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Middle East

Feb 21, 2014

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?

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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.

Myriam Robin — Media Reporter

Myriam Robin

Media Reporter

Myriam has been Crikey’s media reporter since 2014. Before that, she was a business journalist with sister site SmartCompany, covering economics and corporate strategy.

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