After four days of posturing by Qantas over Virgin Australia’s right to compete against it the row seems headed for a strategic draw.
If Virgin Australia gets the same debt guarantees that Qantas is seeking there will be no government supplied advantage to either carrier, and it will come down to how well each airline group is managed as well as which has the better value to offer their customers.
If Virgin Australia doesn’t get equality of opportunity with Qantas, and government rules that Qantas is perpetually entitled to the 65% market share it arbitrarily claims to be defending at great cost to itself, then the business world will know that the Abbott cabinet wants to call winners and losers in a predetermined and thus no longer ‘free’ free market, which will have bad consequences, not only for the national economy, but its reputation for being fairly run without undue governmental favouritism and interference.
It is however, well nigh impossible for any Australian government, under the glare of exposure, to give a debt guarantee to one airline group and not the other, apart from Labor, which did that in August, thinking that the media wouldn’t find out about it. Or maybe not thinking at all.
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The problem for Qantas doesn’t appear to be so much the restrictions of the Qantas Sale Act (which also came with enormous privileged advantages for Qantas right up to recent times) but the limitations of the group’s management under CEO Alan Joyce and chairman Leigh Clifford.
In today’s numerous reports by economists and analysts, it seems clear that if Qantas really needs to make a capital raising issue, even with a government guarantee covering the debt or risk, it will have to explain its lousy share price, the money it has squandered on failed or failing Jetstar ventures abroad, its overburden of highly paid executives, its complex and dysfunctional internal structures, and the credibility gap that exists between everything the CEO says and what actually happens.
Is this unfair to Qantas?
No. Qantas started this process of exposure and reconsideration, but it has no control over how it will end. Mr Joyce seems to take the view that he has only to say something and it will be believed, without question. But there are many questions that arise from what he says, does and claims, and it does appear this week that they are being asked with rising levels of incredulity in places where in the past such nonsense from Mr Joyce was accepted unchallenged.
Apart from silly utterances about Qantas being something that makes people go misty eyed and is vital to our national security and identity, there is a clear hint that the old nonsense isn’t working as well as it used to for Qantas, before it gave away a large part of its business to the world’s largest government owned airline, Emirates, and turned its back on Perth, Brisbane and Adelaide, telling them to hop on Emirates code shares instead.
The fundamental difference between the Qantas and Virgin groups and government controlled or owned airlines is stark. Qantas has been giving up its business to the largest of them Emirates, for free, while Virgin has been taking money from three of them in return for equity in its legal ownership structure.
Everything that Qantas has said this week, and it has been quite upfront if not brazen about it, is about gaining a government advantage to curb a competitor that it can’t deal with even from the position of being a three times larger airline group.
According to Alan Joyce, Qantas doesn’t even want the changes to the Qantas Sale Act most fair minded people would concede it is entitled to, because that will take too long. He wants the Virgins stopped now, but at the risk of taxpayer money being exposed to a government debt guarantee. Even then Qantas might struggle to get any capital it wants, since otherwise it would have already gone to the market, as it used to regularly, to get whatever it wanted just for the asking and despite the restrictions of the Qantas Sale Act.
What has changed? Could it be that after four years of really inglorious mismanagement, the usual capital raising sources aren’t anywhere near to being as susceptible to Qantas offers as before?
If Qantas can get additional capital it might just come with a set of demands that the current management wouldn’t welcome at all.
Everything Qantas has said this week is an implied admission of failure in management. It has much less to do with Australia’s geographical disadvantages, or the costs of labour, than it has to do with the diversion of many hundreds of millions of dollars worth of cash and assets within the group to Jetstar ventures, a burdensome internal structure full of unproductive management positions, a smokescreen of ‘underlying profit’ projections and misleading, opaque or even ‘voluptuous’ accounting procedures, and an apparently totally disengaged board.
Qantas continues through Joyce to think that it needn’t reveal how or where the money is going within the group in return for government favouritism and another chorus of “I still call Australia home”.
Joyce appears to have misjudged it this time. It would be a very serious error of judgement by government to give Qantas any comfort without demanding to know more, much more, about what is actually going on inside this company, and have a say in fixing it, in return.
Which is a bit like what its pilots did, when they wore red ties, and made short announcements of concern at the start of each flight, during the 2011 industrial disputes.