Qantas Financial Analysis Report

Financial Analysis report
1 Table of Contents
2 A Company Overview........................................................................................................4
2.1 Business model............................................................................................................5
2.1.1 Full service carrier (FSC) and low cost carrier (LCC) models............................5
2.2 Social and economic environment...............................................................................6
2.2.1 Porter five forces analysis....................................................................................6
2.2.2 SWOT Analysis...................................................................................................7
3 Financial Analysis - Qantas...............................................................................................8
3.1 Horizontal Analysis.....................................................................................................8
3.1.1 Income Statement.................................................................................................8
3.1.2 Statement of Financial Position.........................................................................10
3.1.3 Income Statement...............................................................................................11
4 Financial Analysis – Virgin Australia..............................................................................13
4.1 Horizontal Analysis...................................................................................................13
4.2 Vertical Analysis.......................................................................................................16
5 Comparison between Qantas and Virgin..........................................................................19
5.1 Horizontal Analysis...................................................................................................19
5.2 Vertical Analysis.......................................................................................................21
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6 Key Ratios........................................................................................................................23
6.1 Return and Profitability.............................................................................................23
6.1.1 Net Profit Margin...............................................................................................23
6.1.2 Return on Equity................................................................................................24
6.1.3 EBITDAR Margin..............................................................................................24
6.2 Risk Ratios.................................................................................................................25
6.2.1 Current Ratio/Working Capital Ratio................................................................25
6.2.2 Quick Ratio........................................................................................................25
6.2.3 Debt to Equity Ratio...........................................................................................26
7 Other Relevant Information.............................................................................................27
8 Conclusion and Recommendations..................................................................................28
9 References........................................................................................................................29
A Appendix..........................................................................................................................30
A.1 Details of Qantas Group’s Acquisitions and Milestones...........................................30
A.2 Financial Statements – Qantas...................................................................................32
A.2.1 Income Statement...............................................................................................32
A.2.2 Statement of Financial Position.........................................................................33
A.3 Financial Statements – Virgin Australia....................................................................34
A.3.1 Income Statement...............................................................................................34
A.3.2 Statement of Financial Position.........................................................................35
A.4 Formulas and Calculations........................................................................................36
A.4.1 Horizontal Analysis............................................................................................36
A.4.2 Vertical Analysis................................................................................................36
A.4.3 Net Profit Margin...............................................................................................36
A.4.4 Return on Equity................................................................................................36
A.4.5 EBITDAR Margin..............................................................................................37
A.4.6 Current Ratio......................................................................................................38
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A.4.7 Quick Ratio........................................................................................................38
A.4.8 Debt to Equity....................................................................................................38
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2 A Company Overview
Founded in the Queensland outback in 1920, Qantas has grown to be Australia's largest
domestic and international airline. Registered originally as the Queensland and Northern
Territory Aerial Services Limited (QANTAS), Qantas is widely regarded as the world's
leading long distance airline and one of the strongest brands in Australia. Qantas have built
its sup-groups below: QantasLink, Q Catering, Qantas Freight, Express Ground Handling,
Qantas Holiday and Jetstar.
Qantas Link
Q Catering
Qantas Freight
Qantas
Group
Express Ground
Handling
Quantas Holiday
Jetstar
 QantasLink
QantasLink operates over 2000 flights each week to 56 metropolitan, regional and
international destinations across Australia and to Port Moresby in Papua New Guinea.
 Q Catering
Qantas Catering Group Limited is a wholly owned subsidiary that operates two catering
businesses - Q Catering and Snap Fresh. Q Catering has catering centres in four Australian
ports - Sydney, Melbourne, Brisbane and Perth.
 Qantas Freight
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Focused on providing excellence in airfreight services, Qantas Freight Enterprises is
Australia's largest independent airfreight services business employing over 1,300 people in
Australia and across the world.
Qantas Freight operates a network of 21 specialist cargo handling terminals in 15 major

gateway ports across Australia and in a dedicated terminal in Los Angeles. These terminals
handle freight for Qantas and Jetstar, as well as many other major carriers.
 Express Ground Handling
A wholly owned subsidiary of Qantas Airways within the Qantas Airports and Catering
Group, provides comprehensive ground handling services to Jetstar and several regional
airlines.
 Qantas Holiday
Part of the Jetset Travelworld Group wholesale suite, is one of Australia's leading travel
wholesalers. Qantas Holidays markets an extensive range of competitively priced products
and services covering the Qantas network, including partner airlines and codeshare services,
as well as packages for other airlines under the Viva! Holidays brand. In addition to
destination specific promotions, Qantas Holidays sells packages to a number of special events
in Australia, such as popular stage shows and sporting events.
 Jetstar
The Jetstar Group is a value based, low fares network of airlines operating in the leisure and
value based markets offering all day, every day low fares.
2.1 Business model

2.1.1 Full service carrier (FSC) and low cost carrier (LCC) models
Using their dual complementary airlines, Qantas and Jetstar, the Group focuses on its main
business as transportation of passengers and is committed to maintaining their leading
position in operating long-haul international, and short-haul domestic and regional services.
There are two business models in the airline industry, namely the FSC and LCC models. FSC
model is essentially based on a differentiation strategy that bears much heavier overheads,
while LCC model based on the cost minimisation strategy by significantly cutting costs
through reducing their overheads (Alamdari and Fagan, 2005). Qantas airline (both domestic
and international) is operating based on the FSC model, while Jetstar is operating based on
LCC model as a direct competitor to the low cost Virgin Blue in Australia (Hunter, 2006).
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Qantas Group also possesses a broader portfolio of businesses and investments, including
Qantas Loyalty and Qantas Freight, which creates assorted revenue streams and generates
more values for customers and investors as a result (Details please see Appendix A.1).
2.2 Social and economic environment

2.2.1 Porter five forces analysis
• Industry Competitors
Qantas observes severe competition from Virgin Australia domestically and a number of low
cost airlines internationally such as China Southern Airline and Malaysia airline. Qantas must
always revitalise its product offerings in order to be competitive and sustainable amongst
other players.
• Threat of new entrants
Extremely high fixed initial costs along with government regulatory requirements increase
the entry threshold for the air transportation industry. Therefore, the high barriers of entry and
the dominant powers of existing large players significantly reduce the number of new
entrants.
• Threat of substitute products or services
Other forms of transportation like railways, buses, ships and personal transportation are direct
substitutes for those who are not concerned about travelling fast. Indirect substitutes such as
teleconferencing, online chatting and VoIP (Voice over IP) will increase the threat of
substitutes as they save time and money for customers who are travelling.
• Bargaining power of customers
Buyers for Qantas consist of business travellers, leisure travellers, budget travellers, travel
agents, and many others. The expectations of the customer have grown over time as they
demand more value for every dollar spent. In addition, technology development also allows
firms and individuals to communicate with ease which strengthens the bargaining power of
customers.
• Bargaining power of suppliers
The aircraft suppliers for Qantas are the only two largest aircraft manufacturers: Boeing and
Airbus. Fuel will be supplied by companies like Shell and BP. Hotels and catering service are
also provided to the customers as well as crew members in different destination of its
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operations. In order to lower the cost, Qantas need to maintain a fairly good communication
with its suppliers to achieve the competitive edge.
2.2.2 SWOT Analysis

Qantas' strong dominance in Australian domestic market enables it to take advantage of the
local expertise to gain access to key markets as well as enhancing the quality of its services.
However, increased competition from the growing numbers of low cost and low fare airlines
could impact the group's market share especially in the Asian region.
FIGURE 2.2.2-1 SWAT ANALYSIS OF QANTAS
Strength
1. Strong support of Australian Government
2. One of the top and largest airlines operating in
Australia
Weakness
3. Has been one of the historical airline operators in the 1. Heavy concentration around the Australia
world region
4. Has over 40 destinations domestically and 2. Costly and ineffective employee training
internationally schedule
5. Good brand building exercises through advertising
and sponsorship
Opportunity
1. Due to the monopolistic nature of Qantas, it Threats
reduces the chance of other airlines gaining more
market share in Australia 1. Increasing fuel prices
2. More potential international destinations in 2. Rising Labor Costs
Asia 2. Increasing Competition in Australian
3. Collaboration with international airlines Market from new start ups
Based on the above SWOT analysis, it can be inferred that the strengths of Qantas make it a
well respected airline which infuses public confidence. Furthermore, its brand name gives
good selling prospects. However, due to the attribute of aviation industries, there are a lot of
challenges that contributes to the uncertainty of the financial performances.
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3 Financial Analysis - Qantas
3.1 Horizontal Analysis
3.1.1 Income Statement
TABLE 3.1.1-1 HORIZONTAL ANALYSIS - INCOME STATEMENT QANTAS
2010 2011 2012 2013 2014 Graph
Revenue and Other Income
Net passenger revenue -5.7% 10.1% 13.1% 0.4% -3.2%
Net freight revenue 7.5% 2.6% 7.2% 3.5% 2.1%
Other -7.8% -0.1% -40.5% 8.2% -10.7%
Revenue and Other Income -5.4% 8.1% 5.6% 1.1% -3.5%
Expenditure
Manpower and staff related -7.6% 8.5% 2.1% 1.9% -3.4%
Fuel -8.9% 10.5% 16.3% -1.6% 7.4%
Aircraft operating variable -5.6% 3.5% 7.7% 2.7% 2.6%
Depreciation and amortisation -13.7% 4.2% 10.8% 4.8% -1.9%
Impairment of specific assets 236.5%
Impairment of cash generating unit
Non-cancellable aircraft operating lease rentals 16.7% 7.8% -3.0% -4.4% -1.0%
Share of net loss/(profit) of associates and jointly
-73.3% -650.0% -86.4% -1400.0% 69.2%
controlled entitles
Other 2.3% 6.1% 16.2% -16.0% 1.8%
Expenditure -5.8% 6.9% 10.0% -1.2% 21.8%
Statutory profit/(loss) before income tax expense
24.6% 72.3% -139.7% -214.5% -2005.1%
and net finance costs
Finance income -12.6% 6.1% -5.7% -39.8% -24.8%
Finance costs 11.8% 19.1% 17.0% -17.1% -3.4%
Net finance costs 240.9% 50.7% 55.8% 6.3% 9.1%
Statutory profit/(loss) before income tax expense -1.7% 81.5% -208.0% -103.2% -36245.5%
Income tax (expense)/benefit 6.9% 19.4% -241.9% -108.6% -12688.9%
Statutory profit/(loss) for the year -5.7% 114.7% -198.0% -100.8% -142250.0%
In 2009-2014 timeframe, Qantas has experienced a low rate of growth in Revenue and Other
Income of 1.2% on average per year. Its highest figure was reached in 2013 when it was
$15,902m. However in 2014 Annual Report it declined to $15,352m (-3.2% YoY 2013-
2014). Revenue and Other Income are highly affected for a decline in Other (-10.2% YoY
average 2009-2014) and a low rate of growth in Net passenger revenue (2.9% YoY average
2009-2014). Other account includes Frequently Flyer marketing revenue (-38%) and Contract
work revenue (-48%).
Qantas’ Expenditure has an average rate of growth of 6.3%. Fuel Expense, as one of the most
important expenditures in airline companies, has grown for most of the years (4.8% YoY
average 2009-2014). In 2014 this company did an impairment review that had a high impact
in the Income Statement, this program cost the company $2,849m in expense.
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The growth of Revenue and Other Income between 2009 and 2014 was 5.5%. Yet,
Expenditure has grown 33.3% in the same period. As a result the Statutory profit shows a
declining trend. In 2014 Qantas attained the highest losses among the years analysed in this
report.
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3.1.2 Statement of Financial Position
TABLE 3.1.2-2 HORIZONTAL ANALYSIS-STATEMENT OF FINANCIAL POSITION
QANTAS
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2010 2011 2012 2013 2014 Graph
Current Assets
Cash and cash equivalents 2.4% -5.6% -2.8% -16.7% 6.1%
Receivables 3.2% -5.6% 8.2% 29.3% -16.7%
Other financial assets -58.5% 36.5% -72.3% 104.5% -4.4%
Inventories 27.6% 16.6% 1.1% -3.2% -12.9%
Assets classified as held for sale 250.0% -78.0% 265.0% -42.5% 219.0%
Other -13.3% 2.8% -70.3% -9.1% 1.8%
Total current assets -2.2% -3.3% -8.4% -4.0% -0.6%
Non-Current Assets
Receivables -22.0% 3.9% 11.6% -63.1% -9.2%
Other financial assets -70.3% -31.4% -75.7% 58.8% 25.9%
Investments accounted for using the
-2.3% 25.9% -4.0% -58.4% -24.7%
equity method
Property, plant and equipment 3.0% 9.1% 3.6% -2.2% -24.1%
Intangible assets 0.6% -11.2% 2.9% 17.0% 3.8%
Other -36.4% -57.1% 666.7% 504.3% 482.7%
Total non-current assets 0.0% 8.1% 3.3% -4.1% -17.8%
Total assets -0.7% 4.8% 0.1% -4.1% -13.5%
Current Liabilities
Payables -4.5% -0.7% 7.3% -1.1% 0.4%
Revenue received in advance 1.9% -3.2% 3.8% -4.3% 11.8%
Interest-bearing liabilities 1.0% -8.4% 93.9% -25.4% 44.9%
Other financial liabilities -62.2% 64.0% -7.1% -76.7% 111.6%
Provisions -11.6% 1.8% 92.8% -5.0% 4.9%
Liabilities classified as held for sale -100.0% -100.0%
Total current liabilities -7.0% -0.1% 19.1% -10.5% 13.2%
Non-Current Liabilities
Revenue received in advance -13.4% 4.1% 2.3% 4.4% -0.3%
Interest-bearing liabilities 3.8% 6.6% -0.4% -3.4% 0.5%
Other financial liabilities -13.8% 113.4% -54.6% -75.9% 22.2%
Provisions 5.1% 15.5% 13.8% -40.9% -6.9%
Deferred tax liabilities 17.8% 7.3% -39.5% 34.7% -100.0%
Total non-current liabilities 1.6% 10.2% -5.7% -5.6% -8.2%
Total liabilities -2.5% 5.6% 4.8% -7.9% 1.8%
Equity
Issued capital 0.0% 0.0% 0.0% -0.8% -1.3%
Treasury shares -6.9% 33.3% -41.7% 2.4% -62.8%
Reserves 1457.1% -22.0% -57.6% 255.6% -163.3%
Retained earnings 10.7% 21.6% -47.3% 42.6% -258.1%
Equity attributable to the members of
3.8% 3.5% -11.1% 6.8% -51.0%
Qantas
Non-controlling interests -4.5% -90.5% 0.0% 25.0% -20.0%
Total equity 3.7% 2.8% -11.1% 6.8% -50.9%
Qantas’ assets have declined from $20,049m in 2009 to $17,318m in 2014 (-13.6%). This
event occurred due to the decrease in Property, Plant and Equipment (PPE) (-13.6%) and
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Cash and cash equivalent (-17%). Major decrease in PPE account occurred in 2014 due to the
impairment review.
Liabilities have increased 1.2% from $14,284m in 2009 to $14,452m in 2014. An increase of
11.8% during 2014 in Revenue received in advance had a high impact in Qantas’ liabilities.
From 2009 to 2013, Qantas’ equity had no relatively large changes with an average of
$5,841m. However, in 2014, this company had recorded a high statutory loss that resulted a
50.9% decline in company’s equity.
Vertical Analysis

TABLE 3.1.3-3 VERTICAL ANALYSIS - INCOME STATEMENT QANTAS
2010 2011 2012 2013 2014 Graph
Net passenger revenue -5.7% 10.1% 13.1% 0.4% -3.2%
Net freight revenue 7.5% 2.6% 7.2% 3.5% 2.1%
Other -7.8% -0.1% -40.5% 8.2% -10.7%
Revenue and Other Income -5.4% 8.1% 5.6% 1.1% -3.5%
Expenditure
Manpower and staff related -7.6% 8.5% 2.1% 1.9% -3.4%
Fuel -8.9% 10.5% 16.3% -1.6% 7.4%
Aircraft operating variable -5.6% 3.5% 7.7% 2.7% 2.6%
Depreciation and amortisation -13.7% 4.2% 10.8% 4.8% -1.9%
Impairment of specific assets 236.5%
Impairment of cash generating unit
Non-cancellable aircraft operating lease rentals 16.7% 7.8% -3.0% -4.4% -1.0%
-73.3% -650.0% -86.4% -1400.0% 69.2%
controlled entitles
Other 2.3% 6.1% 16.2% -16.0% 1.8%
Expenditure -5.8% 6.9% 10.0% -1.2% 21.8%
24.6% 72.3% -139.7% -214.5% -2005.1%
Finance income -12.6% 6.1% -5.7% -39.8% -24.8%
Finance costs 11.8% 19.1% 17.0% -17.1% -3.4%
Net finance costs 240.9% 50.7% 55.8% 6.3% 9.1%
Statutory profit/(loss) before income tax expense -1.7% 81.5% -208.0% -103.2% -36245.5%
Income tax (expense)/benefit 6.9% 19.4% -241.9% -108.6% -12688.9%
Statutory profit/(loss) for the year -5.7% 114.7% -198.0% -100.8% -142250.0%
Net passenger revenue has always been the major source of income for Qantas while Fuel
expense has been one of the largest components among expenditures. In 2014 Fuel consisted
29.1% of Revenue.
Statement of Financial Position
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TABLE 3.1.3-4 VERTICAL ANALYSIS-STATEMENT OF FINANCIAL POSITION QANTAS
2009 2010 2011 2012 2013 2014 Graph

Current Assets
Cash and cash equivalents 18.0% 18.6% 16.8% 16.3% 14.1% 17.3%
Receivables 5.3% 5.5% 4.9% 5.3% 7.2% 6.9%
Other financial assets 2.8% 1.2% 1.5% 0.4% 0.9% 1.0%
Inventories 1.2% 1.6% 1.8% 1.8% 1.8% 1.8%
Assets classified as held for sale 0.1% 0.5% 0.1% 0.3% 0.2% 0.8%
Other 2.3% 2.0% 2.0% 0.6% 0.5% 0.6%
Total current assets 29.8% 29.3% 27.0% 24.7% 24.8% 28.5%
Non-Current Assets
Receivables 2.6% 2.0% 2.0% 2.3% 0.9% 0.9%
1.9% 1.9% 2.3% 2.2% 0.9% 0.8%
equity method
Property, plant and equipment 60.6% 62.9% 65.5% 67.7% 69.0% 60.6%
Intangible assets 3.3% 3.4% 2.8% 2.9% 3.6% 4.3%
Other 0.1% 0.0% 0.0% 0.1% 0.7% 4.7%
Total non-current assets 70.2% 70.7% 73.0% 75.3% 75.2% 71.5%
Total assets 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Current Liabilities
Payables 9.1% 8.8% 8.3% 8.9% 9.2% 10.7%
Revenue received in advance 15.5% 15.9% 14.7% 15.2% 15.2% 19.7%
Interest-bearing liabilities 3.1% 3.2% 2.8% 5.4% 4.2% 7.0%
Other financial liabilities 3.2% 1.2% 1.9% 1.8% 0.4% 1.1%
Provisions 2.5% 2.3% 2.2% 4.2% 4.2% 5.1%
Liabilities classified as held for sale 0.0% 0.0% 0.0% 0.1% 0.0% 0.0%
Total current liabilities 33.5% 31.3% 29.9% 35.6% 33.2% 43.5%
Revenue received in advance 6.1% 5.4% 5.3% 5.4% 5.9% 6.8%
Other financial liabilities 1.3% 1.2% 2.4% 1.1% 0.3% 0.4%
Provisions 2.7% 2.8% 3.1% 3.5% 2.2% 2.3%
Deferred tax liabilities 3.0% 3.6% 3.7% 2.2% 3.1% 0.0%
Total non-current liabilities 37.8% 38.6% 40.6% 38.3% 37.7% 40.0%
Total liabilities 71.2% 70.0% 70.5% 73.8% 70.8% 83.5%
Equity
Issued capital 23.6% 23.8% 22.7% 22.6% 23.4% 26.7%
Treasury shares -0.3% -0.3% -0.3% -0.2% -0.2% -0.1%
Reserves 0.0% 0.5% 0.4% 0.2% 0.6% -0.5%
Retained earnings 5.2% 5.8% 6.7% 3.5% 5.3% -9.6%
28.5% 29.8% 29.5% 26.2% 29.1% 16.5%
Qantas
Non-controlling interests 0.2% 0.2% 0.0% 0.0% 0.0% 0.0%
Total equity 28.8% 30.0% 29.5% 26.2% 29.2% 16.5%
PPE has been the largest assets in Qantas’ Statement of Financial Position as they ranged
between 60.6% and 69% of the total assets. In addition, the company always tends to have a
significant proportion of assets in Cash and cash equivalents, this account ranged on average
16.9% in the past 6 years.
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Qantas has used Bank Loans as its long term financing source. Interest-bearing liabilities
account is on average 36.2% of the Total Liabilities. Revenue received in advance is an
important source of short financing for this company.
4 Financial Analysis – Virgin Australia

TABLE 4.1.1-5 HORIZONTAL ANALYSIS INCOME STATEMENT VIRGIN
2010 2011 2012 2013 2014 Graph
Revenue and income
Revenue 14.5% 9.8% 19.7% 1.9% 7.5%
Other income -85.3% -51.0% 116.0% 211.1% -2.4%
Net foreign exchange gains 3825.0% -78.3%
Share of net profits of associate accounted for using the
50.0% -66.7% 0.0% -50.0% -100.0%
equity method
Revenue and income 13.1% 9.7% 19.8% 2.6% 7.1%
Operating expenditure
Aircraft operating lease expenses 33.8% -2.4% 12.6% 18.6% 11.3%
Airport charges, navigation and station operations 10.4% 4.2% 8.6% 6.1% 11.6%
Contract and other maintenance expenses -3.3% 16.3% 18.2% 2.0% -0.5%
Commissions and other marketing and reservations
6.8% 24.1% 13.7% -7.0% 28.9%
expenses
Fuel and oil 4.4% 15.8% 15.2% 7.9% 7.4%
Labour and staff related expenses 7.5% 16.0% 13.4% 16.0% 6.7%
Impairment loss
Other expenses from ordinary activities 29.8% 24.8% 88.7% 14.0% 10.7%
Depreciation and amortisation 10.9% 10.8% 9.3% 10.2% -1.6%
Inefffective cash flow hedges and non-designeted
-94.3% 581.1% -37.4% -228.1% -282.5%
derivatives (gains)/losses
Net operating expenses 3.3% 14.7% 16.1% 6.9% 13.7%
Statutory profit/(loss) before income tax expense and net
-155.8% -151.5% -243.6% -247.8% 281.9%
finance costs
Finance income 4.1% 30.3% 1.1% -45.2% -33.5%
Finance costs -7.3% 0.5% -9.6% -7.2% 69.3%
Net finance costs -12.1% -14.2% -17.6% 27.7% 109.9%
Statutory profit/(loss) before income tax expense -115.2% -376.4% -128.7% -650.0% 223.6%
Income tax benefit/(expense) -119.6% -307.7% -116.3% -1272.7% 149.0%
Statutory profit/(loss) for the year -113.3% -418.3% -133.6% -529.8% 262.9%
The financial statements of Virgin Australia showed that there has been an increase in
Revenue and Income over the years. In 2014 the Revenue hits $4,307m, which is 63% higher
than it was in 2009. The average rate of growth for the timeframe is 10.5%.
Virgin’s Expenditure has also increased for the past 6 years. Fuel Expense increased
moderately as the crude oil price rose over the years (10.1% YoY average 2009-2014).
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Given that Virgin is a large sized public corporation, it has rather volatile statutory profits (or
losses) during the last 6 years and there is no clear trend. However, in 2014 Virgin reached
the highest level of losses ($356m).
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TABLE 4.1.2-6 HORIZONTAL ANALYSIS-STATEMENT OF FINANCIAL POSITION VIRGIN
2010 2011 2012 2013 2014 Graph

Current Assets
Cash and cash equivalents 71.2% -10.2% 9.7% -27.7% 35.0%
Trade and other receivables 15.4% 41.4% 1.7% 26.9% 17.7%
Inventories 192.2% 100.0% 21.1%
Derivative financial instruments 210.1% -79.9% -91.9% 16033.3% -82.1%
Other financial assets 414.5% -55.1% 128.3%
Other current assets 225.0% 15.4% 56.7%
Current tax assets -100.0% 275.0% -100.0%
Assets classified as held for sale
Total current assets 62.3% -4.3% 10.8% -6.7% 25.8%
Non-current assets
Trade and other receivables -100.0% -77.5% 1211.1%
Derivative financial instruments -100.0% 16700.0% -88.1%
Other financial assets 19.2% -21.6% 141.3% 23.3% 25.8%
9.0% 2.7% 2.7% 1.3% -33.3%
equity method
Deferred tax assets 757.1% 33.3% -100.0%
Property, plant and equipment 4.1% -0.4% 2.5% 9.0% -11.8%
Intangible assets 4.3% 52.2% 24.5% 215.4% 13.7%
Other non-current assets 193.8% -0.5% 63.6%
Total non-current assets 4.5% 0.4% 5.7% 16.6% -3.4%
Total assets 15.0% -0.8% 7.0% 10.6% 2.9%
Current liabilities
Trade and other receivables 20.5% 22.3% 27.7% 14.8% 6.9%
Interest-bearing liabilities 7.8% -9.6% 11.7% 47.0% -3.6%
Derivative financial instruments -60.6% 30.7% -20.8% -100.0%
Provisions 9.7% 18.9% 11.3% 13.0% -2.4%
Unearned revenue 25.0% 13.6% -1.1% 6.4% 9.7%
Other current liabilities -72.7%
Total current liabilities 12.9% 12.1% 8.9% 13.6% 5.9%
Non-current liabilities
Trade and other payable -100.0% -26.3% 135.7% 12.1%
Interest-bearing liabilities -0.6% -8.1% 0.5% 6.8% 4.9%
Derivative financial instruments -77.0% -50.6% 300.0% -43.3% -60.2%
Provisions 17.4% -50.7% 104.1% 69.7% 20.3%
Other non-current liabilities -45.5% -100.0% -5.8%
Deferred tax liabilities 592.0% -90.8% 731.3% -73.7% -100.0%
Total non-current liabilities -0.1% -11.1% 4.7% 7.6% 4.9%
Total liabilities 5.3% -0.8% 6.8% 10.7% 5.4%
Equity
Share capital 55.1% 0.1% 0.0% 25.5% 44.4%
Reserves -111.2% 468.8% -26.6% 77.0% -53.1%
Retained profits 1.7% -23.5% 40.9% -31.6% -167.7%
Total equity 61.7% -0.8% 7.6% 10.5% -4.8%
16
Virgin’s Total Assets have increased from $3,367m in 2009 to $4,679m in 2014 (39%). This
remarkable increase is mainly due to the growth in Cash and cash equivalents (15.6%
average increase YoY), as well as the growth in Trade and other receivables (20.6% average
increase YoY).
Total Liabilities have increased 30.2% in the last 6 years, despite that the non-current
liabilities have remained stable (average rate of growth 1.2%). On the other hand, the current
liabilities increased from $1,159m in 2009 to $1,921m in 2014. This large increase is due to
the fact that Virgin refinanced a collateralised pool of aircrafts and entered into new bank
loans in the recent years.
4.2 Vertical Analysis

TABLE 4.2.1-7 VERTICAL ANALYSIS INCOME STATEMENT VIRGIN
2009 2010 2011 2012 2013 2014 Graph
Revenue and income
Revenue 98.7% 99.8% 99.9% 99.8% 99.2% 99.5%
Other income 1.3% 0.2% 0.1% 0.1% 0.4% 0.4%
Net foreign exchange gains 0.0% 0.0% 0.0% 0.0% 0.4% 0.1%
0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
equity method
Revenue and income 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Aircraft operating lease expenses 5.4% 6.3% 5.6% 5.3% 6.1% 6.4%
Airport charges, navigation and station operations 20.3% 19.8% 18.8% 17.1% 17.7% 18.4%
Contract and other maintenance expenses 5.3% 4.5% 4.8% 4.8% 4.7% 4.4%
6.9% 6.5% 7.4% 7.0% 6.4% 7.7%
expenses
Fuel and oil 28.4% 26.2% 27.7% 26.6% 28.0% 28.1%
Labour and staff related expenses 22.6% 21.5% 22.7% 21.5% 24.3% 24.2%
Impairment loss 0.0% 0.0% 0.0% 0.0% 0.0% 1.3%
Other expenses from ordinary activities 4.3% 4.9% 5.6% 8.8% 9.7% 10.1%
Depreciation and amortisation 7.0% 6.8% 6.9% 6.3% 6.8% 6.2%
6.0% 0.3% 1.9% 1.0% -1.2% 2.1%
Net operating expenses 106.2% 97.0% 101.4% 98.3% 102.5% 108.8%
-6.2% 3.0% -1.4% 1.7% -2.5% -8.8%
finance costs
Finance income 1.0% 0.9% 1.1% 0.9% 0.5% 0.3%
Finance costs -3.4% -2.8% -2.6% -1.9% -1.8% -2.8%
Net finance costs -2.4% -1.9% -1.5% -1.0% -1.3% -2.5%
Statutory profit/(loss) before income tax expense -8.6% 1.2% -2.9% 0.7% -3.7% -11.2%
Income tax benefit/(expense) 2.5% -0.4% 0.8% -0.1% 1.3% 3.0%
Statutory profit/(loss) for the year -6.1% 0.7% -2.1% 0.6% -2.4% -8.3%
Virgin’s relative Income statement compositions have not changed much in the past 6 years.
As expected, Fuel and Labour expenses have the highest proportion in Virgin’s Expenditure.
On average, 27.5% of the revenue is spent in Fuel expense and 22.8% is spent in Labour and
staff expense.
17
TABLE 4.2.2-8 VERTICAL ANALYSIS-STATEMENT OF FINANCIAL POSITION VIRGIN
2009 2010 2011 2012 2013 2014 Graph

Current Assets
Cash and cash equivalents 14.1% 21.0% 19.0% 19.5% 12.8% 16.8%
Trade and other receivables 3.6% 3.6% 5.2% 4.9% 5.7% 6.5%
Inventories 0.0% 0.0% 0.1% 0.4% 0.7% 0.8%
Derivative financial instruments 0.4% 1.0% 0.2% 0.0% 2.1% 0.4%
Other current assets 0.0% 0.0% 0.0% 0.1% 0.1% 0.1%
Current tax assets 0.1% 0.0% 0.0% 0.0% 0.0% 0.0%
Assets classified as held for sale 0.0% 0.0% 0.0% 0.0% 0.0% 1.3%
Total current assets 18.2% 25.6% 24.7% 25.6% 21.6% 26.4%
Non-current assets
0.2% 0.2% 0.2% 0.2% 0.2% 0.1%
equity method
Deferred tax assets 0.0% 0.2% 0.2% 0.0% 0.0% 3.1%
Property, plant and equipment 78.6% 71.1% 71.4% 68.4% 67.4% 57.8%
Intangible assets 1.5% 1.4% 2.1% 2.5% 7.0% 7.7%
Other non-current assets 0.0% 0.0% 0.2% 0.5% 0.4% 0.7%
Total non-current assets 81.8% 74.4% 75.3% 74.4% 78.4% 73.6%
Total assets 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Current liabilities
Provisions 2.2% 2.1% 2.6% 2.7% 2.7% 2.6%
Unearned revenue 14.6% 15.9% 18.2% 16.8% 16.2% 17.3%
Other current liabilities 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Total current liabilities 34.4% 33.8% 38.2% 38.9% 39.9% 41.0%
Non-current liabilities
Trade and other payable 0.0% 0.0% 0.1% 0.1% 0.1% 0.2%
Provisions 1.3% 1.3% 0.6% 1.2% 1.9% 2.2%
Other non-current liabilities 0.0% 0.0% 0.0% 0.0% 0.2% 0.1%
Deferred tax liabilities 0.1% 0.9% 0.1% 0.6% 0.2% 0.0%
Total non-current liabilities 48.4% 42.1% 37.7% 36.9% 35.9% 36.6%
Total liabilities 82.9% 75.9% 75.9% 75.7% 75.8% 77.6%
Equity
Share capital 12.1% 16.3% 16.5% 15.4% 17.5% 24.5%
Reserves -3.4% 0.3% 1.9% 1.3% 2.1% 0.9%
Retained profits 8.4% 7.4% 5.7% 7.5% 4.7% -3.1%
Total equity 17.1% 24.1% 24.1% 24.3% 24.2% 22.4%
18
PPE as the most important assets in Virgin’ Statement of Financial Position, decreased from
78.6% in 2009 to 57.8% in 2014. Yet, Virgin increased the proportion of assets in Cash and
cash equivalents in 2014, this account had an average of 17.2% in the past 6 years.
Virgin uses Bank Loans as its long term financing source. Interest-bearing liabilities account
is on average 36.2% of the Total Liabilities. Revenue received in advance is an important
source of short financing for this company.
19
5 Comparison between Qantas and Virgin
TABLE 5.1.1-9 COMPARISON HORIZONTAL ANALYSIS INCOME STATEMENT
2010 2011 2012 2013 2014 Graph

Total Revenue
Qantas -5.4% 8.1% 5.6% 1.1% -3.5%
Virgin Australia 13.1% 9.7% 19.8% 2.6% 7.1%
Operating Expenses
Qantas -5.8% 6.9% 10.0% -1.2% 21.8%
Fuel Expense
Qantas -8.9% 10.5% 16.3% -1.6% 7.4%
Labour Expense
Qantas -7.6% 8.5% 2.1% 1.9% -3.4%
Gross Profit
Qantas 24.6% 72.3% -139.7% -214.5% -2005.1%
Virgin Australia -155.8% -151.5% -243.6% -247.8% 281.9%
Net profit after tax
Qantas -5.7% 114.7% -198.0% -100.8% -142250.0%
Virgin Australia -113.3% -418.3% -133.6% -529.8% 262.9%
Being in the aviation industry, Qantas and Virgin have both suffered the same problems such
as rising Fuel price, in the past years. Both companies have positive rates of growth in the
timeframe of 2009-2014. However Virgin has a higher average than Qantas (10.5% and 1.2%
respectively). Total Expense for both companies increased, nevertheless, Virgin has a higher
average in Total Expenditure as well as in Fuel Expense and Labour Expense. This could be
explained by Virgin’s increasing Revenue.
20
TABLE 5.1.2-10 COMPARISON HORIZONTAL ANALYSIS STATEMENT OF FINANCIAL
POSITION
2010 2011 2012 2013 2014 Graph

Property, plant and equipment
Qantas 3.0% 9.1% 3.6% -2.2% -24.1%
Virgin Australia 4.1% -0.4% 2.5% 9.0% -11.8%
Total assets
Qantas -0.7% 4.8% 0.1% -4.1% -13.5%
Virgin Australia 15.0% -0.8% 7.0% 10.6% 2.9%
Revenue received in advance
Qantas 1.9% -3.2% 3.8% -4.3% 11.8%
Virgin Australia 25.0% 13.6% -1.1% 6.4% 9.7%
Interest-bearing liabilities
Qantas 3.8% 6.6% -0.4% -3.4% 0.5%
Virgin Australia -0.6% -8.1% 0.5% 6.8% 4.9%
Total liabilities
Qantas -2.5% 5.6% 4.8% -7.9% 1.8%
Virgin Australia 5.3% -0.8% 6.8% 10.7% 5.4%
Equity
Qantas 3.7% 2.8% -11.1% 6.8% -50.9%
Virgin Australia 61.7% -0.8% 7.6% 10.5% -4.8%
In 2014, both companies performed an impairment review and it had a considerate impact in
PPE, with Qantas’ account decreased by 24.1% while Virgin’s declined by 11.8%. From the
numbers above it shows that Qantas and Virgin both use Revenue received in advance as a
short-term financing source. The comparison of the Statement of Financial Position reflects
that both companies experienced similar challenges in the past years.
21
5.2 Vertical Analysis
TABLE 5.2.1-11 COMPARISON VERTICAL ANALYSIS INCOME STATEMENT
2009 2010 2011 2012 2013 2014 Graph

Total Revenue
Qantas 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Virgin Australia 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Operating Expenses
Qantas 98.6% 98.2% 97.1% 101.1% 98.8% 124.6%
Fuel Expense
Qantas 24.8% 23.8% 24.4% 26.8% 26.1% 29.1%
Labour Expense
Qantas 25.3% 24.7% 24.8% 24.0% 24.2% 24.2%
Gross Profit
Qantas 1.4% 1.8% 2.9% -1.1% 1.2% -24.6%
Virgin Australia -6.2% 3.0% -1.4% 1.7% -2.5% -8.8%
Net profit after tax
Qantas 0.8% 0.8% 1.7% -1.6% 0.0% -18.5%
Qantas and Virgin Australia have different market share proportions and the Vertical
Analysis comparison shows how close their performances are. On average, 50.3% of the
Income was expended in Fuel and Labour salaries (the difference between companies is non-
existent). Both companies have an increasing trend in the ratio of Operating
Expenses/Revenue, this is due to the increasing competition in the Australian Market.
22
TABLE 5.2.2-12 COMPARISON VERTICAL ANALYSIS STATEMENT OF FINANCIAL POSITION
2009 2010 2011 2012 2013 2014 Graph

Property, plant and equipment
Qantas 60.6% 62.9% 65.5% 67.7% 69.0% 60.6%
Total assets
Qantas 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Revenue received in advance
Qantas 15.5% 15.9% 14.7% 15.2% 15.2% 19.7%
Interest-bearing liabilities
Qantas 24.6% 25.7% 26.1% 26.0% 26.2% 30.4%
Total liabilities
Qantas 71.2% 70.0% 70.5% 73.8% 70.8% 83.5%
Equity
Qantas 28.8% 30.0% 29.5% 26.2% 29.2% 16.5%
The proportions in the Statement of Financial Position are pretty similar for both companies,
on average PPE is close to 65% of the Assets while Liabilities represent 75% of the credit-
side.
23
6 Key Ratios
Scarcity of resources is the primary drive for investors to determine the best alternative in
investing and various analysis can be performed by calculating the ratios, to measure the
return and risk of an investment.
6.1 Return and Profitability

This report will use the Net Profit Margin, Return on Assets (ROA), Return on Equity (ROE),
and EBITDAR margin to measure the profitability of Qantas and Virgin.
6.1.1 Net Profit Margin

Companies with good market position will have high Net Profit Margin and these companies
usually have a good cost control and small number of debt.
TABLE 6.1.1-13 NET PROFIT MARGIN COMPARISON
2009 2010 2011 2012 2013 2014 Graph

Qantas 0.85% 0.84% 1.67% -1.55% 0.01% -18.52%
The figures above demonstrate that the performance of Qantas has declined from year to
year. Based on CSI Market (www.csimarket.com) the average Net Profit Margin of 25 airline
companies in 2014 is 2.82%, which is above Qantas. Such a relatively low figure suggests
that the airline has high operating costs and the company operates in a highly competitive
market.
More specifically, the high operating costs were also due to the high debt to equity ratio,
leading to high spending on loans. Furthermore, the company's ability to control spending on
fuel is very limited. On top of that, operating in a competitive market makes it very difficult
for Qantas to raise flight fares.
In 2012, Qantas had a negative Net Profit Margin because of the restructuring of the
organization. It was problematic to work with the industrial union action, which forced the
company to stop operating its fleet. In 2014 the company had its assets restructured, which
led to assets impairment and added significant costs in its 2014 financial statements.
Overall, the performance of Qantas is better than Virgin Australian. The reason may be that
its brand name is stronger than Virgin’s, leading to a greater market share, and that Qantas
can manage its operating costs better than the competitor.
24
25
6.1.2 Return on Equity
Return on equity (ROE) shows the rate return on the capital invested by shareholders.
TABLE 6.1.2-14 RETURN ON EQUITY COMPARISON
2010 2011 2012 2013 2014 Graph

Qantas 2.48% 5.34% -5.22% 0.04% -61.38%
Virgin Australia 4.10% -10.71% 3.60% -13.73% -36.62%
Based on data taken from Capital IQ & Bloomberg summarized by Aswath Damodaran,
published at Damodaran Online, the industry average ROE currently is 3%. For Qantas the
ratio is far below the average and it means that investors would lose 61 cents for every dollar
invested.
As mentioned earlier, the restructuring of its assets resulted in large costs. However, these
costs can be a sign that the company is changing for the better. Despite that, the figures
suggest that both Qantas & Virgin’s ROE performance are getting worse and it could be a
sign that the business is not profitable.
6.1.3 EBITDAR Margin

EBITDAR measures how much actual return earned by the company from sales before the
deduction of interest, tax, depreciation, amortization and airplane lease expense. This ratio
will measure the performances of the companies regardless of differences in interest
expenses, tax burden and lease expenses.
TABLE 6.1.3-15 EBITDAR M ARGIN COMPARISON
2009 2010 2011 2012 2013 2014 Graph

Qantas 14% 14% 15% 11% 15% 10%
Virgin Australia 6% 16% 11% 13% 10% 5%
As above stated, both companies showed a decreasing trend. It could suggest that the airline
industry is an unfavourable industry. However Qantas shows a more stable EBITDAR than
the competitor. That is an indicator that their management has a better understanding in daily
operation and maintaining their operational expenses.
26
6.2 Risk Ratios
6.2.1 Current Ratio/Working Capital Ratio
TABLE 6.2.1-16 CURRENT RATIO COMPARISON
2009 2010 2011 2012 2013 2014 Graph

Qantas 89% 93% 90% 70% 75% 66%
Since 2010, Qantas has had better ability to fulfil all the current liabilities. In 2014 the current
ratio for Qantas is 66%, which means their current assets only cover 66% their current
liabilities. For most companies this ratio target is 120%-170% but in air transportation
industry the average current ratio is about 70% (www.csimarket.com). Qantas and Virgin
both outperform the industry average from 2012.
Current liabilities generally arise from procurement of current assets such as inventories
which if sold would result in current assets such as accounts receivable or cash. Therefore,
current assets would at least be able to meet current liabilities (100% ratio). In an air
transportation service company like Qantas, current liabilities are also included as part of
long-term liabilities in the form of rent payable maturities of less than one year, which is
quite large and does not directly contribute to improving the current assets of the company.
Overall, companies need at least above the average ratio to be consider as a less risk company
for investing.
6.2.2 Quick Ratio

The quick ratio measures the company ability to cover all the current liabilities by its current
assets minus inventory. Transportation companies do not necessarily pile up their inventory
since they get the revenue from providing services to customers.
For the cash ratio, a high value indicates that too much capital is being tied up in the business,
whilst the acid test or quick ratio indicates the company’s ability to repay immediate
commitments using cash or near-cash. It excludes inventory in order to show the immediate
solvency of the company.
TABLE 6.2.2-17 QUICK RATIO COMPARISON
2009 2010 2011 2012 2013 2014 Graph

Qantas 85% 88% 85% 65% 69% 61%
27
The average quick ratio for the transportation industry is around 40%, which is lower than
both Qantas and Virgin. Qantas and Virgin both have a good ratio but Virgin’s is better. Both
companies’ current assets are mostly cash equivalents and accounts receivable that can be
used instantly to fulfil their current liabilities.
6.2.3 Debt to Equity Ratio

As a firm's debt-to-equity ratio increases, it becomes more risky. This is because if the
company is less likely to meet its debt obligations, it will lead to higher chances of
bankruptcy.
TABLE 6.2.3-18 DEBT TO EQUITY RATIO COMPARISON
2009 2010 2011 2012 2013 2014 Graph

Qantas 248% 233% 239% 282% 243% 504%
Airline companies are technological and capital intensive companies with high DER. The
ratio of Qantas is larger, which indicates higher risk for the company, compared to Virgin
Australia. Qantas has a total debt of 5 times larger than its shareholders’ equity, and for
Virgin, 3.5 times.
There are two benchmarks that can be used for comparison. Based on the calculations of
Aswath Damodaran, the average ratio of 142 firms in this industry is 303%. Another
reference that can be used is based on CSI Market, which is 142%. Both companies have
higher risk than the industry average.
28
7 Other Relevant Information
To support Qantas' goal of delivering continuous return to investors, a well structured
administration system is crucial. Corporate governance is fundamental in ensuring the
creation, protection and enhancement of shareholder value. The Qantas Board of Directors,
currently consisted of nine Independent Non-Executive and Executive Directors, is
responsible in reviewing strategic direction of Qantas and monitoring application of strategy
by Management, which includes supervision of the integrity of the accounting and corporate
financial reporting systems.
The Board has a series of business principles and group policies, which include areas such as
health, environment, fair trading and safety, to promote ethical and responsible decision
making. For instance, Qantas's Employee Share Trading Policy provides guidelines that
prohibit certain nominated employees from dealing in Qantas shares to protect the Qantas
Group. Crisis management are also emphasized to ensure that Qantas can respond swiftly to,
and recover efficiently from unexpected economic shock.
With aviation sector being a high risk industry, risk management and internal control system
are practiced to support and fulfil corporate governance obligations. Audits and risk
management reviews are reported to the Board through the Audit Committee on quarterly
basis for verification. The other Board Committee responsible for oversight of risk-related
matters is the Safety, Health, Environment and Security Committee. This committee helps to
protect Qantas' reputation as one of the safest and most secure airline company in the world
and also monitor the group's operational safety system (QMS). Along with QMS, several
other policies and system have been implemented to identify and manage risks across the
Group.
According to Skytrax airline rating system, which classifies commercial airlines based on
their quality and service standards, on the scale of 1-5 star, Qantas was generously rewarded
a 4 star for their overall performance. There were some customer reviews about lack of
communication from the company and technical faults, which are inevitable for any airline
company. That being said, majority of the reviews were positive and this displays Qantas'
consistency in maintaining good service quality and product for their customers.
29
8 Conclusion and Recommendations
The 2014 financial year was not a profitable year for Qantas. Despite a cost reduction of
$440m; the statutory loss after tax was $2.8b. From an investor’s perspective, these numbers
seem unappealing.
According to the business analysis and financial analysis in the earlier report, Qantas has had
a low growth of revenue below that of industry average and limited control over expenditures
over the recent years. This may be explained by the competitive nature of the industry and the
larger expenses such as fuel, aircraft leases, staff training and allowances. Qantas also has
relatively large risk ratios. Furthermore, similar performances of Qantas and Virgin may
suggest that the airline business is perhaps not a fruitful industry as an investment.
Nonetheless, investors should not base their decisions solely on the numbers. Qantas poses
advantages such as ‘dual-brand’, which covers both the high-end and low-end of the
Australian domestic market; it is positioned geographically within the Asia-Pacific region
where booming economies attract more international travellers. It also receives support by the
general Australian population as it is regarded to be the national flagship carrier. In addition,
the management of Qantas is aware of the industry challenges and has set in place clear
strategies and recovery plans for the future.
In conclusion, Qantas does have attributes that would attract certain investors depending on
their investment goals and strategies. However for the value investors, investing in an airline
company such as Qantas may not be the best decision for the reasons mentioned in this
report.
30
9 References
 Qantas Company Information. Retrieved from:
http://www.qantas.com.au/travel/airlines/company/global/en
 Qantas Annual Reports. Retrieved from:
http://www.qantas.com.au/travel/airlines/investors-annual-reports/global/en
 Virgin Annual Reports. Retrieved from:
http://www.virginaustralia.com/au/en/about-us/company-overview/investor-
information/full-year-results/
 Major Airlines Information. Retrieved from:
http://biz.yahoo.com/ic/ll/770tor.html
 Airline Industry Ratios I. Retrieved from:
http://csimarket.com/Industry/industry_Profitability_Ratios.php?ind=1102
 Airline Industry Ratios II. Retrieved from:
http://csimarket.com/Industry/industry_ManagementEffectiveness.php?ind=1102
 Glakas, S. 15 Financial Ratios Every Investor Should Use (2011). Retrieved from:
http://www.investinganswers.com/education/ratio-analysis/15-financial-ratios-every-
investor-should-use-3011
 ABC News related to Qantas. Retrieved from:
http://www.abc.net.au/news/2012-08-23/qantas-profit-result/4217264, 28/9/2014
 Airline Rating. Retrieved from:
http://www.airlinequality.com/
 Schmidlin, N. The Art of Company Valuation and Financial Statement Analysis, A
Value Investor’s Guide with Real-life Case Study. Wiley
31
A Appendix
A.1 Details of Qantas Group’s Acquisitions and Milestones
June 1992 Qantas purchased Australian Airlines (domestic carrier)
March 1993 British Airways purchased 25 per cent of Qantas
June 1995 Public Share Offer launched
July 1995 Privatisation of Qantas complete and shares listed on the Australian
Securities Exchange (ASX)
1998 Qantas increased its equity in Air Pacific to 46 per cent
October 2001 $450m share placement
November 2001 Qantas Group acquired Impulse Airlines (domestic carrier)
February 2002 Launch of Snap Fresh (catering facility)
September 2002 $720m JUMBO rights issue and share purchase plan
October 2002 Launch of Australian Airlines (international carrier)
December 2003 Star Track Express acquired by a joint venture between Qantas and
Australia Post
May 2004 Jetstar commenced operations in Australia
September 2004 British Airways sold its stake (18.25 per cent at the time) in Qantas
December 2004 Jetstar Asia, based in Singapore, commenced services
July 2006 Australian Airlines ceased operations (international carrier)
November 2006 Jetstar International commenced operations
September 2007 Qantas Frequent Flyer business segmented from Qantas Group
May 2008 Completed on market buy-back of 91m shares for $506m
July 2008 Qantas Holidays and Jetset Travelworld merged and formed the Jetset
Travelworld Group with Qantas Group as a 58 per cent shareholder. The
Jetset Travelworld Group is listed on the ASX
February 2009 $525m capital raising and share purchase plan
32
April 2009 New ownership structure for Jetstar Asia and Valuair announced 49 per
cent holding for Qantas Group (Newstar Investment)
June 2009 Jetstar replaced Qantas Jetconnect services in the New Zealand
Domestic market
September 2010 Jetset Travelworld Group merged with Stella Travel Services. Qantas
Group has a 29 per cent shareholding of Jetset Travelworld Limited
October 2010 Qantas Group investments in Australian air Express and Star Track
Express transferred to AUX Investments in exchange for a 50 per cent
shareholding in the entity
February 2011 Qantas Group acquired 100 per cent of the Network Aviation Group
August 2011 Qantas Group acquired 100 per cent of Wishlist Holdings
April 2012 Qantas operated Australia’s first commercial flights powered by

sustainable aviation fuel
July 2012 Jetstar Japan commenced operations
November 2012 Qantas Group acquired 100 per cent of Australian air Express and sold
its 50 per cent stake in Star Track Express
December 2012 Commenced on market buy-back of up to $100m
March 2013 Qantas and Emirates partnership commenced
August 2013 Qantas Group announced the sale of its wholly owned subsidiary Qantas
Defence Services (QDS) to Northrop Grumman Australia
33
A.2 Financial Statements – Qantas
A.2.1 Income Statement
2009 2010 2011 2012 2013 2014
Net passenger revenue 11,604 10,938 12,042 13,625 13,673 13,242
Net freight revenue 764 821 842 903 935 955
Other 2,184 2,013 2,010 1,196 1,294 1,155
Revenue and Other Income 14,552 13,772 14,894 15,724 15,902 15,352
Expenditure
Manpower and staff related 3,684 3,405 3,695 3,774 3,846 3,717
Fuel 3,602 3,283 3,627 4,220 4,154 4,461
Aircraft operating variable 2,834 2,675 2,768 2,980 3,061 3,142
Depreciation and amortisation 1,390 1,199 1,249 1,384 1,450 1,422
Impairment of specific assets 0 0 0 0 115 387
Impairment of cash generating unit 0 0 0 0 0 2,849
Non-cancellable aircraft operating lease rentals 450 525 566 549 525 520
15 4 -22 -3 39 66
controlled entitles
Other 2,374 2,428 2,575 2,993 2,514 2,560
Expenditure 14,349 13,519 14,458 15,897 15,704 19,124
203 253 436 -173 198 -3,772
Finance income 207 181 192 181 109 82
Finance costs -229 -256 -305 -357 -296 -286
Net finance costs -22 -75 -113 -176 -187 -204
Statutory profit/(loss) before income tax expense 181 178 323 -349 11 -3,976
Income tax (expense)/benefit -58 -62 -74 105 -9 1,133
Statutory profit/(loss) for the year 123 116 249 -244 2 -2,843
34
A.2.2 Statement of Financial Position
2009 2010 2011 2012 2013 2014
Current Assets
Cash and cash equivalents 3,617 3,704 3,496 3,398 2,829 3,001
Receivables 1,054 1,088 1,027 1,111 1,436 1,196
Other financial assets 561 233 318 88 180 172
Inventories 250 319 372 376 364 317
Assets classified as held for sale 26 91 20 73 42 134
Other 458 397 408 121 110 112
Total current assets 5,966 5,832 5,641 5,167 4,961 4,932
Non-Current Assets
Receivables 522 407 423 472 174 158
387 378 476 457 190 143
equity method
Property, plant and equipment 12,155 12,516 13,652 14,139 13,827 10,500
Intangible assets 664 668 593 610 714 741
Other 11 7 3 23 139 810
Total non-current assets 14,083 14,078 15,217 15,718 15,071 12,386
Total assets 20,049 19,910 20,858 20,885 20,032 17,318
Current Liabilities
Payables 1,833 1,750 1,738 1,865 1,844 1,851
Revenue received in advance 3,109 3,167 3,067 3,183 3,047 3,406
Interest-bearing liabilities 624 630 577 1,119 835 1,210
Other financial liabilities 641 242 397 369 86 182
Provisions 507 448 456 879 835 876
Liabilities classified as held for sale 0 4 0 12 0 0
Total current liabilities 6,714 6,241 6,235 7,427 6,647 7,525
Interest-bearing liabilities 4,930 5,115 5,454 5,430 5,245 5,273
Provisions 533 560 647 736 435 405
Deferred tax liabilities 607 715 767 464 625 0
Total non-current liabilities 7,570 7,688 8,472 7,990 7,545 6,927
Total liabilities 14,284 13,929 14,707 15,417 14,192 14,452
Equity
Issued capital 4,729 4,729 4,729 4,729 4,693 4,630
Treasury shares -58 -54 -72 -42 -43 -16
Reserves 7 109 85 36 128 -81
Retained earnings 1,043 1,155 1,405 741 1,057 -1,671
5,721 5,939 6,147 5,464 5,835 2,862
Qantas
Non-controlling interests 44 42 4 4 5 4
Total equity 5,765 5,981 6,151 5,468 5,840 2,866
35
A.3 Financial Statements – Virgin Australia
A.3.1 Income Statement
2009 2010 2011 2012 2013 2014
Revenue and income
Revenue 2,600 2,976 3,268 3,914 3,988 4,287
Other income 35 5 3 5 17 16
Net foreign exchange gains 0 0 0 0 16 3
0 1 0 0 0 0
equity method
Revenue and income 2,635 2,982 3,271 3,920 4,020 4,307
Aircraft operating lease expenses 141 189 184 208 246 274
Airport charges, navigation and station operations 535 591 616 669 710 792
Contract and other maintenance expenses 140 135 158 186 190 189
183 195 242 276 257 331
expenses
Fuel and oil 749 782 906 1,044 1,126 1,209
Labour and staff related expenses 595 640 742 841 976 1,041
Impairment loss 0 0 0 0 0 57
Other expenses from ordinary activities 112 146 182 344 392 434
Depreciation and amortisation 184 204 226 247 272 268
158 9 61 38 -49 90
Net operating expenses 2,798 2,891 3,318 3,853 4,119 4,684
-162 90 -47 67 -99 -378
finance costs
Finance income 27 28 36 37 20 13
Finance costs -91 -84 -84 -76 -71 -120
Net finance costs -64 -56 -48 -40 -51 -106
Statutory profit/(loss) before income tax expense -226 34 -95 27 -150 -484
Income tax benefit/(expense) 66 -13 27 -4 52 129
Statutory profit/(loss) for the year -160 21 -68 23 -98 -356
36
A.3.2 Statement of Financial Position
2009 2010 2011 2012 2013 2014
Current Assets
Cash and cash equivalents 3,617 3,704 3,496 3,398 2,829 3,001
Receivables 1,054 1,088 1,027 1,111 1,436 1,196
Inventories 250 319 372 376 364 317
Assets classified as held for sale 26 91 20 73 42 134
Other 458 397 408 121 110 112
Total current assets 5,966 5,832 5,641 5,167 4,961 4,932
Non-Current Assets
Receivables 522 407 423 472 174 158
387 378 476 457 190 143
equity method
Property, plant and equipment 12,155 12,516 13,652 14,139 13,827 10,500
Intangible assets 664 668 593 610 714 741
Other 11 7 3 23 139 810
Total non-current assets 14,083 14,078 15,217 15,718 15,071 12,386
Total assets 20,049 19,910 20,858 20,885 20,032 17,318
Current Liabilities
Payables 1,833 1,750 1,738 1,865 1,844 1,851
Interest-bearing liabilities 624 630 577 1,119 835 1,210
Provisions 507 448 456 879 835 876
Liabilities classified as held for sale 0 4 0 12 0 0
Total current liabilities 6,714 6,241 6,235 7,427 6,647 7,525
Interest-bearing liabilities 4,930 5,115 5,454 5,430 5,245 5,273
Provisions 533 560 647 736 435 405
Deferred tax liabilities 607 715 767 464 625 0
Total non-current liabilities 7,570 7,688 8,472 7,990 7,545 6,927
Total liabilities 14,284 13,929 14,707 15,417 14,192 14,452
Equity
Issued capital 4,729 4,729 4,729 4,729 4,693 4,630
Treasury shares -58 -54 -72 -42 -43 -16
Reserves 7 109 85 36 128 -81
Retained earnings 1,043 1,155 1,405 741 1,057 -1,671
5,721 5,939 6,147 5,464 5,835 2,862
Qantas
Non-controlling interests 44 42 4 4 5 4
Total equity 5,765 5,981 6,151 5,468 5,840 2,866
37
A.4 Formulas and Calculations
A.4.1 Horizontal Analysis
Current year amount −Base year amount
Change since base period=
Base year amount
A.4.2 Vertical Analysis

Account amount on analysis
Percentage of base amount =
Base account amount
A.4.3 Net Profit Margin

Net Profit
Net Profit Margin=
Total Revenue
Qantas 2009 2010 2011 2012 2013 2014

Revenue and Other Income 14,552 13,772 14,894 15,724 15,902 15,352
Net Profit Margin 0.85% 0.84% 1.67% -1.55% 0.01% -18.52%
Virgin Australia 2009 2010 2011 2012 2013 2014

Revenue and income 2,635 2,982 3,271 3,920 4,020 4,307
Net Profit Margin -6.07% 0.71% -2.07% 0.58% -2.44% -8.26%
A.4.4 Return on Equity

Profit
Returnon Equity=
Average Equity
Qantas 2010 2011 2012 2013 2014

Net Profit 116 249 -244 2 -2,843
Average Shareholders’ equity 4,673 4,666 4,672 4,669 4,632
ROE 2.48% 5.34% -5.22% 0.04% -61.38%
Virgin Australia 2010 2011 2012 2013 2014

Net Profit 21 -68 23 -98 -356
Average Shareholders’ equity 520 633 633 714 971
ROE 4.10% -10.71% 3.60% -13.73% -36.62%
38
A.4.5 EBITDAR Margin
Revenue
- Expenses
Excluding
Tax
Interest
Depreciation
Amortization
Restructuring or rent cost
= EBITDAR
EBITDAR
EBITDAR Margin=
Revenue
Qantas 2009 2010 2011 2012 2013 2014

Income tax (expense)/benefit -58 -62 -74 105 -9 1,133
Finance income 207 181 192 181 109 82
Finance costs -229 -256 -305 -357 -296 -286
Depreciation and amortisation 1,390 1,199 1,249 1,384 1,450 1,422
Non-cancellable aircraft operating
450 525 566 549 525 520
lease rentals
Share of net loss/(profit) of
15 4 -22 -3 39 66
associates and jointly controlled
Impairment of specific assets 0 0 0 0 115 387
Impairment of cash generating unit 0 0 0 0 0 2,849
EBITDAR 2,058 1,981 2,229 1,757 2,327 1,472
Total Revenue 14,552 13,772 14,894 15,724 15,902 15,352
EBITDAR Margin 14% 14% 15% 11% 15% 10%

Income tax benefit/(expense) 66 -13 27 -4 52 129
Finance income 27 28 36 37 20 13
Finance costs -91 -84 -84 -76 -71 -120
Aircraft operating lease expenses 141 189 184 208 246 274
Impairment loss 0 0 0 0 0 57
Depreciation and amortisation 184 204 226 247 272 268
EBITDAR 163 483 364 521 420 221
Total Revenue 2,635 2,982 3,271 3,920 4,020 4,307
EBITDAR Margin 6% 16% 11% 13% 10% 5%
39
A.4.6 Current Ratio
Current Assets
Current Ratio=
Current Liabilities
Qantas 2009 2010 2011 2012 2013 2014

Current Liabilities 6,714 6,241 6,235 7,427 6,647 7,525
Current Assets 5,966 5,832 5,641 5,167 4,961 4,932
Current Ration 89% 93% 90% 70% 75% 66%

Current Assets 612 993 950 1,052 982 1,235
Current Ration 53% 76% 65% 66% 54% 64%
A.4.7 Quick Ratio

Current Assets−Inventory
Quick Ratio=
Current Liabilities
Qantas 2009 2010 2011 2012 2013 2014

Current Assets 5,966 5,832 5,641 5,167 4,961 4,932
Invetory 250 319 372 376 364 317
Current Assets-Inventory 5,716 5,513 5,269 4,791 4,597 4,615
Quick Ratio 85% 88% 85% 65% 69% 61%

Current Assets 612 993 950 1,052 982 1,235
Invetory 0 0 5 15 30 36
Current Assets-Inventory 612 993 945 1,037 952 1,199
Quick Ratio 53% 76% 64% 65% 52% 62%
A.4.8 Debt to Equity

Total Liabilities
Debt ¿ Equity=
Total Equity
Qantas 2009 2010 2011 2012 2013 2014

Total Liabilities 14,284 13,929 14,707 15,417 14,192 14,452
Total Equity 5,765 5,981 6,151 5,468 5,840 2,866
DER 248% 233% 239% 282% 243% 504%

Total Liabilities 2,790 2,939 2,915 3,113 3,446 3,631
Total Equity 577 933 926 997 1,101 1,048
DER 483% 315% 315% 312% 313% 346%
40

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Financial Analysis report

2.1 Business model............................................................................................................5

2.2 Social and economic environment...............................................................................6

2.2.1 Porter five forces analysis....................................................................................6

2.2.2 SWOT Analysis...................................................................................................7

3 Financial Analysis - Qantas...............................................................................................8

3.1 Horizontal Analysis.....................................................................................................8

3.1.1 Income Statement.................................................................................................8

3.1.2 Statement of Financial Position.........................................................................10

3.1.3 Income Statement...............................................................................................11

4 Financial Analysis – Virgin Australia..............................................................................13

4.1 Horizontal Analysis...................................................................................................13

4.1.1 Income Statement...............................................................................................13

4.1.2 Statement of Financial Position.........................................................................15

4.2 Vertical Analysis.......................................................................................................16

4.2.1 Income Statement...............................................................................................16

4.2.2 Statement of Financial Position.........................................................................17

5 Comparison between Qantas and Virgin..........................................................................19

5.1 Horizontal Analysis...................................................................................................19

5.1.1 Income Statement...............................................................................................19

5.1.2 Statement of Financial Position.........................................................................20

5.2 Vertical Analysis.......................................................................................................21

5.2.1 Income Statement...............................................................................................21

5.2.2 Statement of Financial Position.........................................................................22

6.1 Return and Profitability.............................................................................................23

6.1.1 Net Profit Margin...............................................................................................23

6.1.2 Return on Equity................................................................................................24

6.1.3 EBITDAR Margin..............................................................................................24

6.2 Risk Ratios.................................................................................................................25

6.2.1 Current Ratio/Working Capital Ratio................................................................25

6.2.2 Quick Ratio........................................................................................................25

6.2.3 Debt to Equity Ratio...........................................................................................26

7 Other Relevant Information.............................................................................................27

8 Conclusion and Recommendations..................................................................................28

A.1 Details of Qantas Group’s Acquisitions and Milestones...........................................30

A.2 Financial Statements – Qantas...................................................................................32

A.2.1 Income Statement...............................................................................................32

A.2.2 Statement of Financial Position.........................................................................33

A.3 Financial Statements – Virgin Australia....................................................................34

A.3.1 Income Statement...............................................................................................34

A.3.2 Statement of Financial Position.........................................................................35

A.4 Formulas and Calculations........................................................................................36

A.4.1 Horizontal Analysis............................................................................................36

A.4.2 Vertical Analysis................................................................................................36

A.4.3 Net Profit Margin...............................................................................................36

A.4.4 Return on Equity................................................................................................36

A.4.5 EBITDAR Margin..............................................................................................37

A.4.6 Current Ratio......................................................................................................38

A.4.8 Debt to Equity....................................................................................................38

Qantas Freight operates a network of 21 specialist cargo handling terminals in 15 major

 Express Ground Handling

2.1 Business model

2.2 Social and economic environment

• Threat of new entrants

• Threat of substitute products or services

• Bargaining power of customers

• Bargaining power of suppliers

2.2.2 SWOT Analysis

FIGURE 2.2.2-1 SWAT ANALYSIS OF QANTAS

3.1.3 Income Statement

Statement of Financial Position

2009 2010 2011 2012 2013 2014 Graph

4 Financial Analysis – Virgin Australia

2010 2011 2012 2013 2014 Graph