HSC BUSINESS FINANCIAL MANAGEMENT CASE STUDY QANTAS

Profitability- COST CONTROLS - ANS-3 year cutting cost program ending in 2017: cut 5,000 jobs. sold planes/delayed delivery, froze wages — 2019 generated record earnings allowing shareholders to receive dividends Reducing fixed costs - restructuring management and employment relations to improve efficiency of rostering system - implementing more technology for long term cost gains to minimise waste Reducing variable costs - fuel conservation - cutting commissions to travel agents - casualisation of the workforce to reduce benefits paid to full-time employees - downsizing workforce to reduce wage and salary outflows (stood down 6,000 since 2014) - deferring/delaying new fleet deliveries Profitability- REVENUE CONTROLS - ANS-- entering into new strategic alliances to improve attract-ability of Qantas as if Q can't fulfil a route, one of its partners can, expansion of services into the growing Asian market, improving marketing/appeal through the new international business class and check-in kiosks Profitability- EFFECTIVENESS - ANS-- Effective as cost-cutting saved 3.2B over last 5 years, reducing overall cost face by about 20% - Despite 21% fall in revenue, managed to still post a 124M underlying profit - fuel and labour costs variable so can be difficult to control Net profit ratio 0.06:1 2015 0.09:1 2019 ROE 44% 2019 47% 2017 Liquidity- CASH FLOW MANAGEMENT - ANS-- managing cash flow by writing cashflow budget helping to predict trends, identity peaks and troughs in demand so Q can prepare - reducing outflows by taking advantage of discounts for early payment - distributing payments through activities like leasing Liquidity- WORKING CAPITAL MANAGEMENT - ANS-CONTROLLING CURRENT ASSETS - of cash by holding very little cash, instead reinvesting for business growth, or being used to pay off acc/pay to reduce interest costs CONTROLLING CURRENT LIABILITIES - of payables by taking advantage of discounts offered for early payment - rationalising/looking for cheapest/reviewing jet fuel suppliers LEASING - lease buildings, plant, equipment, planes, terminals - receive tax deductions SALE AND LEASEBACK - sold domestic sydney terminal for 185M and melbourne for 355M and leased them both back to provide large cash injection Liquidity- EFFECTIVENESS - ANS-Liquidity Ratio - 1.46:1 - 1.60:1 Achieved funds by using funds to create a profit and holding funds to cover payment Efficiency- EXPENSE MINIMISATION - ANS-CASH FLOW MANAGEMENT - reinvest inflows to pay suppliers to reduce interest owed EXPENSE MINIMISATION - replacing Q with Jetstar on some international routes - new strategic alliances - fuel conservation/cheaper suppliers/investing into bio fuel - cutting commissions to travel agents - reducing executive salaries - differing fleet deliveries to minimise capital expenditure - downsizing workforce - encouraging online sales/self service kiosks to reduce amount of staff - better rostering - technology - outsourcing Efficiency- EFFECTIVENESS - ANS-Expense Ratio 93% 2015 90% 2019 Decreased but still high Revenue Seat factor 84% 2015 Continues...