The Air Travel Value Chain and Working Capital Management Leverages in Airline Industry The Airline industry provides passenger and freight transport services through its fleet of aircraft flying to domestic and international destinations. The industry is part of the air travel value chain, which includes suppliers as well as distributors of the leading service provider, the airlines company. The chain is set up to cater to the needs of the ultimate customers in the process, air travellers. Qantas Airlines is the designated national carrier of Australia. It operates both domestically and internationally. The company operates 285 aircraft, has assets of $19.3 billion and employs 29,200 staff. In Australia, Qantas is the dominant local airlines with 62.5% market share. The only other significant competitor, Virgin, is a far second with 27.9%. Through Qantas subsidiary, low-cost carrier Jetstar, it achieves more comprehensive market coverage, complementing their premium service offering. As you can remember, the case study you did in your tutorial class, up to 2013/14, Qantas struggled financially with poor profit results for several years. Qantas then restructured their operations through capacity realignment and workforce redundancies. The wide-ranging transformation program resulted in a return to after-tax profit with record results for 2017 $ 853millions and 2018 $953m and 2019 $891m. Airlines require aviation fuel which is a significant cost factor in their operations. Aviation fuel can account for more than 40% of an airline's operating costs. Supplying Qantas its fuel requirements are petroleum refiners and wholesalers delivering to airports where Qantas planes depart from One such aviation fuel provider is Viva Energy which operates a refinery in Geelong, the second-largest facility in the country. Ten per cent of the Geelong refinery's output is for aviation fuel production, which supplies 37% of the airline industry's fuel requirement. Viva negotiates directly with airline companies regarding the supply of aviation fuel for their aircraft to be made available at Australian airports. Viva delivers fuel to 50 airports across the country. Under a license agreement with Royal Dutch Shell, Viva supplies some 1150 petrol retail outlets across Australia with Shell-branded fuels and lubricants. Combined with the aviation fuel business, the supply of retail products gives Viva products a 26% share of the total Australian fuel market, second only to market leader Caltex at 38%. The last two decades have seen the prevalence of the Internet and mobile technologies in many business processes. This has spurred the growth of many industries devoted to mediating new modes of interactions between service providers and consumers. The online travel booking industry is an example, and Webjet with annual revenue of $366 million leads the industry in Australia and New Zealand. The company markets and transacts airline tickets and other travel-related services to consumers (82% of revenue) and corporate clients (18% of revenue). Webjet has a predominantly online business model as contrasted with traditional travel agents operating from shop-front outlets. The online travel booking industry in Australia is highly concentrated with the four major players accounting for some 70% market share. The competition has been described as of high intensity. The relatively low barriers in entering the market have encouraged smaller players to participate, thus aggravating competition further. Income for online booking firms comes from travel service providers (e.g. airlines) calculated as a percentage of the revenue amount of booked services. Widespread discounting of travel services prices (e.g. budget airfares) is considered a threat for online booking firms as their revenues are significantly diminished while their costs remain the same. Another concern is airlines' being able to increasingly bypass online booking providers by generating airfare revenue from passengers directly through their own websites. The following figures were extracted from the annual reports of Qantas (an airline company), Viva Energy (an aviation fuel supplier) and Webjet (an online travel booking service provider). Instructions: 1. Assume all sales revenues and purchases are on a credit basis. 2. When calculating year 2017, 2018 and 2019 related ACPs, AAls and APPs, students must consider average values of inventory, accounts receivables and accounts payables. 3. Provide calculated solutions to two decimal places. Qantas Airways Limited 2017 2019 Year 2016 2018 AU $ Millions 14,665 15,839 16,200 16,667 Sales Revenue Expenditure incurred (Operating material used and other expenditure=COGS) Net Profit 3,336 4,818 853 5,181 953 5,660 891 1,029 1,775 784 1,694 715 Cash and cash equivalents Receivables Inventories (aircraft operating materials) Other current assets Total Current Assets 1,980 795 336 347 2,157 971 364 351 351 878 701 209 3,119 3,458 3,638 4,193 Payables Revenue received in advance Short-term borrowings Other current liabilities Total Current Liabilities 1,986 3,525 338 2,067 3,685 330 2,220 4,018 404 2,470 4,315 635 1,179 7,028 1,013 7,095 958 7,600 1,156 8,576 Purchases 10,332 9,949 10,413 10,856 2019 Yr 2017 13,905 Viva Energy Limited Sales Revenue Cost of Goods Sold Net Profit Year 2016 14,131 12,712 1,219 2018 16,395 14,843 467 16,541 15,075 12,158 580 695 164 127 426 1,036 650 108 909 Cash and cash equivalents Accounts receivables Inventories Other current assets Total Current Assets 950 965 1011 398 1,004 1,195 302 2,628 105 286 2,217 2,365 2,426 1,360 585 619 744 7 7 135 Accounts payables Short-term borrowings Other current liabilities Total Current Liabilities 292 246 1,301 2,132 1,427 2,053 1,566 2,445 1,659 Purchases 12,690 14,229 15,697 15,164 2018 2019 Webjet Limited Sales Revenue Net Profit Year 2016 152 Yr 2017 218 61 291 366 21 87 124 116 178 190 211 81 117 Cash and cash equivalents Receivables Other current assets Total Current Assets 9 35 252 37 499 347 35 593 206 330 147 153 191 250 32 18 Payables Short-term borrowings Other current liabilities Total Current Liabilities 38 13 13 55 225 280 348 616 198 503 Purchases 350 545 412 467 Revenue is the commission or margin received as a percentage of travel services booked. 2Purchases include the total value of travel services from providers which have been 'bought wholesale by Webjet. 1. Draw a diagram of the air travel value chain showing the part played by Qantas, Viva and Webjet and the value each contributes. Explain your diagram based on the industry value chain and internal value chain analysis. The Air Travel Value Chain and Working Capital Management Leverages in Airline Industry The Airline industry provides passenger and freight transport services through its fleet of aircraft flying to domestic and international destinations. The industry is part of the air travel value chain, which includes suppliers as well as distributors of the leading service provider, the airlines company. The chain is set up to cater to the needs of the ultimate customers in the process, air travellers. Qantas Airlines is the designated national carrier of Australia. It operates both domestically and internationally. The company operates 285 aircraft, has assets of $19.3 billion and employs 29,200 staff. In Australia, Qantas is the dominant local airlines with 62.5% market share. The only other significant competitor, Virgin, is a far second with 27.9%. Through Qantas subsidiary, low-cost carrier Jetstar, it achieves more comprehensive market coverage, complementing their premium service offering. As you can remember, the case study you did in your tutorial class, up to 2013/14, Qantas struggled financially with poor profit results for several years. Qantas then restructured their operations through capacity realignment and workforce redundancies. The wide-ranging transformation program resulted in a return to after-tax profit with record results for 2017 $ 853millions and 2018 $953m and 2019 $891m. Airlines require aviation fuel which is a significant cost factor in their operations. Aviation fuel can account for more than 40% of an airline's operating costs. Supplying Qantas its fuel requirements are petroleum refiners and wholesalers delivering to airports where Qantas planes depart from One such aviation fuel provider is Viva Energy which operates a refinery in Geelong, the second-largest facility in the country. Ten per cent of the Geelong refinery's output is for aviation fuel production, which supplies 37% of the airline industry's fuel requirement. Viva negotiates directly with airline companies regarding the supply of aviation fuel for their aircraft to be made available at Australian airports. Viva delivers fuel to 50 airports across the country. Under a license agreement with Royal Dutch Shell, Viva supplies some 1150 petrol retail outlets across Australia with Shell-branded fuels and lubricants. Combined with the aviation fuel business, the supply of retail products gives Viva products a 26% share of the total Australian fuel market, second only to market leader Caltex at 38%. The last two decades have seen the prevalence of the Internet and mobile technologies in many business processes. This has spurred the growth of many industries devoted to mediating new modes of interactions between service providers and consumers. The online travel booking industry is an example, and Webjet with annual revenue of $366 million leads the industry in Australia and New Zealand. The company markets and transacts airline tickets and other travel-related services to consumers (82% of revenue) and corporate clients (18% of revenue). Webjet has a predominantly online business model as contrasted with traditional travel agents operating from shop-front outlets. The online travel booking industry in Australia is highly concentrated with the four major players accounting for some 70% market share. The competition has been described as of high intensity. The relatively low barriers in entering the market have encouraged smaller players to participate, thus aggravating competition further. Income for online booking firms comes from travel service providers (e.g. airlines) calculated as a percentage of the revenue amount of booked services. Widespread discounting of travel services prices (e.g. budget airfares) is considered a threat for online booking firms as their revenues are significantly diminished while their costs remain the same. Another concern is airlines' being able to increasingly bypass online booking providers by generating airfare revenue from passengers directly through their own websites. The following figures were extracted from the annual reports of Qantas (an airline company), Viva Energy (an aviation fuel supplier) and Webjet (an online travel booking service provider). Instructions: 1. Assume all sales revenues and purchases are on a credit basis. 2. When calculating year 2017, 2018 and 2019 related ACPs, AAls and APPs, students must consider average values of inventory, accounts receivables and accounts payables. 3. Provide calculated solutions to two decimal places. Qantas Airways Limited 2017 2019 Year 2016 2018 AU $ Millions 14,665 15,839 16,200 16,667 Sales Revenue Expenditure incurred (Operating material used and other expenditure=COGS) Net Profit 3,336 4,818 853 5,181 953 5,660 891 1,029 1,775 784 1,694 715 Cash and cash equivalents Receivables Inventories (aircraft operating materials) Other current assets Total Current Assets 1,980 795 336 347 2,157 971 364 351 351 878 701 209 3,119 3,458 3,638 4,193 Payables Revenue received in advance Short-term borrowings Other current liabilities Total Current Liabilities 1,986 3,525 338 2,067 3,685 330 2,220 4,018 404 2,470 4,315 635 1,179 7,028 1,013 7,095 958 7,600 1,156 8,576 Purchases 10,332 9,949 10,413 10,856 2019 Yr 2017 13,905 Viva Energy Limited Sales Revenue Cost of Goods Sold Net Profit Year 2016 14,131 12,712 1,219 2018 16,395 14,843 467 16,541 15,075 12,158 580 695 164 127 426 1,036 650 108 909 Cash and cash equivalents Accounts receivables Inventories Other current assets Total Current Assets 950 965 1011 398 1,004 1,195 302 2,628 105 286 2,217 2,365 2,426 1,360 585 619 744 7 7 135 Accounts payables Short-term borrowings Other current liabilities Total Current Liabilities 292 246 1,301 2,132 1,427 2,053 1,566 2,445 1,659 Purchases 12,690 14,229 15,697 15,164 2018 2019 Webjet Limited Sales Revenue Net Profit Year 2016 152 Yr 2017 218 61 291 366 21 87 124 116 178 190 211 81 117 Cash and cash equivalents Receivables Other current assets Total Current Assets 9 35 252 37 499 347 35 593 206 330 147 153 191 250 32 18 Payables Short-term borrowings Other current liabilities Total Current Liabilities 38 13 13 55 225 280 348 616 198 503 Purchases 350 545 412 467 Revenue is the commission or margin received as a percentage of travel services booked. 2Purchases include the total value of travel services from providers which have been 'bought wholesale by Webjet. 1. Draw a diagram of the air travel value chain showing the part played by Qantas, Viva and Webjet and the value each contributes. Explain your diagram based on the industry value chain and internal value chain analysis