The document provides a comprehensive analysis of the airline industry, focusing on American Airlines, Singapore Airlines, and Qantas Airways, highlighting their operational strategies, financial performance, and challenges. It discusses key metrics such as profitability, asset management, liquidity, and capital structure from 2009 to 2013, emphasizing the impact of fluctuating fuel costs and economic conditions on profitability and stability. The analysis reveals that while Singapore Airlines exhibited stable financial performance, American Airlines struggled under negative equity and Qantas faced operational losses due to rising expenses.

1. 1. Executive Summary
2. Industry Background
Daily operations of airline companies are providing air transport services for traveling
passenger and cargo, which are their main stream of income. The airline industry has very high
barriers of entry since it is becoming extremely difficult to obtain terminal space at many hub
airports for new comers and airline companies usually operate under very limited amount of
license issued by government (IATA, 2013). Airline customers value low prices above all other
airline specific factors, thus the key for company to survive is to provide lowest ticket price
by lowering cost.
However, besides the very high fixed cost as a nature of airline industry, the variable
costs, mainly salaries and fuel, are pretty much out of the airline’s control due to the need of
highly skilled employee and fluctuating oil price (IATA, 2013). Furthermore, although the
sensitivity of airline service demand depends on economic condition as most of the other industries,
it is slower than average to recover because the spending on travel is discretionary. Demand of
travel picks up momentum only after the economy has recovered. In our analysis, we will focus on
American Airlines, Singapore airlines, Qantas Airways (Australia
3. Company Background and Strategies
Qantas
Airways
Background
 the oldest and largest airline in Australia
 aims at providing better service, operating more efficiently and harnessing
new technology
Strategy
 portfolio strategy with 5 segments: Qantas (Domestic and Internal), Jet star, Qantas
Loyalty and Qantas Transformation
 aims to be the world’s best premium and low fares airline
 align with large airlines to broaden service
American
Airlines
Background
Founded in New York in 1930, American Airlines is one of the largest airline groups in
the world. It has grown to operate in 339 destinations in the world with scheduled
flights throughout North America, Caribbean, South America, Europe and Asia. The
company is also a member of One World airline alliance, and coordinates fares,
services, scheduling with Qantas Airways in the transpacific market.
Strategy
Singapore
Airlines
Background
 listed on the Singapore Exchange Securities Trading Limited in 1985
 global networks, high valued staffs, immense passenger

2. Strategy
 sustain its long-term future by retaining strong investment and industry-
leading
brand in the markets
 focus on optimal operating efficiency and providing excellent product and service
4. Profitability Analysis
4.1 Gross profit margin ratios
Figure 1: Gross profit margin of three companies (2009 – 2013)
(Source: Adapted from Qantas, American and Singapore Airlines annual reports)
As the whole, figure 1 illustrates that the significance point is the case of American Airlines with
considerable figures of gross profit margin because the company capital dirived from financial loans
(their euity is minus) which resulted in high financial costs over 5 years. In 2012, the profit margin
decreased sharply based on the financial crisis in the US which discourged the net profit of American
Airlines much. Whereas, Singapore Airlines illustrates an opposite trend, which possitve profit margin
in both net and gross profit margins since most of their capital was received from the owner’s equity
without banking loans.
Qantas Airways’ gross profit margin ratios experienced an decrease to the negative ratios from
2009 to 2012, which mean that the company got loss in their operating activities. This was very difficult
period for Qantas due to the sharply rise of fuel costs which leads to grow of expense ratio and as a result
of decreasing in Qantas’s profits in 2012 (Narayanan, 2012). In 2013, Qantas and Emirate are two of the
world's leading airlines which have formed a global partnership (Frazer, S., 2013). Thus, Qantas profit
boosted under decreasing of expenditure cost when alliance with Emirate. Kuk? Is there any other
reasons?
GROSS PROFIT MARGIN%

3. 4.2 Net profit margin
Figure 2: Net profit margin of three companies (2009 – 2013)
(Source: Adapted from Qantas, American and Singapore Airlines annual reports)
Overall, American Airlines’ net profit margin ratios illustrate the negative figures due to their loss
during the period. Due to bad financial positions during American economic crisis, American Airlines
filed for bankruptcy protection in 2011. Besides the economic depression, the fall of American Airlines is
caused by the rise in fuel cost during 2009 to 2011. The U.S. Energy Information Administration (2014)
summarized that from 2009 to 2011, the fuel cost rose approximately 50%. Moreover, American Airlines
also faced with the intense competition from Delta Airlines and United Airlines. Thus, American Airlines
reduced its price in order to attract more passengers, while the fuel cost was rising. It led to the losses of
the company during the five-year – period.
4.3 ROA, ROE and Expense Ratios
Figure 3: ROA, ROE and Expense Ratios for three companies (2009 -2013)
Year
Qantas Airways American Airlines Singapore Airline
200
9
201
0
201
1
201
2
201
3
2009
201
0
2011 2012 2013
200
9
201
0
201
1
201
2
2013
ROE (%) 2.1 2.0 4.1 -4.1 0.1 45.7 12.7 35.8 24.9 34. 2 7.3 1.6 7.9 2.5 2.9
ROA (%) 1.0 1.3 2.1 -0.8 1.0 -3.9 1.22 -4.72 -8.7 -3.82 4.5 1.2 4.9 1.7 2.0
Expense
ratios
(%)
110 117 115 119 107
105.
0
98.6
104.
8
108.
2
104.
7
94.4 99.5 91.2 98.1 98.5
(Source: Adapted from Qantas, American and Singapore Airlines annual reports)
In comparision, the expense ratios are similar with figures fluctuating from 90% to110% to all
companies over five years. Accoording to Birt at.el (2014), these figures mean that the companies did not
well manage the costs in operating since the expenses were consituted for almost gaining revenues.
Net profit margin%

4. About ROA and ROE, Singapore Airlines got the sustainable and higher figures for both ratios, which
means that their business being profitable and their assets and equity were used efficiently. More
specifically, the followed features of three cases will be mentioned:
4.3.1 Qantas Airways ratios
The performance of ROA and ROE ratios were significantly dropped during 5 years. With
negative ROE in 2012, this is estimated that the ability of annual return for Qantas’s owners is low which
will leads to discourage the motivation of investors. It is also mean that Qantas ineffectively used their
capital over the time. The main reason to explain for the bottomless decline was the rocketing increase of
fuel price in 2012. Simultaneously, the ROA ratio in 2012 is -0.8%, which has been recorded 2.1% in
2011. According Birt et al. (2012), the changing in the entity’s profitability and asset efficiency leads to
the change in the ROA. This figure shows the company insufficiently operated their assets in generating
profit.
4.3.2 American Airlines
Due to the American economic depression in 2008, American Airlines experienced a crisis period.
From 2008 to 2013, the company has always faced with the negative equity and has not gained profit.
Although it has relatively high ROE ratio, which is usually higher than 20%, its ROA ratios are negative
except in 2010. It means that the company had ineffective investment decisions and the investments are
financed by loans. Due to bad financial positions during American economic crisis, American Airlines
filed for bankruptcy protection in 2011.
Besides the economic depression, the fall of American Airlines is caused by the rise in fuel cost
during 2009 to 2011. The U.S. Energy Information Administration (2014) summarized that from 2009 to
2011, the fuel cost rose approximately 50%. Moreover, American Airlines also faced with the intense
competition from Delta Airlines and United Airlines. Thus, American Airlines reduced its price in order
to attract more passengers, while the fuel cost was rising. It led to the losses of the company during the
five-year – period.
4.3.3 Singapore Airlines
Generally, Singapore Airline is a very stable and effective operating company in making profit
over 5 years, except 2010. The financial year 2010 was a relatively bad year for Singapore Airline
as profit margins dropped significantly (by 7.5%) and ROA decreased sharply from 7.3% to 1.6%. In
the first half year of 2010, Singapore Airline reported a loss of 444 million due to the low
demand affected by economic downturn and the outbreak of H1N1. In 2011, the demand recovered
further, profit margin, ROA improved to over 10% and 8% respectively. New CEO joined the company
and made restructures to cut operating costs, which turned out a very good result.
5. Asset Management/Asset efficiency

5. It is important to evaluate the quality and composition of current asset and inventory. With regard
to day’s sales in receivables is a practical indicator to assess the number of days to collect money
from customers and to sell inventories.
5.1 The Asset Turnover Ratios
Figure 4: The Asset Turnover Ratios of three companies (2009 – 2013)
(Source: Adapted from Qantas, American and Singapore Airlines annual reports)
Qantas Airlines, generally, asset turnover ratios relatively increased over 5 years. These increases mean
that the company is more effective in asset management and active in paying debt. The most significance
is that 0.71 dollar of sales revenue generated per dollars of assets in 2013. Singapore Airlines underwent
the similar trend to Qantas. In which the results show that Singapore’s Asset turnover ratio has
marginally increased from 0.62 to 0.71 between 2009 and 2013 which means that a dollar in Singapore’s
assets was able to generate about 70 cents of sales revenue.
American Airlines’ the asset turnover ratio fluctuated from 0.79 to 1.01, which is shown that they
managed its assets effectively. Each dollar of investment could generate smaller than $1 or $1 of revenue.
5.2 The days Inventory and days Debtors of three comapanies
5.2.1 Day inventory
As can be seen, Day inventory ratios of American and Singapore Airlines presented very high
figures of days for selling their goods/services (over 10 days), which is much higher than Qantas
numbers. Qantas got the lowest figures among three, which allowed them to be much easier in converting
inventory to cash.
Times

6. Figure 5: The days Inventory and Days Debtor of three comapanies (2009 – 2013)
(Source: Adapted from Qantas, American and Singapore Airlines annual reports)
Significantly, American Airline ratios showed an upward trend which means that there were
very low demand of using the company services and the insufficient management in inventory. It is
because American Airlines has competed to some rivals such as United Airlines and other cheaper
air ticket airlines. It also depicts that the company is inefficient in converting inventory to cash, and
inventory of the capital turnover speed is low.
And, Singapore Airlines experienced the lower yields due to weak global economic
conditions. Singapore Airlines commits to serve high quality airplane services therefore the average
prices of flying ticket and cargo loads are quite expensive than their rivals. The higher price in
loading prevented them to get positive figures for day inventory ratios. Moreover, because of the
necessity to plan aircraft orders well in advance of delivery, it is not economical for the Group to
have committed funding in place at present for all outstanding orders, many of which relate to
aircraft which will not be delivered for several years. The Group’s policies in this regard are in line
with the funding policies of other major airlines. As the largest expense item of the Group, the
persistently high fuel prices also took a toll on the Group’s bottom line. Political tensions in the
Middle East pushed jet fuel prices to more than USD130 per barrel since the beginning of the
financial year.
5.2.2 Days debtors: In term of day debtor ratios, Singapore Airlines expressed the highest figures
among three companies. This derived from the trade debtors of the company included the amounts
owing by subsidiary, associated and joint venture companies, deposits and other debtors are
classified and accounted for as loans and receivables. From the annual reports of Singapore Airlines
(2013), trade debtors increased over the time while the sales revenues were stable or gradually rose
due to the global economics difficulties and competing to other domestic and international airlines.
6. Liquidity
Days Day inventory ratios Days Day debtor ratios

7. Liquidity measures the ability to convert firm short-term liabilities. A firm meets a great
risk of liquidation if it cannot generate sufficient cash inflows from operating activities. The
analysis of liquidity is vital and noteworthy because lack of liquidity will hinder a firm from
taking advantage of profitable opportunities or even lead to worse conditions such as sale of
valuable assets and bankruptcy. With regard to airline industry, because it inherently owns little
inventories and also inventories are often the least liquid of current, our focus is on quick
ratio which is more appropriate.
6.1 Working capital
Figure 6: Working capital of Qantas Airways, American Airlines and Singapore
Airlines
(Source: Adapted from Qantas, American and Singapore Airlines annual reports)
The chart shows negative or low working capital from 2009 to 2013, which indicates that
Qantas’s and American’s current liabilities are relatively higher than its current assets. However,
low working Capital does not mean that they always insufficiently payoff its short-term liabilities.
Subramaniam argued that negative Working Capital always appeared in companies when possessing
strong brand and consumer franchisee which can be seen in the consumer-centric firms (Narendra,
2008). Instead, they might invest in other assets to generate higher profitability, and the shortage here
is just the short-term situation. In contrast, Singapore Airlines seems to be positive in their working
capital which allows them more assets to satisfy the shorter obligations and investment.
Millions ($)

8. 6.2 Current ratios (working capital ratios)
Figure 7: Current working ratios of three companies (2009 – 2013)
(Source: Adapted from Qantas, American and Singapore Airlines annual reports)
The current ratio or working capital ratio shows an upward trend for Qantas and American
from 2009 to 2013. This indicates that Qantas has high liquidity during these five years and was able
to satisfy its short-term obligations and requirements. For instance, approximately 80 cents of current
assists generate a dollar of current liabilities in 2011.
Singapore Airlines showed the very high rate in indicating of ability to pay debts in the
normal course of business with figures always being over one. It means that there are more than one
dollar (minimum $1.16) are available for every one dollar of debts or loans. Summarily, in short term
three companies have been enough assets to pay back for the liabilities and be positive in their
business.
6.3 Quick Ratios
Figure 8: Quick ratios of three companies (2009 – 2013)
(Source: Adapted from Qantas, American and Singapore Airlines annual reports)
Singapore Airlines’ quick ratios were much higher than others, with figures approximately 1
and over, and these ratios were slight smaller than current ratios (figure 7). These figures reflect that
Times
Times

9. the company has strong ability to pay debts of the company, and there were not many available
inventories there.
Qantas and American Airlines’ quick ratios were similar figures and trends over the time.
Figure shows that quick ratios of both companies are relatively high with approximately 8 times.
Qantas experienced the lowest quick ration of 0.66 in 2012. However, as its quick ratios are lower
than 1, which indicates Qantas need to decrease their current liability to be lower than its current
assets (excluding inventory). The average cash flow ratio from 2009 to 2013 is 0.23 which suggests a
significant risk of liquidity and is insufficient to meet its short-term obligations.
7. Capital Structure
7.1 Debt to equity ratio
Figure 9: Debt to equity ratios of three companies (2009 – 2013)
Debt to equity ratio (%) 2009 2010 2011 2012 2013
Qantas Airways 247 233 239 260 239
American Airlines -829.1 -735.9 -435.4 -394.4 -1,648.1
Singapore Airlines 71.3 63.5 69.2 67.2 67.2
(Source: Adapted from Qantas, American and Singapore Airlines annual reports)
As can be seen from figure 9, American Airlines’ debts to equity had experienced of a
continuous increase in debt to equity ratio from 2009 to 2012 before a sharp decline in 2013. In
others words, the debt in the business reduced. The debt ratio had been over 100% during the period
whereas figure of equity ratio is negative. This indicates that investments in assets are funded totally
by liabilities/loans from the banks. (Ha! Reasons for this)
For debt to equity ratio, it shows that the ratios of Qantas Airways are stable throughout this
period and exceed 100 percent. More detailed, with $100 million of assets, there is about $30 of
equity and $70 of debt. This means that Qantas is more reliant on debt funding throughout these 5
years. Hence, Qantas uses $2.00 of debt per dollar of equity.
Singapore Airlines’ ratios were roughly 70% which means that nearly 70 cents of debts exist
per dollar of equity financing. This reflects a high reliance on debt, which reflects high risk in
financial performance.
7.2 Debt Ratios
The only company- Singapore Airlines- where the debt ratios are less than 50% over 5 year
period. This number means that their finances are active and based on the company’s asset rather
than liabilities.

10. Figure 10: Debt ratios of three companies (2009 – 2013)
(Source: Adapted from Qantas, American and Singapore Airlines annual reports)
Both American Airlines and Qantas’s debt ratios are quite stable with approximately 110% and
70% respectively. These figures mean that most finances and their investments relied much on
the debts. This reflects a high reliance on debt, which reflects high risk in financial
performance.
7.3 Equity Ratios
Figure 11: Equity ratios of three companies (2009 – 2013)
(Source: Adapted from Qantas, American and Singapore Airlines annual reports)
Overall, as the result of debt ratios, the equity ratios show that the companies’ finances much
relied on debt than their asset except Singapore Airlines which figures are more than 50%.
Singapore Airlines’ funding almost derived from equity of shareholders.
8. Market Performance
8.1 Earnings per share
%
%

11. Figure 12: Earnings per share of three companies (2009 – 2013)
(Source: Adapted from Qantas, American and Singapore Airlines annual reports)
From the provided information in the chart, American Airlines’ EPS ratio had been falling
and negative during the period except 2010. The reasons behind the negative EPS is the high risk of
events such as disruption of global energy markets, post- earthquake demand effects in
Japan(Anonymous, 2011) contributed to the sharp fall in American Airlines’ revenue in 2011, and
then a consider drop in earnings per share. In 2013 highlighted the better EPS ratio thanks to the
merger with the US Airways Group Inc. (PR Newswire, 2014). The price earnings ratios fluctuate as
share prices change (Birt, Chlmers, Byrne, Brooks, & Oliver, 2012). Overall, the market
performance of American Airlines over the analysis period is not favourable but it becomes better in
the year of 2013.
Singapore Airlines came up with the low cost of capital (most of them are equity capital)
which allowed the company with higher profit in comparison to others. Therefore, the EPS ratios of
it were very high especially in 2009 and 2011 with figures roughly 90 cents per share.
8.2 Price Earnings Ratios
Figure 13: Price Earnings Ratios of three companies (2009 – 2013)
Price Earnings Ratio (PE) (cents/share) 2009 2010 2011 2012 2013
Qantas Airways 35.9 44.9 16.7 -10.0 10.43
American Airlines - 7.79 - 27.57 - 2.46 - 2.60 - 3.46
Singapore Airlines 11.16 83.52 14.97 38.06 33.76
(Source: Adapted from Qantas, American and Singapore Airlines annual reports)
Kuk! Please help to finish this last part.
I feel so exhausted now. Maybe I could continue to work after 10 am Wed.
Cents

12. References:
Birt, J., Chalmers, K., Beal, D., Brooks, A., Byrne, S., & Oliver, J. (2008). Accounting: business
reporting for decision making.
Narendra, N. (2012) Firms with low working capital can be good investment basis. The Economic
Times: Stock in News, Retrieved from http://articles.economictimes.indiatimes.com/2012-11-
26/news/35365231_1_capital-year-telecom-companies-anand-tandon