Financial Markets For Global Market Dynamic Trends In Airlines Sector

Top- down analysis

Describe about the Principal of Financial Markets for Global Market Dynamic Trends.

Airlines sector is one of the fastest growing industries in the Australian continent, in this paper the various analysis will present the detailed outlook of the opportunities in this sector.  The global market is very dynamic, the trends in the market are always changing, and it requires the companies to keep their policies to match to the trends of the market. Top-down analysis is widely used to formulate strategies that can counter the challenges in the market. Investors prefer to analyse the global trends in the market along with the economic trends to predict the performance of the company in the market. The challenges in the market require developing new strategies to make the company stable to face the new trends in the market. In the present analysis, the researcher has tried to provide remedial measures to the economical trends of the global airlines market (Afonso and Sousa, 2012). To provide a detailed analysis a comparison is made between the Virgin Airlines one of the top competitors that is looking to set itself up the trends in the Australian airlines market. The bottom-up approach presents a comparative analysis of the two giants that has been trying to exploit the opportunities in the market. Financial data has been used to make the analysis more detailed and authentic suggesting the need for the changes in the policies that can help in establishing a better market position. Justifications are provided based on the analysis that will guide the investors to choose the company that has shown the chances of improvement and profitability in the Australian airlines market (Altman et al. 2012).

The airlines industry has faced various challenges in the recent time due to the rising costs that can make the businesses can run at loss. The various challenges in the airlines industry is explained by the SWOT analysis and other analysis can help in the proper analysis of the airlines business in Australia. The rising fuel costs and other costs have made the business to run and face the challenges in the economy. The micro economic factors influence the various business trends to improve the business to settle in the market. In recent time, the Qantas Airlines has seen growth in the recent time as the fuel prices have seen decline (Armstrong et al. 2016). This has led to the growth in the business of these airlines in the global market. Economic factors have made the airlines businesses like the Qantas and Virgin Blue to try to regain the market. It is the strengths of the basic policies that has made the businesses to face the challenges in the market and function smoothly. The economic and the environmental factors has influenced the functioning of the businesses in the global airlines market. The various macro economic factors influence the growth of the business in the global market and influence better economic growth of the business (Biddle, 2015).

Economic Environment of Airlines industry

The political issues influenced the business operations of the airlines business in the continent of Australia. The excessive interference from the government and the political unrest did hamper the working of these firms in the global airlines sector. The environmental factors largely affect the functioning of the airlines in the aviation industry. In the declining economic conditions in the aviation sector suffered loss of faith of the customers. The customers were faced with the problems of rise in the prices of the air tickets and other services of the airlines. However, the declining business of the aviation made the government to jump into action to prevent this issue from causing impact to the economy. The later interventions of the government and the authorities have resulted in the control of the high rising prices (Bilotkach and Lakew, 2014).

Every airline has to follow strict set of rules and regulations in the country of its operations to make their business flourish in the challenging environment. Various other trade barriers like stiff competition and other environmental factors had influenced the business of the airlines in the country. Trade barriers breakdown has made the aviation businesses like the Qantas and the Virgin Blue to get relief from the restrictions and provide better services to the customers at comparative rates. To attain the major share of the market these airlines had to lower down their ticket pricing and follow a policy of cost cutting to prevent the customers from shifting away from the brands (Blankespoor et al. 2013). In addition to this, they have social responsibility tom follow that can make the airlines to have a better business in the competitive market.

In addition to this, international regulations and policies have made the industry to rethink the policies that can help them achieve the business growth and help min strengthening the economy. The conditions prevailing in the continent of Australia seems favourable for the growth of the industry as the international market seems to be positive and there is no such present threats of any disturbance globally. The air travellers in the country of Autralia have seen a rise in the recent time leading to the growth of business among the business class. International trips have also seen a high trend more to Europe and Asia that has made the airlines business am blooming sector in the recent years (Bonner et al. 2013). The positive environment for the growth and success of the business has made the companies to experience in the growth of business and profitability with support of the local authorities and government.

Service quality

Not only Australia but all over the world there has been a major downfall of the economies that has affected the business of the airlines largely on global scale. These falling economies have affected the spending power of the individuals and thus the air travellers have been declining. To make the situation worse there has been many issue related to the safety of air travels and environmental issues that the companies had to face hindering the growth of this sector in the country. The rising fuel prices in late 19^th and early 20^th had affected the airline business drastically (Borenstein and Rose, 2014). However, this issue has been tackled in the present time, although the rising fuel prices have been an issue for concern. Operational cost has been another area that affected the airlines sector, as the cost of operations had gone high making the businesses to loose profit or impose higher fares that can affect the customer number. These factors together made the aviation industry suffer to establish itself in the market.

Skilled workers are a necessity of the airlines sector and it had affected the businesses largely. The shortage of the skilled workers in the country forced the companies to look for alternatives to get skilled workers from other countries. This made the companies to invest huge money on the skilled workers and the employment condition had an adverse affect in the country. The overall decline of the economy had a huge impact making it hard for the companies to survive the negative conditions in the market (Bown and Crowley, 2014).

Service quality is the major area that is to be kept in mind by every airlines business to make the customers return to the company. Providing the better services has been the main motive of the aviation industry in the present times as the customer now have access to the information readily and they can easily com pare prices before selecting an airlines (Chen and Chen, 2012). Being the top airlines in Australia, it is then duty of these companies to provide the customers the best possible service at prices that can be competitive to the others in the industry. This forced the airlines to adapt to a strategy of customer centric approach that can help the airlines to achieve operational advantage in the business environment. The spreading of the businesses and the falling trade barriers has made the business to step outside the boundaries of the country and make the profit out of the rising opportunities in the market (Brueckner and Picard, 2013). International business growth has made the people of Australia to travel to other places making the airlines to use this opportunity to make the customers choose the flights providing attractive discounts and facilities to the business people.

Competition in the aviation industry

The competition in the aviation industry is rising steeply and it requires for the airline giants to develop policies that can help them carter to more customers and gain the trust of the customers. Technological advancement calls for improvement in the policies and processes of the companies so that it can cut down its costs and provide cost effective services to the customers (Fenna, 2013). Many new airlines are trying top get the customers to choose them by providing huge discounts and attractive packages that can make the customers to choose them, over the airlines giants like the Qantas and the Virgin Blue. As the competition is fierce it requires for these companies to try and adapt to new policies apart from trying to use their brand name, as customers today are looking for better value for their money apart from only brand name (Corsetti et al. 2013).

The previous year that is 2015 had seen some major shift in the businesses in the aviation sector as being the year that saw huge rise in the demand for air tickets (Brueckner et al. 2015). This rise was largely due to the falling ticket prices due to the competition in the market. The fall in prices of the services made, the people top choose the airlines above the other available options. The fall in the prices also made the middle class of the country to have the opportunity to use these services and help in the promotion of the companies in the aviation industry. This has been evident from the rise in the performance of the aviation sector in the recent analysis of the economic growth in the country (Gregory and Smith, 2016). The positive economic growth has made the companies to have the chance to makes the use of the opportunities and make the business profitable for the business.

The micro economic factor analysis has largely helped the companies to provide the best services to the customers. The strengths of the industry have made them to face the challenges in the market and come out as successful in the end through the difficult economic conditions in the country. The major issue was the falling economies and the rising competition in the market (Herndon, Ash and Pollin, 2014). The rise in the competition has made the firm to rethink its policies to prevent the customers from shifting to the other alternatives. The opportunities in the market are to be explored by the firm and used to get the benefits of the market to increase their business. Aviation is comparatively large industry that requires proper analysis and planning over the business operations. SWOT analysis help sin analysing the strengths of the company and plan for the future threats in the market that the companies will need to overcome to survive in the market (Lawton, Rajwani and Doh, 2013). The two airlines in the context are the Qantas and the Virgin Blue, financial analysis of these companies makes the different contexts that are helpful in determining the operational efficiency of these businesses.

Financial Ratios and Growth Profitability of Qantas Airways Ltd
Key Ratios -> Profitability
Years	2007	2008	2009	2010	2011	2012	2013	2014	2015
Margins % of Sales
Gross Margin	73.77	56.83	55.77	55.24	55.62	51.72	54.6	49.83	54.01
Operating Margin	6.9	5.83	1.39	-1.55	-0.63	-6.6	1.28	-26.19	4.92
Profitability
Asset Turnover (Average)	0.78	0.8	0.73	0.67	0.7	0.71	0.77	0.81	0.89
Return on Assets %	3.71	4.93	0.59	0.56	1.23	-1.17	0.02	-15.16	3.2
Liquidity/Financial Health
Current Ratio	0.87	0.74	0.89	0.93	0.9	0.77	0.82	0.66	0.68
Quick Ratio	0.82	0.67	0.78	0.81	0.78	0.65	0.7	0.58	0.6
Financial Leverage	3.17	3.44	3.5	3.35	3.39	3.6	3.4	6.05	5.09
Debt/Equity	0.68	0.62	0.86	0.86	0.89	0.92	0.88	1.84	1.39
Efficiency
Receivables Turnover	11.64	11.2	11.69	12.43	13.59	13.95	12.49	11.52	14.41
Inventory Turnover	15.45	34.34	27.64	20.94	18.45	19.25	19.51	22.33	22.36
Fixed Assets Turnover	1.23	1.28	1.19	1.08	1.1	1.07	1.14	1.25	1.46
Asset Turnover	0.78	0.8	0.73	0.67	0.7	0.71	0.77	0.81	0.89

Shift in the businesses in the aviation sector

The financial data of Qantas Airlines over the years shows a trend of improvement in the business as propelled by the growth of the economy in the present times. The gross margin of the company has seen a rise in the present times compared to the past years. The gross margin of a company is derived by deducting the revenue generated in the present year from the total cost of goods sold in the present year (Merkert and Cowie, 2012). By the calculations, it is seen that the gross margin has seen improvement that is positive for the business and inturn affect the economy. This shows that the company is stable has signs of growth in the business that has affected the overall growth of the aviation industry (Misopoulos et al. 2014). In addition to this, the operating margin has also seen an improvement in the recent years compared to the past years based on the financial data of the company. The operating margin is the indicator of the growth of the economy that is directly affected by the rise and fall of the economy. Operating margin is derived from the operating expenses and the revenue that is earned by the company in the given period.

Current ratio derived from the above tables shows the major changes that are seen in the liability repayable power of the company. The current ratio strengths show that the firm has better chances to pay off its current liabilities. The more value of the current assets that is present with the company makes the strength of the company in handling the current payments of the business (Zou et al. 2014). The asset turnover ratio of the company has been positive indicating that the firm has enough capacity to generate income based on the assets hold by the company. In addition to this the credit collection of the company is healthy indicating that the company gets its dues cleared as early as possible making the debt collection a strength of the organisation. However, the asset turnover ratio also indicates that the company has been slow to increase the sales in the years of its operations (Pearson, Pitfield and Ryley, 2015).

Financial Ratio and Growth Profitability of Virgin Blue Ltd
Key Ratios -> Profitability
Year	2007	2008	2009	2010	2011	2012	2013	2014	2015
Margins % of Sales
Gross Margin	_	_	71.2	_	72.28	73.33	71.77	71.91	74.68
Operating Margin	14.76	6.09	-7.58	2.87	-1.5	1.56	-3.43	-8.86	-2.41
Profitability
Asset Turnover (Average)	0.94	0.82	0.78	0.82	0.85	1	0.95	0.95	0.9
Return on Assets %	9.36	3.46	-4.77	0.59	-1.76	0.58	-2.33	-7.81	-2.12
Liquidity/Financial Health
Current Ratio	1.1	0.88	0.53	0.76	0.65	0.65	0.54	0.64	0.69
Quick Ratio
Financial Leverage	3.1	3.61	5.83	4.15	4.15	4.3	4.26	4.46	5.37
Debt/Equity	1.02	1.28	2.68	1.65	1.52	1.53	1.46	1.52	2.16
Efficiency
Receivables Turnover	39.09	34.45	28.91	26.41	22.52	24.24	23.14	20.83	20.51
Inventory Turnover	_	_	_	_	177.65	104.38	50.38	36.68	30.87
Fixed Assets Turnover	1.52	1.23	1.04	1.1	1.19	1.42	1.38	1.51	1.63
Asset Turnover	0.94	0.82	0.78	0.82	0.85	1	0.95	0.95	0.9

The table of the financial data shows that the company has experienced a huge correction in the gross margin. In addition to the gross margin improvement over the years showing the positive trends, the current ratio of Virgin Blue has improved a lot since the  pervious years as evident from the above table. The strength in the current ratios provide evidences that the company has been successful largely in paying off the liabilities owing to the strengths of the assets of the company (Wang, Bonilla and Banister, 2016). The current ratio has been efficient for the company in the recent years rising above the falls in the past years. This proves that the company is more stable in handling the challenges and perform better in the challenging environment of the aviation market (Zhang et al. 2013).

The creditability of the company has been an area that requires correction and that is evident from the present ratios in the market. The credit generation has been low owing to the low receivables turnover ratio. However, the sales of the company based on the assets of the company are positive as the asset turnover ratio been subsequently marginal in the recent years. The debt equity ratio presents the debts that the companies have gained in the process of purchasing assets on credit (Zhang et al. 2014). The high rate of debt equity possesses negative impact on the investors being the issue of risks associated with the company’s business. This indicates that the company may not be able to pay off dividends to the investors efficiently as the debt equity is higher.

After analysing the financial data of Qantas Airlines and Virgin Blue it is evident that Qantas Airlines will be the preferable choice for investment for the investors. This is justified by lower debt equity ratio of Qantas as compared to Virgin Blue. The investors will look for the option that has lesser risk associated with the investment and in that case, Virgin Blue seems to lag behind as the debt equity ratio of the firm is higher and it means that the company is not stable and return on investment of the investors can be at risk. However, the sales of the company have seen a positive trend but it may not be enough for the company to make the investors invest in the organisation. In order to have better investment, Virgin Blue needs to correct its debts equity ratio as the competition is high, Qantas Airlines being the market leader can take away the investors being more stable in providing return to the investors.

Conclusion

In the above paper, the two airlines are compared based on the Top-down and Bottom-up analysis to present a better understanding of the opportunities that lie in the aviation market for the investors. The economic trends in the country are evident of the rise of the aviation business in the country as the success of the Qantas Airlines in the country. However, through the analysis it was derived that the Virgin Blue is one of the promising competitors of the Qantas Airlines and can be a threat in the later years.

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