.
This indicates the success of its financial strategies.
Qantas: Sources of Finance - Influences
Sources of Finance:
• Qantas’s last equity raising was in 2009 when it raised $500 million in an issue of new shares to combat the effects of the GFC --> Equity (external)
• Qantas mostly uses debt finance, both L/T and S/T. In 2017 its debt folio totaled $5.2 billion, mostly used to purchase new aircraft and maintain its workforce (training, etc) --> Mostly leases aircraft (greater flexibility with aircraft fleet, tax deductable)
• Recently Qantas has been taking advantage of low interest rates and higher credit rating, saving millions of dollars in interest repayments
Qantas: Global Marketing Influences
• In 2009 the GFC caused rapid revenue declines especially in international markets leading to an 88% fall in net profit.
• Qantas responded by cutting flying capacity, deferring and cancelling orders of new planes, restructuring. Raising $500 million from equity finance and replacing Qantas with Jetstar on some routes. --> In order to preserve solvency of the business.
Qantas: Processes - Monitoring and Controlling
Monitoring and Controlling:
• Income statement
- Net profit in 2014 shows a negative net profit of $2843 million. During this year Qantas’s expenditure raised by $4 billion as a result of capacity hire costs. Profits since 2014 have been consistently rising and Qantas reached record profitability in 2016, with also continual rise of training and development costs indicating increased worker’s satisfaction.
• Cash Flow Statement:
- Consistent decrease of cash at the end of every financial year since 2013 indicating lower priority of liquidity objectives and increased focus on investing activities to increase solvency of the Qantas
Qantas: Processes - Ratios: Profit Ratios:
• Net Profit – Profitability Ratio:
- Qantas’ Net Profit decreased from 9.5% in 2016 to 8.7% in 2017. The rate of return on owners’ equity, which measures the return earned by management on the owner’s funds also decreased from 47% in 2016 to 40% in 2017. Both these ratios show Qantas’ improved profitability since 2014
Qantas: Strategies - Profitability Management
- Cost Controls:
Qantas has cut its costs by over $7 billion in the last 14 years reducing its overall cost base by between 20-25%. Qantas has had to move decisively in response to the massive drop in profitability in 2014 and cut costs by $894 million in 2015, $557 million in 2016 and $470 million in 2017. Qantas has targeted further cost cuts of $400 million in 2018
Strategies to control costs:
- Restructuring management / redundancies (5000 job losses between 2014 – 2016)
- Entering strategic alliances with other airlines like Emirates.
- Outsourcing more business functions – cleaners, etc.
- Fuel conservation - launched a pilot app to improve fuel optimisation
Qantas: Strategies - Working Capital Management
Working Capital Management: - Sale and Lease Back
- Qantas is one of the few airlines in the world to own its own terminals. In 2016 Qantas sold Sydney Airport Terminal 3 for $185m and leased it back. Qantas is also considering entering into a sale and lease back arrangement for some of its aircraft and selling non-core assets like its freight and frequent flyer business
- Qantas are leasing 23 aircraft out of its fleet of 69. Leasing has freed cash that can be used elsewhere in the business.
Qantas: Strategies - Global Finance Management
Global Finance Management:
• Exchange rate:
- Qantas estimates that it generates about 38% of its revenue in other currencies (including about 14% in US dollars). Changes in foreign exchange rates also affect travel decisions by Australians. The Purchase of new aircraft and fuel is payed for in foreign currency (mostly $US). Therefore, if the $US currency appreciates, it will cost Qantas more to purchase fuel.
• Hedging / Derivatives:
- Qantas has a very successful hedging programme outperforming many if its airline peers.
- Qantas has hedged 86% of its fuel needs for 2018. Most of these hedges are in the form of options contract, therefore Qantas is not totally locked in and can take advantage of any further falls in the US exchange rate as fuel is paid for in $US.
Qantas: Liquidity Ratio
• Liquidity Ratio
- The liquidity ratio decreased in 2017 to 0.44:1 from 0.49:1 in 2016 meaning Qantas is less able to meet its short-term obligations.
Qantas: Gearing Ratio
• Gearing Ratio
- Rather than using the traditional debt to equity ratio, airlines use a more complex ratio. The gearing ratio has decreased from 136% in 2016 to 125% in 2017 meaning Qantas is more financially stable