The Tourism News, 4th March 2014
The media is still playing out a Labor vs Liberal scenario whilst Qantas waits in the wings. Last week, ideas about repeals to the Qantas Sale Act were already dismissed as impassable through the senate. The only new news is the realisation that the domestic arms and international arms are different beasts; the domestic is profitable and the international is not.
John Sharp, Deputy Chairman of Rex Airlines are and Virgin Australia spokespeople have both confirmed that they are happy that no debt guarantee was considered. Sharp said that Rex is in no debt, and to put Qantas on a debt guarantee would make it impossible for small airlines to compete.
Sharp said the QantasLink product was to blame and that QantasLink’s failures in on-time running and frequent cancellations were proof that a lot of work needed to be done at Qantas before any government assistance was considered.
“(QantasLink) are not a competitive airline. If (Qantas) is to provide jobs and services into the future it needs to become lean operation” Sharp said. “When it’s not viable it will die”.
Most commentators and industry experts are also dismissive of the idea that foreign investment could result in a name change for the company as the brand is so strong. John Sharp cited Vegemite as an example of a brand that is still part of the Australian identity, regardless of ownership. USA-based FMCG giant Kraft has owned a stake in Vegemite since 1926.
PM opens door to Qantas split, sale
From theaustralian.com.au, 4th March 2014
TONY Abbott has opened the door for a radical Qantas split into domestic and international arms after federal cabinet backed the wholesale repeal of the airline’s ownership limits.
The Prime Minister outlined plans to scrap constraints on the airline’s domestic operations while keeping Australian control of the international division, a crucial step towards dividing the company.
The reform plan goes far beyond the changes rumoured late yesterday, including not only repealing the 49 per cent cap on foreign investment in Qantas as a whole but also removing the barrier to foreign airlines buying more than 35 per cent of the company.
In the face of Labor warnings that jobs are at risk, federal cabinet also decided to repeal provisions that require Qantas to keep its principal maintenance, catering, head office and other operations in Australia.
The amendments could be ready for parliament to consider on Thursday but face a roadblock in the Senate as Bill Shorten warns of the loss of an Australian icon while minor parties threaten to veto the changes.
Mr Abbott announced the changes shortly before 8pm with the claim that he was meeting the plea from Qantas chief executive Alan Joyce for a “level playing field” against Virgin Australia, with both airlines subject to the same rules.
Joe Hockey dismissed fears about the financial future of Qantas by insisting the company was “fundamentally sound” and did not need the extraordinary help of a commonwealth guarantee over its debt.
Cabinet ministers discussed the debt guarantee but rejected the idea and chose instead to endorse a submission from Transport Minister Warren Truss, backed by Mr Abbott, to repeal the ownership rules despite the political risk of a scare campaign over the airline being sold to foreigners.
“Obviously, under what we are proposing, Qantas International would remain in every sense an Australian airline,” Mr Abbott said. “Qantas Domestic, should there be a distinction, would remain a substantially Australian airline.”
The central change in the repeal of Part 3 of the Qantas Sale Act is the removal of the 49 per cent limit on foreign ownership in Qantas as a whole. Other changes include scrapping the requirement that two-thirds of the Qantas board members are Australian citizens and the company’s head office be located in Australia. The government would also remove a provision that prevents foreign airlines holding more than 35 per cent of Qantas and stops any single foreign investor owning more than 25 per cent of the company.
This would free Qantas to lure foreign investors to support its domestic operations and answer Mr Joyce’s concerns last week that Virgin Australia was being buoyed with cash from the foreign airlines that control it.
The reforms would enable Qantas to match the ownership structure of Virgin Australia, which limits foreign ownership in its international division to 49 per cent but has a separate Australian operation that is 66.9 per cent owned by Air New Zealand, Etihad Airways and Singapore Airlines.
Under the plan, Qantas would remain subject to a separate law, the Air Navigation Act, that caps foreign ownership in an “Australian international airline” to 49 per cent, giving the airline an incentive to split its domestic and international arms.
Governments could also rely on foreign investment laws to veto a large overseas investor, such as an airline controlled by a foreign government, on national interest grounds.
Qantas said last night the government plan was a “longer-term objective” but would have limited chance of passing through the Senate.
“We need immediate action to address the imbalance that has been allowed to persist for almost two years – namely Virgin’s unlimited ability to access foreign capital from government-owned airlines to fund a loss-making strategy against Qantas,” the company said. “If this proposal by the government to change the Qantas Sale Act is not passed, we would expect the government and the parliament to consider alternative measures to balance the unlevel playing field in Australian aviation.”
Labor and the Greens vowed to vote against the changes and the Palmer United Party has rejected changes to the Qantas ownership laws, triggering Labor accusations that the government plan was a political ploy.
Opposition transport spokesman Anthony Albanese expressed shock at the outcome and said it went beyond anything the government had signalled.
“No one who had read the tea-leaves, had a look at the leaking that has gone on from government ministers in the past few months, could have predicted that they would attempt to get rid of the entire section of the act, holus bolus,” Mr Albanese said.
“Every single principle which makes the flying kangaroo a kangaroo, and Australian, is gone under this proposal.”
Mr Abbott did not dispute that maintenance work could be shifted offshore if the government succeeded in changing the law. “The best way to maximise Australian jobs is to maximise Qantas’s ability to compete,” he said.
The Prime Minister acknowledged the airline could choose a corporate structure like Virgin, which has split its domestic and international arms, but he disputed the idea that Virgin was not Australian.
Mr Joyce has pressed the government for a “standby debt facility” to cut borrowing costs rather than seeking a drawn-out debate over the 49 per cent limit on the airline’s foreign ownership in the Qantas Sale Act.
The government changes would be blocked in the current Senate and would probably be blocked in the new Senate after July. While Family First and the Liberal Democratic Party support changes to the Qantas Sale Act, the changes are opposed by independent Nick Xenophon, the Democratic Labour Party and the Palmer United Party.