419_airlines_071
TRANSCRIPT
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Qatar Airways
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Agenda
Strategic vision and corporate mission
Strategic planning practices
Barriers in strategic planning practices
Marketing situational analysis
Marketing objectives and strategies
Financial projections
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Pressures from External Forces
Threat of new entrants
Power of suppliers
Power of buyers
Availability of substitutes
Competitive rivalry
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Key Success Factor
Attracting customers
Managing its fleet
Managing its people
Managing its finances
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Industry Profit Pattern
Cyclical industry
Four or five years of poorperformance precede five or sixyears of improved performance.
Mature industry consolidationtrend
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Government Regulations
Government as extensive regulation foreconomic! political! and safety concerns
Some countries "e.g. #S and $ustralia%ave &deregulated& teir airlines.
'e entry barriers for ne( airlines arelo(er in a deregulated market!
far greater competition
average fares tend to drop )*+ or more.
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International Regulation
Groups "e.g. ,nternational Civil $viation-rganiation% establis (orld(ide standardsfor safety and oter vital concerns.
Most international air traffic is regulated bybilateral agreements bet(een countries.
Bilateral agreements are based on te&freedoms of te air/
,n te 011*s! &open skies& agreements
became more common
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Maor Ris!s Faced "y Airlines
Strategic risk
Business design coices
Financial risk 2ariability of revenue and costs
-perational risk
'actical aspects of running te business 3aard risk
Safety of pysical assets
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Ris! Events #ausing
Stoc! $ro%s &''&()**&
Source4 Mercer analysis
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Singapore Airline
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Background
5ublic company since 016) inSingapore Stock 7xcange
8olly9o(ned subsidiary of teSingapore government troug'emasek 3ldgs "5te%
,ts expanding route net(ork covers00* cities in :) countries no(.
3aving te fastest and youngest
gro(ing fleets.
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Coverage
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Competitive Advantage
- Fleet Age Comparison
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Decreased but Strong Profitability
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Singapore Airline Company Structure
Subsidiaries4 Silk$ir! 'rade(inds 'ourand 'ravel! S,$ 7ngineering Company!S,$ Cargo! and S$'S
$ll te companies are in closely relatedbusiness
S,$ accounts for about 6;+ of tetotal revenue
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The roup
!""#-"$ !""%-"#
&'A $(##) *(+,)
&' .(!.) /"(%!)
PS 0cents1 /"/(* ///
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Consolidated 2ncome Statement
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Stock 2nformation
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#-year Stock Price Trend
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3ist of 4a5or Shareholders
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mployee Stock 'ption 0cont1
At the end of the financial year6 options to take up
*.6/.$6#$$ unissued shares in the Company 7ere
outstanding6 7hich is $) of the total share
outstanding(
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Financial Ris!
Market i?uidity risk
-ter possible risk
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+et Fuel Price Ris!
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+et Fuel Price Ris! ,cont-
$ cange in price of #S@*.*0 per$merican gallon of jet fuel affects
te GroupAs annual fuel costs by#S@0:.6 million
=et fuel price risk management
S(aps and options contracts edgedup to ): monts for(ard
'e group as a ;;+ jet fuel edgeratio at @0 per barrel.
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+et Fuel Price Ris! ,cont.-
F)**D operating profit E @0.)0B
F)**; operating profit E @0.06B
ropped @0*; million "96.1+% Mainly due to rise in iger jet fuel
price
From tis! one can see te profitabilityof te group lies mainly on te edgestrategy
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+et Fuel Price Ris! ,cont-
3edge by Mean of 5latts Singapore"M-5S%
$s of Marc 0st)**D! te M-5S price#S @61.;:
$nnualied volatility )**;9*D E )D.D+
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+et Fuel Price Ris! ,cont-
-n )D $pril )**D! te Company announcedan increase of te fuel surcarge on ticketssold from 0; May )**D
'e adjustments (ill offer partial relief ofiger operating costs arising frompersistently ig price of jet fuel overing at#S@1* per barrel! as compared to #S@* perbarrel (en te surcarge (as last revisedin September )**;.
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Het fair value gain of @).)m
+et Fuel Price Ris! ,cont-
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Foreign #urrency Ris!
Foreign currency accounts for D;+ of total revenue")**:9*;4 D+% and D1+ of total operatingexpenses ")**:9*;4 D:+%
'e GroupAs largest exposures are from #S! 7uro!
#I Sterling 5ound! S(iss Franc! $ustralian ollar!He( Jealand ollar! =apanese en! ,ndian
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Foreign #urrency Ris! Management
'e Group manages its foreign excangeexposure by a policy of matcing! as far aspossible! receipts and payments in eacindividual currency.
'e Group also uses for(ard foreigncurrency contracts to edge a portion of itsfuture foreign excange exposure.
Suc contracts provide for te group to sell
currencies at predetermined for(ard rates!(it settlement dates tat range from onemont up to one year.
'e Group uses for(ard contracts purely as
a edging tool.
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Interest Rate Ris!
,nterest rate risk
Canges in interest rates impact
interest income and expense fromsort9term deposits and oterinterest9bearing financial assets andliabilities
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Interest Rate Ris! ,cont-
>ong9'erm liabilities
'e companyAs finance leasecommitments are carged at a margin
above te >,B-
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Interest Rate Ris! ,cont-
>ong9'erm $ssets Hon9e?uity investments of @).: million ")**;4
@1. million% for te Group and te Companyrelate to interest9bearing investments (it an
effective annual interest rate of .16+ ")**:9*;40.60+%. uring te financial year! te Group and te
Company recorded an impairment loss in teprofit and loss account of@0.* million ")**:9*;4
@*.0 million% pertaining to un?uoted e?uityinvestments. 'e GroupAs loan receivable (itin one year of
@:).* million is unsecured and bears interestbet(een .01+ to ;.*;+ ")**:9*;4 0.;D+ to
.01+% per annum.
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Interest Rate Ris! ,cont-
$s at 0 Marc )**D! te composition of cas and bankbalances eld in foreign currencies by te Group is as follo(s4#S K )0.+ ")**;4 )0.6+%! 7#< K 0.D+ ")**;4 )0.0+%and =5 K 0.)+ ")**;4 0.+%.
Cas at bank earns interest at floating rates based on dailybank deposit rates ranging from 0.+ to :.60+ ")**:9*;4*.)+ to ).)*+% per annum.
Sort9term deposits are made for varying periods of bet(eenone day and tree monts depending on te immediate casre?uirements of te Group!
earn interests at te sort9term deposit rates. 'e (eigtedaverage effective interest rate of sort9term deposits is .D+9
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Mar!et Price Ris!
5otential loss resulting from a decreasein market prices
Suc as lo(er airfares
'e Group o(ned @:0).) million")**;4 @:0.D million% in ?uoted e?uityand non9e?uity investments at 0Marc )**D.
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#ounter%arty Ris!
Surplus funds are invested in interest9bearing bank deposits and oter ig ?ualitysort9term li?uid investments.
Counterparty risks are managed by limitingaggregated exposure on all outstandingfinancial instruments to any counterparty!taking into account its credit rating. Suc
counterparty exposures are regularlyrevie(ed! and adjusted necessary.
'is mitigates te risk of material lossarising in te event of non9performance by
counterparties.
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/i0uidity Ris!
$t 0 Marc )**D! te Group ad cas and sort9term deposits amounting to @!0;0.D million ")**;4@)!:*.) million%. ,n addition! te Group adavailable sort9term credit facilities of about
@0!::1.0 million ")**;4 @0!:06.0 million%. 'e Group also as Medium 'erm Hote 5rogrammes
under (ic it may issue notes up to @0!;** million")**;4 @0!;** million%. #nder tese 5rogrammes! notes issued by te Company
may ave maturities as may be agreed (it te relevantfinancial institutions! and notes issued by one of itssubsidiary companies may ave maturities bet(een onemont and ten years.
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/i0uidity Ris! Management
'e GroupAs oldings of cas and sort9termdeposits are expected to be sufficient to cover tecost of all firm aircraft deliveries due in te nextfinancial year.
any sortfall (ould be met by bank borro(ings orpublic market funding.
ue to te necessity to plan aircraft orders (ell inadvance of delivery
it is not economical for te Group to ave committedfunding in place at present for all outstanding orders.
'e GroupAs policies in tis regard are in line (itte funding policies of oter major airlines.
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1t2er Possi"le Ris!s
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Ris! Management Governance
S,$ Board of irectors
Board $udit and
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Statement on Ris! Management
0% 7nancement to
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% -ter
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Board of directors after revie(ing terisk management practices andactivities of Singapore $irlines as notfound anyting to suggest tat risksare not being satisfactory managed.
Statement on Ris! Management
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South7est Airline
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i
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8ecutives
Cairman K 37
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&outes 4ap
C tit
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Competitors
$M< corporation
Continental $irline! ,nc.
=etBlue $ir(ays Corporation
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South 9est Airline
4arket Share
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Competitive Strength
3o7 Cost 3eadership 5roductivity is te key 3ig asset utiliation
5oint9to9point system
More direct nonstop routings
7mployee 5roficiency
60 employees per aircraft
>o(est ratio since 016)
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Stock Performance
St k P f
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Stock Performance
>ast 'rade415.00
Cange4 0.020.1!"#
5rev Close40:.1 -pen40:.1D
ayNs
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2ncome Statements
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Cash Flo7 Statements
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Cash Flo7 Statements
&i k F t
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&isk Factor
From companys Annual Report:
Southwest's business is labor-intensive
Southwest relies on technology to operate its business and
any failure of these system could harm the Companysbusiness
nsurance cost increases or reductions in insurance coveragemay adversely impact the Companys operation and financialresults!
"isruptions to operations due to factors beyond Southwestscontrol could adversely affect the Company!
Southwests low cost structure is one of its primarycompetitive advantages and many factors could affect the
Companys ability to control its costs!
&i k F t
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&isk Factor
=et Fuel
#npredictable price movement
#nable to increase fares (en fuel pricerise
Canges in edging strategy and teeffectiveness of edging arrangement
ave significant impact on operatingresults
&isk Factor ;et F el
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&isk Factor: ;et Fuel
$nticipating iger jet fuel prices
Hot as strong edge position and igermarket price in )**D
>o(er edge ratio and prices of edges inplace are iger
Purpose of
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Purpose of
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imit te cost of rising fuel price and
benefit te company of declining fuel price
=alue of
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=alue of
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Balance Sheet - Assets
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BalanceSheet> 3iability ? S9@s uity
#ost Structure
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#ost Structure
'perating Cost per Available Seat 4ile 0AS41
#ost #ontrol
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#ost #ontrol
'o absorb te increasing in =et Fuel cost! Sout(est maintainits lo( cost caracteristic troug reduction in oter operatingexpenses.
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% y
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Em%loyee Stoc! 1%tion
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'e Company accounts for stock9based compensationutiliing te intrinsic value metod in accordance (it teprovisions of $ccounting 5rinciples Board -pinion Ho. );"$5B );%
Ho compensation expense is recogniedfor fixed optionplans because te exercise prices of 7mployee stockoptions e?ual or exceed te market prices of te underlyingstock on te dates of grant. Compensation expense for
oter stock options is not material.
#nder te ne( accounting regulation SF$S 0)< 4 7xpected)**D salary increase is approximately @)* million
Em%loyee Stoc! 1%tion
Em%loyee Stoc! 1%tion
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Em%loyee Stoc! 1%tion
Em%loyee Stoc! 1%tion
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Em%loyee Stoc! 1%tion
Em%loyee Stoc! 1%tion
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Em%loyee Stoc! 1%tion
An option@s e8ercise price may be paid
0i1 in cash60ii1 in shares of Common Stock6
0iii1 through a cashless e8ercise6 or
0iv1 in any other manner permitted by the committee(
Executive Stoc! 1%tion
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Executive Stoc! 1%tion
$ption %&ercises in 'ast (iscal )ear
'e follo(ing table provides information regarding stock options exercised! and te
value realied upon exercise! by te named executive officers during )**D.
Interest Rate ris!
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Interest Rate Swa%
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Interest Rate Swa%
Security Pay (loating rate *eceive(i&e+ rate
@; million
D.;+seniorunsecured notes
due )*0)
">,B-,B-
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Interest Rate 4edging
,nvestments 'e Company also as some risk associated (it canging interest
rates due to te sort9term nature of its invested cas S' invested cas @). billion
S' investment @);0 million
a hypothetical ten percentchange in those rates would correspondingly
change the !ompany"s net earnings and cash flows less than &2 million%'e returns earned parallel closely (it sort9term floating interest
rates
Het effect on interest rate ,ncrease in interest rate4 net Ptv effect on earnings and CF
ecrease in interest rate4 net Ktv effect on earnings and CF
F2 of interest rate s(ap as of ec 0! *; is4 (as a liability of approximately @0 million
#redit ris!
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#redit ris!
'e Company does not expect any of te counterparties to failto meet teir obligations
'o manage credit risk4 selects and periodically revie(s counterparties based on credit
ratings
limits its exposure to a single counterparty
and monitors te market position of te program and its relativemarket position (it eac counterparty
'e Company ad agreements (it seven counterpartiescontaining early termination rigts andor bilateral collateralprovisions(ereby security is re?uired if market risk exposureexceeds a specified tresold amount or credit ratings fallbelo( certain levels. eld @1;* million in fuel edge related cas collateral deposits
under tese bilateral collateral provisions
decrease! but not totally eliminate! te credit risk associated (itte CompanyNs edging program
Insurance
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Insurance
5urpose of ,nsurance4
protect te Company and its property
comply bot (it federal regulations and te
CompanyAs credit and lease agreements.
General Coverage4
public and passenger liability! property damage!cargo and baggage liability! loss or damage to
aircraft! engines! and spare parts! and (orkersAcompensation.
,ncreasing insurance cost after 1900
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54E E6$
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54E E6$
Any -uestions or comments are
welcome+