Qantas is world’s second largest airline company. It was established in 1920 in Queensland. The company grows as an Australia’s biggest global and local airline. Qantas widely known as world’s top most long distance airline. Qantas first fly its passengers in 1935. Qantas built its reputation in global market by focuses on some important factors like operational reliability, customer service, engineering and safety (Qantas, 2018).
The core business of Qantas is transporting of airline passengers. In addition to the core business Qantas operates few subsidiary businesses these are:
|
PBT: $1,401 million (Qantas history it is second highest) |
|
Statutory PBT: $1,181 million |
|
Statutory Earnings Per Share: 46c |
|
ROI: 20.1% |
|
Net free cash flow: $1,309 million |
|
Up to $500 million shareholder return: Qantas has declared 7 per cents ordinary dividend on share and an market buy-back of up to $373 million |
(Source: Qantas 2018)
The financial highlight shows that Qantas has marginal advantage over local and global competitors. The current financial status and performance of the company explain that the position of company is becoming better and better from last few decades. The financial position of company has been evaluated on the basis of its annual report 2017 and it has been found that the company financial position is very strong.
Top 5 Competitors from Aviation industry of Qantas Airways Limited are:
|
Total stockholders’ equity |
3537 |
|
Long-term debt |
3144 |
(Source: Annual Report Qantas, 2017).
(Source: Annual Report Qantas, 2017).
The capital structure tells how the company will raise finance by using different sources of funds. There are mainly two ways through which the company can finance its business these are Equity and Debts (Cfi, 2018). The Qantas finance its business in financial year 2016-2017 by using Total Stockholders’ Equity which amount to $3537 million and Long term debt which amount to $ 3144 million. The graph tells the Total Stockholders Equity is 53% of the total finance and long term debts is 47% the difference between both is of 6% that means the Total Stockholder Equity is 6% more than Long Term Debts. The difference between Equity and Debts shows that company is having low leverage ratio and traditional capital structure. The traditional capital structure leads the business to lower growth rates. But make the business risk free because they are using more business income to finance business and taking debts less in comparison to equity. That’s define the loan payment capacity of the company is good and the company involve less risk. This will build confidence among the Stockholders and they will invest more in the company shares.
Financial Performance reported of Qantas Airlines Limited:
|
Group Original Income Statement Summary18 |
June 2017 $M |
June 2016 $M |
Change $M |
Change % |
|
Net traveller revenue |
13,857 |
13,961 |
(104) |
(1) |
|
Net freight revenue |
808 |
850 |
(42) |
(5) |
|
Other revenue |
1,392 |
1389 |
3 |
– |
|
Revenue and Other Income |
16,057 |
16200 |
(143) |
(1) |
|
Operating expenses (excluding petroleum) |
(9,683) |
(9,529) |
(154) |
(2) |
|
Petroleum |
(3,039) |
(3,235) |
196 |
6 |
|
Depreciation and amortisation |
(1,382) |
(1,224) |
(158) |
(13) |
|
Non-cancellable aircraft operating lease rentals |
(356) |
(461) |
105 |
23 |
|
Share of net loss of investments accounted for under the equity method |
(7) |
– |
(7) |
(>100) |
|
Total Expenditure |
(14,467) |
(14,449) |
(18) |
– |
|
Underlying EBIT |
1,590 |
1751 |
(161) |
(9) |
|
Net finance costs |
(189) |
(219) |
30 |
14 |
|
Underlying PBT |
1,401 |
1,532 |
(131) |
(9) |
(Source: Annual Report Qantas, 2017).
The PBT of Qantas Group for financial year 2016-2017 was $ 1,401 million, which is underlying the record PBT for financial year 2015-2016 of $ 1,532. The difference of $ 131 is recorded. From PBT it has been noticed that the company gets benefits from lower fuel price it is 6% less than last financial year and other benefits from Qantas Transformation program, but these benefits are counterbalance by decrease in total traveller income and expenditures linked with the rise in airborne activities.
The total traveller income was reduced by 1 per cent, this happens because of competitive pressures arise in global market and the introduction of the new paths overshadowed the enhanced Revenue unit from local business and benefits from income from the company transformation programme. The decrease in a petroleum expenses caused due to lower AUD petroleum rates and fuel efficiency measurement process include in the company transformation program which are counterbalance the rise in consumption related to the extra airborne activities.
In the financial year 2016-2017 there is no change in the policies of accounting are recorded.
|
2017 $M |
Opening Net Book Value |
Addition |
Aircraft Operating lease Refinancing |
Disposal |
Transfer |
Transferred to/from Assets Classified as held for sale |
Depreciation |
other |
Closing net book value |
|
Freehold land |
50 |
– |
– |
– |
– |
– |
– |
– |
50 |
|
Building |
115 |
– |
– |
– |
– |
– |
(6) |
– |
109 |
|
Leasehold |
452 |
44 |
– |
– |
2 |
– |
(76) |
43 |
433 |
|
Equipment and Plant |
430 |
62 |
– |
(6) |
(20) |
– |
(76) |
43 |
433 |
|
Engines and Aeroplane |
9,919 |
498 |
651 |
– |
30 |
(10) |
(1,101) |
45 |
10,032 |
|
Aeroplane spare parts |
423 |
48 |
– |
(2) |
16 |
– |
(41) |
(14) |
430 |
|
Aeroplane deposits |
281 |
515 |
– |
– |
(21) |
– |
– |
(23) |
752 |
|
Total |
11,670 |
1,167 |
651 |
(8) |
7 |
(10) |
(1,276) |
52 |
12,253 |
(Source: Annual Report Qantas, 2017).
The total carrying amount for the year 2017 for Equipment, Property and Plant is 12,253
Qantas apply Australian Accounting Standards (AASBs) when they prepare company’s Annual Financial report. The three key policies of accounting are Plant, Equipment, Property and Plant lease, asset, valuation and depreciation
The Australian Accounting Standards Board made Standard of Accounting AASB 116 for Equipment, Property and Plant. This is based on section 334 of the Corporation Act 2001.
In respect of Qantas PPE asset valuation policy, the item will be calculated on deemed cost or cost less accumulated depreciation and loss due to impairment. The original amount of the asset will be calculated at cost which include fair value of asset add incidental acquisition cost (Fair value + Incidental cost). The incidental acquisition cost includes initial estimate of instalment and usage and other applicable costs (Acca, 2018).
Lease accounting policy includes all substantial risk and benefits associate with ownership. This type of lease capitalised as both assets and liabilities at present value. And other leases are grouped as operating lease (Pwc, 2018).
Under Depreciation policy Qantas apply straight line depreciation method on all articles of Plant, Equipment and Property. Freehold land is excluded from depreciable items. To allocate the valuation and cost of an asset this standard of accounting help to determine the rate to depreciation will be applicable on them. The rate of deprecation will be decided by this standard of accounting for the assets, from the date they are acquire and till the entire life of usage (Australian government, 2014).
|
2017 $M |
Opening Net Book Value |
Additions |
Transfer |
Amortisation |
others |
Closing Net Book Value |
|
Goodwill |
208 |
– |
– |
– |
(1) |
207 |
|
Airport landing slots |
35 |
– |
– |
– |
– |
35 |
|
Software |
602 |
197 |
2 |
(105) |
3 |
699 |
|
Brand name and trade marks |
26 |
– |
– |
– |
(1) |
25 |
|
Customer contracts and relationship |
2 |
– |
– |
(1) |
– |
1 |
|
Contract intangible assets |
36 |
22 |
– |
– |
– |
58 |
|
Total |
909 |
219 |
2 |
(106) |
1 |
1,025 |
(Source: Annual Report Qantas, 2017).
Intangible assets can be categorised as indefinite assets and definite assets. The company brand name is known as indefinite assets because it remains with the company as long as the company continues its business operations. On other hand if company goes into in any lawful contract to operate under other company’s patent for a fix or definite time period is known as a definite asset (Beenegarter, 2013).
For evaluation of the value of intangible assets Qantas apply standard of accounting AASB 138.
The Australian Accounting standards Board made standard of accounting AASB 138 for intangible assets. This is based on section 334 of the Corporations Act 2001.
The main purpose of this standard of accounting is to prescribe the proper treatment of accounting for intangible assets. The standard of accounting also states, the carrying amount of intangible assets is calculated and identified disclosure of intangible assets.
The Qantas Group accepted AASB 9 (2013) to prepare its accounts from 1 July 2014. AASB 9 (2014) replaced by AASB (2013) the standard of accounting includes a new expected credit loss model which will calculate impairment for all assets related to finance.
The carrying amount of assets which are non-financial in nature, these are reviewed on every balance date to identify that is there any indication of impairment recorded. If impairment is found, the recoverable source of amount of assets will be projected. For the goodwill and intangible assets with boundless life, the recoverable amount will be calculated at the end of each financial year (Accountingtools, 2017).
Assets which mainly include in business to generate cash flow as a group, such as aeroplane, are calculated on cash generating unit (CGU) basis.
Identifying assets which consist of cash generation unit that requires judgement on, how Administration observers the Qantas Groups operation and how conclusions are obtain for the Qantas Groups operations and assets. Administration has recognised the lowest identifiable group of assets which produces cash inflow in the business these are Qantas Loyalty CGU, Freight CGU, Domestic CGU, International CGU and the Jetstar Group CGU.
|
2017 $M |
2016 $M |
|||||
|
At cost |
Accumulated Depreciation and Impairment |
Net Book Value |
At cost |
Accumulated Depreciation and Impairment |
Net Book Value |
|
|
Freehold land |
50 |
– |
50 |
50 |
– |
50 |
|
Buildings |
335 |
(226) |
109 |
335 |
(220) |
115 |
|
Leasehold improvement |
1,413 |
(966) |
447 |
1,385 |
(933) |
452 |
|
Equipment and Plant |
1,563 |
(1,130) |
433 |
1,504 |
(1,074) |
430 |
|
Aeroplane spare parts |
20,992 |
(10,960) |
10,032 |
20,065 |
(10,146) |
9,919 |
|
Aeroplane deposits |
752 |
– |
752 |
281 |
– |
281 |
|
Total Property, Plant and Equipment |
25,940 |
(13,687) |
12,253 |
24,457 |
(12,787) |
11,670 |
(Source: Annual Report Qantas, 2017).
|
2017 $M |
2016 $M |
|||||
|
At cost |
Accumulated Depreciation and Impairment |
Net Book Value |
At cost |
Accumulated Depreciation and Impairment |
Net Book Value |
|
|
Goodwill |
207 |
– |
207 |
208 |
– |
208 |
|
Airport landing slots |
35 |
– |
35 |
35 |
– |
35 |
|
Software |
1,523 |
(824) |
699 |
1,322 |
(720) |
602 |
|
Brand name and trade marks |
25 |
– |
25 |
26 |
– |
26 |
|
Consumer contracts and relationship |
5 |
(4) |
1 |
27 |
(25) |
2 |
|
Contract intangible assets |
58 |
– |
58 |
36 |
– |
36 |
|
Total intangible assets |
1,853 |
(828) |
1,025 |
1,654 |
(745) |
909 |
(Source: Annual Report Qantas, 2017).
The total amount of accumulated impairment losses is $ 18 million.
Conclusion
To conclude, the financial position of Qantas Group is not good as compare to last financial year. There is a change of $ 131 million is recorded in the PBT of the company suffers a loss of almost 9%. From the capital structure of company which consist of Total stockholders’ equity of $ 3537 million and Long term debt of $ 3144 it have been noticed that the company is playing safe they are not taking high risk. As they are playing safe that leads lower growth rate of the company. The example of lower growth rate is beside the fuel prices are reduced the company incurred loss. To generate profits the company need to plan aggressive strategies.
References
Acca. (2018). ACCOUNTING FOR PROPERTY, PLANT AND EQUIPMENT. Retrieved from https://www.accaglobal.com/gb/en/student/exam-support-resources/fundamentals-exams-study-resources/f7/technical-articles/ppe.html.
Accountingtools. (2017). Intangible assets accounting. Amortization. Retrieved from https://www.accountingtools.com/articles/2017/5/17/intangible-assets-accounting-amortization.
Annual Report Qantas. (2017). PO S I T I O N I N G F O R S U S TA I N A B I L I T Y AND GROWTH. Retrieved from https://investor.qantas.com/FormBuilder/_Resource/_module/doLLG5ufYkCyEPjF1tpgyw/file/annual-reports/2017AnnualReport.pdf.
Australian government. (2014). Amendments to Australian Accounting Standards – Clarification of Acceptable Methods of Depreciation and Amortisation. Retrieved from https://www.legislation.gov.au/Details/F2014L01174.
Beenegarter. (2013). Valuation and Impairment Testing for Non-Goodwill Intangible Assets. Retrieved from https://beenegarter.com/articles/valuation-and-impairment-testing-for-non-goodwill-intangible-assets.
Cfi. (2018). What is capital structure?. Retrieved from https://corporatefinanceinstitute.com/resources/knowledge/finance/capital-structure-overview/.
Datafox. (2018). Top 5 Qantas Airways Competitors. Retrieved from https://datafox.com/competitors/qantas-airways.
Intangible business. (2017). Intangible Asset Valuation. Retrieved from https://www.intangiblebusiness.com/financial/intangible-asset-valuation.
Pwc. (2018). New standard – Lease accounting. Retrieved from https://www.pwc.com.au/ifrs/new-standard-lease-accounting.html.
Qantas. (2018). About Us-Qantas. Retrieved from https://www.qantas.com/au/en.html.
Qantas. (2018). QANTAS AIRWAYS LIMITED AND ITS CONTROLLED ENTITIES. Retrieved from https://www.qantas.com.au/infodetail/about/investors/preliminaryFinalReport14.pdf.
Qantas. (2018). Subsidiary Companies. Retrieved from https://www.qantas.com/travel/airlines/subsidiaries/global/en.
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