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Crikey Clarifier: how raw is Qantas’ deal compared with rivals?

Qantas execs say they’re not operating on a level playing field. With their competitors getting plenty of goodies and subsidies from their governments they want some too. Do they have a point?

Any day now you can expect an announcement of some sort of lifeline for Qantas, which has been grovelling to the government for months about its dire financial woes. Qantas says it’s not operating on a level playing field and needs government assistance to compete with its competition.

Does the flying kangaroo have a point?

Former Qantas chief economist Tony Webber, who now runs an economic consultancy, isn’t a man to go easy on Qantas. He’s been one of the fiercest critics of its management under current chief Alan Joyce, but even he admits that, along with the high fuel price, the assistance offered to Qantas competitors hasn’t made things easy for the national carrier.

The majority of Qantas key competitors do get some form of assistance from their governments,” he told Crikey, after taking us through some of the ways it’s generally good to be a national carrier …

Accessing government credit rating

The most straightforward form of assistance given to national carriers is one that’s been floated for Qantas — access to the government’s credit rating. In many countries, this is easily achieved, as the government either partly or wholly owns the airline. In Qantas’ case, reports suggest Qantas is in talks with the government about some sort of debt guarantee, which would achieve the same thing as far as its credit rating is concerned — the airline could borrow cheaply on the assumption that the government would have to go bankrupt before a lender would lose its money.

Most of Qantas’ major international competitors — including Emirates, Singapore, Air New Zealand — are partly or wholly government owned.

Better tax treatment

Solid ratings aren’t the only benefit to being a national carrier — they generally get pretty favourable tax treatment, too.

For example, the employees of many of the Middle Eastern carriers, including Emirates and Etihad, do not pay income tax. This means the airlines can effectively pay lower wages, as they don’t have to bump up what they offer to take account of the tax office taking a slice out of take-home pay. Couple this with the fact that many of these countries also have pretty liberal labour markets, and the airlines can get away with offering far lower wages than they would otherwise.

And it’s not just the employees who pay no tax at Emirates. The company doesn’t pay corporate tax either, which helps its profits along.

Accelerated depreciation on assets

Many Asian carriers, like Singapore Airlines, have another neat tax benefit: they get accelerated depreciation on their planes and other capital goods.

That means they can depreciate their aircraft much faster than Qantas can, which reduces their tax liabilities,” Webber said.

Ownership of associated infrastructure

Often, the owners of national carriers, particularly in the Middle East, also own the services and infrastructure that goes into using the airline. Airports, roads leading to airports and hotel chains are often owned along with the airline, so the joint owner (typically the government) will then offer lower airport charges to encourage the other parts of the business along.

Dubai airport is owned by the government of Dubai, and to stimulate traffic, their airport fees are considerably lower than elsewhere, which benefits Emirates,” Webber said.

Not all of Qantas’ problems can be pinned on the fact that other nations heavily subsidise and help along their national carriers. But it does hurt.

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  • 1
    drmick
    Posted Friday, 21 February 2014 at 2:09 pm | Permalink

    How many of these companies have enacted a strategy that grounded their fleet and left customers stranded in airports around the world to prove a point?
    How many of their competitors had enough financial reserves to run a “fighting fund” to bring down the unions that service its aircraft? the very unions that gave it its unrivalled safety record?
    If Joyce left the country for good, after paying back all the money he wasted, and recompensed the people he criminally endangered for personal amusement, it would hurt a lot less.

  • 2
    Bill Hilliger
    Posted Friday, 21 February 2014 at 2:31 pm | Permalink

    Most of Qantas’ major international competitors — including Emirates, Singapore, Air New Zealand — are partly or wholly government owned. So was Qantas at one time.

  • 3
    Mark from Melbourne
    Posted Friday, 21 February 2014 at 6:24 pm | Permalink

    So the line you are running is that because Qantas has to compete with subsidised businesses we should subsidise them too? Isn’t that the same situation as Holden, Ford etc?

  • 4
    AR
    Posted Friday, 21 February 2014 at 7:39 pm | Permalink

    I know it’s out there on the edge, but how about Qantas try delivering a decent service, at a competitive price (actually I’d pay a premium, just as in the supamart to buy OZ)to a core route?
    “Tell ‘im he’s dreaming”, I know.

  • 5
    Myriam Robin
    Posted Friday, 21 February 2014 at 7:47 pm | Permalink

    Hi Mark from Melbourne. No ‘line’, just a fact check. Qantas isn’t on a level playing field, but I think it takes more than that to make an argument for assistance.

  • 6
    TheFamousEccles
    Posted Friday, 21 February 2014 at 10:43 pm | Permalink

    Bill Hilliger makes the point that has often crossed my mind over the past few years of Joyce’s stewardship. Qantas needs to get rid of this clown and his diversionary union bashing and bleats about “level playing fields” and get on with providing value.

  • 7
    Draco Houston
    Posted Saturday, 22 February 2014 at 12:09 am | Permalink

    Really makes me wonder why anyone thought privatizing QANTAS was a good idea

  • 8
    macca
    Posted Saturday, 22 February 2014 at 12:16 am | Permalink

    Ben - thanks. I am feeling more sympathetic to the argument for proving a debt guarantee, but I can’t reconcile with the wasteful Chairman’s Club revelations (for me, at least).

  • 9
    Philip Swain
    Posted Saturday, 22 February 2014 at 1:29 pm | Permalink

    Hang on a minute , this article is highlighting the uncompetitiveness of QANTAS internationally but isn’t it equally struggling on domestic routes an area where it used it’s monopoly position previously to send other airlines to the wall? Isn’t it’s main competition Virgin (a wholly private owned company)? Am I missing something, or is it that Joyce has tried to make it a domestic budget airline and failed horribly? I fly Virgin domestically and internationally and have had the misery of flying QANTAS and Jetstar in recent years and the one big difference no one wants to talk about is “service, service, service” !!!!!!!!!!!

  • 10
    Scott Macander
    Posted Saturday, 22 February 2014 at 3:08 pm | Permalink

    Philip I don’t believe Qantas Domestic are struggling, rather it is all about the International section which would explain why they changed hubs from SIN to DXB and formed the alliance with EK.

    As for your comment about their main domestic competitor being Virgin you are right and yes they are technically a wholly owned private company. But what you have failed to realise is that while Virgin is entitled to the same protected domestic routes as Qantas, Virgin ‘Australia’ is over 70% owned by foreigners - Sir Richard Branson (10%) Singapore Airlines (19.9%), Etihad (currently 19.9% but recently applied for more) and Air New Zealand (23%). Meanwhile, Qantas has to endure the Qantas Sale Act and can’t just go running to other airlines (read Governments) for more money when the going gets tough.

  • 11
    grubbidok
    Posted Wednesday, 26 February 2014 at 9:58 pm | Permalink

    I can’t see a single point made that doesn’t also apply to Virgin (which is a business that must be *independently* profitable [with a lower credit rating than QF making credit more expensive] irrespective of who the largest shareholders are - the advantages those shareholders themselves have is neither here nor there).

    At any rate, how is QF giving pax over to EK any different from VA’s ownership structure, in all but name.

    QF’s dire state is solely due to management incompetence. The resurgence of VA has far more to do with it’s improved management than foreign owners. The only reason QF are getting a handout (and it is a handout, as it is a lot of risk taxpayers are taking on, especially with Joyce and Co in charge), is because they’re happy to do some of the union bashing for their Coalition loansharks.

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