Virgin/Qantas scrap rumbles on

Qantas says Virgin's easy access to foreign capital is unfair. Photo / Richard Robinson
Qantas says Virgin's easy access to foreign capital is unfair. Photo / Richard Robinson

Virgin Australia has welcomed the Australian Government's push to change ownership laws for Qantas that stops short of a bigger short-term prize - a standby debt facility to reduce borrowing costs for the troubled national carrier.

The war of words between the two airlines continued yesterday with Qantas again calling for "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".

On Friday, Virgin released its half-year results which showed it had suffered a net loss of A$83.7 million ($89.28 million) - which, given its size, is on a par with Qantas which announced a loss of A$252 million the day before - with both airlines blaming the bitter fight for the domestic market for contributing to losses.

Qantas has been pushing for a government debt guarantee and in its statement yesterday alluded to political challenges to opening up Qantas to new owners and said it "would expect the Government and the Parliament to consider alternative measures to balance the unlevel playing field in Australian aviation".

The airline did not specify what it wanted but has previously discussed a government standby debt facility - should it need it - to help boost its credit rating from junk status.

Making it easier for overseas investors will not necessarily result in buyers lining up. Already global partner Emirates has ruled out an equity stake and the presence of such a large and dominant player is seen as a deterrent for other potential airline investors, which would want similar alliance benefits but face at least another four years of the deal between the Flying Kangaroo and the Dubai-based carrier.

Virgin Australia said it was "pleased" with the Government's decision which it said supported competition in the Australian aviation market. "We have said many times that Virgin Australia has no issue with the amendment or repeal of the Qantas Sale Act," said the airline, which is 24.5 per cent owned by Air New Zealand.

Virgin Australia chief executive John Borghetti said at last week's results briefing while ownership rules needed to be changed, "providing a financial facility to the detriment of the rest of the industry was wrong".

"It is not our place to tell the Government what to do, but any Government, or Opposition, should think very carefully before it decides to pick winners in an industry. Any distortions of fundamental free market dynamics will make any new entrant think twice before coming to Australia."

Borghetti said should the Government decide it was in the national interest to help, it should go to all players in the market.

Singapore Airlines and Etihad Airways own more than 21 per cent each of Virgin which started as a low-cost carrier more than a decade ago before changing tack to take on Qantas in the more lucrative business and government market.

A research note from UBS says the first-half loss came after cost increases outweighed revenue growth. Domestic revenue growth was up 5 per cent in contrast to Qantas, whose domestic revenue fell 5 per cent.

However, Virgin cost performance was "very disappointing" said UBS analyst Simon Mitchell. Full-year losses for Virgin - including its low-cost Tiger Airways - were forecast to be about A$210 million before improving to a A$90 million loss in 2015 and then to a profit in 2016.

The costly capacity fight shows signs of easing. "Striving for better supply-demand in the domestic market in financial year 2015 should also help both airlines' yield," he said.

- NZ Herald

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