Qantas the Global Financial Crisis Essay

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This is a poor use of the company's capital, since the global economy remains weak and since Qantas faces intense competition on numerous fronts. While increasing the debt component of the capital structure would lower the overall cost of capital, it would also increase the risk that the company faces. The operating environment is turbulent, not just from competition but from high fuel costs as well. This implies that any additional risk would compromise the security that Qantas currently has with respect to meeting its debt service obligations.

While Qantas' balance sheet looks remarkably unchanged as the result of the global economic crisis, this is only because of the proactive measures the company took at the outset of the crisis.

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The equity issue allowed the company to maintain its capital structure at a time when profits (and therefore retained earnings) were declining sharply. The company also made a number of tactical operational moves that helped it weather the crisis. When the airline business was stronger in the mid-00s, it invested heavily in Jetstar and that unit propped up the flagship brand, which suffered as its international routes saw declines in demand. The response of the company to the crisis was excellent, and in light of that and the current operating environment there is no need at all to alter the capital structure of Qantas.

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"Qantas The Global Financial Crisis" (2011, October 09) Retrieved May 7, 2024, from
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