Update: Since this story appeared the Minister for Transport Anthony Albanese has said that Qantas has to work out how to continue conforming to the Qantas Sale Act restrictions on foreign ownership, and that Virgin Australia doesn’t need government approval to make its commercial decision to restructure its business.
Virgin Australia has applied for a transfer of Indonesian traffic rights to a new entity that will give it a major funding advantage over Qantas.
It seems determined under its CEO John Borghetti, a former Qantas executive general manager, to test whatever will Qantas may have to block its path to a radically changed ownership structure that would facilitate more foreign investment in Virgin Australia and fund a real attack on Qantas dominance in the Australian market.
This is a letter to the International Air Services Commission about its intentions to transfer its international rights to a new holding structure announced last Thursday, starting with those it holds between Australia and Indonesia.
The IASC released the letter today, inviting submissions from other parties, and stating that a notification of any intention to make a submission is required by the close of business on 6 March, followed by actual submissions no later than 13 March.
Qantas has indicated unhappiness with the Virgin Australia restructure already, telling Plane Talking that:
We are clearly at a disadvantage, as our key competitor is allowed to make changes to their business, which we can not. We are significantly disadvantaged due to these constraints.
There should be a level playing field for all domestic airlines in Australia. It is a shame that Australia’s national airline has to compete with one arm tied behind its back.
This is precisely the point we’ve been making during the recent Senate Inquiry into the Qantas Sales Act.
We aren’t seeking any favours, just asking for the same restrictions and freedoms as other Australian airlines have.”
But what will Qantas do? Will it lobby Canberra immediately to block the changes, or wait to specifically block a rich new cornerstone investor, such as, let’s guess, Etihad Airways, or Singapore Airlines, or related sovereign funds, when or if they declare such intentions?
It is difficult if not impossible to pursue a blanket intervention strategy without a threat having emerged, as it is also difficult to deal with a threat after the restructuring that allowed it to emerge has been let through to the keeper as being lawful.
There is a view that Qantas cannot prevent the actual restructuring of Virgin Australia but that as an entity that is influenced by political policy settings, the Foreign Investment Review Board or FIRB can prevent a foreign airline, or a foreign investment vehicle which is under political or sovereign control, from buying a single share in anything contrary to the wishes of the government of the day.
(Which is a further explanation, perhaps, as to why Virgin Australia is planning a free super luxury club for politicians, judges, and apparently editors, to counter the feeding and drinking pens in the Qantas Chairman’s Lounges.)
While Qantas ponders this, the IASC says it will move to determine the Virgin Australia application as soon as 7 March if it hasn’t received notice of a submission from any party by 5 pm eastern summer time the previous day.
Which is about the time, no doubt by coincidence, that the CEO of Etihad Airways, James Hogan will arrive on a visit to Australia.
11 Comments
And there’s the problem. Qantas wants to claim the sentimental/moral high ground to pursue their business interests, and then run away as fast as they can to Asia to make a profit.
“Australia’s national airline”
Qantas should get over themselves!
@NeoTheFatCat
No. Qantas would happily operate international from Australia if they could make a buck out of it: it’s their history, and their staff and management’s great aspiration (not moving to other countries to run other outfits). The problem is they can’t make a buck out of it, and are obviously looking for ways to ‘level the field’ with Virgin if they can. The only reason they want a defacto offshoring of the thing is because it’s grossly unprofitable here. I don’t think it ever will be, even if they get the same concessions (labour rates, rights, ownership structures) that Virgin has, but I guess they have to try.
No, Qantas’ current CEO doesnt WANT to make a buck out of long range. Thats why they dont promote the routes on the other end and they run down the aircraft they have.
He wants to run his “sexy” Jetstar and his sexy SuperPremium FarQ, and then he’s going to dump everything unsexy.
Interesting that some see 14 A380s, and revamping the 9 newest 747s (all under 15 years old), as running down their long range aircraft.
The Qantas 747-400ERs were delivered in 02 and 03. Thus the youngest is already 9 years old. I’m not sure how much grip the nostalgia factor, or the standardisation of fittings, is going to cut it as the years pass by, as one can choose between A380 quality cabins in an A380, or in a noisier, lower flying, less reliable yet once upon a time truly marvelous airliner.
But I’m very confident in suggesting that in terms of fuel and aging airframe maintenance costs, they will harm Qantas, as will any increase in refurbished weight affect range/payload capabilities.
Qantas’ insistence on a level playing field is like Telstra’s insistence on the same.
Both companies ignore the fact that they are subjected to unique regulations, that their playing field is non-level by design. It isn’t some kind of accident that’ll be rectified as soon as they bring it to everyone’s attention (“Oops! How did that happen?”).
In 2008, when the full bench of the High Court of Australia ruled against Telstra’s attempt to have regulation of their copper network deemed unconstitutional, the Court pointed out that anyone who bought Telstra shares then complained about losses due to the telco’s regulatory obligations had only themselves to blame for their ignorance.
Same goes for Qantas shareholders.
If Qantas wants a level playing field, it needs a repeal of the law that makes a level playing field impossible. Having burned virtually all of their goodwill in Canberra by grounding the fleet last year, perhaps they’re better off biting their tongues instead of whinging for the next 18 months. Save it for the next government.
– mark
Lofi, it’s a strange calculation that says thay even if Qantas could level the playing field with Virgin in terms of labour rates, rights and ownership structures that they would still find their international operations would be unprofitable.
All businesses have to deal with the operating environment they confront, and most businesses have little scope to immediately change it to suit their needs. And most businesses can rightly point to some ‘unevenness’ in the playing field that benefits another. Good managers keep searching out the right product to meet their customers’ needs, bad managers watch their profit models slip away and complain (I’m looking at retailers, music companies and the movie industry).
If you assume that the only thing your customers want is the cheapest price, then I can easily see that your business will be unprofitable until we can pay our staff as Asian rates. But if you do that, you will be overlooking a large part of the population who is looking for more.
I am not sure what it is about the Virgin restructure that has everyone in such a dither.
Under the Corporations Law, does the beneficial ownership of a holding company flow down under the control provisions to its associated entities (including subsidiaries)? What about under the Air Navigation Act? In terms of foreign ownership, could Tiger Australia for example start a wholly-owned international operation, given that it is 100% foreign-owned?
And, of course, there is Qantas – having steadfastly maintained that Jetstar, Jetconnect and various other entities lying around are NOT constrained by the QSA, it would be simple to split Jetstar into domestic and international companies and to sell all or part of the domestic company and 49% of the international company if it was really after greater foreign investment. Bit of a bugger about the cross-subsidisation, but you get that on the big jobs!
The only restriction on QF is that it couldn’t sell off more than 49% of Qantas domestic even it split the Qantas business – but then, I’m not sure that Virgin can either…
The 777s were flying in 02/03 and like a few people, some like them and some don’t. I’m on the don’t end of the ledger. Note the A330s were also delivered in 02/03 and are not regarded as being tired, but will be replaced in 2020 by 787-10s most probably. The 744 has still the legs and is still being made and will still be around by more than QF in 2018 or so when the A380 replaces it, so if it is only one third or one quarter of QFs long rage capacity by 2015 who cares, and what is the big deal.
I think it more likely that Qantas will take its bat and ball and go home rather than pad up based on recent experience.