Qantas 2007 Annual Report Download - page 97

Download and view the complete annual report

Please find page 97 of the 2007 Qantas annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 144

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144

95Qantas |Annual Report 2007
Notes to the Financial Statements
for the year ended 30 June 2007
Impairment tests for CGUs containing goodwill and other intangible assets with indefinite useful lives
The following units have significant carrying amounts of goodwill and other intangible assets with indefinite useful lives:
Qantas Group Qantas
2007
$M
2006
$M
2007
$M
2006
$M
Goodwill
Jetstar 90.5 90.5 ––
Qantas Flight Catering 18.2 18.2 ––
Qantas 20.8 –––
QantasLink 3.3 3.3 ––
132.8 112.0 ––
Airport landing slots
Qantas 35.5 35.5 35.5 35.5
Jetstar
The recoverable amount of Jetstar CGU is based on value in use calculations. Those calculations use cash flow projections based on the three year plan
approved by management and endorsed by the Board. Cash flows for a further six years have been extrapolated using an average 6.2 per cent per annum
growth rate out to 2016. This growth rate reflects the planned expansion of Jetstar both domestically and internationally and is appropriate given the
actual growth achieved since establishment and the Qantas Group’s committed B787 order. For the further seven years, a 2.5 per cent per annum growth
rate has been assumed, reflecting long-term inflation, when extrapolating cash flows. The three year plan, coupled with a 13 year extrapolation,
is believed appropriate, as it represents the capital intensive long-term nature of the aviation industry and the estimated useful life of the assets employed
in this CGU.
Qantas Flight Catering
The recoverable amount of Qantas Flight Catering CGU is based on value in use calculations. Those calculations use cash flow projections based on
the three year business plan approved by management and endorsed by the Board. Cash flows for a further six years have been extrapolated using a
2.5 per cent per annum growth rate out to 2016. This growth rate reflects the mature nature of the airline catering industry and Qantas Flight Catering
Group’s current market share.
Qantas
The recoverable amount of Qantas CGU is based on value in use calculations. Those calculations use cash flow projections based on the three year plan
approved by management and endorsed by the Board. Cash flows for a further six years have been extrapolated using an average 6.2 per cent per annum
growth rate out to 2016. This growth rate reflects the planned expansion of Qantas as a result of the introduction into service of committed aircraft such
as the A380 and B787. For the further 11 years, a 2.5 per cent per annum growth rate has been assumed, reflecting long-term inflation, when
extrapolating cash flows. The three year plan, coupled with a 17 year extrapolation, is believed appropriate, as it represents the capital intensive
long-term nature of the aviation industry and the estimated useful life of the assets employed in this CGU.
The key assumptions and the approach to determining their value in the current and prior year are:
Assumption How determined
Discount rate A pre-tax discount rate of 10.5 per cent per annum (2006: 10.5 per cent per annum) has been used in discounting the projected
cash flows of all CGUs, reflecting a market estimate of the weighted average cost of capital of the Qantas Group. This discount
would need to exceed 14.1 per cent per annum (2006: 13.2 per cent per annum) before the carrying amount of any of the
CGUs of the Qantas Group would exceed their recoverable amount.
Market share Qantas Group’s domestic market share is expected to remain between 65 and 68 per cent and international market share
between 30-35 per cent. These ranges were estimated having regard to Qantas committed fleet plans and those of its
existing competitors.
Real market growth Market growth, excluding the impacts of inflation, is estimated to be 3.7 per cent per annum (2006: 4.8 per cent per annum),
reflecting the long-term average passenger growth experienced by Qantas. Market growth would need to fall by more than
5.5 per cent per annum (2006: 5.2 per cent per annum) before the carrying amount of the Jetstar and Qantas CGUs would
exceed their recoverable amount.
Fuel Fuel into-plane price is assumed to be between US$89 and US$100 (2006: US$85 and US$90) and was set with regard to the
spot West Texas Intermediate crude oil price adjusted for historical average refining margins.
Currency US$:A$ exchange rate is assumed to be 84.7 cents (2006: 75.3 cents), reflecting a 12 month average spot price.
Fleet age Average fleet age is forecast to remain between 9 and 11 years and is estimated having regard to the existing contractually
committed long-term fleet plan for the Qantas Group.
Inflation Inflation of 2.5 per cent per annum represents the long-term average change in the consumer price index in Australia.
12. Intangible Assets continued