Qantas and Virgin Australia have been Australia’s leading airlines and prime competitors in the regional market. An analysis of the airlines’ financial performance in the period 2015, 2016 and 2017 is presented in this report. The report begins with a short introduction into the dynamics of the airlines under review. The basis of financial analysis is discussed, where the six key financial analysis parameters (profitability, efficiency, liquidity, gearing, horizontal analysis and vertical analysis) are introduced, explained and summarized separately, for each airline.
Qantas fulfilled all criteria for a stable airline except in gearing and liquidity analysis whereas Virgin Australia fell short in profitability and efficiency. A comparative analysis is provided where the performance of both Qantas and Virgin Australia is closely studied. A business performance review specific to Qantas is presented with a focus on both financial and non-financial aspects. A conclusion is provided which details out the major findings which are a by-product of the analysis. Lastly, few recommendations are provided based on the summarized conclusion which is of financial and non-financial nature. Qantas was found to be highly profitable in this review period. Virgin Australia meanwhile suffered significant losses and was in the recovery stage at the end of the analysis period.
Table of Contents
1. Executive Summary
2. Introduction
3. Financial Analysis
3.1: PROFITABILITY
3.2: EFFICIENCY
3.3: LIQUIDITY
3.4: GEARING
3.5: HORIZONTAL ANALYSIS
3.6: VERTICAL ANALYSIS
3.7: Comparative analysis
4. Business Performance of Qantas (2015-2016-2017)
5. Conclusion
6. Recommendations
7. List of References
8. Appendix – Sample Calculation Annexures
Annexure 1: Profitability
Annexure 2: Efficiency
Annexure 3: Liquidity
Annexure 4: Gearing
Objectives and Research Focus
This report aims to conduct a comprehensive financial performance analysis of Qantas and Virgin Australia over the years 2015, 2016, and 2017 to determine their relative financial stability and market standing.
- Application of six key financial parameters: profitability, efficiency, liquidity, gearing, horizontal analysis, and vertical analysis.
- Evaluation of Qantas's business performance, focusing on financial and non-financial strategic aspects.
- Comparative performance benchmarking between Australia’s two primary airlines.
- Identification of recovery status and financial health through audited financial statement review.
- Formulation of recommendations based on the analyzed financial results.
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3.1: PROFITABILITY
Profitability of an entity, simply put, is the ability of that entity to earn profit. Profitability differs from profit as it is a measure of efficiency for success of the business. Whereas, a business is said to be in profit only if it pays all the expenses relating to the revenue generated by it.
Profitability can be determined with the help of profitability ratios. Common ratios used to analyze profitability are:
1. Return on ordinary shareholder funds = (Net Profit after taxation / Share Capital + Reserves) x 100
This ratio helps in determining the return on investment of shareholder funds. Mapping profit against share capital will be helpful for shareholders to invest in more shares or vice-versa.
2. Return on capital employed = (Net Profit after interest and taxation / Share Capital + Reserves + Non-current liabilities) x 100
This ratio is helpful in determining the return on all capital employed by the airline. This helps the airline in making cautious future decisions with investing additional capital with respect to their profit.
3. Gross Profit Margin = (Gross Profit / Sales Revenue) x 100
4. Net Profit Margin = (Net Profit before interest and taxation / Sales Revenue) x 100
Profit margin ratios are useful in determining the percentage profit gained with respect to the sales revenue after deduction of all expenses.
A sample calculation for the above ratios is provided in Annexure 1.
Summary of Chapters
1. Executive Summary: Provides an overview of the analysis period (2015-2017) and highlights the contrasting financial outcomes between Qantas and Virgin Australia.
2. Introduction: Presents the background of the two airlines, their market position, and the methodology regarding the data source, which relies on audited annual reports.
3. Financial Analysis: Explains the six key financial parameters used to evaluate the airlines' performance including ratios for profitability, efficiency, liquidity, and gearing.
4. Business Performance of Qantas (2015-2016-2017): Examines Qantas's specific management strategies, including the use of balanced scorecards and KPIs to drive profitability.
5. Conclusion: Summarizes the major findings, noting Qantas's strong profitability and Virgin Australia’s struggles during the review period.
6. Recommendations: Offers strategic advice for both airlines, suggesting cost-cutting for Virgin Australia and debt management for Qantas.
7. List of References: Provides the source documents and literature utilized for the study.
8. Appendix – Sample Calculation Annexures: Contains the detailed breakdown and formulas used for calculating the financial ratios presented in the report.
Keywords
Financial Analysis, Qantas, Virgin Australia, Profitability, Efficiency, Liquidity, Gearing, Horizontal Analysis, Vertical Analysis, Airline Management, Annual Reports, Audited Statements, Shareholder Funds, Capital Employed, Performance Benchmarking.
Frequently Asked Questions
What is the core purpose of this financial report?
The report aims to evaluate and compare the financial performance and stability of Qantas and Virgin Australia during the 2015 to 2017 fiscal years.
Which airlines are being analyzed in this study?
The study focuses on Australia's two leading aviation carriers: Qantas and Virgin Australia.
What is the primary objective or research question?
The objective is to determine which airline has maintained better financial health and market stability throughout the three-year review period using specific financial indicators.
What scientific methods are utilized for this analysis?
The analysis employs ratio analysis (profitability, efficiency, liquidity, gearing), as well as horizontal and vertical analysis of balance sheets and income statements.
What content is covered in the main body of the report?
The main body details the six financial parameters, provides comparative results, and reviews the specific business performance strategies of Qantas.
What are the characterizing keywords for this document?
The study is characterized by terms such as financial analysis, profitability, liquidity, gearing, and airline performance benchmarking.
How did Virgin Australia perform compared to Qantas in terms of profitability?
Qantas demonstrated consistent profitability throughout the period, while Virgin Australia suffered significant losses and was in a recovery phase at the end of the analysis period.
What recommendation is provided to Virgin Australia to improve its financial stability?
It is recommended that Virgin Australia implement cost-cutting strategies and potentially utilize asset liquidation to counter losses and stabilize its financial position.
Why is Qantas considered more stable despite its high liability numbers?
While Qantas carries high liabilities, its ability to generate consistent profits and its improvement in interest cover ratios demonstrate a robust financial performance compared to its regional rival.
What role does the "STIP" plan play in Qantas's business performance?
The Short-Term Incentive Plan (STIP) is a performance-based remuneration measure for executives and the CEO, calculated using a formula based on balanced scorecards and individual performance.
- Citar trabajo
- Vedhas Sabnis (Autor), 2018, Financial Analysis of the Airlines Qantas and Virgin Australia (2015 to 2017), Múnich, GRIN Verlag, https://www.grin.com/document/948554
