When Virgin Australia teetered on the brink of collapse as Covid-19 grounded flights, Qantas Airways chief executive Alan Joyce warned against bailing out the airline. He said the government should not “pick winners and losers” by bailing out “badly managed” companies.
Canberra subsequently rejected Virgin’s request for a A$1.4bn loan and within weeks Qantas’s main rival entered administration, a process that led to 4,000 job losses and a big reduction in capacity under new owner Bain Capital.
Since then Qantas has adopted a more positive approach towards financial aid and snaffled up to A$2bn through taxpayer funded Covid-19 schemes, according to FT calculations. This has kept its planes flying during the pandemic.
Unlike governments in France, Germany and New Zealand, Canberra has decided against taking an equity stake in its national carrier or attaching stringent conditions to bailout cash. Trade unions and Qantas rivals are now crying foul, with Rex, a regional airline, branding Canberra’s aviation support scheme a “Qantas package”.
“Qantas is now so desperate that it is willing to risk universal ridicule just to get its hands on more cash at any cost,” said John Sharp, Rex deputy chair. Joyce hit back by comparing Rex with the ill-fated black knight in Monty Python and The Holy Grail, who lost his limbs fighting over a plank of wood.
The dispute reflects Rex’s concerns that the so-called “flying kangaroo” is flooding regional routes with lossmaking flights to knock it out of the market — a claim it has made in a complaint to competition authorities.
But it also raises questions about the conservative government’s handling of overall aviation support programmes worth in excess of $2.5bn.
“The Australian government would have been smarter if it had taken an equity stake in Qantas in return for all the bailout cash,” says Greg Bamber, professor at Monash Business School. “This means taxpayers can get a return on their investment when the market improves . . . and insist on sensible conditions.”
Bamber says conditions could include prohibiting Qantas from paying high rewards to shareholders and senior executives while they slash employee numbers and outsource functions. They could also help tame Qantas’s ferocious short-term competitive tactics against smaller rivals Virgin and Rex which are to the longer-term detriment of customers, he says.
Covid-19 is not the first crisis in Joyce’s tenure. Qantas reported a record A$2.8bn net loss in 2014 following a bruising capacity war with Virgin. The airline implemented A$2bn spending cuts and laid off 5,000 employees, which returned the airline to profit a year later.
Virgin never recovered from the capacity war while Qantas began buying back its own shares — more than A$2bn since 2016. The recovery helped Joyce become Australia’s highest paid executive in 2018 with remuneration worth A$24m, buoyed by Qantas’s share-based incentive scheme.
Canberra says aid to airlines has been allocated on an industry-wide basis, rather than targeting Qantas. It has also specifically ruled out nationalising airlines, preferring them to remain commercial operations.
Qantas says funds provided to it cannot be compared with bailouts handed to other global airlines, as it retains an investment grade credit rating and reported A$1.3bn underlying profit before tax in 2019. Most of the money it has received went to stood-down employees, said an airline spokesman.
But critics warn that Qantas is using the Covid-19 crisis to slash headcount, alter employee rights and lay the basis for big payouts to executives and shareholders. It now controls three-quarters of the domestic market, compared with 60 per cent before the pandemic, and faces weakened rivals.
When Covid-19 struck, Qantas slashed 6,000 jobs and later unveiled plans to outsource up to 2,500 ground handling staff. Virgin has adopted a cautious strategy and decided not to begin flying to New Zealand as part of Australia’s first international “travel bubble”.
Rex remains a small operator with a market capitalisation of A$155m, despite its growth ambitions.
“Joyce has used Covid to kill off any real competition by putting its snout in the public trough on an unprecedented scale,” says Tony Sheldon, a Labor party senator leading a parliamentary inquiry into the aviation sector. “This enabled the destruction and outsourcing of thousands of jobs — the redundancies all paid for by the Australian taxpayer.”
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