Qantas Airways - Strategic Performance Appraisal - Case Study Example

Title: Qantas report Dated: October 16, 2009 Qantas Airways limited herein after referred as Qantas is a company limited by shares and is incorporated in Australia with its publicly traded shares on the floor of the Australian stock exchange has committed hedging in its annual accounts for the maintenance and sustainability of the corporation in the market. In the financial statement for the year 2009, the corporation has committed hedging tactics while showing the fair value of the shares, hedging as in the form of cash flow and ineffective and non-designated derivatives as in favor of the corporation. All these techniques have helped the corporation to demonstrate an income of Australian $11774 million for the year 2009 as compared to that of $13498 million for the year 2008 with an expenditure of $11260 million for the year 2009 as compared to that of $11878 million for the year 2008 with a net profit of $484 million. The corporation is a part of the Qantas group which is consisting of Qantas which represents the Qantas passenger flying business and similar related assignments, the same is the major entity of the group with more than 70% of the total business as being executed by the group for the achievement of its mission with the utilization of available human, financial and technical resources with their optimum utilization and for making products and services as outputs with their maximum values as in favor of the group(1). The other major business entities as are included in the group are: (a) Jet Star which represent jet star passenger flying business like Jet Star Asia having an investment in the Jet Star Pacific, (b) Qantas freight services representing the air cargo operations as are included in the freight business, (c) Qantas frequent flyer which includes frequent flyer customers as a part of loyalty program, and (d) The Jet Set Travel world group as an investment component in the jet set travel world group for earning profits as in favor of the corporation. The financial statements of the corporation are made on the basis of their individuals during a specific financial year are reflected in the overall performance of the group along with a comparison of the performance with one previous financial year. The financial statement of the Qantas for the year 2009 is based on two major components as sales and other income and the expenditures and both of these components provide a fair view of the financial and physical progress as made by the corporation during the period of report. For the year as ended on June 30, 2009. the earnings of the group has witnessed as income of $11774 million for the year 2009 as compared to that of $13498 million in the same major head for the year 2009 which shows a decline of $1724 million with a major decline in the subheads of net passengers and others. Similarly, the expenditure of the corporation during the year 2009 has remained at the level of $11260 million for the year 2009 as compared to that of $11871 million with a decrease of $611 million during the period of report and the major decline is in the depreciation and amortization subhead of the financial statement. The overall profit for the group has remained at the level of $484 million as compared to that of $1308 million for the year 2008 with a net decrease of $824 million during the financial year 2009. Group has manipulated the financial statement of the corporation with the utilization of hedging techniques as to maintain a posture of the corporation as being painted with profits and better performance although the overall profits has witnessed a decreasing trend during the period of report. The hedging has been incorporated in the major heads like fair value hedges, cash flow hedges and ineffective and non designated derivatives through the hedging phenomenon as in favor of the corporation. Each type of hedging has its significance and specific role for the maintenance of profitability and as a part of the significant accounting policies as have been adopted by the corporation for running its affairs as in a profitable mode. Hedging in finance is a position as established in one market with an attempt to compensate the exposure to price fluctuations as in various inputs as are utilized by the corporations for running their affairs in profitable mode and to counter opposite position with an objective to minimize the exposure of the corporation without any type of unwanted risk. The corporations are opting for different types of hedging techniques as special financial vehicles to accomplish their planned activates and liabilities including insurance policies, completion of the forward contracts, selection of the profitable options with mitigating the counter effects of the derivatives and other related products including future contracts in such a mechanism that the corporation with t adoption of the techniques earn profits within the financial year of the reporting period(2). The Qantas Corporation during the financial year 2009 has committed hedges in three major categories as: (1) fair value hedges, (2) cash flow hedges, and (3) Hedges in the shape of ineffective and non-designated derivatives for the calculation of fair values and financial guarantee derivatives. All these above mentioned hedges are exercised by the Qantas Corporation as a part of the significant accounting policies as have been adopted by the corporation for running its affairs so as to achieve profits for the corporation during the period of financial performance. ( 1) Fair value hedges: During July 2008 the Qantas Corporation has launched and enhanced program through offering additional redemption options including non-flight awards as in favor of the group with an objective to change its estimate with increased value for the group that is $193 million as in favor of the group. The changes as made in the fair value as part of the derivative financial instruments has improved the quality as in the shape of fair value and is also recorded in the income statement of the group as recognition of effective cash flow hedges on the capitalized assets with a title recognized income and expenses as $301 million with a share of the fair value hedges in the cash low during the period as $438 million. The amount proved to be a significant component in the total equity which remains $1311 million. The fair value component as $438 million with a hedged value as part of the total $1311 million stood at the level of 33.4% of the total equity as in favor of the corporation. The fair value component as part of the hedging technique has resulted in the maintenance of the equity level in a positive zone as in favor of the group in all these techniques have consolidated the position of the financial statement as in favor of the corporation in synergetic manner. The positive impact of the technique gas resulted in the execution of the foreign currency transactions and their translations as in the shape of foreign operations as in favor of the corporation. (2) Cash flow hedges: Cash flow hedges like fair value hedges are used by the corporation as an effective portion of the changes in the fair value derivatives and financial instruments which have designated and qualified as in the shape of cash flow hedges and are recognized in the equity component of the financial statement as in the shape of hedge reserves. The hedge reserves are bifurcated into four main categories as transfer of hedge to the income statement of the corporation, recognition of effective cash flow hedges as capitalized assets, effective portion of changes in the shape of fair value of hedges and effective cash flow hedges on the capitalized assets as in the shape of cash flow hedges as part of the income statement. The hedge result in the overall statement as up to June 30, 2009 has been indicated as (29 million) $ which shows that the hedge reserves are on the declining sides and the corporation has an option to adjust the amount in the overall income statement of the corporation. The corporation has adopted a technique as for example, when an hedging instrument expires are disposed off or terminated the Qantas group revokes the same as in the shape of hedge relationship and the expected amount a still in the expected outcome with its commutative gains or losses for the measurement of equity and are recognized as a segment of the significant accounting policy as being adopted by the corporation for running its financial affairs and for the preparation of financial statements as on annual basis. (3) Ineffective and non-designated derivatives as a part of the hedges: Qantas group from time to time has formulated certain derivative financial instruments which do not qualify as a segment of the accounting procedures; however, these mechanisms are having their influence for changing the fair value of any other instrument or part of the derivative instrument for the overall accounting policies as are adopted by the Qantas Corporation. These instruments are helpful in the determination of fair value calculations and for the designing of financial guarantee contracts for running the affairs of the corporations as in a profitable mode for the sustainability and financial viability of the corporation. The techniques as adopted by the Qantas group through fair value hedging, cash flow hedges and ineffective and non-designated derivatives have proved to be successful financial tools and part of the management strategy for making profits as in favor of the corporation and the financial results as calculated in the financial statement for the year 2009 has proved to be successful components as have their significant position in the overall approved strategy of the Qantas Corporation. The financial tools are in a position that other similar corporations can replicate the techniques with slight modifications as to run their financial programs for the achievement of the desired targets as in the shape of profits for the corporation. The financial results as posted by the Qantas Corporation during the year 2009 are the indications that the financial tools are having their utility for maintaining the results as in the profit zones like Qantas Corporation has posted a profit of $484 million during the year 2009 even in the presence of global economic recessions at the world over. References: 1. Sullivan, Arthur; Steven M. Schifrin (2003). Economics: Principles in action. Upper Saddle River, New Jersey 07458: Pearson Prentice Hall. pp. 29. ISBN 0-13-063085-3. 2. Susanne G. G. Scott and Walter O. Einstein (2001. “Strategic Performance appraisal in team based organizations” pp107-116. Read More