Blog

Aug 24, 2023

Qantas’ Alan Joyce and Anthony Albanese lonely voices in defending Qatar Airways decision

Add articles to your saved list and come back to them any time. It’s officially a pile on. Two former chairmen of Australia’s competition regulator, the chairman of the Future Fund and the chief

Add articles to your saved list and come back to them any time.

It’s officially a pile on. Two former chairmen of Australia’s competition regulator, the chairman of the Future Fund and the chief executive of ANZ head an all-star cast questioning why the government is sticking with its dubious decision to block Qatar Airways from introducing additional services into Australia.

But it was Graham Turner, who runs the country’s largest travel agency, Flight Centre, who succinctly read the room. “The government is going to regret its decision [to block additional Qatar flights],” he observed. “But it’s not going to reverse it.”

The Albanese government has been floundering with various explanations for its decision to block Qatar Airways’ application for more flights into Australia.Credit: iStock

It’s safe to say the Albanese government and Qantas are looking increasingly marginalised in defence of their position taken on Qatar. And Canberra has further compounded its poorly judged decision by cutting aviation out of its broader competition review.

At least Qantas has an understandable motive for supporting the government’s position on Qatar – increased competition puts pressure on the prices it can charge, and thus on its profit.

The airline’s chief executive Alan Joyce is no stranger to being publicly eviscerated for the greater good (or more accurately, profit). And he held the line this week, supporting the government’s decision while being shredded before a Senate inquiry, which was ostensibly about cost-of-living issues.

Joyce has Qantas’ shareholders on its side.

The reason for the government’s decision is a stated desire to enhance the financial strength of the national carrier Qantas, according to Assistant Treasurer Stephen Jones – because this is in the country’s national interest.

There are two points on which the government’s explanation should be challenged.

The first is that increased competition in a highly concentrated market should trump Qantas’ financial performance if national interest is at the heart of the decision.

It must be remembered that the government chose not to bail out Qantas’ arch rival Virgin – leaving it to handle the ravages of COVID that led it to bankruptcy.

The second is that Qantas doesn’t need a leg up from the government to ensure its financial strength or viability.

Where were Prime Minister Anthony Albanese and Transport Minister Catherine King last week, when Qantas reported a near $2.5 billion profit, smashing its previous record?

Did they not notice that the airline’s international division posted an extraordinary $906 million in earnings before interest and tax – a result that was in part achievable due to the elevated fares customers were paying?

Compare this with the international division’s performance in the 2019 financial year (the last full year before COVID), when it made $285 million.

Even more strikingly, it made this profit having flown around 45,000 available seat kilometres last year, which was far less than the 69,000 it flew in 2019.

This explains why the government has been floundering with various explanations over the past few weeks about its motives for denying the public the additional services from Qatar – a move that any half-decent economist will attest would lower international air fares.

To be sure, the additional competition that Qatar would inject into the market would put some pressure on Qantas’ fares and the profitability of its international division, but it wouldn’t make a giant dent. Qantas would still have the capacity to invest in its fleet renewal.

The government’s move has understandably led people to wonder why Qantas has become a protected species when there has been a generalised push to challenge and regulate the oligopoly-plagued Australian business landscape.

People are also justified in asking why the government has made a decision that will perpetuate higher airfares when it is attempting to alleviate the cost-of-living crisis and inflation.

Former Australian Competition and Consumer Commission chairman Rod Sims likened decisions on international bilateral flying rights to the old tariff negotiations, where protecting home-based companies and industries often trumped improving competition.

“You need more explanation” from the government, he said. “I can’t see what its logic is when airfares are sky high.”

Don’t hold your breath.

The Market Recap newsletter is a wrap of the day’s trading. Get it each weekday afternoon.