Qantas Airline Financial Valuation and Sensitivity Analysis

The airline industry has long attempted to segment the air travel market in order to effectively target its constituents. The classic airline model consists of First Class, Business Class and Economy, and the demographics that make up the classes have both similarities and differences to the other classes. For instance there may be similarities between business class travellers on a particular flight, but they will not all be travelling for the same reason. An almost-universal characteristic of air travel is that customers do not fly for the sake of flying; the destination is the important element and the travel is a by-product, a means-to-an-end that involves the necessity of an aircraft that gets the customer from point A to point B.

The questions that follow and the article Comparing the Accuracy and Explainability of Dividend, Free Cash Flow, and Abnormal Earnings Equity Value Estimates will inform your completion of Milestone Three. An understanding of the models in this assignment will assist you in hypothesizing the incremental impact of a new investment project for the company. The understanding of these models will contribute to your ability to look toward the future when considering the direction of an organization. This activity is worth a total of 75 points. See the distribution of points listed before each question.

Rivalry among industry competitors has caused attention to be focused on tariff levels. Airfare prices were at an all time low in 2009. This suggested a strong competitive rivalry based on price differentiation. This price differentiation will cause a dramatic loss in revenue if these prices continue to drop and this would lead to a reduced competitiveness. In an effort to safeguard revenue and reduce expenditure, Qantas has developed a strategy to deal with a change in the external competitive environment. .

Marketing strategies are an extremely important factor in determining the overall success of large global businesses (LGB). Marketing strategies are plans of action intended to promote and sell goods or services. There are a number of marketing strategies available, however, this report focuses specifically on pricing, promotion and global marketing. These determine how a business sells its goods and services, subsequently affecting market share, profitability, and cash flow. This is demonstrated when looking at the global businesses of Qantas Pty Ltd and Apple Pty Ltd. Qantas is an Australian based airline, which has grown from an airmail company to the largest airline in Australia,

By using strategies like Fuel hedging in order to turn a variable cost into a fixed cost means that qantas can lock in a certain price for fuel (via contract) and save money if the price of fuel increases. Qantas’ future in efficiency looks to be very promising as an increase in use of E commerce, more efficient planes, and improved economies of scale all work in favour to ensure qantas’ ability to

A correct response requires that you find an appropriate industry beta and measure for levered/unlevered betas and requires that you define cost of equity capital and free cash flow (FCF) – you may need a formula for FCF.

The second task that needed to be finished was to forecast the income statement and the balance sheet for the next two years. We grew sales at a 15% rate, which is the stated rate from Koh. Also, in forecasting the balance sheet, we only showed debt financing for the capital expenditure of the DVD manufacturing equipment, which was the requested structure. Other relevant facts and assumptions for preparing the financial forecast are stated below-

Organisations come to exist to fulfill many purposes and reasons. For example some pursue to provide essential services for the community benefit, whereas others for profit produce goods or services. Therefore in general terms business plays a role in overall contribution of our society. The market today is very strong and competitive. Hence marketing activities often can be a differentiating factor between industry leaders and the other market players. The purpose of this report is to examine the marketing objectives of Qantas airlines. This assignment wishes to firstly focus on giving a background of the company. Secondly defining the term segmentation and target market and describing Qantas apparent target market. Thirdly the positioning Strategy Qantas has taken, fourthly explaining the role that Integrated Marketing Communication plays in the company’s current marketing effort. Lastly marketing communication tools, messages, and media that Qantas uses to communicate with the different audiences it targets.

The full report shows all the forecasting data for 2012 – 2016, it clearly estimate the financial trend of our company (attachment). For the data used in this model, some of them are current data, the other are historical or most recently or average number. It only depends on actually situation – for which method is much more realistic.

Qantas is established in the Queensland outback in 1920 and after that it has become biggest domestic and international airline and strong brand in the Australia. It is enrolled as the Queensland and Northern Territory Aerial Services Limited (QANTAS) and the group two airlines brands are Qantas and Jetstar those provides transportation services of the customers. Qantas created its strong brand reputation through deliver safe and secure services, focus on customer services, maintain reliability of operations and focus on maintenance, engineering and technology (Qantas Airways Limited, 2014). Quanta main business aims or objectives are:

Analyzing the company’s performance compared to its historical figures is always useful; nevertheless, these historical figures can be also a very useful tool to forecast future ProForma figures. We usually start by forecasting future sales (based on an average increase in sales figure) and other balance sheet and income statement items are forecasted as percentage of sales, this percent is normally consistent from historically figures. A close look should be given to the company’s operations and plan for the coming year while making our assumptions and forecasted figures. Normally we should follow

Having strategically acquired rival businesses in the global financial crisis, set up its Botany Paper Mill and making its Australian division independent, Amcor expects its financials to improve dramatically as the ramifications of its moves unfold.

For this variable we take again the same risk free rate (4.66%) plus the equity market risk premium (5%) multiplied by the equity Beta of the E & P division (1.40). The beta we calculate with the comparables. The average equity beta in this industry is 1.15 and the average D/E ratio is 39.8%. With these information and the same formula as in question 3 we compute the asset beta

Using the stock price and returns data in Exhibits 4 and 5 (or, if you wish, other equivalent data sources), and the capital structure information in Exhibit 3, calculate the asset betas for the comparable firms. What is the appropriate estimation period to compile the data?

Having estimated the free cash flow produced over the forecast period, we need to come up with a reasonable idea of the value of the company 's cash flows after that period - when the company has settled into middle-age and maturity. Remember, if we didn 't include the value of long-term future cash flows, we would have to assume that the company stopped operating at the end of the five-year projection period.