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B01BAVA320 Busniess Analysis And Valuation 2

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Question:

Learning Outcomes

1) Understand the basic techniques of financial analysis and business valuation.

2) Explain the linkage between industry analysis, strategic business analysis, accounting analysis, financial analysis and prospective analysis.

3) Demonstrate inter-relationships between differing business disciplines: financial accounting, financial management and strategic management.

4) Demonstrate work-ready disciplinary knowledge with the application of all three major aspects of financial accounting, financial management and strategic management.

Task:

a) Analyse the competitive forces facing Qantas, using the 'five forces' framework.

b) Conduct a SWOT (Strengths, Weaknesses, Opportunities and Threats) evaluation of Qantas's competitive strategy.

c) What has been Qantas's corporate strategy across its domestic and international divisions since 1992? How has that strategy changed in response to market changes?

d) Identify any two (2) accounting policy choices that you think should be closely watched by auditors and analysts for a company in the airline industry. Discuss in details for each of the two accounting policy choices above and explain why you have chosen each of them.

e) Evaluate Qantas's financial performance (Revenues and Expenses) and financial position (Assets, Liabilities, and Owner's Equities) at the end of 2013 and at the end of latest financial year that you can find (Example: Qantas annual report 2016 or 2017).

f) Analyse the differences and similarities in your findings between part (e). Then, make a clear recommendation to potential/existing investors on whether they should buy or sell Qantas shares. Clearly explain your opinion.

 

Answer:

Competitive forces facing Qantas, using the Porter’s ‘five forces’ framework

Porters’ five forces model consists of five components which will be analyzed to understand the current state of competition in airline industry of Australia.

Bargaining power of Buyer: Australian airline industry is highly competitive offering service to customers maintaining a competitive pricing strategy. In most of the cases, they provide service in low costs because it sells. Although, high income earner looks for premium quality and do not feel impressed with such strategies. Due to low cost, majorly the buying power is high among consumers.

Competitive forces facing Qantas, using the Porter’s ‘five forces’ framework

Bargaining power of suppliers: Suppliers attain power when they identify better opportunities like company to work with. However, the business organization must determine and control the power of suppliers by switching cost and establishing healthy relationship with substitute suppliers.

While operating with the support of Boeing and airbus suppliers bargaining power is quite high as airline business is all about provide quality and security too.
This is the reason suppliers have the power to restrict airline businesses like Qantas to generate increased profitability by saving the operation cost.     
 
Threat of substitutes: Qantas does not face much competition serving in international field.

The competition is severe in case of domestic flights as Railway, bus services and private cars come as alternative transportation modes.
Pricing strategy can be altered yet it is very low to get success through this strategy.
 

Competitive forces facing Qantas, using the Porter’s ‘five forces’ framework

New entrants: Airline industry is highly risky due to the high amount of involved cost into it regarding security, operation cost, and human resource along with serving customers.

This industry has become saturated in Australia and the usage of internet among people have increased due to which targeted consumers prefer to book online tickets only from reliable airlines rather than some inexperienced new company (Amaro and Duarte 2015).

Therefore, threat of competitors from new entrants is low.

The way is to increase the number of flights as frequent flights service will attract loyal customers.

SWOT Analysis of Qantas competitive strategy

Qantas has been following cost leadership strategy since the year 2000 while operating domestic and international market of Jetstar.

Moreover, differentiation strategy can be spotted while using Australia as a brand name.

Their competitive strategy is to remain the most efficient by following safety and security standards in terms of maintaining sustainability.

Besides, maintaining the market trend as per Matsude (2013),Jetstar, being the brother airline offering low budget flights, is restricting entry of new companies.
In this situation, SWOT analysis will reveal its strengths and weaknesses based on which future opportunities and threats can be predicted.

SWOT Analysis of Qantas competitive strategy

Strengths
 
Competitive advantage is high as their domestic market is as strong as international market.
They have superior power of purchase over small or new competitors.
Consistence process of innovation can be spotted both in services and operation.

Weakness

Jetstar is performing well, still there are possibilities of substitution as market is responding well against low budget carriers across world.

Dependent on consumers’ revenue mostly.

Domestic market is dynamic and customer preferences is kind of unpredictable due to presence of substitutes.

Qantas domestic and international corporate strategy since 1992

Formally management of domestic and international division has been separated to make them work independently and focused towards specific necessities. This initiative ensures operational efficiency maintaining simplicity and productivity at the same time.

The entire company believes in keeping the commitment of consistent and sustainable return to all its stakeholders maintaining the promise of security as their first priority.

Change of strategy

Strategy has been changed and reviewed consistently recognizing the dynamic customer preferences.

The concentration over domestic market and international journeys from national field has been emphasized more than international market.

Qantas is capable of offering frequent flights and unlike giving rewards for loyal customers, the organization increases costs when customers switch their preferences to a competitor airline.

Qantas will continue to dominate both the international and domestic market launching frequent flights as a part of customer loyalty program.

Annual report 2017: Financial performance

According to official report of Qantas, (Investor.qantas.com, 2018), the performance records second highest rank in entire experience of 97 years.

After the implementation of transformed strategy program for three years the company has gained financial advantage over native and international competitors.
The revenue collected collectively by Jetstar and Qantas is dominating the domestic market consistently.

Jetstar lone has delivered second highest profit in its 13 years of operation.

Loyalty programs has become successful delivering an increase of 4% in revenue.
It would become successful to reward its stakeholders and loyal customers, felicitate the good effort of human resource and invest on developing services for the customers.

Recommendation over future financial decisions

Qantas has been focusing on disciplined and strategic investment of capital returning satisfactory value to the stakeholders. This must be maintained.
As operation cost of airline businesses is raising high, such as fleet renewal, increasing price of fuel it will be wiser decision to handover shares to responsible third party capable of handling these jobs.

The market price of Qantas shares will be higher as the organization has gained record international profit margin and reputation of efficient customer services both in Asian and European market.

Together with the Jetstar, Qantas will be able to arrange the capital and successful to return desired amount to shareholders maintaining sustainability.
 

References

Amaro, S. and Duarte, P., 2015. An integrative model of consumers' intentions to purchase travel online. Tourism management, 46, pp.64-79.

Farrer, M. (2018). Qantas boss Alan Joyce's pay packet nearly doubles in year to $25m. [online] the Guardian. Available at: https://www.theguardian.com/business/2017/sep/15/qantas-boss-alan-joyce-pay-packet-nearly-doubles-in-year-to-25m [Accessed 31 Dec. 2018].

Hinterhuber, A. and Liozu, S.M., 2014. Is innovation in pricing your next source of competitive advantage?. Business Horizons, 57(3), pp.413-423.

Investor.qantas.com (2018). Qantas | 2017 Annual Report. [online] Investor.qantas.com. Available at: https://investor.qantas.com/annual-report-2017/ [Accessed 31 Dec. 2018].

Matsude, K., 2013. The Globalization of Inter-Regional Mobility Through Low-Cost Carriers. In Corporate Strategy for Dramatic Productivity Surge (pp. 177-181).
OR

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