Assessment Of Financial Performance Of Qantas Airways

Ownership and Governance Structure

The present objectives of the study relate to assessment of financial performance of Qantas Airways. Some of the important discussions of the various sections of the study will relate to present ownership governance structure along with the identification of the main executives in the board of directors. Some of the other evaluation of the study is based on the depiction of fundamental ratios which will include the relevant discussions on the present efficiency, liquidity and financial leverage position of the company. Along with these, the study will also show stock performance and profitability. The next section of the study will retrieve relevant information from an online source which will state about the monthly share price movement during the last two years of the company. In addition to this, the movement of the share price will be compared with “All Ordinaries Index”. The main excerpts of the discussion will closely correlate the various factors such as positive or negative increase as per the market index. It will also depict on the volatility of the share prices. Some of the other sections of the study will include computation of rate of return with the use of CAPM, thereby providing the main assertion of nature of investment which is to be made in Qantas Airways. The latter part of the report will include important discussions on debt ratio of the company thereby setting on the rational whether the management has taken any initiative towards payment of borrowings or buying back of shares. The final section of the study has recommended the company for investment purpose with the recommendation letter to the client (Titman, Keown and Martin 2017).

Qantas Airways, established in 1920 operates is headquartered in Mascot. In Australia and internationally, “Qantas Airways Ltd” is considered as one of the pioneering passenger and cargo transportation services with a fleet of 303 aircrafts. Some of the most notable fleet of the company includes aircraft such as “Airbus A330-220, Airbus A330-300, Boeing 747-400, Boeing 747-400ER and Boeing 787-9”. Some of the core activities of the airliner can be depicted in terms of providing travel services, freight air services, catering and ground handling services (Lau 2016). The company also offers various facilities to the frequent flyer with their frequent flyer loyalty program. Some of the notable logistics services provided by Qantas Airways has been depicted with interstate trucking services for the International air freight and domestic industries. Qantas Airways is also responsible for providing various types of courier services to the medium and small -sized companies and individuals with varieties of baggage related services. The various types of subsidiaries of the airliner can be recognised with “Jetconnect, Australia Asia Airlines, Impulse Airlines, Network Aviation and Qantas Link”. The main focus cities include “Singapore Changi Airport”, “Darwin International Airport” and “Los Angeles International Airport”. In addition to this, secondary hubs of the company include airports such as Perth and Adelaide (Renz and Herman, R.D. 2016).

Fundamental Ratios

The disclosures on the 20 largest shareholders of the company clearly shows that “HSBC Custody Nominees Limited” is the largest among all the shareholders of Qantas Airways. The company held more than 727 million of ordinary shares of the company with a total percentage of 40.21% of total shares issued. The list of all shareholders who have a contribution within 20% to 5% is depicted below as follows.

Shareholders	Total ordinary shares held Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper	Shares held in percentage
“HSBC Custody Nominees (Australia) Limited”	727 million	40.21%
“JP Morgan Nominees Australia Limited”	324 million	17.93%
“Citicorp Nominees Pty Limited”	166 million	9.19%
“BlackRock Group (BlackRock Inc. and subsidiaries)”	115 million	6.39%
“UBS AG and its related bodies corporate”	95 million	5.30%
“BT Investment Management Limited”	100 million	5.55%

Based on the above excerpt of information beside HSBC, JP Morgan is also depicted as one of the major shareholders of the airliner. This is evident with the shareholding of more than 17.93%. In addition to this, Citicorp is also included in the list of largest shareholder group with a share of 9.19% of the total issued shares. The company has identified some of the other substantial shareholders with Blackrock group with the percentage of 6.39% and BT investment with 5.55% shares in the company (Finkle et al.2016).

The interpretation of the board of director’s report of the company shows that Qantas Airways is led by two important members namely Alan Joyce and Leigh Clifford. In November 2008, Alan Joyce was appointed as CEO and MD of the company. In November 2007, Leigh Clifford was designated as the chairman and non-executive director (Independent) of Qantas Airways. In addition to these members, some of the most notable personalities can be further identified with the other “non-executive independent directors” such as Maxine Brenner, Richard Goodmanson and Jacqueline Hey. It is further noted that the other members of board of directors include Paul Rayner, William Meaney, Michael L’estrange, Todd Sampson And Barbara Ward. Total number of shares held by these members in 2017 and 2016 has been listed below as follows.

Based on the excerpt of information taken from the annual report it can be clearly depicted that the highest shareholder among the board of directors is Alan Joyce, who is currently holding more than 2.7 million shares. Whereas, under the information obtained from Government structure and ownership of Qantas Airways it is clearly signified that even the bottom 5.3% of shares is held by UBS AG, has more than 95 million of shares. Therefore, it can be clearly depicted there is none of the shareholders has more than 5% of share capital. Moreover, it cannot be said that there is a presence of any owner or a family member in the governance structure of Qantas Airways (Zietlow et al. 2018).

Stock Performance and Profitability

The changes of share price for Qantas Airways has been considered with the closing share price variance on a monthly basis from 2016 to 2018. Initially during the month of May 2016, the stock of Qantas Airways has performed significantly when in terms of AORD. This is evident with the market percentage increase of 6 .28%, whereas the share price of Qantas rose by 12.06%. This clearly shows the dominating position in terms of stock market performance during mid-2016. Similarly, in the month of September 2016 the market was negatively divulged by -2.22%, whereas the net decrease in closing share price of Qantas Airways was only -1.92%. This signifies that despite of the poor market conditions the airliner was able to maintain the interest of stakeholders. Similarly, in the month of October 2016, the AORD increased by only 1.85%, whereas the changes in the closing share price of Qantas experienced an increase of 7.84%. This signifies that the company performed well throughout 2016. The company performed at its best in 2017 when the market index rose by 1.52%, whereas changes in closing share price of Qantas was more than 9.97% (Karadag 2015).

Some of the other movements show during situations when market was highly volatile, Qantas was able to maintain a steady increase in its share price and thereby keeping alive the interest of investors in the company. A phenomenal performance in the stock market can be depicted in the month of March 2017 when the percentage change in AORD was only 0.74% whereas, the share price of Qantas increased by 9%. Among the duration of these two years the best performance can be clearly seen in the month of April 2017. In this month, even when the market was facing negative increase of -3.13%, the share price of Qantas increased by 18.16%. This signifies that the airliner has proved itself immune to the market turmoil thereby maintaining its consistency all along the stock market performance (Tripathi and Seth 2014). The only month in which the company was not able to perform at par with AORD was in July 2017. In this month, despite of a sluggish performance of the market index with 0.17%, there was a decrease of -6.99 in the share price of Qantas Airways. By the end of 2017, the company showed less volatility with the market and steadiness with AORD (Burger et al. 2015).

The main interpretation of stock market performance in the end of 2017 was not impressive like the other months. In the month of October 2017, there was a positive change in the market with an increase of 1.35%. Despite of this, the share price of Qantas dipped down by -7.80. This shows that the company was not able to maintain a sufficient level of interest among the shareholders in the end of 2017 (Mbulawa et al. 2015). In the month of November 2017, the stock market performance condition of the company further degraded. In this month, there was a positive change in AORD with 1.82%, whereas the company experienced its lowest performance with -11.11%. This signifies that it was not able to cope up with the market index and significantly lost interest of the investors. The performance of the company again started improving from December 2017 (Le and Chang 2015).

Monthly Share Price Movements

Based on the depictions of stock market performance 2018, both Qantas and AORD has lacked in various ways. Although, the company performed quite well in the initial month of January 2018 with 11.76% increase, in the subsequent month the percentage change of closing share price reduced down to -1.02% in February 2018 and -1.03% in March 2018. However, in the month of April 2018, the market performance was 2.38, whereas the company performed significantly well with 5.89% of positive increase in closing share price.

Due to the fact that companies stock market performance was significantly well during 2016 and 2017 there have been no major changes in the focus of the company. However, some of the external factors affecting the share price of Qantas has been seen with changes in oil price, competition, geopolitical risk and economic factors. It has been seen that during the past couple of years due to decrease in the oil price has provided continued support to the airliner for increased profit growth. This has led to such a good performance of the company in the stock market. In addition to this, the airlines have experienced a significant boom from the international tourism industry. This is particularly evident in the China where the inbound tourism has grown to a considerable amount. It is considered as a major economic factor which have positively influenced the share price of Qantas Airways (Motley Fool Australia 2016).

It is important to note that some of the other factors implying changes in share price and be clearly depicted with other economic conditions such as lower depreciation charges. With lower depreciation charges in 2016, the airliner recorded a $2.6 billion write-down on the amount of fleet. In addition to this, in 2016 that impairment changes as per the Qantas Sale Act allowed the company to segregated international division into a new corporate entity. This allowed the airliner to assign realistic values of expenses to the international aircraft. This reduction of costs due to the depreciation assisted the company in maintaining a steady growth in its share prices. Moreover, by the end of thousand 2009 the Australian airline industry experienced a lower competition which allowed Qantas to maintain a steady growth in terms of profit (Freed 2015).

The required rate of return of the airliner has been computed as 5.54%

Qantas Airways have revealed several potentials in terms of market growth and providing value to the shareholders. However, due to declining market performance and environmental changes the recent performance is not up to the mark for high investment. Therefore, the investor should consider the Conservative investment in the company. Moreover, based on analysis of profitability ratio the company has shown decrease in performance in 2017 compared to 2016 (Arthur 2018).

Rate of Return

In addition to this, the market value per share has also increased from $ 2.82 in 2016 to $ 5.72 in 2017. The increasing nature of share price was at higher risk for the investors therefore it is best to invest in a conservative manner.

WACC is identified as discount rate which is applied to the cash flows of the company with the risk which is identical to the company. A lower amount of WACC signifies a lesser risk therefore in the present case 4.48% signifies a positive prospect of investment in the project.

Based on the depiction of that ratio, Qantas has considerably reduced its overall debt from 0.805 2016 to 0.79 in 2017. This clearly shows its less reliance on long-term borrowings to finance assets. Therefore, it is clearly in a better position by less relying on liabilities (Asongu and Nwachukwu 2016).

As per the strategic decision taken by the company on September 2017, the company made a decision to buy back shares in the market. The total number of share what back by the company was (63,117,606). Additionally, the company announced an on-market share buyback of up to $ 378 million commenting from March 2018 (Investor.qantas.com 2018).

Qantas has proposed a 23% for cash distribution on its shares. In addition to this, it has focused on interim dividend policy. Henceforth, it provides dividend once in every year to its shareholders.

Respected Sir,

We are glad to inform you that based on the financial performance of Qantas Airways it is highly recommended to make a moderate to conservative investment in the shares of the company. The main excerpts of information as per stock market performance have shown that the company performed at its peak on 2017 and in the beginning of 2018 and has exhibited promising results for future improvement. Due to the increasing nature of share prices it is recommended to invest a limited number of share in the company.

We are antedating that the aforementioned information will be helpful in making future decisions in the company.

With Regards

Conclusion: 

Based on the above excerpt of information beside HSBC, JP Morgan is also depicted as one of the major shareholders of the airliner. This is evident with the shareholding of more than 17.93%. In addition to this, Citicorp is also included in the list of largest shareholder group with a share of 9.19% of the total issued shares. It can be clearly depicted there is none of the shareholders has more than 5% of share capital in the company. Based on the depictions of stock market performance 2018, both Qantas and AORD has lacked in various ways. Although, the company performed quite well in the initial month of January 2018 with 11.76% increase, in the subsequent month the percentage change of closing share price reduced down to -1.02% in February 2018 and -1.03% in March 2018. However, in the month of April 2018, the market performance was 2.38, whereas the company performed significantly well with 5.89% of positive increase in closing share price. All the relevant factors interpreted shows a positive rationale for making conservative investment in the company.

References

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