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Virgin rights issue sparks war of words

written by australianaviation.com.au | November 18, 2013
Qantas and Virgin are going head to head over the issue of foreign ownership. (John Absolon)
Qantas and Virgin are going head to head over the issue of foreign ownership. (John Absolon)

Virgin Australia’s $350 million rights issue, which has seen major institutional investors Air New Zealand, Etihad, Singapore Airlines and the Virgin Group take up their entitlement shares in the airline, has sparked a pointed reaction from Qantas and counter arguments from Virgin.

The rights issue, which so far has raised $281.4 million from Virgin Australia’s institutional shareholders and is aimed at raising cash the airline says will “enhance Virgin Australia’s liquidity position and for general corporate purposes”, has seen Qantas CEO Alan Joyce write to the Prime Minister, the federal transport minister and state premiers calling for the capital raising to be blocked.

According to the Australian Financial Review, Joyce labelled the rights issue as being “supported and largely underwritten by three foreign governments” (as Air New Zealand, Etihad and Singapore Airlines are effectively government owned and controlled) in what he reportedly labels a “final act” with “all the characteristics of predator behaviour [to] substantially weaken a major competitor, [the] Qantas Group, and recoup the costs at a later date.” Joyce called for the deal to be examined by the Foreign Investment Review Board.

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According to the AFR report the letter also said the Qantas Sale Act restrictions were an “outdated policy framework that left Qantas at a disadvantage to Virgin Australia”.

In a statement Qantas has subsequently confirmed that: “it has contacted federal and state governments to express concerns as the national carrier about potentially damaging shifts in Australia’s aviation industry.”

The statement continues: “Virgin Australia’s proposed capital raising could see its foreign ownership rise to more than 80 per cent without the need for any further regulatory approval. Despite this, the airline would retain all the traffic rights given to Australian carriers.

“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.

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“The decision of these shareholders to invest in Virgin Australia’s loss-making strategy highlights that these airlines aren’t subject to the same commercial realities as Qantas.

“We have asked federal and state governments to fully examine the motives behind the virtual takeover of Virgin Australia by foreign airlines, and to prevent destabilising of the domestic aviation industry, local tourism and jobs.”

In response, Virgin Australia issued its own statement on the issue: “The capital raising announced on 14 November 2013 is designed to enhance Virgin Australia’s liquidity and gearing position to ensure we are in a stronger position moving forward, so that we can continue to bring much needed competition to the Australian aviation market and continue to grow jobs in Australia.

“It is important to note that should all Virgin Australia’s three major airline shareholders have board representation, we will still continue to have a majority independent board with an independent chairman and appropriate protocols in place which will ensure good management and strong corporate governance.

“We know we have chosen the right partners with the right intentions. They are all aligned in the common goal of wanting Virgin Australia to provide strong competition in the Australian aviation market.

“The landscape of Australian aviation has changed forever. It is no longer a monopoly.”

 

 

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5 Comments

  • Russell M

    says:

    Qantas are amazing, their points are noted and probably valid. But is this the same Qantas that loads up massive capacity on domestic routes any time it sniffs competition, leads and conducts price wars like crazy? Has a regional operation (Qantas Link) which charges (no different to Rex’s behaviour) totally non-competitive prices on routes for which it has a monopoly (eg Brisbane to Gladstone when it had the monopoly, Brisbane to Hervey Bay, etc), same totally non-competitive prices on jet routes when it has a monopoly (eg Brisbane – Mt Isa)?

    Now the same Qantas is having a squeal about Virgin now reaching the point where it is becoming more of a threat?

    Qantas is a bit like the school bully in Year 6 moving up to High School and finding he’s not the big kid any more. No doubt running to the school welfare officer to complain about being picked on?

  • Freddie

    says:

    Yes Russell M – I agree. Recently I had to travel to Bundaberg for the day. I had to travel with Qantas Link and the fare (return) was over $850 dollars. This fare could have taken me to Singapore instead of 450 klms up the coast. Virgin only have one flight in and out once a day (pity) so I was bound to fly with Qantas. On the day Virgin would have cost me $140 if I had been able to use them. Bring the war on – for the benefits of the fare paying public.

    Yes Qantas is behaving like a school boy bully discovering he is no longer the KIng PIn.

  • beryl

    says:

    Virgin are backed by foreign governments with deep pockets, thats why virgin can offer cheap fares. The playing field for Qantas is not level.
    I have recently bought Qantas tickets from Canberra to Hervey Bay and return over christmas and they were cheaper than Virgin.

  • Jim

    says:

    What goes around comes around. Joyce has been so adamant about keeping his 65% market share, flooding the market at twice the rate as virgin.

    Joyce hasn’t exactly been playing “fair” either

  • Russell M

    says:

    Its certainly interesting to watch these two battle it out now. The playing field is uneven on many factors – I notice Beryl mentions flights from Canberra – the source of course for some very heavily sponsored business class travel (Parliament, APS and assorted hangers’ on) and APS travel leaning towards Qantas due to Qantas Club and the need to have friday drinks in the lounge before heading home (And in case anyone wants to jump in on that one, please don’t – the exception reports on use of “best fare of the day” are staggering!).

    Both airlines were predatory / competitive / taking opportunities of market forces with travel from Perth to Melbourne over Grand Final time – I saw amazingly cheap fares in the “other direction” and massively inflated fares at the same time.

    Said it before, but I think QF needs to just give up on the International side of things – its lost the plot, its lost service, its lost market share. Its simply not competitive any more, level or slightly uneven playing field. We no longer need a national carrier – yes it will be sad to see it go but really…..do we need it? No. Focus on Domestic, which it still does reasonably well, and let international (apart maybe from some key profitable routes that can be done with A330 that can be woven into the domestic fleet too eg NZ, Singapore, Hong Kong). Let partner Emirates have the rest, or the better carriers like Singapore, etc.

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