Quantas Industry Analysis

Topics: Qantas, Air New Zealand, Sydney Airport Pages: 20 (7270 words) Published: January 4, 2013
Qantas Airways Ltd:
A case study for Financial Statement Analysis

Peter Wells* and Anna Wright.

31 January 2012

Not to be used or cited without the permission of the authors

*Accounting Discipline Group, School of Business,, University of Technology, Sydney, Broadway NSW 2007 Australia Tel:61-2-9514 3581Email:peter.wells@uts.edu.au

3.Industry Analysis
This analysis focuses on passenger air transport that accounted for 80% of operating revenues in 2010/11, and separate analyses is undertaken of international and domestic passenger operations. The separate analyses reflect differences in the market air transport across the segments, together with availability of both industry and firm specific information.

3.1 International Air Transport
International air transportation between Australia and foreign destinations is provided by Qantas and a number of airlines based overseas. Access for Australian airlines to overseas markets is typically conditional on reciprocal access for carriers from that country to the Australian market, so the extent of competition on particular routes will vary considerably. Reflecting the geographical isolation of Australia the overwhelming majority international passenger traffic to (from) Australia arrives (departs) by air. A detailed breakdown of international passenger travel movements to Australia is provided in Table 1. Importantly for this analysis, Panel A shows that international passenger arrivals to / departures from Australia have increased strongly over the period 1982-2011, rising from 4.616m to 27.709m, an average annual growth rate of 6.3% p.a.. Throughout this period the majority of passengers have been short term (96.5% in 2011). However, there have been a number of shifts in the balance between Australian and overseas arrivals / departures. In 1982 Australian residents accounted for 56.7% of short-term arrivals/departures, this decreased to 41.3% in 2003, but rebounded to 55.5% in 2011. A number of factors will have contributed to these changes, as well as changes in the number of passengers generally. Doubtless the increase in overseas passengers in the early years of the analysis was a consequence of the promotion of Australia as a tourism destination, increasing affluence in major inbound tourism markets, increases in the number of carriers servicing the market and the relative decline in the value of the Australian dollar. Flat short-term Australian passenger numbers through 1990-1992, would suggest a sensitivity of the level of industry activity to the stage of the economic cycle. There was an increase in passenger numbers leading up to the Olympics in 2000, but passenger number were flat through 2002-2003 due to the impact security concerns and then SARS. Since 2007 there has been relatively little growth in overseas passenger numbers and this would have been impacted in the first instance by the global financial crisis and more recently the rising Australian dollar which has contributed to a rising cost of inbound tourism. The rising Australian dollar has however contributed to a significant increase in Australian travelling overseas (21.4% between 2009 and 2011) and while this may hurt the Australian tourism industry it is not as problematic for Qantas which provides international flights for these travellers. Historically airline passengers have shown a preference to fly with national carriers and in previous times this would have presented an opportunity for Qantas to increase market share. Over the period 1990-2011 Qantas international passenger numbers have increased from 4.232m to 10.073m, an average annual increase of 4.4%. It is notable that over this period the Qantas growth rate lagged the industry growth rate (4.4% compared to 6.3%) and this resulted in a decline in Qantas’ share of international passenger transport from almost 50% in 1990, to 34.3% in 2001 and 26.7% in 2011. This decline in market share is consistent with trends...
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