Essay: Managerial Accounting Of Qantas Airways - Domestic Domains Report.

Discuss about the Report for Managerial Accounting of Domestic Domains.

The mission of Qantas Airlines is to offer excellent travel experience to its customers without compromising with the safety needs and by strictly avoiding discrimination. The mission of Qantas also focuses on the safety and health related aspects of the employees (Qantas, n.d.). The vision of Qantas includes the steps taken by the airways to achieve its mission. Qantas focuses on developing strategies to increase the revenue and reduce costs. The company also intends to give a delightful and long lasting experience to the customers with the expectation to enrich customer satisfaction, which is one of the main agendas of the company. Qantas have always believed in increasing the returns of the shareholders and ensure good performance on behalf of the employees. Qantas always focuses on strictly adhering to its principles of corporate ethics. The strategies of Qantas are always reviewed by the board responsible for corporate governance, which also involves keeping a watch on the process of strategy implementation (Qantas Airways Limited, 2015; Qantas, n.d.).

The company is presently aimed to increase its revenue in the international and the domestic domains by offering better services to the customers. It has also launched the Qatans Transformations Program in 2013 that is aimed to increase productivity and promote a good business culture within its internal environment (Qantas Airways Limited, 2016). It also has A-380 in its stock of flights (¹Qantas, 2016). It also has a number of subsidiaries in order to ensure adequate control on market shares (²Qantas, 2016). Considering the goals of the company, making the business sustainable is one of the key aspects that falls under the strategies and values of the company. Sustainability comprises of duty towards the society, concern for safety, focus on innovation and taking care for the environment (Qantas Airways Limited, 2015; Qantas Airways Limited, 2016).

There are certain policies regarding the selection of the CEO and the top-level executives, as followed in Qantas. The Board of Corporate Governance of the company is responsible for appointing the CEO and has the right to remove him/her from the post under applicable company policies. Currently, there are nine directors who are also considered as independent non-executive directors to the company. They are elected by the shareholders of the company and are responsible for keeping a watch on the performance of the Chief Executive Officer (CEO), the Chief Financial Officer (CFO) and the Executive Management. The power of appointment and dismissal of the Company Secretary also lies totally in the hands of the elected board members (Qantas Airways Limited, 2015).

Means of Listing the Top Level Executives

According to the governance policies of the company, its directors can be both of Australian origin or an expatriate. However, two-thirds of the members must be from Australia and the chairman should compulsorily be a citizen of Australia. Moreover, the existence of foreign ownership in the company cannot exceed 49%. The independent directors can freely express their views before the board (Qantas Airways Limited, 2015).

At the time of appointment of new directors, the board does a thorough check of the background of the nominated person(s). It also involves taking help from external consultants in the process of re-appointment. The person(s) selected by means of the board are given appointment letters that lays down the details of the terms and conditions regarding their employment in the company. Even the present directors can apply for the post of directors again, as per the guidelines of the governance policies applied in Qantas. The re-election of the directors is made as per the ASX Listing rules and the Qantas Constitution. After the final selection of the directors, they are required to undergo through an induction programme to get acquainted about the rules of Qantas and the airlines industry in general (Qantas Airways Limited, 2015). The managing director, deputy managing director, secretaries and executive director are also appointed by the directors of Qantas. An alternate director can also be appointed by the directors of Qantas (³Qantas, 2016). It must also be noted in this regard that at present, Qantas is intending to empower the roles of women in the senior level management and has increased the number of women in management to 31.6% in 2015 from 32% in 2014 (Qantas Airways Limited, 2015). The audit committee of Qantas is responsible for assisting them in the areas of financial reporting and auditing tasks, while the board is responsible for appointing the committee. It can thus be stated that most of the members of the committee should be non-executive directors and they should only be independent by nature. This committee shares further responsibilities in appointing new external and internal auditors (³Qantas, 2016).

Figure 1: Share Price Graph

Source: (Qantas Airways Limited, 2016)

Figure 2: Share Price Chart of 2013

Source: (Qantas Airways Limited, 2016)

Figure 3: Share Price Chart of 2014

Source: (Qantas Airways Limited, 2016)

Figure 4: Share Price Chart of 2015

Source: (Qantas Airways Limited, 2016)

By the end of 2013, the share price of Qantas was AUD 1.10 that gradually increased to AUD 4.00 in 2015. The same trend of growth can also be observed in the volume of shares traded, which was 2,663,575 at the end of 2013 and grew to 5,023,309 by 2015. It can thus be inferred that the share price as well as share volumes of the company have been on the rise since the past 3 fiscal years, which indicates its productive performance in the share market (⁵Qantas, 2016).

Comparison of Performance Based On Price Charts

Nonetheless, the company had to face challenges to keep its share price stable and growing, despite of a statutory loss of AUD 235 million that further caused a loss of earnings per share (EPS) by AUD 10.6 million dollars to the company (Qantas Airways Limited and Controlled Entities, 2013). In 2014, the company was able to regain its profit of AUD 206 million, which accelerated its share price further. The EPS was also positive and amounted to AUD 9.2 million in 2014 (Qantas Airways Limited and Controlled Entities, 2014). Subsequently, the statutory profit of Qantas was observed to be as high as AUD 688 million in 2015 with its EPS recorded at AUD 31.9 million, which can also be regarded as a possible cause of its rising share price (Qantas Airways Limited and Controlled Entities, 2015).

In 2013, Qantas had to incur a loss of $2.84 billion that was more than the anticipated loss, which certainly had increased pressure on the company’s leaders. Among the key reasons for the company to bear the loss, it is argued that low demand that persisted in Australia during the year and hike in the oil prices played a crucial role to have caused the losses. In order to mitigate the threats of rising cost constraints to the company, the decision to lay-off jobs and restructuring was adopted by the company (ABC, 2013). In 2014, Qantas was able to enhance its performance as result of the initiatives undertaken to cut costs and following a decline in the price of oil. Requisite financial measures were also applied to pay-off the debts rather than making further investments, which supported the turnaround of the company. This resulted in further rise of its share price by almost 15 % (Smyth, 2014).

Considering the performance of Qantas, it can be asserted that its share prices have rose drastically by 2015 as compared to that of 2013. The condition is believed to improve further due to declining oil prices (Morgan, 2015). However, considering the present situation, as on 2016, it can be observed that the share price of the company has fallen by over 14%, which might be owing to the lack of innovation within its services offered. The decision of restraining from increasing the number of flights has gradually led to a reduction in the seat capacity offered by the company, which has in turn increased competitive pressures and might have led to a decline in its share prices (Australian Associated Press, 2016; SBS, 2016).

Comments on the Performance of the Company

Report of CEO and Chairman

From a critical perspective, it can be argued that there was a rise in the price of oil to $ 4.52 billion in 2014, accompanied with excess supply as compared to the demand, which caused a steep decline in the earnings falloff the company, amounting to around $550 million. The chairman’s report thus states that the amount of loss incurred in 2014 was $646 million, while the company was focusing on planning of strategies with the intent to increase its profits in 2015. A brief introduction about transformation program undertaken in 2013 was also given in the report of the Chairman, published as on 2014. The CEO’s report further stresses on the reasons for the losses incurred by the company in 2014 and the strategies adopted to cope with the challenges in the future. It states about the initiatives taken to reduce costs and focus on customer value (Bartholomeusz, 2014; Qantas Airways Limited, 2014).

In the annual report of 2015, the Chairman proposes about the strong performance of Qantas to recover from the financial challenges of 2013-14. The company was also asserted to have obtained a benefit from the transformation program, by more than the expected level of $894 million. This was assisted further by a fall in the process of oil and in the value of Australian Dollar, which leveraged foreign investments made to the company. There was focus on reducing the costs, increasing revenues and raises the degree of satisfaction of the customers. The report of the Chairman also reveals about the profit secured by the company to amount as $975 million approximately, in 2014-15. It is revealed that the company has made further investments to purchase aircrafts and build longue to increase its seat capacity (Qantas Airways Limited, 2014).

The remuneration of the executives of Qantas is decided by the Qantas Remuneration Committee. It includes making decision about the incentives and awards of the CEO, senior executives, executive directors (Qantas Airways Limited, 2016). Considering the case of the top level executives, the remuneration includes three things vis. a vis., base pay, annual incentive and long term incentive, which was certainly increased in 2015, following the profits earned by the company. 

The table show that remuneration of the executives as on 30 June, 2015. The CEO Allan Joyce had a basic pay of AUD 2,000,000 basic pay on 2015 and a total pay of AUD 6,700,000. Tino La Spina the CFO had a basic pay of AUD 279,000 and a total pay of AUD 676,000. All other members had a total pay of over AUD 500,000 each on 2015.

The report of the CEO and chairman reveals similar aspects about the company’s performances over the past few years. Qantas had to face challenges in 2013-14 that led to huge losses faced by the company, especially due to rising prices of oil and lowered demand among the consumers. In order to cope with the challenge, the management decided to undertake a transformation programme in 2013 that focused cutting jobs, rejecting aircrafts and reducing pay hikes. This further helped the company to revive its condition and witness profits.

The comparison of the company published reports and the other reports suggest that Qantas have appropriately taken steps for mitigating the issues it faced. These have helped the company to achieve the mission and vision determined. The transformation programme is one the key initiatives taken to make up for the losses that the company has faced in 2013-14. It also partnered with Emirates to strengthen its domain in the international domain by building a base in Dubai.

Conclusions

Qantas has a mission to offer good experience to the customers. It also focuses on taking care of the health and safety of its employees. To achieve its mission, the company performs with a well developed vision that focuses on reducing cost, increasing revenue and aligning with the corporate ethics. Considering the case of the listing of the senior level executives, it was observed that the board of corporate governance is responsible for the appointment of the CEO, CFO, company secretary, audit committee, directors, managing directors, deputy managing directors and other executives. The performance of the company is same as depicted by the report of the chairman and the CEO and the other reports published by the company. In 2013-14, the company had faced huge losses and to cope with the problem, Qantas resorted to undertake a transformation programme in 2013. This has in turn resulted in high profits and revival of the airways in 2015. The share price also witnessed a rise, since 2013 to 2015. However, the price of share again fell in 2016.

This study elaborates on the financial and share market performances of Qantas Airways. The study thereby takes into account the three years performance of Qantas, i.e. from 2013 to 2016. From the findings obtained, Qantas had to witness many shortfalls in its strategic performance in 2013, mostly due to external business environment fluctuations, such as oil price rise and fall in consumer demands. It regained stability by the mid of 2014, after incurring a huge loss and taking remedial strategies thereafter. Its growth prospects however remained limited, as the company had to postpone its investment plans that would have secured greater market shares by increasing seat capacity within more aircrafts added to its services. Nonetheless, with aggressive turnaround strategies and restructuring, the company has been able to gain profits for the past two years and hence, is looking forward to implement its expansion plan.

References

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Australian Associated Press, (2016) Qantas profit rises to record $1bn on back of overhaul and dip in fuel prices, [Online], Available: https://www.theguardian.com/business/2016/aug/24/qantas-profit-rises-to-record-1bn-on-back-of-overhaul-and-dip-in-fuel-prices [02 Sep 2016].  

Bartholomeusz, S. (2014) Oil price fall a welcome tailwind for Qantas and Virgin, [Online], Available: https://www.theaustralian.com.au/business/opinion/stephen-bartholomeusz/oil-price-fall-a-welcome-tailwind-for-qantas-and-virgin/news-story/0ceb6df9f99165e11b34e5f1bacaae11 [02 Sep 2016].   

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