Qantas, Virgin Australia in foreign ownership stoush

By David Flynn, November 19 2013

Qantas and Virgin Australia are engaged in fisticuffs over the contentious issue of foreign ownership, with Qantas CEO Alan Joyce sledging “predatory behaviour” by Virgin’s partners – airlines “supported and largely underwritten by three foreign governments”.

However, Virgin Australia boss John Borghetti reckons that Qantas simply can’t stand the rising heat of competition now the Flying Kangaroo no longer enjoys a near-monopoly in Australian skies.

The verbal volleys come as Virgin seeks to raise an additional $350 million which, as Australian Business Traveller previously reported, could see the airline’s overseas partners end up with a combined 79.8% in Virgin Australia’s parent company.

UPDATE: Qantas takes to social media, Virgin Australia ponders legal action against Qantas CEO Alan Joyce

Virgin Australia – but with 80% foreign ownership

Air New Zealand, Etihad Airways and Singapore Airlines are all likely to boost their stake by picking up new shares in return for contributing towards Virgin’s cash call.

Air New Zealand will pony up "between A$81 million and A$116 million", according to a statement from the Kiwi carrier, which now holds 22.9% of Virgin Australia shares and is keen to take that stake up to 25.5%.

According to The Australian, Etihad is looking at a maximum stake of 22.2% placing it just ahead of Singapore Airlines’ goal of 22.1 per cent. Both airlines currently hold an equal 19.9% slice of the pie.

Added to the 10% founding foothold of UK’s Virgin Group, this would see the four foreign airlines holding a combined 79.8% stake in Virgin Australia.

And that, says Qantas, is much too much.

It's a virtual takeover, says Qantas

In a letter sent to state and federal governments, Qantas CEO Alan Joyce called for Canberra to “fully examine the motives behind the virtual takeover of Virgin Australia by foreign airlines.”

Joyce wants the Foreign Investment Review Board to “forensically” examine the roles of Virgin’s overseas partners and also raised the spectre of several of those airlines colluding in a take-over of Virgin Australia.

“If wholly privatised, Virgin Australia's ability to receive potentially unlimited capital from its government-backed owners would seriously distort the domestic aviation market for the benefit of foreign interests” the airline said in a statement issued to the media.

Qantas is especially concerned about the injection of foreign cash into underpinning Virgin’s continued assault on Qantas’ domestic routes, which deliver a much-needed profit to offset the losses of Qantas’ international arm.

The airline also highlighted the ‘level playing field’ argument which sees foreign investment in Qantas capped at 49 per cent, with total ownership by foreign airlines limited to 35 per cent, under the Federal Government’s Qantas Sale Act.

Virgin Australia hits back

None of this cuts much ice with Virgin Australia, which CEO John Borghetti saying it’s all about Virgin bringing much-needed competition into the Australian market.

“Fundamentally the landscape has changed forever, and it is no longer a monopoly” he said.

“At the end of the day, we employ 9000 people, we’ve grown the business and done for lot of tourism in the country – as much as Qantas” added Virgin Australia spokeswoman Danielle Keighery

“If you go back to what this country needs, it needs competition and that’s what we’re bringing."

Your say... 

What's your take on all this? Should foreign airlines be permitted to maintain such high stakes in Virgin Australia? And if so, should Qantas also be allowed to accept overseas interests to the same level?

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David

David Flynn is the Editor-in-Chief of Executive Traveller and a bit of a travel tragic with a weakness for good coffee, shopping and lychee martinis.

01 Feb 2012

Total posts 370

Don't see any non-political reason why there are different foreign ownership rules for Qantas and Virgin Australia. While there is a sense in which Qantas is just living in the past, it is more true that foreign airlines are trying to weaken Qantas by controlling Virgin. 

For the consumer, it may appear that in the short term this is good due to lower airfares, in the long run Qantas will near bankruptcy, not because it is operationally inferior to VIrgin but because it has a higher cost of capital. This is similar to why we have anti-dumping laws in international trade, so that large multi nationals can't sell below cost for a long time until all the smaller players die out, then raise prices.

A consistent regulatory framework will mean that Qantas can access the same cheap capital - for the consumer it may well result in lower airfares if both airlines were majority foreign owned. 

Qantas - Qantas Frequent Flyer

17 Aug 2012

Total posts 2221

Put it this way. Both sides are right, and both sides aren't. QF is right to complain about an uneven playing field, but at the same time they need to stop faffing about. VA has unbalanced advantages in terms of its dealings with foreign carriers, but at the same time is actually doing good business.

The way I see it, it's a regulatory hindrance - but QF also needs to play the same hard business ball that VA is playing. And fooling around with JQ in random bits of Asia doesn't seem to be cutting it.

19 Jan 2012

Total posts 427

QF dropped the ball during the period when VA lucnhed and established its business class product. Joyce was too busy fighting his own staff to react to the real threat!

QF should stick to the core business!

As ever, Joyce can't see beyond his beloved Jetstar.

10 Mar 2011

Total posts 531

I do think that the Qantas Sale Act should either be amended or should apply across the board so that it is an even playing field. As much as I don't want to see Qantas becoming foreign owned, I do see a disadvantage there. It's not that it limits them when it comes to partnerships etc but with these three government owned airlines owning such a big stake in Virgin "Australia" means that they have a bigger financial stake as opposed to having a partnership like Qantas has with Emirates. It might well be the way of the future and we may have to accept that without the riches of foreign ownership, an airline will not survive in Australia.

Having said that... the more Virgin "Australia" sells its soul to foreign airlines, the less I am inclined to fly with them. It's not necessarily just to support Qantas but is also a matter of national pride and responsibility to ensure that Australian stays Australian. The biggest hurdle is if Qantas is outpriced by a big enough margin to make me think twice... and that is the problem with the foreign government airline ownership of Virgin "Australia" because it will enable them to offer better fares than Qantas.

19 Jan 2012

Total posts 427

Then you should be re-nationalising Qantas to make it fully Australian and on the basis that core national asset (airports, water, electricity, etc) should never be in private hands.

...the current QF has little claim to represent national pride given the arrogance of its management in its treatment of its staff and customers.

 

10 Mar 2011

Total posts 531

So be it... I have no issues with Qantas and I receive perfectly good service as a customer. Maybe I'm naive or maybe I'm just not a sheep that has followed the herd to Virgin (and I have absolutely nothing against Virgin and I do fly them too). Whatever the reason... until such time that Qantas does something that makes me think otherwise, I will continue support them. It doesn't make me any better or worse than any other person out there that make a decision and has an opinion.

19 Jan 2012

Total posts 427

Yes, of coure it comes down to personal opinion and preferences, not to mention individual travel budget and pattern.

But I'm not sure why supporting VA makes you a sheep in a herd...VA has offered (myself and partner are Platinum on VA):

  • 10 pts per dollar earn with a period of 20 pts per dollar after business class launch on domestic flights - multiples ahead of QF
  • pooling of credit and points - I can fly my partner and get the benefit of her points/credits
  • opportunity to support competition for domestic premium travel after a decade of shameless price gouging by Qantas
  • pay 35% for business class on the routes I frequent compared with the prevailing QF fare
  • Hilton Diamond and Hertz Presidents Circle
  • opportunity to mix my loyalty strategy 
  • far easier requalification at Platinum than QF

 

In my own case, value considerations such as those above easily outweigh any sensibility about QF being less foreign owned than VA. QF plays on being Australian - the reality is that's just a PR pitch. QF makes its business decisions based on the bottom line and will disregard the interests of its staff and loyal customer base as it deems financially advantageous. Hence the downgrade in business class catering over last christmas holiday period.

 

Loyalty is increasingly yesterday's game. Devaluations may be technically allowable, but they betray trust with the customer base, especially when introduced without due notice periods.

 

The reasonable response as a consumer is to diversify.

 

 

 

 

10 Mar 2011

Total posts 531

That's great Platy.. I'm truly happy for you. I have nothing against Virgin... I am all for healthy competition and I am completely aware of the benefits offered by them.

I don't agree that QF disregards it's staff and loyal customers. I know plenty of staff that work for QF who are very happy there and very supportive of the decisions made. I also know people who work for VA who are really happy they moved there and say it is much better than when they were at QF. I know people who worked for Ansett and loved it there too. I am a loyal Qantas customer and I get looked after exceptionally well by them.

I have flown both airlines and experience varying standards of service on both airlines. I also fly with CX, SQ, MH regularly and also experience varying levels of service on all of them. I have had no real complaints with the service or attitude of Qantas to me in the 30+ flights that I have taken with them this year. I haven't had any complaints on the 15+ flights I have taken with Virgin either. Doesn't mean I have to agree that they should be allowed to have so much foreign ownership which Qantas isn't allowed to have.

I take the experiences as they come and if I am not happy with them I will let them know the reason why... whatever the company is.

Virgin Australia - Velocity Rewards

31 Jan 2012

Total posts 108

Is this not the same as what QF sister airline JQ is doing in NZ. Running at a loss to harm the flag carrier of New Zealand. Next its Hong Kong then Japan. Dont forget AJ that JQ is part of the QF group.

Well done Virgin for making air travel in this country afforadable. Would JQ be around if Virgin Blue didnt happen 12 years ago. Remember the price of a flight in the late 90's.

JB was laughed at when he proposed EY at QF. Guess who is smiliing now

Qantas - Qantas Frequent Flyer

18 Oct 2012

Total posts 122

And lets not forget at what lengths QF went to , to put the nail in Ansett,s coffin. Bring it on.

02 Jan 2013

Total posts 70

I think quite a few of the bigger exec's are ex Ansett . Isn't that funny!

Virgin Australia - Velocity Rewards

01 Mar 2012

Total posts 169

I don't think much will come of it. Joyce's attempts to mobilise an unhappy workforce will not happen and the public is hardly going to support it.

Yes VA has an advantage in having Foreign carriers investing in it, however as a person commented on a business site I read, no-one has jumped in to take BA's old position and QF's new bedfellows Emirates have ruled that out so the government can change the Qantas Act, however it really isn't going to make a difference. There haven't been and will continue not to have those any reason to invest in a carrier such as Qantas. So I'm not convinced that Qantas in its current form can access such cheap and longer term focused capital.

Velocity

04 May 2011

Total posts 22

Well Done JB.

Southland you have hit the nail on the head.

Excuse my ignorance, but do we have two sets of laws for two different entities, VA and QF?

Or does the Qantas Sale Act stipulate similar ownership conditions for other Australian airlines?

  • If there are two sets of laws, one for QF and one for VA then there is something seriously wrong with our competition regulators - the framework's completely messed up!
  • If there is one set of rules that applies to both companies then what the hell is AJ and QF moaning about? Is QF suggesting that the regulators are being tardy in their assessment of VA's ownership structure?

19 Jan 2012

Total posts 427

One suspects that the real issue is that Joyce is pissed off because VA can access capital and thereby offer a potentially greater competitive threat by under writing operational losses and providing the resources for expansion.

Joyce has been trying to bleed VA by over-supply on the golden triangle routes, hence, among others, removal of SYD-CNS 738 services to redeploy the fleet.

If Joyce bleats away long, loud and pathetically enough with a healthy meaure of fear-uncertainty-doubt about how all things Australian and jobs, etc., are under threat, the Chairmans Lounge sycophants of the federal government might be swayed to pluck one or two of VA's unfurling feathers.

Yes, the regulatory framework is clunky - QF needs to comply with the QF Sale Act, then the various competition regulators have their say, etc...

Joyce can't have it both ways - repeal the Sale Act and open the skies if you're serious about competition and a level playing field!

Joyce and Dixon didn't have a problem with launching Jetstar, a partial parasite on QF's market share and operational resources!

Virgin Australia - Velocity Rewards

01 Mar 2012

Total posts 169

Fair call Platy. I suspect that Mr Joyce is not going to have his way. He has used up a lot of goodwill over the past couple of years in Canberra and VA has a strong team that will put equal pressure to make sure that the Rights Issue will go ahead, if not some sort of convertible loan structure will be put in place which will mean in the end the shareholders that Joyce is trying to war against will take the maximum anyway.

Coming so close to an election where the LNP stated that Australia was open for business they can't be seen to knock back the capital raising. My thoughts are that if something is to happen the Act will be adjusted, but unlikely within the next year or so.

Virgin Australia - Velocity Rewards

31 Jan 2012

Total posts 108

QF has been outsmarted and the spilt of VA to 3 different companies was so well planned to sustain competition in australia. If JB got the job over AJ would we see a differnt QF than we do today. I would say YES. Bad management at QF and has lead to QF being where it is. Grounding of an airline the asking staff to rally behind the CEO that grounded them. IR nightmare and massive payrises for the man that has lead QF to its demise. I agree the rules and playing field should be even but QF has been out played and outsmarted and now cry poor. Bad managememnt is all it is and AJ has a reason to to try to cover up his poor management.

This is all conjecture. I refuse to believe AJ is that incompetent that he has been unable to devise a structure similar to VA.

There has to be something in the legislation that prevents Qantas doing just that.

Until we know the fact, all this is just hyperboly. We end up being no better than talk back radio. The masses may be entertained and "informed" by such crap but surely we deserve better.

The Australian media is doing a great injustice to the travelling public and our aviation sector by allowing the facts to remain shrouded in mystery.

02 Jan 2013

Total posts 70

Yep and Borghetti was part of the management that help reduce Qf to where it is now.I'm sure he was part of that monopoly as well!

26 May 2011

Total posts 58

Both airlines should be subject to the same restrictions on foreign ownership. Period. Forget about which airline you prefer. Both should be allowed to compete on a level playing field. 

As for Qantas 'putting a nail in Ansett's coffin', I think you will find that was Air NZ. 

Qantas - Qantas Frequent Flyer

25 Jan 2013

Total posts 246

Qantas is a special case here in corporate Australia. It is a legacy carrier and as such it is a fairly safe bet that they have the security of being 'nationalised before going broke'. But that security comes at a price. Thus, the Qantas Sales Act.

In the interest of full disclosure, I am more of a Virgin Australia fan, but that is more because as a marketer I like their 'young gun, disruptive ans fresh approach.' Don't get me wrong, Qantas does a lot of things well, but if it were a person it would be a grumpy old man winging about why the world isn't like it was he was a kid.

I don't mean to sound an ageist their either, but this is realistic nature of corporate Australia. Darwinism or those that don't adapt die.

Finally, lets not forget what the entertainment industry is learning at the moment. That markets don't like it when you try and simply legislate and regulate broken business models into success.

Qantas - Qantas Frequent Flyer

20 Jun 2013

Total posts 4

Qantas is reaping what is has sown.

Meaning; before Allan Joyce's time,Qantas got access to NZ skies on the basis that the Australian Govt would then open up Australia to Air NZ.

Canberra reneged  in support of Qantas's wailings but NZ honoured the agreement.

Jetstar then took over in NZ and has continued whilst Air NZ was still locked out of Australian domestic services until the Virgin investment.

Jetstar has a terrible reputation with travellers in NZ with multiple cancellations and in my view, has not contributed anything for competition or the customer.

Karma has an interesting outcome ?

Monopolies have never been good unless you own one!


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