Business Research

 

Applied Business Research Individual Assessment                                                                   

Current situation:

The chosen organization for the purpose of undertaking the research on the movement of the Australian Dollar (AUD) and its impacts is Qantas which is the leading airline in Australia. The organization is engaged in offering the largest flight services to the people within the country. However, like every organization, the fluctuation in currency impacts the flow of business for an organization, especially for those which have international business operations such as Qantas. According to the CEO of Qantas, Mr Alan Joyce, the airline group has been successfully operating in the competitive airline sector of Australia for years. In his opinion, the strong Australian dollar would be a detriment to the organization. However, this claim is nullified by many of the economists and business people within the country having substantial economic and financial knowledge on the impact of high AUD on the operations of the airline organizations, because, according to them a strong AUD is to be considered as an enticing scenario for the aviation sector, in particular with respect to Qantas. Thus, it is evident that there has been substantial ambiguity and lack of consensus over whether the rise of the AUD is a positive impact or a negative influence on the business operations and future of Qantas. The issue of exchange rate is a complex one and it is important to ascertain the streams of revenues and costs those have been denominated in foreign currency (Fernyhough, 2017). The exposure of the exchange rate is connected with the various exposures such as interest rates, energy prices and the economy (Webber, 2013).
The situation in Qantas is such that a strong AUD tends to decrease the revenue that is in terms of foreign currency. Qantas receives revenues from undertaking flight operations in different parts of the globe and those passengers form different corners of the world pay the prices in their home currencies. This tends to reduce the value of the revenues in terms of the stronger AUD. Therefore, unless the airfares in the home currencies are not adjusted to accommodate for the movements of the exchange rates, which is generally not practised, leads to decrease in the revenue of Qantas in terms of the AUD. As for example, the International Freight of Qantas yields revenues on US Dollars exclusively or in terms of other currencies those are highly associated with the US Dollar. Therefore, a rise in the value of the AUD will cause the freight revenue to fall in terms of the US Dollar. However, in respect of Qantas, it should be remembered that the fluctuation of the dollar affects only one segment of the business that is the international business operations. It has no impact on the domestic, regional businesses and the revenue that is collected from the ticket prices paid by the Australian passengers in international flight travel. Thus, it is not correct to say that a fluctuation in the dollar value affects the airline company so much that it should cause a frown on the face of the management. Even in 2017, the company has produced satisfactory financial results as evident from the financial report (Qantas, 2017). Thus, a research study in this direction might prove to be a beneficial endeavour for the gathering of perspectives of the employees of Qantas as to their opinions on the impact of fluctuation of the dollar on the business growth and profitability.

The Research problem:

The research will seek to cover the domain of the exchange rate fluctuation and its impact on the business sectors. The focus of the research will be one of the most reputed airline companies in Australia that is the Qantas which is the leading airline service provider in the country and also one of the most renowned airliners in the world. The purpose of undertaking the said research is to identify the various reasons due to which currency fluctuations occur in the economy and what are the good or adverse effects of such fluctuations on different sectors (Stanford, 2017). In case of the said research, the selected sector is the aviation sector. The sector is affected owing to the fluctuations in the value of the Australian Dollar with respect to the US Dollar. The operations of the airline sector are conducted in domestic as well as international markets. The impacts of the fluctuations in the AUD are more evident and significant in case of the international markets where the majority of the dealings are made in US dollars. As in the current situation, 1 AUD= 0.80 USD. It rose in value compared to what it was a few days back (Hutchings, 2018). Thus, it is evident that the Australian dollar is gaining in value and becoming stronger that can be considered as beneficial for Qantas in general, except for the international business segment (IATA, 2017).  Thus, the research endeavours to address this problem of the rising value of the Australian dollar against the US dollar. Such high value of AUD will have negative impacts on Qantas in the domain of its international business. The company might still achieve profitability owing to its strong performance in the national and the regional sectors.
Therefore, from the current situation, it is possible to draw 3 Hypotheses as follows:
H1:The fluctuation of the dollar is a phenomenon that is inevitable owing to various associated factors playing in the global economy.
H2:The Australian Dollar is currently gaining stronger value against the US Dollar that is bearing an effect on the different sectors in Australia.
H3:The value of the Australian Dollar becoming stronger is affecting the business performance of Qantas as its international business is receiving a negative impact and it could be a concern for the organization, although eminent economists suggest that this will be beneficial in the long run for Qantas as it will be achieve enhanced profitability from the other sectors such as domestic and regional.
The 6 Research Questions those can be drawn from the analysis of the given scenario have been enumerated as follows:
  1. What are the causes and effects of fluctuation of the Australian Dollar on the aviation industry?
  2. What are the impacts of fluctuation in exchange rate on fuel prices?
  3. What are the impacts of fluctuations in fuel prices on the aviation sector?
  4. What will be the impact of fluctuation in the Australian Dollar against the US Dollar for Qantas in terms of profitability?
  5. Will the recent trend of the stronger Australian Dollar hamper the growth prospects of Qantas and justifications for that?

Background:

The economy of Australia is one of the developed and it ranks twentieth in the world in respect to GDP and purchasing power in the economy. In 2016 it has been found that there has been a sharp decline in the Australian dollar and that has been analyzed positively and negatively. Some prefer to say that it is bad for the country to have declined but there are some analysts who liked to say that it is better for the foreign trade and for the economy of the country also. The approaches that have been taken by the government of the country to make the business trade and commerce free from hindrances have made the nation to earn profits with the support of its key exchange zone and wealth of characteristics resources. The monetary administration has been remarkably done resulting in desired financial gains. The fall in the value of Australian dollar has increased the imports of the resources of Australia more by the nations in the international trade. The fall in the value of AUD has not only impacted the import export trade on the international platform but also has increased the global competitiveness resulting in enhanced outputs of stocks. But one of the major impacts of the fall in the AUD has been observed in the international trade on the ground that the country has to spend more on its important from other countries. Again when the value of AUD increases the export decreases and the economy of the nation suffers from the gains on international platform. The countries who could have imported from Australia at lower prices because of declining AUD now have to pay more if the currency value of AUD increases and the country ultimately suffers from lower international trade earnings.
So it is very important to understand and identify the reasons behind the fluctuations in the value of AUD or exchange rate in Australia. The major factors that have been identified to be the reasons behind such fluctuation are inflation rate, interest rates, current account deficits, level of public debts, terms of trade and stability in political and economic growth (Hopkins, 2016). The fluctuation of Australian Dollar impacts the airline sector like every other sector in the nation. Qantas being the leading airline company in Australia it is also equally affected by such fluctuations in dollar value. The report entails the analysis of the impacts of the fluctuations in the AUD on the business of Qantas.
                             
                                      Source: https://www.domain.com.au/news/the-real-winners-and-losers-of-a-high-aussie-dollar-20170818-gxyf9g/
                              
 
                                                                 Source: http://usd.fxexchangerate.com/aud-exchange-rates-history.html
 
                        
                                                   Source: http://www.anna.aero/2017/07/26/australia-china-drives-international-growth/

Ethical considerations:

Ethics is one of the key virtues of any research project. A research study should operate within the ethical guidelines those are legally binding in the country where the research is conducted. The ethical connotations of the research encompass the intent of conducting the research study within the purview of ethical guidelines. This might consist of clear and unambiguous disclosure of the main purpose of the research to the parties involved such as the participants those will be used as samples in the research. They should be assured about their privacy and the researcher must vouch for the safety and security of personal information that should be used solely for the purpose of the research and nothing else. Apart from this, the researcher should clearly portray the expected outcomes of the research as to what exactly it will achieve for the community or society. The participants must understand the benevolence of the intended research and they should willingly approve of being participants to the research study. It is unethical to force or coerce people to participate in a research study. These ethical considerations will hold true for this particular research and it needs to abide by them to be considered as a legal and ethical project.
  • Honesty: The research process should encompass honesty throughout. There should be honest exchange of information between the researcher and participants. The researcher should conduct the data collection through honest disclosure about the purpose of the research and should use the personal information of the researcher in an honest manner.
  • Reliability: The sources of information should be reliable for the purpose of the research. There should be element of reliability on the responses of the participants. The information shared from the perspective of the researcher should also be reliable.
  • Transparency: The exchange of information between the researcher and participant should be transparent. It means that nothing should be concealed by the researcher as well as the respondents in order to ensure that there is transparency between the two.
  • Respect: There should be mutual respect between the researcher and the respondents. It means that the researcher should understand the necessity to respect the participants (Australian Government, 2007).
  • Privacy: The researcher must ensure that there is privacy of the data and information that is shared by the participants. The privacy of information is the key to an ethical research study (Panel on Research Ethics, 2016).

Literary Review: 

According to Hopkins (2016), there are certain factors behind the fluctuations of the interest rate in Australia. The factors are inflation rate, interest rates, current account deficits, level of public debts, terms of trade and stability in political and economic growth. The rising prices of goods and services reduce the value of currency and so it can be said that during inflation the value of AUD decreases while it increases during deflation. Interest rate of monetary policy popularly termed as cash rate as decided by the central bank of Australia when gets altered the currency value gets fluctuated. If the central bank of Australia increases the interest rates then the currency value also increases as the investors’ demands get positively impacted. The investors get attracted towards the higher returns on the investments. This makes the economy stronger. Deficits in international trade also impact the value of currency. If there is deficit in the international trade then currency value decreases. Similarly higher investments towards public debts increase the deficit and decrease the value of currency. Similar rules are found in case of terms of trade. The imports are likely to generate the economic growth and the flow of money increases the value of money. It is needless to mention that the political and economic factors are always influential for the any business organizations as they impact the currency value. The political stability in Australia will impact positively on the foreign investors and they will be encouraged in investments in the country while on the other hand if there is lack of economic and political stability the value of currency will decline and the investors will lose their interests with the declining interest rates. So these are the major reasons behind the fluctuations in the AUD (Hopkins, 2016).
According to Baur (2017), there has been a quite stable situation in the currency value or AUD in 2017. It is known that the role played by AUD in the economic system of the country is much crucial. The financial system of the country is also very much dependent on the stability or fluctuation of AUD. The AUD impacts the international trade, investors both in the national and international platform and the exchange rates. The business organizations are also impacted by the fluctuations in the currency value. There are many organizations from different sectors are found to be highly influenced  by the changes in the exchange rates which in turn gets impacted by the fluctuation in AUD. Like other sector, airline sector is also affected by the fluctuations. One of the most important airline companies in Australia is Qantas that is the leading airline company in Australia. Qantas imports aircrafts to provide its services to its target segment. The company is affected by the changes in the value of AUD. The increase in the price of oil is not good for Qantas. The appreciation of AUD positively impacts the business of Qantas. The depreciation of AUD makes the company to suffer as it has to spend a lot of money in importing the aircrafts from other countries. The company plans for the planes which are fuel-efficient so that the oil prices do much impact its expenditures. Qantas is much exposed to AUD and hence it is impacted to large extent. The changes in the AUD impact the business of Qantas like any other business organizations. If the company gains from the AUD then it can provide the services at cheaper rates and the customers can get impacted by the cheaper fares (Baur, 2017).
As per the information provided by the official website of FXCM (2018), the volatility in the value of AUD is one of the major concerns for the reserve bank of Australia. It is seen that in the last few decades the country has been suffering from higher volatility in the value of AUD and this makes the country’s economic growth affected. There is a need for identification of the major reasons behind the volatile nature of the AUD and the risks associated with it. The effective measures can be taken by the central bank of the country if the reasons are identified and addressed timely. The management of the fluctuations in AUD is also another major concern for the economy and the central bank of the country. The target rate of inflation has been established by the central bank to monitor the fluctuations and to manage the fluctuations and to control the inflation rate. The central bank has declared that the acceptable inflation rate must be between 2-3%. Interest rates have to be adjusted so that accurate inflation rate is reflected. The Australian Bureau of Statistics can impact the AUD value and can be one of the major reasons behind the huge fluctuations in the exchange rate of AUD. It has been observed that GDP, PPI or Producer Price Index and CPI or Consumer Price Index also impact the fluctuation in the value of AUD while trade statistics, workforce survey and retail sales also influence the changes in the value of AUD (FXCM, 2018).
According to Pettinger (2008), the reports of the financial reporters show that the interest rates are the major causes for the fluctuations in the AUD. The changes in AUD have been because of the influence that interest rate poses on the currency value. The flow of money is not the reason behind the fluctuation in the AUD. If the interest rate in Australia increases more than of the other nations then the investors get the initiative to save in the nation by investing there and by getting higher returns. It has been seen that the inflation rate is also another reason for the fluctuation in the rate of currency in Australia. In Australia the AUD value gets appreciated with the increase in the demands of the commodities which are being produced by Australia. The prices of precious metals when get increased the demand for the AUD also get increased to pay towards exports of the country. The major reasons behind the increase or decrease in the value of currency can be interest rates, inflation rate and prices of the commodities (Pettinger, 2008).
According to Webber (2013), the rise in the value of AUD is not good for the airline companies. The chief of Qantas, Alan Joyce has mentioned this while he was pointing out the impacts of the fluctuations of AUD. In this respect the author if the article mentioned that it is not an easy task to identify the implications of the fluctuations in the current value on the AUD. The impacts of the fluctuation on the other overheads of the airline business have to be analyzed. The increase in the AUD provides gains to the airline companies. But it is important to recognize the extent to which the exposure of the business of the airline companies to prices of energy, economy and rates of interests is impactful. If the domestic fares of the airline companies are not aligned with the rate of movement of exchange then strong AUD will lower the revenue earned in AUD. The international passengers pay the prices of the fares to Qantas in their domestic currency value. So if the value of AUD increases than that of the other nations then the company will have lower revenues because of the appreciation of AUD. On the other hand strong AUD can be beneficial for Qantas in relation to the payment of the prices of the parts of the aircrafts and other overheads paid in AUD. The currency movement affects the cost of the overheads and thus in turn impacts the business of Qantas (Webber, 2013).
As per the information provided by East Asia Forum (2015), there has been a sharp depreciation in the value of AUD in the middle of 2014. There has been a need for devaluation of the value of the currency. The Governor of the Reserve Bank of Australia has emphasized on the devaluation of the currency. The depreciation in AUD can have negative impacts on the international trade. The export business will have to suffer from the lower AUD. The overvaluation of the currency is also another threat for the productivity and employment issues in the economy. The overvalued rate of exchange can hinder the balance of trade and can resist the growth in GDP. The higher productivity cannot be considered to be the antidote to the overvaluation strategy. There has to be sufficient demands for the over-production. In absence of demand the GDP will not get improved and that will ultimately lead the economy of the country to suffer. The competitiveness of the country would suffer if the currency is overvalued (East Asia Forum, 2015).

Aims/Objectives of the Research:

The research has some aims and objectives those it wishes to achieve. They are enumerated as follows:
  • To identify the impact of fluctuation of Australian dollar on the aviation sector of the country
  • To ascertain the current exchange rate between the Australian Dollar and the US Dollar and how it might affect the aviation sector.
  • To determine the effect that the fluctuation of dollars has on the profitability and growth of aviation sector
  • To assess the future trends of the dollar fluctuation in the economy and the impacts it might have on the aviation sector.
The research will endeavour to seek answers to these issues in order to arrive at logical conclusions about the true impact of the fluctuating Australian Dollar and how it has affected the aviation business in past and what the current trend is indicating for the future prospects of the industry in terms of growth, profitability and sustainability.

Research design:

The research will undertake the literature review in the initial stage. The qualitative and quantitative research methods will also be used for the collection of needful information and resources. The literature review will be done with the help of the analysis of the relevant resources collected from different external sources which are reliable and matching with the subject area of the research. The qualitative research will be conducted with the support of interview of finance manager of an organization in the aviation sector. The quantitative research will be conducted through a survey of executives of finance department of the company chosen from the industry. It is expected that the collection and analysis of both qualitative and quantitative data will provide the research an effective foundation to undertake reliable and credible analysis of data so that the expected outcomes are achieved. The survey of the executives of the finance department of the chosen company will provide the first hand responses which will be analyzed quantitatively and the findings will be interpreted quantitatively with the help of charts and diagrams for the convenience of understanding. The research will focus on the identification of the impact of the Australian Dollar fluctuation on the economy of the country and precisely the research wants to determine the impacts of the fluctuations of exchange rate on the aviation sector. The justification of selecting the Interview process was to gather data for a qualitative analysis and the Survey that would be administered for the purpose of collecting data for a quantitative analysis. Thus, the research is proposed to undertake collection and analysis of both qualitative and quantitative data. This will help in making the research more authentic and credible. Thus, the research will consist of Literature Review that has been undertaken, and it will conduct an Interview and a Survey to make the research findings more logical and rational, based upon which effective conclusions can be drawn and feasible recommendations be made. 
The quantitative data will be analyzed with the help MS Excel software that will help in producing the results in the form of tables, graphs and charts which would facilitate in effective interpretation of data so that the effective conclusions can be arrived at.

Reference:

Australian Government, 2007. Australian Code for the Responsible Conduct of Research. Australian Research Council Responsible Conduct of Research.
Baur, D., 2017. Explainer: how the Australian dollar affects the results of companies. [Online] Available at: http://theconversation.com/explainer-how-the-australian-dollar-affects-the-results-of-companies-72585.
East Asia Forum, 2015. Has the Australian Dollar Depreciated Enough to Positively Impact GDP? [Online] Available at: http://www.economywatch.com/features/Has-the-Australian-Dollar-Depreciated-Enough-to-Positively-Impact-GDP.01-23-15.html.
Fernyhough, J., 2017. Why a high Australian dollar is bad news for you. [Online] Available at: https://thenewdaily.com.au/money/finance-news/2015/05/14/high-aussie-dollar-bad-news/.
FXCM, 2018. What Causes Volatility In The Australian Dollar? [Online] Available at: https://www.fxcm.com/insights/what-causes-volatility-in-the-australian-dollar/.
Hopkins, M., 2016. What Causes the Australian Dollar to Fluctuate and What Effect Does It Have? [Online] Available at: http://www.thehippocket.com.au/what-causes-the-australian-dollar-to-fluctuate-and-what-effect-does-it-have/.
Hutchings, C., 2018. Dollar continues upward march against USD. [Online] Available at: http://www.news.com.au/finance/markets/australian-dollar/dollar-continues-upward-march-against-usd/news-story/a7726b800fc866926c22613339c4be72.
IATA, 2017. Exchange rates and aviation: examining the links. [Online] Available at: https://www.iata.org/publications/economic-briefings/FX%20impacts%20on%20airlines%20(Dec%202015).pdf.
Panel on Research Ethics, 2016. TCPS 2 - Chapter 5 Privacy and Confidentiality. [Online] Available at: http://www.pre.ethics.gc.ca/eng/policy-politique/initiatives/tcps2-eptc2/chapter5-chapitre5/.
Pettinger, T., 2008. Reasons for an Appreciating AUS Dollar. [Online] Available at: https://www.economicshelp.org/blog/451/currency/reasons-for-an-appreciating-aus-dollar/.
Qantas, 2017. QANTAS GROUP FIRST HALF 2017 FINANCIAL RESULT. Qantas.
Stanford, J., 2017. The Soaring Aussie Dollar Will Short-Change Australia's Export Industries. [Online] Available at: http://www.huffingtonpost.com.au/jim-stanford/the-soaring-aussie-dollar-will-short-change-australias-export-i_a_23054997/.
Webber, T., 2013. High dollar good for Qantas. [Online] Available at: http://www.smh.com.au/business/high-dollar-good-for-qantas-20130207-2e0zd.html.
Webber, T., 2013. High dollar good for Qantas. [Online] Available at: http://www.smh.com.au/business/high-dollar-good-for-qantas-20130207-2e0zd.html.

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