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Management Accounting and Business Tutorial Activity Solution

Qantas Airlines operates domestic and international passenger flights as well as a freight division. In 2013/14, Qantas incurred losses of $235 million due to competitive and economic challenges. This was later turned around by changes to Qantas' corporate structure and value chain activities. Qantas' organizational structure is decentralized with separate business units for its international, domestic, Jetstar, and freight operations, each with different value chains. The placement of strategy and technology under the CFO suggests this role provides both financial and strategic guidance across business units.

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103 views

Management Accounting and Business Tutorial Activity Solution

Qantas Airlines operates domestic and international passenger flights as well as a freight division. In 2013/14, Qantas incurred losses of $235 million due to competitive and economic challenges. This was later turned around by changes to Qantas' corporate structure and value chain activities. Qantas' organizational structure is decentralized with separate business units for its international, domestic, Jetstar, and freight operations, each with different value chains. The placement of strategy and technology under the CFO suggests this role provides both financial and strategic guidance across business units.

Uploaded by

Tran Nguyen
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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RMIT Classification: Trusted

Management Accounting and Business


Tutorial Activity Solution

Qantas Airlines is a well-known Australian company flying passengers both domestically and internationally. It
operates under the Qantas as well as the Jetstar (low cost carrier) brands. Qantas also has a freight division which
contributes to overall revenue.

Half way through the 2013/14 financial year Qantas incurred losses around $235 million. Among the many reasons
for Qantas’ declining profitability were the strong competitive environment, Australian majority ownership structure,
unfavourable foreign exchange rates, as well as increasing fuel prices and high labour costs. This was turned around
by the end of the financial year by changes to the corporate structure and value chain activities. Refer to Table/Fig 1.

Table 1: Total Group Ratio Analysis 2013/14


Profit/Sales =204/15,902 1.3%
Sales/Assets =15,902/20,200 $ 0.787
ROA =204/20,200 1.01%

Figure 1: Qantas Organisational Structure

CEO

Human Marketing General Counsel Governmen CFO


Resources t and
Corporate
Affairs Strategy
&
Technology

Qantas Qantas Qantas


Jetstar Group Freight Qantas
International Domestic Frequent Flyer
Operations

Individual Separate Business Units

Required:

a. Do you think Qantas is centralised or decentralised? Do you think the value chain activities would be
different for each of the individual separate business units? Discuss.

Decentralised. The diagram might be deceptive, but if you look at the third diagram in the lecture slides
with the 3 Strategic Business Units (SBUs) – this is an example of this type of organisational structure.
Every SBU has a totally different supply chain and associated activities. For example, freight is different
to passengers (different clients, different processes), the management of the frequent flyer program is
quite different to flight service. The Jetstar Group is designed to follow a low cost strategy, whereas
Qantas Domestic and International follow a differentiation strategy and would have different value chain
activities, particularly around R&D and Design to ensure the strategies are followed in the service
delivery processes.

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RMIT Classification: Trusted

b. The ‘strategy and technology’ function is under the umbrella of the CFO. Why? What does this mean for
this role?

This questions links to points raised in Week 1. The CFO has both goal kicking and goal keeping roles and
sometimes these conflict. The goal keeping roles would be to prepare financial statements on results (for
example in the preparation of financial reports, or the ratio analysis provided in Table 1 and Table 2).
This is backward or past information, whereas the goal kicking role is about providing forward looking
information for strategic decisions. The importance of this function is highlighted in the choice of
organisational structural design and decision over who is reporting to the CFO and what he/she is in
charge of. Take for example, the Jetstar Group. This was started as a response to the entrance of low-
cost carriers (i.e. Virgin and later, Tiger) to the market. The CFO would be part of the decision whether or
not to invest in this low cost strategy to be part of their company (which was traditionally a
differentiator). It is a risky decision and the decision would be based on a broad range of financial and
non-financial data that would ensure the decision is aligned with overall strategies. Technology?
Accounting is a technology – it is a system that is designed to break down all the silos created by
organisational structures, so that every part of the value chain can properly communicate with each
other to ensure the strategy is being achieved. As a communication device, technology is extremely
important to the proper functioning of the CFO role.

c. Use the following data from the 2015 annual report to calculate the ratios in Table 2.

Sales Revenue $15,816 less Expenses ($14,841) = Profit $975; Total Assets $17,530

Table 2: Total Group Ratio Analysis financial year (2015 annual report)
Profit/Sales 975/15,816 6.16%
Sales/Assets 15,816/17,530 0.902
ROA 975/17,530 5.56%

d. Explain how these ratios compare to last results. How might they be useful in value chain analysis?
The ratios have all improved since the last financial year. This would be as a result of the structural and
strategic changes made by senior management after the first mid-year losses in 2013/14 year. The
obviously worked but many employees did lose jobs.

These results are summary results (averages) for the entire Qantas Group. The usefulness of ratio
analysis such as this is that companies, such as Qantas, can use ratio analysis to compare their
performance to competitors, such as Singapore Airlines, Etihad etc. to evaluate performance in the
industry value chain. Alternatively, they can break/drill this down to each of their individual business
units (and their separate value chain functions) to see who is performing better/worse than others (i.e.
the average profitability ratio is 6.16% - one group might be 1% another might be 10%, we do not know
without looking at each of the individual business unit value chains separately). This will help
management decide where to allocate more resources (i.e to underperforming units) or to outsource or
to manage particular parts of the value chain.

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