Hing Yeung Wong 3249438 ACCT5910 Project
Executive Summary
Qantas Groups’ performance over the 2007 to 2011 period has been relatively poor mainly as a result of the global financial crisis adversely affecting the firm’s international operations. Strategically, Qantas is likely to continue to dominate the domestic airline industry with the success of Jetstar prompting expansion into the Asia Pacific region. The most significant threats facing Qantas include high fuel prices, the value of the Australian dollar and industrial action. A comprehensive financial analysis reveals that compared to other airlines, Qantas is showing strong signs of recovery despite there being inherent weaknesses in its liquidity. A review of the firm’s annual report revealed the presence of various accounting issues such distortion in its depreciation calculation, however it was determined that they were not significant enough to greatly affect Qantas overall financial position. Overall the firm was found to be in a financially sound position and through the implementation of its “QFuture” program; profitability is expected to continue to improve in following years. An evaluation of the Group’s equity found that the stock price for which Qantas is currently trading is overvalued by $0.50. This is further supported by the fact that over the last year the price of Qantas stocks has been subject to a downward trend suggesting that investors may have already identified the overvaluation. As a result of the findings of our analysis we therefore make a “sell” recommendation for Qantas stock.
Overview of Airline Industry
The Airline industry is regarded to be a highly volatile business. This riskiness is derived not only from the enormous capital requirement for start-up and maintenance, but also related to external factors such as high level of competition, seasonality and fluctuation of fuel prices. In the following section, the Porter’s Five Model is applied to the global airline industry in determining the challenges faced by
Qantas Groups’ performance over the 2007 to 2011 period has been relatively poor mainly as a result of the global financial crisis adversely affecting the firm’s international operations. Strategically, Qantas is likely to continue to dominate the domestic airline industry with the success of Jetstar prompting expansion into the Asia Pacific region. The most significant threats facing Qantas include high fuel prices, the value of the Australian dollar and industrial action. A comprehensive financial analysis reveals that compared to other airlines, Qantas is showing strong signs of recovery despite there being inherent weaknesses in its liquidity. A review of the firm’s annual report revealed the presence of various accounting issues such distortion in its depreciation calculation, however it was determined that they were not significant enough to greatly affect Qantas overall financial position. Overall the firm was found to be in a financially sound position and through the implementation of its “QFuture” program; profitability is expected to continue to improve in following years. An evaluation of the Group’s equity found that the stock price for which Qantas is currently trading is overvalued by $0.50. This is further supported by the fact that over the last year the price of Qantas stocks has been subject to a downward trend suggesting that investors may have already identified the overvaluation. As a result of the findings of our analysis we therefore make a “sell” recommendation for Qantas stock.
Overview of Airline Industry
The Airline industry is regarded to be a highly volatile business. This riskiness is derived not only from the enormous capital requirement for start-up and maintenance, but also related to external factors such as high level of competition, seasonality and fluctuation of fuel prices. In the following section, the Porter’s Five Model is applied to the global airline industry in determining the challenges faced by
References: Qantas Annual Reports 2010, 2011 <www.qantas.com.au>