Australians have not exactly been spoiled for choice when it comes to choosing a domestic airline but Qatar Airways’ push to acquire a 25% stake in Virgin Australia could bring a welcome shake-up to the aviation industry.
News of a second Australian carrier now flying to the Middle East – albeit with Qatari planes and crew initially – and a global network of connections beyond that, poses a genuine alternative for travellers to consider, and a serious challenge to Qantas’s stranglehold.
While final approvals are still pending, Virgin has already begun selling tickets to its new flights from June, with the federal treasurer, Jim Chalmers, on Thursday announcing that the foreign ownership stake was in the national interest.
It now means those who want to book overseas travel with an Australian carrier on one ticket, and want to be part of a loyalty program to earn and spend points across domestic and international flights, have a new option.
For the first time since before the pandemic began, Qantas’s global network and its Frequent Flyer program don’t seem as strong, especially when considering the global giant that is Qatar Airways, and its stake in a company that also owns chunks of other carriers including British Airways and the Spanish-carrier Iberia.
It comes as the travel loyalty community is still reeling from Qantas Frequent Flyer changes that have effectively devalued what points can buy after years of underwhelming Classic Reward redemption availability.
Customers may now be more tempted to consider Virgin for international travel if Qatar Airways’ stake also opens the door to Australians taking advantage of its Avios loyalty program, which has a currency that can be earned and spent across multiple airlines, including carriers such as Finnair which are in a leasing and One World partnership with Qantas.
In addition to the ownership stake, the alliance includes an initial wet lease deal, whereby Qatar Airways will provide planes and crew to operate 28 weekly services from Sydney, Melbourne, Brisbane and Perth to Doha, all under the Virgin brand on paper.
It is a chance for Virgin – which was close to collapse during the pandemic lockdowns – to break free of the slimmed-down restructure which has hamstrung its ability to muscle up to rival Qantas. After all, it hasn’t operated long-haul international flights since before the pandemic, as it only has planes for short distances.
Not only does this bolster Virgin’s offering, the deal effectively helps Qatar to bypass the requirement for its government to secure increased bilateral air rights with Australia, more than a year after the Albanese government infamously shot down the carrier’s push for an additional 28 weekly flights in 2023.
Domestic profits
One of the potential benefits of the Virgin tie-up with Qatar is that it should bring in more international travellers who go on to take domestic flights. This could entice more carriers to offer their services for interstate travellers starved of choice.
Domestically, however, the benefits of the Qatar-Virgin deal don’t appear to tackle the heart of the issue, which has become all too obvious after a rough 12 months for Australian airline customers.
Last April the new budget startup Bonza collapsed, and was later liquidated, while Rex entered voluntary administration in July, with its jet services competing with the major carriers on metropolitan routes axed and the government now looking likely to be the only viable buyer for the airline.
Then Qantas, its budget carrier Jetstar and Virgin all swooped in, ballooning their combined market dominance to more than 98%.
With customers still yearning for the cheaper domestic travel that Bonza and Rex promised, Jetstar appears to have been the greatest beneficiary.
On Thursday the Flying Kangaroo posted a $1.39bn half-year profit, up 11%, driven largely from a surge in Jetstar domestic travellers.
Qantas’s financials suggest that while Jetstar needs to offer competitive fares to entice customers facing cost-of-living pressures, the airline does not need to drive ticket prices too low due to the modest levels of domestic competition.
Jetstar’s operating margins, which track how profitable the service is, have expanded to more than 15%. In the equivalent six-month period just before the pandemic, they were at 10.4%.
In other words, with fewer competitors, domestic aviation is becoming a cash cow for the dominant airlines.
Competition has long been the achilles heel of the industry, with a conga line of failed carriers fuelling the argument that Australia can only sustain two airlines.
Successive competition watchdog chairs have insisted the market can sustain new entrants but that laws – particularly those restraining access to Sydney airport – are barring smaller players from meaningfully competing on the critical Sydney-Melbourne-Brisbane golden triangle, thus cementing the duopoly.
Despite the government’s election-adjacent thumbs up to the Qatar-Virgin deal, it has struggled against allegations of preferential treatment for Qantas, shied away from the boldest of customer protection improvements in its aviation white paper, dragged its feet on crucial Sydney airport slot reforms, and left a travelling public with fewer airline options than when it entered office.
At a time when money can clearly be made on domestic operations and Australians are paying more to fly, the Qatar-Virgin deal isn’t the magic bullet to fix the nation’s aviation competition woes.
