Qantas Company Report | RMIT University



1. Introduction

Established in Central West Queensland as the ‘Queensland and Northern Territory Aerial Services’, Qantas is heralded as the largest Australian premium airline, operating 5,020 flights per week, of which 4,500 are domestic (Qantas Data Book, 2015). As the third oldest carrier in the world, it has been operating for 95 years and flies to 280 destinations in 23 countries in combination with its code-share partners (Qantas, 2016).

Qantas is a large proprietary company and is managed by Alan Joyce (CEO), Tino La Spina (CFO), Andrew David (CEO Qantas Domestic), Gareth Evans (CEO Qantas International), Lesley Grant (CEO Qantas Loyalty), and Jayne Hrdlicka (CEO Jetstar Group). It is also composed of an additional eight ‘Independent Non-Executive Directors elected by shareholders’, which dictate the Corporate Governance of the airline (Qantas Annual Report, 2015, p. 22). In combination with this, the airline operates an Internal Committee, which makes recommendations to the Board regarding audits and remuneration as well as safety, health and environmental information (Qantas, 2016).

Qantas operates several subsidiaries within the brand (such as Jetstar, Qantas Freight and Q Catering) which assist in creating a holistic business model. The primary generation of income for Qantas is domestic flights in ‘the triangle’ (Brisbane, Melbourne, Sydney) and from East to West – combined with Jetstar it holds 63% of the market share (Qantas Data Book, 2015). In addition to serving domestic demand, Qantas, in its global partnership with Emirates, operates some of the longest one-stop passenger routes in the world, connecting Australia to major destinations in Europe, the Middle East and North Africa (Qantas, 2016). Qantas is also a founding member of the Oneworld alliance, which, combined with its bilateral agreements with American Airlines and China Eastern, strategically opens up Asia and the United States – continents that see some of the highest demand from Australian passengers (Qantas Data Book, 2015).

This means that not only financial profitability, but sustainability in company performance is a key factor in the longevity of its success as an airline. In an industry which is increasingly competitive due to technological advances and greater consumer access to online price matching, airline credibility and perceived safety is essential. Given this, Qantas has demonstrated an increasing focus on sustainability and efficiency within its business model, priding itself on its environmental and social commitment, with claims of embedding sustainable practices into all of its operations (Qantas Annual Report, 2015).

2. Financial Performance

In looking at the financial report, it is evident that Qantas has seen an extraordinary rise in accounting profits between FY2014 and FY2015. For the airline, FY2014 marked an astronomical loss of $2.84 billion – the greatest in its history, which inspired many financial critics to call for the resignation of CEO Alan Joyce and resulted in 5,000 jobs cut (ABC, 2014). By comparison, FY2015 has been regarded as the ‘best result since the Global Financial Crisis’ for the Qantas Group, following a reported profit of $560 million – a 607% turnaround in just 12 months (Qantas Annual Report, 2015, p. 2). Given these figures however, it is possible that the airline’s profitability is unstable, potentially marking a risky investment for new shareholders. Qantas share prices have risen 238% in less than 12 months and while Alan Joyce appears confident in the sustainability of Qantas’ proposed internal restructure (to be fully implemented by 2017), it is possible that external influences, such as the fall in global oil prices, have had more of an effect on the operational success than the Qantas Transformation Program (Adler, 2016).

Singapore Airlines*, an international company with a similar structure to Qantas (CEO, Board of Directors, subsidiaries, 23,963 employees), reported an operating group profit of $410 million, marking a 58.3% increase from the previous financial year (Singapore Airlines Financial Report, 2015, p. 20). In analysing the profitability of the two companies, Qantas’ return on equity ratio was a healthy 16% for FY2015 (up from -99% in FY2014), compared with Singapore Airline’s stable ratio of 2.9% (up from 2.7% in FY2014), indicating a strong but insecure financial period for the Australian airline. Qantas has also demonstrated success with its return on assets, reporting a positive 9% ratio compared with its debilitating performance in FY2014 at -45.9% and -1.9% in FY2013. In FY2015, the airline’s net profit margin was 3.5%, while Singapore Airlines demonstrated a comparable margin of 3.4%, signifying that Qantas’ performance is in line with other industry giants (Singapore Airlines Annual Report, 2015).

The airline has seen success across the board, with a reported EBIT of $480 million for Qantas Domestic (up from $30 in FY2014), $267 million for Qantas International (up from a $497 million loss in FY2014), $230 million for the Jetstar Group (following a loss of $116 million in FY2014) $315 million in Qantas Loyalty membership (up from $286 million in FY2014) and an extraordinary $114 million for Qantas Freight (up from $24 million in FY2014), suggesting that while freight transportation currently only amounts to 14% of domestic profit, it could become a seriously influential enterprise in the future (Qantas Annual Review, 2015). Additionally, Qantas International was ‘profitable on a full-year basis for the first time since before the Global Financial Crisis’, suggesting that Australian travellers are developing an increased confidence in the state of the economy and in their national airline (Qantas Annual Report, 2015, p. 6).

Qantas’ Financial Framework (capital structure) is designed to enhance long-term shareholder value, encouraging loyalty amongst its investors. By ‘delivering return on invested capital’ above the airline’s ‘average cost of capital’, this ensures that Qantas will be able to continue ‘to reinvest’ in ‘sustainable returns’ (Qantas Annual Report, 2015, p. 7).

Several targets have been set to assist in financial performance, such as minimising weighted average cost of capital (WACC) to return to optimal strength, as well as reducing the return on invested capital (ROIC) from 16% to under 10%, and returning $505 million in surplus capital to shareholders (Qantas Annual Report, 2015).
Overall, FY2015 has been an extraordinarily successful financial year for Qantas, with positive results across every major sector (Qantas Annual Report, 2015). In its rigorous transformation instigated, the airline has unlocked ‘$1.1 billion in cumulative’ benefits, pushing the company to outmanoeuvre competitors such as Singapore Airlines (Qantas Annual Report, 2015, p. 4). While evidence of the longevity of Qantas’ profitability remains to be seen, it is certainly a company worth observing in FY2016.

3. Social Performance

Qantas manages to walk a fine line between grace, professionalism and the warm Australian spirit (the ‘flying kangaroo’), resulting in an intelligent brand image appealing to the patriotic Australian public. In the airline’s recent emotive advertising campaign, by combining the notion of home and family through vivid iconic imagery, Qantas captured the nature of being Australian, of sometimes being separated due to geography from loved ones (Qantas, 2015). This core understanding of its public and target market suggests great social potential for the airline in future advertising ventures.

Qantas employs over 28,662 full-time staff (79.5% of which are between 25 and 54), and has over 12,000 suppliers, of which $1.75 million has been targeted towards employing Indigenous suppliers between 2016 and 2018 (Qantas Annual Review, 2015). Ethical business practices are of insurmountable value to Qantas and are adhered to within the company through the Anti-Corruption Framework and the Qantas Constitution which outlines corporate governance procedures (Qantas Annual Review, 2015). Qantas also ‘offers career paths that inspire young Aboriginal and Torres Strait Islanders’, and has pledged to offer 250 traineeships over the next 10 years assisting in the development of ‘cultural competency’, economic skills and long-term career aspirations (Qantas Annual Review, 2015, p. 28). Qantas currently has 317 Aboriginal and Torres Straight Islander employees, making up approximately 1% of employees (Qantas Annual Review, 2015).

In enhancing equality through social initiatives, Qantas invested $3.3 million into its community in 2015 (down from $4.5 million in 2014 and $7.9 million in 2013), and has developed partnerships with ‘organisations that champion positive change’ such as UNICEF, Mardi Gras and Make-a-wish (Qantas Annual Review, 2015, p. 40). Since it began, the Qantas-UNICEF partnership has raised in excess of $30 million, primarily due to generous donations from aircraft passengers (Qantas Annual Review, 2015). As of April 2016, Qantas launched its new pilot uniform with a design inspired by the airline’s origins, which is composed of a sleek navy suit that has been individually tailored to a male and female body (women were previously required to wear men’s uniforms) and donned by R.M. William’s boots – an Australian outback icon (Freed, 2016). In addition to several professional models, 59 Qantas pilots walked the catwalk-runway at Sydney’s Carriageworks – their beaming smiles an evident signifier of their pride for the airline (Qantas YouTube, 2016). While Qantas’ foresight in social responsibility is commendable, only 31.6% of women hold senior positions and only 3 female Directors are on the Qantas Board (up from 2 in 2013), suggesting that gender equality within the airline (and within the aviation industry as a whole) still remains a working issue (Qantas Annual Review, 2015).

As a premium airline, Qantas provides a comprehensive Frequent Flyer program (founded in 1987), and a partnership program, Aquire, for small business transactions (Qantas, 2016). While most airlines do offer a Frequent Flyer program, Qantas is one of the few that allows its 10.8 million members the option to redeem their miles with over 3,000 tangible products (such as luggage and cosmetics), in addition to concession airfares via a points and pay system (Qantas Data Book, 2015). This program indicates that passenger loyalty is valued and rewarded generously, regardless of flight frequency.

Since the arrival of the Qantas A380, design has been referenced as a differentiating factor for the brand, providing passengers with a world-class experience and staff with an environment and company of which they can be proud (Qantas YouTube, 2008). Following the Qantas-Emirates partnership in 2013, ‘passengers have access to 35 Qantas lounges across Australia’ as well as ‘600 lounges globally’ in ‘150 destinations’ (Qantas Data Book, 2015, pp. 6-7). In addition to this, the airline has seen success in punctuality, reporting an increase in on-time departures from 81.6% to 83.4% (Qantas Annual Review, 2015).

In February 2016, Qantas launched its latest safety video, highlighting iconic and relatable Australian people and scenery – ensuring passengers will be engaged, focussed and genuinely interested in listening to all-too-familiar safety information (Qantas YouTube, 2016). Qantas’s inventive and entrepreneurial spirit makes it one of the most fascinating Australian businesses today. As an ‘industry-leading airline for operational safety’, Qantas has seen a steady 28% decrease in the Total Recordable Injuries trend since 2010, indicating that personal health, wellbeing and the overall safety of its employees are an essential element in its operation. Employees are encouraged to communicate their concerns with managers, while resources such as ‘on-site physiotherapy assessments, treatments and pre-work group exercises’ are available to improve strength and enhance community spirit (Qantas Annual Review, 2015, p. 18). Overall, Qantas’ social performance demonstrates positive possibilities for the airline – with a primary focus on safety, equality, supporting Australian business and employee and passenger satisfaction.

4. Environmental Performance

The very act of operating an airline demands great environmental challenges – from the renewal of aircrafts every 7-8 years, to the extensive carbon emissions expended in the air, the aviation industry accounts for approximately 2% of the total annual greenhouse gas emissions (Qantas Annual Review, 2015, p. 35). While environmental sustainability is touted to be of concern to Qantas, due to the financial focus in operating a large business, the extent of which this is true is debatable.
Of course, given the interconnected nature of fuel consumption and oil prices, for Qantas, environmental performance is key in the longevity of the airline’s financial success and overall profitability. According to the Sustainability Report (2015 p. 6), the airline’s ‘biggest challenge is jet fuel combustion emissions, which account for around 98%’ of the ‘total 12 million-tonne annual carbon footprint’. In reducing its carbon emissions, Qantas offers a ‘voluntary carbon offset program’ which the airline boasts is the ‘largest of any airline in the world’, allowing passengers to offset their flight for a small percentage of the overall fare (Qantas Sustainability Report, 2015, p. 9). While only 7% currently choose to offset, this program creates a sense of positive sustainable change, while still maintaining passenger autonomy, ensuring that all of its stakeholders are satisfied (Qantas Annual Review, 2015).

In line with its FY2012 environmental targets, by 2020, Qantas pledges to reduce electricity consumption by 20% company-wide, reduce water consumption by 20% and reduce waste-to-landfill by 30%. In addition to this, Qantas aims to improve efficiency by reducing fuel by 1.5% each year (through better utilisation of its fleet), achieve carbon neutral growth by 2020 and cut net emissions by 50% by 2050 (Qantas Sustainability Report, 2015). As of FY2015, Qantas has reached 19% of its electricity proposal, 11% of its water target and 28% of its waste-to-landfill target, suggesting that the airline is on course for strong environmental and sustainable improvements.

In 2015, Qantas won the ‘Australian Business Award for Sustainability’, and since FY2013, has steadily reduced its aviation fuel consumption by 4%, diesel by 9% and increased its use of natural gas by 16%, which, compared with other fossil fuels, is considered relatively clean as it releases fewer dangerous pollutants (Qantas Annual Review, 2015, p. 36, 42). Environmental leadership is an aspiration of the airline, which has ‘lead industry research towards a commercially viable aviation biofuel market in Australia’ and maximises its young fleet, which is ‘more fuel and carbon-efficient than… most other [comparable] airlines’ (Qantas Annual Review, 2015, p. 33). In meeting its sustainability and functionality targets, Qantas has increased the hours its jets spend in the air by an average of 15% since FY2012, by opening internal collaboration within the engineering and scheduling teams, resulting in a stronger supply chain (Qantas Annual Review, 2015). The Qantas passenger fleet is composed of 294 ships, of which 12 are the long-haul A380, which burns 17% less than other comparable jets per seat and can travel 14,800km non-stop (Qantas Youtube, 2014). In accordance with the Qantas Transformation Program, another 8 A380s are on firm order, as well as 3 B787-8s and 8 B787-9s, finally bringing the much awaited Dreamliner into the fleet (Qantas Data Book, 2015, p. 43).

Outside of its internal operations, Qantas participates in several sustainability partnerships. The airline supports research on the impact of climate change to The Great Barrier Reef (through the ZooX Ambassadors Program), sponsors the Cairns Turtle Rehabilitation Centre on Fitzroy Island, supports Indigenous land owners through the purchase of carbon offsets in the North Kimberley (Fire Abatement project) and has partnered with the Ngati Awa Heritage Estate to assist in the reforestation of 350 hectares of ‘culturally significant’ land in New Zealand (Qantas Sustainability Report, 2015, p. 11). This engagement with the land signifies a respect for the country and the people which allow the airline to operate.

On World Environment Day 2015, Qantas launched its new domestic recycling program on its Boeing 737 and Airbus A330 jets, marking one of the first initiatives worldwide towards cleaner industry waste management (Qantas Annual Review, 2015, p. 35). Qantas demonstrates a strong desire for building a sustainable future, uniting the airlines’ ‘commitment to safety; to innovation; to service; to social responsibility’ and its commitment to minimise its environmental footprint (Qantas Annual Report, 2015, p. 5).

5. Conclusion

While investment in airlines may not be for the faint-hearted, this analysis indicates that Qantas has strong performance in its social and environmental commitment, as well as in its recent financial results. Since FY2015, Qantas has continued to perform at an optimal level – the 2016 half-year results estimate an operating cash flow of $1.4 billion, up 95%, a statutory profit before tax of $938 million, up $694 million, revenue of $8.5 billion, up 5%, and new investment into lounges, technology and pilot recruitment (Qantas HY Results, 2016).

This report suggests that given the current share price ($3.41 as at May 10 2016), investors should consider Qantas if the company’s objectives regarding environmental sustainability and social performance meet their own personal values. Additionally, as of August 2015, Qantas has promised to release dividends per share to the amount of $550 million, rewarding current shareholder’s patience throughout its transformation (Ryan, 2015). The company is performing well against its international and domestic competitors, continuing to unveil innovative transformations which will only strengthen the airlines’ long-term profitability and success (Qantas Annual Report, 2015).

If new investors wish to support the Australian aviation industry, Qantas is the perfect candidate. However, if potential shareholders seek a low-risk opportunity, it is possible that another industry such as housing and real estate, insurance, cybersecurity or even water could prove more financially successful (Harding, 2016). When it comes to an airline like Qantas, ‘it’s an absolute love of aviation’ and confidence in the brand that inspires shareholders, passengers and pilots to keep coming back, again and again – there is no other substitute (Qantas YouTube, 2012).