Qantas, A Case Study Of Restructuring Program

QANTAS,

A Case Study of

Restructuring Program

Accounting For Decision Making,

Meysam Safari

October 2007

QUEENSLAND AND NORTHERN TERRITORY AERIAL SERVICES LIMITED

(THE QANTAS GROUP)

Table of contents:

* Introduction ............................................................. .................. 5

* A review of Qantas' Business Segments ................................. 20

* Reasons of restructuring in Qantas ........................................ 34

* Organizational Structure ...................................................... 36

* Qantas Performance over time ............................................ 39

* GLOSSARY ................................................................................. 45

Introduction

The Qantas story is inextricably linked with the development of civil aviation in Australia. It begins with fragile biplanes carrying one or two passengers in open cockpits and progresses to advanced Boeing 747s flying some 400 people half way around the world in a day.

But it is a story of human endeavor, not just machines. A few determined individuals overcame formidable obstacles to establish the Queensland and Northern Territory Aerial Services Ltd (QANTAS). Supported by committed staff and loyal customers, the airline persevered through war and peace to serve the nation and build an enterprise. The Qantas story is about the people who have created its exciting and productive history - its staff, its customers and the excellence of its business partners and key suppliers.

Today, Qantas is widely regarded as the world's leading long distance airline and one of the strongest brands in Australia. Qantas continues to provide outstanding service to its customers and is at the forefront of the international civil aviation industry.

The future holds many challenges for Qantas - maintaining safe operations and world class product standards while building a viable and competitive position long term for the airline.

Qantas was founded in the Queensland outback in 1920. Registered originally as the Queensland and Northern Territory Aerial Services Limited (QANTAS), it has built a reputation for excellence in safety, operational reliability, engineering and maintenance, and customer service.

Today, Qantas is widely regarded as the world's leading long distance airline and one of the strongest brands in Australia. It also operates subsidiary businesses including other airlines, and businesses in specialist markets such as Qantas Holidays and Qantas Flight Catering.

In reaction to the world downturn in the profitability of the airline industry, Qantas restructured its operations into at least 8 stand-alone business segments. This new structure used a form of the responsibility accounting system. Each business line has budgets and profits targets, and is required to produce targeted return on assets while operating to maximize the company's performance as a whole. The new structure is supported by a corporate center that includes a shared service division to provide information technology, human resources, financial services and other support functions to each of the business segments. The new structure also has a mixture of profit centers for the business sectors, an investment center for Qantas investment, and a cost center for the corporate center. According to Qantas's CEO, Geoff Dixon, a focus on accountability, collaboration and leadership is crucial for the success of restructuring.

Following these changes in business structure, the results for 2003-04 reflected an increase in profit after tax of 88.8% with earning per share of 35.7 cents, an increase of 78.5%. These results were achieved by cost savings.

Here, before proceeding to restructuring program, we may have a glance at what had happened around the Qantas since 2000.

2000:

Segment Information

For the financial year ended 30 June 2000, the principal assets of the Qantas Group comprised the aircraft fleet, all, except two, of which were registered and domiciled in Australia. These assets are used flexibly across the Qantas Group's worldwide route network. Accordingly, there is no suitable basis for allocating such assets and the related liabilities between geographic areas. Operating profit resulting from turnover generated in each geographic area according to origin of sale is not disclosed as it is neither practical nor meaningful to allocate the Qantas Group's operating expenditure on that basis. Disclosure is made of a more appropriate measure of profit contributions in accordance with the Qantas Group's internal reporting system, being the earnings before interest and tax (EBIT) contributed by the international and domestic airline operations and subsidiary operations.

We can classify segmentation of firm in two methods:

* INDUSTRY SEGMENTS: The Qantas Group operates predominantly in one industry segment, being the transportation of passengers and freight on services within and to or from Australia.

* GEOGRAPHICAL SEGMENTS: Passenger, freight and services revenue from domestic operations within Australia is attributed to the Australian area. Passenger, freight and services revenue from inbound and outbound services between Australia and overseas is allocated proportionately to the area where the sale was made. Other operating revenue is not allocated to a geographic area as it is impractical to do so.

2001:

Reclassification of financial information

Some line items and sub-totals reported in the previous financial year have been reclassified and repositioned in the financial statements as a result of the first time application on 1 July 2000 of the revised standards AASB 1018 Statement of Financial Performance, AASB 1034 Financial Report Presentation and Disclosures and the new AASB 1040 Statement of Financial Position.

Adoption of these standards has resulted in the transfer