Qantas chief executive Vanessa Hudson woke yesterday to nightmare news: one of the world’s top airlines, Qatar Airways, is looking to buy a 20% slice of her biggest competitor, Virgin Australia.
The move would serve to deepen and strengthen the existing codeshare deal between Virgin and Qatar, and has the potential to fast-track Virgin’s international ambitions beyond Bali, New Zealand, Japan and the Pacific.
Critically, it could also improve Virgin’s domestic services by allowing the airline to lease Qatar’s twin-aisle B777s, boosting capacity and passenger comfort. These planes could be used on routes such as East Coast to Cairns and Perth, as well as some existing international routes, pilots suggested to Crikey.
At present Virgin carries only 31% of Australia’s domestic traffic, with Qantas/Jetstar taking 62% and the rest on Rex and smaller airlines, including the now-defunct Bonza. Qantas’ domestic business is its main profit centre.
The Qatar deal could also help Virgin’s owner — private equity group Bain Capital — fulfil its long-held desire to publically list the airline. Recent reports suggest such a move could happen later this year.
The Foreign Investment Review Board (FIRB) would need to sign off on the Qatar transaction, but 20% is not a controlling stake and a properly backed Virgin is in the best interests of competition and consumers. Virgin Australia was previously owned by a group of investors including Singapore Airlines (20% stake), Etihad (21%), China’s Nanshan Group (20%) and Richard Branson (10% — his retains a 5% stake in the revamped airline). Qantas is expected to lobby against any deal (as it does relentlessly to any fresh competition), but there is little reason for FIRB to knock the agreement back.
Last year Qatar was prevented by the Albanese government from running more flights into Australia, despite other international carriers such as Turkish Airlines and Sri Lankan Airlines being granted more landing slots. A number of Chinese airlines have ramped up flights to Australia and offer bargain basement prices to Europe via Beijing, Shanghai and Guangzhou. Just this week, Hong Kong’s Cathay Pacific announced it would increase flights into Perth and Brisbane.
A Qatar investment in Virgin would represent a neat way around this impasse that would also serve to increase much-needed competition in the domestic sector.
The proposed deal comes three months after a fresh push by the Doha-based airline to double its flights into Perth, Sydney, Melbourne and Brisbane.
Qatar Airways CEO Badr Mohammed Al Meer was upbeat about talks with Canberra at the recent annual International Air Transport Association conference in Dubai.
“We continue our communication with the Australian government and we see it moving in a positive way,” he said.
“Hopefully in the next few months we will get some positive news from Australia and we’re looking forward to expanding and growing more in the Australian market, which will always benefit the Australian community and customers.”
A closer alliance with Virgin could allow Qatar to become a round-the-world airline and mimic the cosy Qantas/Emirates alliance that was signed off by the Australian Competition and Consumer Commission (ACCC) last year for its second five-year stretch. That partnership sees Emirates operate as Qantas’ virtual airline to the Middle East, Africa and most of Europe. Qantas itself only flies two daily flights from Australia to London and seasonal flights to Rome and Paris during the European high summer.
Qantas’ international business is struggling on several routes, particularly between Australia and Los Angeles. Earlier this month the airline dropped an unusually large sale on premium seats ahead of the end of the financial year.
Insiders suggested that Qatar/Virgin might eventually challenge some of Qantas’ more profitable international routes including Sydney-Johannesburg and Perth-London.
Speculation around a Qatar stake comes as Virgin mulls the appointment of chief customer officer and digital manager Paul Jones, a former senior Qantas executive, as its new CEO. The move has been decried by many including the Transport Workers Union (TWU).
Jones was a key architect of Qantas’ outsourcing of 1,700 ground staff during the pandemic. The Federal Court judge in the case, Michael Lee, found him to be an unreliable witness. “It is alarming that such a person … would be considered to run Virgin Australia,” TWU secretary Michael Kaine wrote in a letter to Bain.
“That this consideration is given at a time of turbulence between Virgin Australia management and staff is even more concerning.”
