The battle between Qantas and Virgin for Australia’s skies is raging, and neither contender is pulling punches in their contest for market share.
Qantas is set to announce a half-year loss in the hundreds of millions, and is expected to cut thousands of jobs.
The carrier argues that rising fuel costs, hostile unions and outdated legislation are choking its ability to draw a profit. It has been lobbying the Government for financial assistance since its credit rating was downgraded to junk in December.
The Government has indicated it is willing to step in and help Qantas, with a Commonwealth debt guarantee similar to those given to banks during the financial crisis the likely aid.
Other touted forms of intervention include the Government buying back a stake in Qantas and the restriction of foreign access to international routes to and from Australia.
However, Virgin is having none of it, arguing that Qantas has dug its own grave through mismanagement and any government assistance should be extended industry wide.
Freeing the Flying Kangaroo from its legislative bind
Qantas has a major advantage over Virgin: it is Australia’s national carrier, an iconic part of the nation’s aviation history and a globally recognised Australian symbol.
Qantas’s position as Australia’s airline is enshrined in legislation, but that very legislation hinders the airline in a number of ways.
The Qantas Sale Act prevents any foreign investor owning more than 49 per cent of the Flying Kangaroo. It also prevents any single foreign investor owning more than 25 per cent of the company, and no more than 35 per cent can be owned by airlines.
A 2011 amendment to the Act also means that Qantas must base its principle operation centre in Australia.
Qantas chief executive Alan Joyce has long complained that the Act is holding Qantas back, and that Virgin has an unfair regulatory advantage.
“The Qantas Sale Act limits our financial options, it adds cost to our business, and it influences our actions as a publicly listed company,” Mr Joyce said earlier this month.
“Over the long term, repealing it is essential to remove the distortions in our aviation system.”
Even if the foreign ownership rules are lifted, Qantas still needs to attract foreign investors – something that may prove difficult given its performance in recent years.
Nevertheless, Prime Minister Tony Abbott and Treasurer Joe Hockey have indicated that they are sympathetic to the airline’s plight.
The Federal Government confirmed earlier this week that it has drafted changes to the Qantas Sale Act, but, as with any possible financial assistance, wanted to wait until after the airline announced its half-year results before making a decision.
Any assistance package announced by the Government opens it to claims of inconsistency.
As the Coalition proved recently with Holden and SPC Ardmona, a company’s place in the nation’s consciousness may count for little when it comes to getting assistance.
Critics also argue that as an airline Qantas is like any other business in a service industry; where one business fails, another is likely to rise in its place.
No Government, however, would want the national carrier to go under on its watch and Mr Hockey has said Qantas is too large a part of the Australian economy to let it fail.
Virgin adds to competition, but does it have an unfair advantage?
Qantas has claimed in the past that Virgin is being run at a loss to drive it out of business, and has an unfair advantage because it is not beholden to the Qantas Sale Act and can therefore raise foreign capital.
For its part, Virgin has framed its competition with Qantas as a David-versus-Goliath battle – the people’s champion versus the national giant – and says it should receive assistance equivalent to that given to Qantas.
Virgin’s entry into the Australian market as a cut-price carrier in 2000 was well-timed, both for the company’s investors and Australian fliers, with the collapse of Ansett in 2001 leaving a huge hole in a market lacking competition.
Since then, Sir Richard Branson’s upstart has gone from servicing a Sydney-Brisbane route to a nationwide service.
In 2012, Virgin split its domestic and international operations, allowing it to maintain Australian ownership of its international business with its domestic service predominantly foreign owned.
The split allowed Virgin to adhere to the Air Navigation Act, which requires air carriers to keep an Australian majority ownership in order to access routes into and out of Australia.
The national carrier, which is prevented by the Qantas Sale Act from achieving the a similar separation, labelled the split a sham.
Qantas was again up in arms again last November when Virgin announced it would raise $350 million through a share buy-back.
The majority of that capital raising was underwritten by Virgin’s major shareholders: Air New Zealand, Singapore Airlines, and Etihad – companies which are each backed by a foreign government.
The New Zealand government has a stake of more than 50 per cent in Air New Zealand, Singapore Airlines is more than half owned by the Singapore Government’s investment company Temasek, and Etihad is owned by the United Arab Emirates.
Qantas wrote to the Government asking them to block the deal but Virgin argued its capital raising ventures were designed to benefit trans-continental and regional routes that were lacking services and competition.
Turbulence as airlines scrap for Government’s favour and public support
The two airlines have been engaged in an increasingly hostile debate since Virgin announced its capital raising venture in November.
Virgin founder Sir Richard Branson, who still owns 10 per cent of Virgin Australia, declared last month that Mr Joyce was in “deep shit” and has consistently rallied against Qantas getting Government assistance.
In a full-page advertisement run in News Corp Australia papers two weeks ago Sir Richard declared he “doesn’t care” what the Government does with the Act, but he made clear his opposition to any assistance package.
“Should the Australian taxpayer be forced by the Australian Government to prop up the Qantas Group, as Federal Treasurer Joe Hockey is suggesting, business people worldwide should think twice about investing in Australia for fear of such intervention in their sectors,” Sir Richard wrote.
“Qantas has gone to its shareholders on numerous occasions over the last few years to wage its capacity war against us.
“Now that shareholders have turned that tap off, the company is turning to the Australian taxpayer to try and bail it out.”
Virgin Australia’s chief executive John Borghetti has slammed Government’s posturing ahead of the expected announcement of a debt guarantee, such as the Mr Hockey’s description of Virgin as a 3,000-pound gorilla.
“Let’s look at the facts: Qantas is three to four times bigger than us. It has hundreds and hundreds of millions – in fact it’s got almost $3 billion in cash,” he said.
“It has dominant positions in every single sector of the domestic market; it is hell bent, and by their own words by the way, of adding two aircraft for every aircraft that we add irrespective, irrespective of the financial outcome, so I think it’s a bit rich turning that around.”
However, Qantas says it has not sought funding from its shareholders in recent years, and argues that Virgin itself has been backed by deep pocketed, government-owned shareholders itself.
“There’s widespread agreement that Qantas is at a disadvantage because of current policy settings,” Qantas said in a statement.
“We’ve said many times we don’t want a handout – what we want is fair fight, which is very much in the best interests of the travelling public.”