Corporate Governance Framework Of Qantas Airways

Board Structure and Committees

Lay solid foundations for the management and oversight

The board of Qantas airways adopted the formal charter that can be obtained from the official website of the company under section of corporate governance. Board is answerable for setting up and reviewing strategic direction of the company and thereby monitoring implementation strategy by the management (Bottomley 2016). Further, the CEO is accountable for day to day management of the company with all the discretions, power and authorised delegations by the board from time to time. The secretary of the company is directly responsible to the board through Chairman for all the concerned matters for doing those with proper activities of board.   

Structure of board for adding value

At present the company has 10 directors on their board. Among those 9 directors are non-executive independent director who were elected by the shareholders. The CEO of the company is an executive director; however, he is not independent (Chan, Watson and Woodliff 2014). The board of the company gas 4 committees – Audit committee, remuneration committee, nomination committee and environment, health, safety and security committee. Each of these committees helps the board for particular responsibilities that are decided under the charters committee and it is approved and delegated by board. 

Act ethically as well as responsibly

The board of Qantas Airways formed the corporate governance framework that includes group policies and non-negotiable principles for business that establishes the foundation for the manner in which the company undertakes its business (Christensen et al. 2015). Group policies and principles that include the ethics and code of conduct for the company are stated in detail under the practice document of Qantas Airways. The framework is supported by the rigorous program of whistleblower that provides protected process of disclosures for the employees. The share trading policies of the employees are stated in the guideline that is designed for protecting the directors and employees from unintentional as well as intentional breaching of law. It further, disallows the employees to deal in securities of any group listed company of Qantas while having information that is material and non-public. Apart from this, few nominated employees are not allowed to enter into the margin lending or hedging or granting the chance over the securities of any group of Qantas group where the control on sales procedures associated with securities may be lost (Council and Exchange 2014).

Safeguard integrity under corporate reporting

Policies and Procedures for Disclosures

The audit committee and the board of the company closely monitor the external auditor’s independence. Regular reviews are carried out for safeguarding the independence of internal auditor. Further the company rotates its lead partner for audit in each 5 years and imposes the restrictions on engagement of the personnel those were previously engaged by external auditor (Council 2014). The policies of the company are appropriately applied for putting the restrictions on non-audit services that can be provided by the external auditors. Further, the detailed analysis of non-audit fees paid to external auditors are carried on half – yearly basis. In every meeting the audit committee privately meets with the executive management without including the external auditor and with external and internal auditors without including the executive management (Du Plessis, Hargovan and Harris 2018).    

Make timely and balanced disclosures

The company is committed to assure that the trading in the share takes place in informed and orderly market through availing consistent and transparent communication with all the shareholders. The company has an established procedure to assure that it fulfils with the obligation related to continuous disclosures all the time and includes half yearly confirmation through all executive management that the sectors for which they are answerable are complied with continuous disclosure policy of the company (Gitman, Juchau and Flanagan 2015). Further, the company communicates with its shareholders actively through ASX and web based newsroom along with all the materials issued by the company that are made available to the shareholders simultaneously.

Respect the rights of the shareholders

The company has a policy for shareholder’s communication that promotes 2 way efficient communications with the shareholders and wider community for investment and influences the participant at the general meetings (Klettner, Clarke and Boersma 2014). External auditor presents at AGM and are available for answering the questions from shareholders that are appropriate for the audit. The shareholders are also able to receive the communication and send communication to the company and electronically to the share registry that includes email notification with regard to significant announcement in the market (Lama and Anderson 2015).  

Recognise and manage risk

The company is committed towards implementation of the practices of risk management for supporting the business objectives achievements and complying with the the obligations of corporate governance. Further, the board is accountable for overseeing and reviewing the strategies associated with the management of risk and assuring that the company has proper structure for corporate governance (Tao and Hutchinson 2013). The management of the company has implemented and designed an internal control and risk management system for managing the material risks of the business. Audit committee of the company authorises risk internal audit charter and group audit that offers full access to the company records, functions, personnel, and property and independence requirements. Further, the audit committee authorises the replacements, appointments and remuneration for the internal auditor. Internal auditors are supposed to report to the audit committee directly and it also delivers report with regard to health, safety, security and environment committee. The functions of internal audit are carried out by the group audit and risk and the group is independent of external auditor.  The group further offers objective assurance, consulting services and independence with respect to governance, internal control and risk management of Qantas airways. 

Risk Management Framework

Remunerate fairly and responsibly

The main objective of the framework for executive remuneration are to motivate, attract, retain and reward appropriately to the executive team.  This objective is attained through setting the pay opportunity at appropriate level and through linking the remuneration outcomes with the performance of the company (Tricker and Tricker 2015). While setting up the remuneration strategy the company keeps the following things in mind –

• Motivate, attract, retain and reward appropriately to the executive team
• Link the remuneration outcomes with the business performance and executive’s performance
• Motivating executive team for achieving the company’s unique challenges as the major Australia based international airline

Further, the non-executive directors are eligible to get certain travel concessions and statutory superannuation that are paid reasonably and as per the standard practice of aviation industry. However, the on-executive directors are not entitled to any remuneration based on performance.   

Nature of the company

Qantas Airways influenced development of global aviation industry from its establishment in the year 1920. At present the company is globally competitive and strong aviation company that serves Australia and connects Australians with the world. Most importantly, the company is full of passionate, diverse and skilled workforce. All of the employees are responsible towards for realising the potentials of the company. Each of the Qantas Group is custodian of great Australian entities (Qantas.com 2018).  

Market overview

The domestic industry for airline in Australia is duopoly with Virgin Australia and Qantas and their combined market share is 90%. Over the last 5 years, the aviation industry in Australia experienced steady decline in the revenue and the reason behind that is that Virgin and Qantas are always involved in price war. Qantas Airways is the 3^rd oldest airline company all over the world after Aviancia and KLM. The company focuses on differentiating and cost advantages for reaching the competitive advantage. Therefore, the company is concerned about the competitive advantage that will look for differentiating the advantages and cost advantages. However the aviation industry in Australia is mature but growing at slower rates. Through Qantas has exceptional market share and are growing continuously. Shareholders returns of the company were goods and are expected to continue at the same rate and the valuations reveals that the shares of the company are not trading at discount (Qantas.com 2018). 

Regulating authority

The company is regulated and complied with the Australian accounting standards that includes Australian accounting interpretations and Corporations Regulations 2001.

Business strategy

The corporate mission of the company is developed for accomplishing the business strategies that focuses on various aspects like safety first, forward thinking, strong reputations, sustainable operations, superior infrastructure, environmental responsibility, giving feedback and caring for customers. Apart from this, the company is focussed on all kinds of business a strategy like cost leadership and therefore, the company is focussed on differentiating itself from other airlines (Qantas.com 2018).

Income statement and balance sheet ratio

Ratio	Formula	Result
Income statement ratio
Operating profit margin	Operating profit/revenue *100	9.34
Net profit margin	Net profit/revenue *100	5.82
Return on shareholder’s equity	Operating profit/shareholder’s equity*100	38.70
Balance sheet ratio
Current ratio	Current assets / Current liabilities	0.44
Quick ratio	Quick assets / Current liabilities	0.39
Debt equity ratio	Total liabilities / shareholder’s equity	3.86

Common size statement – Horizontal analysis

Income statement

Particulars	2017	2016	Amount	Percentage
Net passenger revenue	13857	13961	-104	-0.74%
Net freight revenue	808	850	-42	-4.94%
Other	1392	1389	3	0.22%
Revenue and other income	16057	16200	-143	-0.88%
Expenses
Manpower and staff	4033	3865	168	4.35%
Fuel	3039	3250	-211	-6.49%
Aircraft operating vehicle	3436	3346	90
Depreciation and amortisation	1382	1224	158	12.91%
Non-cancellable aircraft operating lease rental	356	461	-105	-22.78%
share of net loss of investment accounted under equity method	7	0	7
Other	2434	2411	23	0.95%
Net expenses	14687	14557	130	0.89%
Statutory profit before finance cost and tax	1370	1643	-273	-16.62%
Finance income	46	65	-19	-29.23%
Finance costs	235	284	-49	-17.25%
Net finance cost	189	219	-30	-13.70%
Statutory profit before and tax	1181	1424	-243	-17.06%
Income tax expenses	328	395	-67	-16.96%
Statutory profit for the year	853	1029	-176	-17.10%

Balance sheet

Assets	2017	2016	Amount	Percentage
Current assets
Cash and cash equivalents	1775	1980	-205	-10%
Trade and other receivables	784	795	-11	-1%
Other financial assets	100	229	-129	-56%
Inventories	351	336	15	4%
Assets classified as held for sale	12	17	-5	-29%
Other	97	101	-4	-4%
Total current assets	3119	3458	-339	-10%
Non-current assets
Receivables	123	134	-11	-8%
Other financial assets	43	46	-3	-7%
Investment accounted under equity method	214	197	17	9%
Property, plant and equipment	12253	11670	583	5%
Intangible assets	1025	909	116
Deferred tax assets	0	39	-39	-100%
Other	444	252	192	76%
Total non-current assets	14102	13247	855	6%
Total assets	17221	16705	516	3%
Liabilities
Current liabilities
Payables	2067	1986	81	4%
Revenue received in advance	3685	3525	160	5%
Interest-bearing liabilities	433	441	-8	-2%
Other financial liabilities	69	203	-134	-66%
Provisions	841	873	-32	-4%
Total current liabilities	7095	7028	67	1%
Non-current liabilities			0
Revenue received in advance	1424	1521	-97	-6%
Interest bearing liabilities	4405	4421	-16	0%
Other financial liabilities	56	61	-5	-8%
Provisions	348	414	-66	-16%
Deferred tax liabilities	353	0	353
Total non-current liabilities	6586	6417	169	3%
Total Liabilities	13681	13445	236	2%
Net assets	3540	3260	280	9%
Equity	3540	3260	280	9%

1. It can be observed that the debt equity ratio of the company is 3.86. Generally the debt equity ratio states the debt of the company as compared to its equity. High ratio like more than 1 represents that the company is highly leveraged and the higher interest burden can lead the company to unsustainable level. Therefore, the company is risk with regard to leverage (Contessotto and Moroney 2014).
2. The current ratio as well as the quick ratio that states the liquidity position of the company is very low like less than 0.44 and 0.39 respectively. It signifies that the current assets of the company are significantly low as compared to current liabilities. Therefore, the company is not efficient in paying off the short term obligation with their short term assets (Zamboni and Litschig 2013).  
3. Through the return on shareholder’s is looking great that is  38.70%, the operating profit margin as well as the net profit margin of the company are as low as 9.34% and 5.82% respectively. It signifies that the company is not so efficient in earning return (Lobo and Zhao 2013).

1. As higher level of debt can lead the company to unsustainable situation, the company shall try to reduce their debt through paying off the debt obligation. Further, the company shall find cheaper source of finance. While auditing the auditor shall check entire document associated with debt like debt application, term of repayment, rate of interest and the purpose for which the debt was raised.
2. To check the current ratio status of the company the short term assets like cash, receivables shall be verified. As the current assets of the company is lower as compared to the current liabilities. Therefore, the auditor shall check the cash register and reconcile it with the bank statement. Further, the receivables shall be verified with regard to all the details like days allowed for payment, chances of bad debts and amount of receivables along with the name of debtors to check that all the details are stated correctly.
3. To increase the profits it shall try to minimize the expenses wherever possible and shall be verified all the vouchers related to expenses and payments to ensure that all the details are correct. 

References

Bottomley, S., 2016. The constitutional corporation: Rethinking corporate governance. Routledge.

Chan, M.C., Watson, J. and Woodliff, D., 2014. Corporate governance quality and CSR disclosures. Journal of Business Ethics, 125(1), pp.59-73.

Christensen, J., Kent, P., Routledge, J. and Stewart, J., 2015. Do corporate governance recommendations improve the performance and accountability of small listed companies?. Accounting & Finance, 55(1), pp.133-164.

Contessotto, C. and Moroney, R., 2014. The association between audit committee effectiveness and audit risk. Accounting & Finance, 54(2), pp.393-418.

Council, A.C.G. and Exchange, A.S., 2014. Corporate governance principles and recommendations . ASX Corporate Governance Council.

Council, A.C.G., 2014. Corporate Governance Principles and Recommendations, 3rd edn (ASX, Sydney).

Du Plessis, J.J., Hargovan, A. and Harris, J., 2018. Principles of contemporary corporate governance. Cambridge University Press.

Gitman, L.J., Juchau, R. and Flanagan, J., 2015. Principles of managerial finance. Pearson Higher Education AU.

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Klettner, A., Clarke, T. and Boersma, M., 2014. The governance of corporate sustainability: Empirical insights into the development, leadership and implementation of responsible business strategy. Journal of Business Ethics, 122(1), pp.145-165.

Lama, T. and Anderson, W.W., 2015. Company characteristics and compliance with ASX corporate governance principles. Pacific Accounting Review, 27(3), pp.373-392.

Lobo, G.J. and Zhao, Y., 2013. Relation between audit effort and financial report misstatements: Evidence from quarterly and annual restatements. The Accounting Review, 88(4), pp.1385-1412.

Qantas.com., 2018. Fly with one of the world’s most experienced airlines | Qantas IN. [online] Available at: https://www.qantas.com/in/en.html [Accessed 24 Apr. 2018].

Tao, N.B. and Hutchinson, M., 2013. Corporate governance and risk management: The role of risk management and compensation committees. Journal of Contemporary Accounting & Economics, 9(1), pp.83-99.

Tricker, R.B. and Tricker, R.I., 2015. Corporate governance: Principles, policies, and practices. Oxford University Press, USA.

Zamboni, Y. and Litschig, S., 2013. Audit risk and rent extraction: Evidence from a randomized evaluation in Brazil. Universitat Pompeu Fabra, 1.