Saturday April 19, 2014

OPINION – If you can’t beat ‘em, join ‘em – Part 2

Qantas's strategic alliance partner Emirates is state-owned. (Rob Finlayson)

Qantas’s strategic alliance partner Emirates is state-owned. (Rob Finlayson)

The debate between Qantas and Virgin Australia swings from fiction to farce and back again, and now the federal government is increasingly involved, control of the very important strategic considerations about the futures of Australia’s two major airlines has gone from the board room to the parliament.

When Qantas cozied up with Emirates, surely the Australian carrier effectively muzzled itself against public criticism of state-owned carriers? It had been thrown a life-line to stem the red tide flowing from the international business – a wisely-calculated move that stood to have salvation as its masthead.

This was Part 1 of the story. In the segue to Part 2, we see the publicly vocal Qantas CEO Alan Joyce lamenting over the unlevel playing field his carrier apparently plays on as Virgin Australia CEO John Borghetti steers his airline towards a sustainably competitive position.

But in Part 2, the canny Joyce may have turned a blinder, having leveraged Virgin Australia’s quest for increasing ownership by foreign state-owned carriers to ignite the Qantas Sale Act debate once more. It’s been a few years – it needed airing again.

Joyce has successfully put the issue on the broad agenda again to the extent his strides down the halls on Capital Hill have sparked enthusiastic support from the federal treasurer.

In my Australian Aviation story ‘Rising Star’, about Jetstar’s rise within the Qantas Group, I argued Qantas mainline would likely find itself increasingly marginalised and could well find its way to government ownership again. It was a prediction based on  a view I have held for many years.

While Qantas is arguably a long way from reaching that, quite simply, airlines are too important as economic, political and social instruments of the state for them not to be closer to the heart of government. And the trend towards state-ownership supports that theory, regardless of the contemporary distaste.

Air New Zealand is majority government owned. (Rob Finlayson)

Air New Zealand is majority government owned. (Rob Finlayson)

One has only to look at Air New Zealand’s strong rise in recent years under government ownership to see just how important an airline can be proved to be to national interests such as tourism. And Air New Zealand is but a pimple compared to the rapidly expanding Gulf carriers – under government ownership.

But now Borghetti – astutely – has said in an open letter to the Australian government that if the government is prepared to put its hand in the taxpayers’ pocket to support Qantas, he wants some too.

“If any government support was given to the dominant player, we would expect the same level of support,” Borghetti said in the letter, adding: “There have been media reports that the government offered comfort letters to Qantas’s credit rating agencies, prior to our capital raising. I would also note that if Virgin Australia had been afforded the benefit of such a letter, it would have enabled us to achieve superior outcomes from both the recent debt bond issue undertaken in the US market and the capital raising that is underway.”

Although Borghetti’s comments smack of ‘me too, please’, his comments are sure to strike a chord, for indeed the playing field does seem uneven, but not as Joyce sees it.

While under his two-month tenure transport minister Truss has led the federal government into rectifying years of neglect under the former government in the aviation portfolio, the parliamentary agenda stands to become choked with aviation issues of such national significance – the second Sydney airport and now Qantas ownership – that both issues risk asphyxiating one another on the parliamentary floor for the budget they potentially require, let alone the ideological differences that will ensure spirited – and lengthy – debate.

The Qantas Sale Act is at least two years away from being resolved. In the meantime Joyce is going to have to continue with what appears to be a workable solution to wrest the carrier’s international business from collapse. But he can only achieve that – at least for the moment – with the unwavering support of a state-owned partner, something he needs to be careful about.

There will be only so much time that Tim Clark and his bosses will be prepared to turn a blind eye to the outspoken Qantas CEO’s hypocritical remarks about state ownership.

Too many times the industry and community has seen Qantas crying wolf.

Comments

2 Responses to “OPINION – If you can’t beat ‘em, join ‘em – Part 2”
  1. Patrick Kilby says:

    The issue is that State ownership comes with what is a sovereign risk guarantee. I think Tim Clarke knows that; and Alan Joyce is merely pointing out that QF does not have that sovereign guarantee but Virgin (indirectly) does. Tim Clark does not have to turn a blind eye about anything.

  2. Random says:

    It’s interesting that the ownership debate seldom heads toward geo-political matters and national defence considerations. Perhaps that idea that foreign share-holders might not share the same national interest is verging on taboo – as an observation it’s certainly not meant to be slanderous or xenophobic. Or perhaps the government of the day would have legislative provisions to co-opt air resources in times of national emergency should it ever become necessary? It would seem that whilst our Australian carriers are in owned at least in part by other players, then conflicted national interests may some day have to become more visible? As for now… well I guess money talks.