The present research project is developed to provide information in accordance with the appropriate tools and methods applicable to attain the objectives of the study. The current study analyzes, addresses and evaluates with research on Qatar Airways based in Doha operating in 150 international destinations across various countries (Flick, 2015). The study will discuss the methods used in collecting information which is primary as well as secondary methods. Along with this, the study will also evaluate and consider the ABC, standard and relevant costing methods and their benefits to the company. The research is designed to do the whole investigation on the methods and tools which will assist in interpreting the manner of forming research to attain suitable conclusion. The same will be applicable to the Qatar Airways offer best suitable information and data which will result beneficial for the company. Two major methods of collecting data are used; primary and secondary which will assist in making better decisions and achieving the appropriate outcomes.
For the research, primary and secondary methods are used. In the primary method, data is collected using qualitative and quantitative methods from questionnaires, interviews, case studies, and observations. In the secondary method, information is collected from books, internet websites, articles and journals (Lewis, 2015). All sources are appropriately considered and are linked to the company. The company website is visited for seeking good information wherein annual report, and other reports are assessed of the cited entity. This information will help in gaining better understanding and findings to evaluate the best data which will result beneficial to the application (Panneerselvam, 2014).
Overview of the company
Qatar Airways is the flag carrier owned by the state Qatar; its headquarters are located in Doha. The world-class airlines is operating with a network called hub-and-spoke, connecting more than 150 global destinations through and throughout Africa, Europe, North and South America, Central and South Asia, Far and Middle East and Oceania based at the Hamad International Airport by making a use of over 180 aircrafts (Chiambaretto & Wassmer, 2018). Qatar Group of Airways has employed over 40000 people contributing to employment and career development opportunities. The carrier is the first-class alliance member since 2013; it is the first Gulf carrier to lead the airline industry.
Qatar Airways is leading and successful international airline at a young age to deliver the total six continents, and the reason behind its success is the great response of the customer on their offered goods and services (Qatar Airways Group. Annual Report. 2017). By considering this aspect, the company is rapidly growing in various countries at the global stage (Harper, 2018). The airlines have connected with over 150 destinations present on the may almost every day, with a convoy of the new generation aircraft and a matchless service level from home and hub, five stars rated airport of the Hamad international airport based in Doha, the State of Qatar.
Qatar airways group is said to be the award-winning global freight carrier, serving quality solutions and services for air cargos with a great connection to 150 destinations around the globe (Lohmann & Spasojevic, 2018). The company strives to sever their customer with ultimate needs by a range of committed and quality services and amenities at the airport as well as on the board.
The market share of the Qatar Airways shows an excellent result for the successful airline, experiencing great expansion, investment and performance in the sector which must be highly appraised. The airline is also celebrating its 20th anniversary in the international industry of aviation. The ASK which stands for Available Seat Kilometres of the Qatar Airways has taken a rise by 21.9% in 2017 having a total of 185,208 million.
The aviation industry is very rigid. However, Qatar Airways has maintained a leading position in sectors and managed to be at the top which a high competitive edge (Kappel, 2017). The major competitors of the company are Malaysia Airlines, Emirates, United Airlines, Jet Airways, American Airlines and Delta Air Lines.
Activity based accounting
ABC method refers to an accounting method that determines the activities that an organization conducts and then allots indirect costs to goods. This costing method realizes the connection between costs, products and activities and by this connection, it allots indirect costs to products less randomly as compared to traditional methods. ABC improves the process of costing in three key ways (Mahal & Hossain, 2015). Initially, it makes expansion in the number of cost pools implemented to collect overhead costs, rather than assembling all costs in a single pool. Along with this, it also enhances base for accumulating overhead costs to products in a manner that costs can be accumulated in terms of activities that produce costs rather than volume measures like the direct cost of labour or machine hours. Lastly, ABC system modifies the nature of various indirect costs, generating costs, prior assessed as indirect costs like depreciation which are traced to some activities.
In short, ABC is a means of determining the costs linked with the operational activities, for the aspect that the handling and other related prices of service contract and efforts made on reducing costs might be improved. One of the main airline costs of this sector is handling costs, although the exact proportion differs with the airport charges and fuel costs so that the costs can be reduced and the company can have a distinct advantage over the competition.
The structure of ABC costing for Qatar Airlines:
Implementation of the ABC costing methods in relation to the Qatar airlines will be in the following aspects:
Focus: The revenue management of the entire network for the whole year, flight performance and profitability can offer a considerable focus. Further, a flight stemmed from the macro statistics for a large-scale airline can have different conduct from the standards and might demand special attention (Haroun, 2015). A corporate flight profitability form will be able to determine the improvement areas and weak sections, amongst other filters which can offer a significant forum to revenue management for the pricing methods.
Costs: Revenue management generally prevents costs, by the implementation of this method, optimization of revenue will be done, and a new picture of overall cost. It helps in determining opportunities for high pricing and can foster
Inter-departmental integration: In a situation where schedules, pricing and marketing does not work, then implementation of ABC can resolve the problem by taking its perspective in to account. Marketing campaigns can be introduced to make increment in sales, but it is quite general for airlines to cut fares in order to drive customer traffic (Tai, Wang & Katrichis, 2015).
Segmentation: Pricing is based on the segmentation, it is essential for the company to do segmentation to provide low fares whenever needed. Flight profitability can assist in spotting and capturing opportunities for segmentation and help in addressing weaker sections to be successful.
Benefits of Activity-based accounting
The closed loop in ABC is an ongoing process of creating a plan depended on the reasonable forecast, leveraging performance in opposition to and picturizing the real performance prior to the loop again with the further insight (Holloway, 2017). The best advantage of ABC closed-loop model is that it comprises of planning as well as controlling paradigm. This contains activities which are very beneficial for the aspects of pricing for the firm, and it helps in adjusting the change in demand and supply.
Activity-based accounting can be used in the airline company it is because they are independent and autonomous, along with this it is also essential to create a realistic connection. There can be various attempts to from this connection; the ABC costing technique can be applied by the company by using software such as ERP and BPC. Plans are set for by making use of forecast to future work and monitoring of plans to produce estimated results wherein better information is gained to do planning.
The cost structure of airline is much specified; ABC does not ensure effective cost management as it is individually not sole factor performance management in measurement, it is because there are several other factors such as the airlines are considered as the typical logistics company. Further, there are various details having relevancy to the airline’s financial success and performance. The most reason for the implementation of ABC is cost pressure, it has high relevancy, and the decision making is also responsive and fast. Since in today’s market, companies have complexity in capturing opportunities wherein it is initially vital to make pricing decision, it is the reason why a company must go through a detailed understanding of their structure of costing (Tsai and et al., 2015). It is also essential to ensure the solid position of costs strictures to make instant choices in opposition to rivals that might lack in such positions and outlooks.
Once the airline company is able to form ABC system, then it will get added benefits of effectively considering the customer portfolio from different angles in context with business-like targeted customer profitability, relationship lifecycle, individual customer profitability, geographic regions by this the company with the ability to locate for submarkets and can stimulate financial performances.
THe manner in which firm can be benefited by Standard cost
Standard cost can be referred as a practice through which actual cost can be substituted by expected cost as per accounting records, and further variances are ascertained through comparison of actual and expected cost(Nagle, Hogan & Zale, 2016). The benefits which can be attained by Qatar Airway through standard costing are as follows:
- The method is believed to be the rule of measurement which is established by authority. Thus, it will work as a yardstick for the company, and it will be able to evaluate the measures of cost in more appropriate manner.
- Implementation of standard costing in an appropriate manner can be done only with the efficient and full participation of management and same leads to cost-effective attitude through every level of organization(Belobaba, Odoni & Barnhart, 2015).
- The standard costing method will assist Qatar Airways to emphasize on methods, materials which assist in decreasing unfavourable variances.
- The system simplifies the cost control procedures as well as assists organization in being cost-conscious as it emphasizes on standard cost.
- It also provides benefit in other areas such as business planning, budgeting, inventory valuation etc.
Factors influencing decision
The main variants which influence the decision relating to standard costing are changed in labour rate or change in the cost of material. As Qatar Airways is providing services than a change in labour cost or the working management will affect the same in a significant manner. In case the company is paying appropriately, but the performance provided by the company is not equivalent then it might lead to overpayment (Shaw, 2016). Excess payment can also be due to exceeding no. of workers in comparison to the actual requirement as in that case company will have to pay additional money even though the same is unproductive.
Ramifications of cost, quantity and variances
The above specified are the variants which significantly affect the decision relating to standard costing. Variance can be referred as the difference between actual cost and standard cost which is being applied in order to review the performance of both revenue and expenses. The calculation of cost, quantity and variances could be complex sometimes and might give rise to issues in the organization (Gillen & Morrison, 2015). In case Qatar Airways estimated high standards which are hard to attain even after application of sincere efforts than the employees might get discouraged and same would ultimately lead to decrease in efficiency level of the company. It is necessary that appropriate pay back, i.e. cost should be provided along with appropriate expectations. Thus, in case appropriate wages have not been ascertained then it might lead to negative effect on management as well as other decision of organization.
Ramifications of using standard cost in an international business environment
The global integration of economies with the assistance of trade and investment flows leads to enhance international competitiveness. Standard costing is believed as a yardstick in order to provide instruction relating to costing. Same might be proven inappropriate in case of the international business environment as it is not easy to ascertain the standards for which organization should make an effort to attain (Welford, 2016). As Qatar Airways is world’s third largest cargo carrier and believed to be fifth best duty-free retail organization in the world. The company is having an international partnership with Finnair, Iberia, Sri Lanka and `with independent Air Botswana. Moreover, joint business agreement with International Group has also been announced by the company. The company constantly attempts to improve, innovate and grow along with considering customer’s need in front. But as same standards can’t be applied in every country, and it might lead to increase in complexities for the organization to assess which standards are more appropriate. Even comparison between performances of different countries subsidiaries becomes difficult as the standards are different. The other variants which affect the application of standard costing are compliance with environmental legislation across the global network (Shenkar, Luo & Chi, 2014). Even though the company attempts to enhance the service through continual improvement but even in this case complexities are increased, and management has to suffer. Moreover over time as well resources are additionally required to resolve the issues and complexities.
Benefits through analyzing future project in terms OF RELEVANT cost
Relevant costing can be referred as a managerial accounting term which describes avoidable cost while making decision making (Eller & Moreira, 2014). As through eliminating discussion relating to irrelevant cost, the whole emphasis is made on the whole emphasis is being made on information which significantly affects the decision. The concept on which relevant cost works is that historical cost is believed as a sunk cost. The main benefit which can be attained by Qatar Airways through the application of relevant costing is that emphasis will be made on cash flow items as well as incremental fixed cost. Absorbed fixed cost is not considered as they do not lead to any additional cash flow. The company will be able to make a decision on the resources which will be applied rather than the cost which has been already expended on projects or investments. As the amount has been already spending, thus there is no sense of considering the same while making a decision. The concept will mainly assist in decision making such as expansion, selection between two investment or other important future decision.
The manner Qatar Airways can use relevant costing in a decision such as expansion, downsizing and consolidation
As Qatar Airway has acquired 10% LATAM Airlines Group which his leading airline group in America and is shared vision for future with the company. It is expected that in the year 2018 the airline will initiate Pattaya, Penang, Canberra, Cardiff and continue Hanoi services. Moreover, it will increase the frequency of Ho Chin Minh City deploy A380 equipment to Pert and take first delivery of A350-1000 as launch customer. Moreover as direct services will also be provided to Hanoi, with Ho Chin Minh City through increasing three flights a week; the company might apply differential costing in order to ascertain cost item between two decision or different projects (Qatar Airways Celebrates a Successful 2017 of Expedited Expansion Around the World and More Than 50, 2017). Mayne (2017), asserted that as similar cost or revenues are irrelevant thus different cost must be compared with different revenues in order to attain appropriate decision. In other words, it can also be said that incremental cost will be compared with incremental revenue in order to take a decision relating to the expansion of services.
Qatar Airways can also apply opportunity cost which is a relevant cost in order to take a decision whether to go for further expansion or for downsizing or not. In order to assess the same alternatives opportunities will be considered and then the decision is made regarding the best alternative opportunity. Another main concept which can be applied in making a decision relating to expansion, downsizing or consolidation is irrelevant cost concept. Sunk cost is the expense which has been already expended, and the same will not change on a go-forward basis. As this cost cannot change the future decision, thus this cost is immaterial in every decision. Thus, emphasis will be made on cost which is avoidable only in case the decision is not implemented. The decision will be more appropriate through the implementation of same as the focus is being made on cost which is to be applied rather than which has been already expended. Relevant cost can be referred as an incremental investigation as it considers only cost which differentiates between the alternatives and does not consider the impact of sunk cost which has been already spending (Zullo & Liu, 2017). Thus, the incremental cost is compared with incremental revenue and decision is made regarding the investment for expansion of the business. The main benefit or advantage is that focus is made on cost which will matter in present situation rather than the total cost which has been already spending or the one which is similar in both the investment proposal.
Conclusion
The above study depicts that costing is one of the main issues which is required to be dealt in an appropriate manner in order to attain objectives of the organization and for sustainability of company as well. The reason behind same is if a company is paying more wages or additional cost of a product than same eventually affects the profits of the company and thus it cannot continue for long with same procedures. A variety of concepts have been discussed above relating to the cost which comprises standard cost, Activity-based costing and relevant costing. These concepts are being applied to Qatar Airways in order to assess the manner in which benefits can be attained through application of these concepts. The study reveals the fact that Qatar Airways would assist the company will be able to make more appropriate pricing decision with the application of Activity-based costing. As through application of same understanding of overhead and cost driver is more appropriately done and thus the activities which are costly as well as no-value adding are more appropriately visible to the management. Thus, due to same reason, it becomes easy to judge whether the activity is having worth to the extent amount on same have been expended.
Moreover, it can be concluded from above study that relevant costing will be appropriate for Qatar Airways in order to take a decision relating to consolidation or expansion as the method focuses on the cost which is incremental as well as the one which is different in case of both the alternatives. Thus, in this manner company compares the incremental cost with incremental revenue and takes whether the same should invest or not. At the end, it could be analyzed that appropriate decision relating to cost eventually leads to profit for a company. The reason behind the same is that it also considers the opportunity cost of the investment option which is forgone in order to select the other option. The company is able to attain more accuracy relating to costing as reliability in product cost determination is done through emphasizing on cause and effect relationship in the cost incurrence.
References
Belobaba, P., Odoni, A., & Barnhart, C. (Eds.). (2015). The global airline industry. John Wiley & Sons.
Boardman, A. E., Greenberg, D. H., Vining, A. R., & Weimer, D. L. (2017). Cost-benefit analysis: concepts and practice. Cambridge University Press.
Chiambaretto, P., & Wassmer, U. (2018). Resource utilization as an internal driver of alliance portfolio evolution: The Qatar Airways case (1993–2010). Long Range Planning.
Eller, R. D. A. G., & Moreira, M. (2014). The main cost-related factors in airlines management. Journal of Transport Literature, 8(1), 8-23.
Flick, U. (2015). Introducing research methodology: A beginner’s guide to doing a research project. Sage.
Gillen, D., & Morrison, W. G. (2015). Aviation security: costing, pricing, finance and performance. Journal of Air Transport Management, 48, 1-12.
Haroun, A. E. (2015). Maintenance cost estimation: application of activity-based costing as a fair estimate method. Journal of Quality in Maintenance Engineering, 21(3), 258-270.
Harper, L. (2018). Qatar Airways adapts its network. Flight airline business.
Holloway, S. (2017). Straight and Level: Practical Airline Economics: Practical Airline Economics. Routledge.
Kappel, T. (2017). Airbus Group SE. Company Valuation. More production, weak competition.
Lewis, S. (2015). Qualitative inquiry and research design: Choosing among five approaches. Health promotion practice, 16(4), 473-475.
Lohmann, G., & Spasojevic, B. (2018). Airline business strategy. The Routledge Companion to Air Transport Management, 139.
Mahal, I., & Hossain, A. (2015). Activity-Based Costing (ABC)–An Effective Tool for Better Management. Research Journal of Finance and Accounting, 6(4), 66-74.
Mayne, J. (2017). Accountability for program performance: a key to effective performance monitoring and reporting. In Monitoring performance in the public sector (pp. 157-176). Routledge.
Nagle, T. T., Hogan, J., & Zale, J. (2016). The Strategy and Tactics of Pricing: New International Edition. Routledge.
Panneerselvam, R. (2014). Research methodology. PHI Learning Pvt. Ltd..
Qatar Airways Celebrates a Successful 2017 of Expedited Expansion Around the World and More Than 50. (Online). (2018). Available through <https://centreforaviation.com/members/direct-news/qatar-airways-celebrates-a-successful-2017-of-expedited-expansion-around-the-world-and-more-than-50-391801>. [Accessed on 9th April 2018].
Qatar Airways Group. Annual Report. 2017. (PDF). Available through <https://www.qatarairways.com/content/dam/documents/annual-reports/2017_Annual_Report_ENGLISH-WEB.pdf>. [Accepted on 9th April2018]
Shaw, S. (2016). Airline marketing and management. Routledge.
Shenkar, O., Luo, Y., & Chi, T. (2014). International business. Routledge.
Tai, Y. H., Wang, W. Y., & Katrichis, J. (2015). The Impact of Improved Costing Methods on Customer Portfolio Management Activities. In Advances in Management Accounting (Pp. 259-287). Emerald Group Publishing Limited.
Tsai, W. H., Tsaur, T. S., Chou, Y. W., Liu, J. Y., Hsu, J. L., & Hsieh, C. L. (2015). Integrating the activity-based costing system and life-cycle assessment into green decision-making. International Journal of Production Research, 53(2),* 451-465.
Welford, R. (2016). Corporate environmental management 1: Systems and strategies. Routledge.
Zullo, R., & Liu, Y. (2017). Contending With Defense Industry Reallocations: A Literature Review of Relevant Factors. Economic Development Quarterly, 31(4), 360-372.