tag:theconversation.com,2011:/ca/topics/virgin-australia-1781/articlesVirgin Australia – The Conversation2023-08-31T20:00:46Ztag:theconversation.com,2011:article/2124952023-08-31T20:00:46Z2023-08-31T20:00:46ZWhat will putting the interests of Qantas ahead of Qatar Airways cost? $1 billion per year and a new wave of protectionism of legacy carriers<figure><img src="https://images.theconversation.com/files/545659/original/file-20230830-27-t7v95b.png?ixlib=rb-1.1.0&rect=508%2C420%2C2715%2C1404&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>The government’s decision to deny Qatar Airways the right to fly an extra 21 flights per week into Australia’s three biggest cities might just be returning Australia to the old days where we protected Australia’s national carrier at the expense of Australians.</p>
<p>For more than 15 years I’ve had the privilege to research and teach airline strategy in the context of global aviation bilateral air service agreements. </p>
<p>These agreements are essentially trade deals between the 193 governments that are signatories to the <a href="https://www.icao.int/publications/Pages/doc7300.aspx">1944 Chicago Convention on Civil Aviation</a>.</p>
<p>The agreements allow designated airlines in the two signatory countries to operate air services connecting them in accordance with the reciprocity principle used in trade agreements, which is broadly: “I’ll let you in if you let me in”.</p>
<p>Australia has traditionally tried to deregulate international aviation, to make air travel easier for both Australians and visitors. </p>
<p>But in July, in an <a href="https://minister.infrastructure.gov.au/c-king/media-release?page=2">initially announced</a> decision, Transport Minister Catherine King <a href="https://www.afr.com/companies/transport/minister-blocks-bid-to-bring-down-airfares-boost-tourism-20230717-p5down">rejected</a> an application for Qatar to double its flights into Australia by providing what amounted to an extra flight a day into Brisbane, Melbourne and Sydney. </p>
<p>After being asked about the decision, the minister provided four different justifications, one of which was the “<a href="https://minister.infrastructure.gov.au/c-king/interview/transcript-press-conference-cairns">national interest</a>”. </p>
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<p>Assistant Treasurer Stephen Jones this week expanded on this reasoning, saying he didn’t want to drive ticket prices down to the point at which it was “<a href="https://www.afr.com/politics/federal/record-qantas-profit-good-news-in-the-national-interest-labor-20230828-p5dzx5">unsustainable to run an airline</a>” and that having Qantas occasionally make a profit was “actually a good news story”.</p>
<p>On its face, this suggests the government is making decisions about landing rights in order to protect the profits of Qantas – a private company it hasn’t owned since 1995. This would be a seismic shift in Australia’s international aviation policy.</p>
<p>A case could be made that this is in breach of the Chicago convention. Regardless, it is damaging to Australia’s international reputation and Australia’s economy.</p>
<h2>$1 billion per year in economic damage</h2>
<p>By my conservative estimate, the decision will cost Australia’s economy about $1 billion per year in lost income from tourism, VRF (visiting friends and relatives), and business travel and freight.</p>
<p>My calculations suggest capacity on the Kangaroo Route between Australia and Europe is only back to 70% of where it was before COVID, allowing current operators such as the Emirates-Qantas alliance to charge much more than they could before the pandemic. </p>
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<a href="https://images.theconversation.com/files/545688/original/file-20230831-17-i0f3pt.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/545688/original/file-20230831-17-i0f3pt.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/545688/original/file-20230831-17-i0f3pt.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=966&fit=crop&dpr=1 600w, https://images.theconversation.com/files/545688/original/file-20230831-17-i0f3pt.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=966&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/545688/original/file-20230831-17-i0f3pt.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=966&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/545688/original/file-20230831-17-i0f3pt.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1214&fit=crop&dpr=1 754w, https://images.theconversation.com/files/545688/original/file-20230831-17-i0f3pt.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1214&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/545688/original/file-20230831-17-i0f3pt.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1214&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Turkish Airlines is also finding it hard to get approval from Australia.</span>
<span class="attribution"><span class="source">Shutterstock</span></span>
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<p>Qantas announced last week it would <a href="https://www.qantasnewsroom.com.au/media-releases/qantas-adds-more-than-250000-international-seats-as-aircraft-return/">add 250,000 seats</a> to its international network, but not a single one was on flights to Europe.</p>
<p>The extra Qatar Airways flights would have also gone on to New Zealand, adding further capacity to that route and cutting prices for flights across the Tasman.</p>
<p>And it’s not only Qatar Airways. Turkish Airlines, through the Turkish government, has asked for permission to increase of the frequency of its Australian flights from four to 14 a week, providing daily services to Melbourne and Sydney.</p>
<p>Turkey <a href="https://www.afr.com/companies/transport/turkish-airlines-grounded-before-launch-as-minister-delays-air-rights-20230723-p5dqjd">hasn’t yet</a> received an answer.</p>
<h2>Extra costs in reputational damage</h2>
<p>The message Australia is sending is a dangerous one.</p>
<p>When COVID hit in 2020 and airlines including Qantas grounded their fleets, Qatar Airways temporarily became Australia’s “<a href="https://simpleflying.com/qatar-airways-australia-repatriation-airline/">de facto international airline</a>”, getting Australians home who might otherwise have been stranded. During the pandemic, some Qatar flights arrived in Australia with just 20 seats filled.</p>
<p>Qatar might have expected Australians to remember this and keep flying with them, and it has applied for enough flights to allow it to happen.</p>
<p>By denying Qatar this opportunity (and denying many Australians the opportunity to travel to Europe via Doha), Australia has shown it is prepared to be ungracious, and made it easier for other countries to treat it in the same fashion.</p>
<p>Australia’s number two domestic airline Virgin Australia, is planning a share market <a href="https://www.afr.com/companies/transport/virgin-s-ipo-planning-well-advanced-bain-extracts-730m-20230510-p5d79q">float</a>. By appearing to signal it is prepared to go out on a limb to support Qantas against competitors, Australia has perhaps unintentionally sent a powerful message to potential investors – that Virgin’s opponent gets protection it does not.</p>
<h2>The weak case for offering Qantas protection</h2>
<p>There <em>might</em> be a case for offering Qantas protection if it was at risk of needing a taxpayer-funded bailout to stay afloat. But Qantas has returned to profit – a record <a href="https://www.smh.com.au/business/companies/qantas-reveals-record-2-5-billion-profit-20230823-p5dywc.html">A$2.5 billion</a> profit in the year to June, after doubling its revenue.</p>
<p>There might also be a case (and King has made this case) that Qantas needs to be protected because it has just purchased new, quieter “<a href="https://minister.infrastructure.gov.au/c-king/interview/transcript-4ca-am-cairns">better for the environment</a>” planes on which it will need to see a return and will need to spend a further <a href="https://www.smh.com.au/business/companies/life-after-joyce-what-challenges-await-qantas-come-november-20230503-p5d58m.html">A$12 billion</a> to <a href="https://www.theaustralian.com.au/business/why-qantas-chief-alan-joyce-isnt-prioritising-qantas-ageing-fleet/news-story/95b608782757b70b94463b3336ddea6c">A$20 billion</a> on fleet renewal to reach its net-zero target.</p>
<p>But for years (<a href="https://www.smh.com.au/business/companies/qantas-reveals-record-2-5-billion-profit-20230823-p5dywc.html">including after last week’s profit announcement</a>) Qantas has been returning capital to its shareholders by share buy-backs instead of using it to buy planes. It thinks it can <a href="https://www.afr.com/companies/transport/qantas-walks-a-delicate-line-between-returns-and-paying-for-new-planes-20230531-p5dcp1">do both</a>, and perhaps it is making so much profit that it can, but if it can’t do both, it can ease off on returning capital to shareholders.</p>
<p>Another argument (<a href="https://www.afr.com/companies/transport/blocking-flights-could-cost-500m-but-minister-saves-jobs-20230809-p5dv65">also put by King</a>) is that supporting Qantas will support “long-term, well-paid, secure jobs by Australians in the aviation sector.”</p>
<p>But much of Qantas’s international skilled work is already done offshore including on its premier QF1 flight to London which is maintained by crews from the United Kingdom. </p>
<h2>Is there something we don’t know about?</h2>
<p>Unless there is some sort of hidden rationale, the decision to deny Qatar Airways extra flights seems inexplicable; and given Australia’s history, unAustralian. </p>
<p>It is important to recognise that these are trade agreements of considerable magnitude and that decisions taken by Australia invite retaliation.</p>
<p>As I keep telling my students, these seemingly-boring bilateral air service agreements can have big consequences if mishandled. </p>
<p>Years of worth of research and international best practice indicate that an open approach to air rights delivers the best economic outcomes, especially for the country doing the opening.</p>
<p>More trade results in a more prosperous Australia which is good for Australian travellers, Australian businesses, and ultimately Australian airlines, too.</p>
<p>Australia used to tell the rest of the world that trade was good. It would need to have a very good reason for behaving differently when it came to air travel.</p><img src="https://counter.theconversation.com/content/212495/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Rico Merkert receives funding from the ARC and various industry partners. He loves to work with and for airlines, including Qantas and Virgin Australia.</span></em></p>On its face, the decision to deny Qatar 21 flights into Australia suggests Australia is making decisions about international rights in order to protect the profit of an airline it hasn’t owned since 1995.Rico Merkert, Professor in Transport and Supply Chain Management and Deputy Director, Institute of Transport and Logistics Studies (ITLS), University of Sydney Business School, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2049032023-05-05T02:27:30Z2023-05-05T02:27:30ZQantas can’t charge these prices forever: the challenge ahead for new chief Vanessa Hudson<p>Vanessa Hudson, who will <a href="https://www.abc.net.au/news/2023-05-02/who-is-vanessa-hudson-the-new-qantas-chief-executive-officer/102291738">replace Alan Joyce</a> as Qantas Airlines’ chief executive in November, inherits an airline still struggling to resume services after the pandemic and border closures shuttered much of the global aviation industry in 2020. </p>
<p>The silver lining for Qantas has been that high demand for air travel has enabled it to charge <a href="https://edition.cnn.com/2023/03/24/business/asia-airfares-flights-travel-recovery-intl-hnk/index.html">higher airfares</a>. It even managed to report a <a href="https://www.reuters.com/business/aerospace-defense/qantas-swings-first-half-profit-announces-buyback-plans-2023-02-22/">A$1.43 billion profit</a> in the second half of 2022. </p>
<p>But these conditions won’t last. As Hudson – an accountant who <a href="https://investor.qantas.com/FormBuilder/_Resource/_module/doLLG5ufYkCyEPjF1tpgyw/file/gmc/executive-bio-vanessa-hudson.pdf">joined Qantas in 1994</a> and has been chief customer officer since 2018 – deals with the highly unusual short-term challenges that come with recovery, she will increasingly have to turn her mind to all the long-term challenges that existed for Australia’s flagship airline before 2020. </p>
<h2>High demand, but not enough planes or staff</h2>
<p>There are two main reasons demand for air travel is recovering faster than supply. </p>
<p>First is the time and effort to return to service the aircraft stored during the pandemic, <a href="https://www.smh.com.au/traveller/reviews-and-advice/grounded-aircraft-during-covid19-pandemic-what-it-takes-to-get-a-plane-back-in-the-air-20211031-h1zi0t.html">parked at regional inland airports</a> and plane storage sites. Qantas put about <a href="https://onemileatatime.com/qantas-787-storage/">100 of its 126 planes</a> into storage, retired six ageing Boeing 747s and deferred delivery of new Airbus A321neo and Boeing 787-9 planes.</p>
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<img alt="A Qantas plane parked at Southern California Logistics Airport in Victorville, California, in December 2022." src="https://images.theconversation.com/files/524536/original/file-20230504-27-72jqhp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/524536/original/file-20230504-27-72jqhp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/524536/original/file-20230504-27-72jqhp.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/524536/original/file-20230504-27-72jqhp.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/524536/original/file-20230504-27-72jqhp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/524536/original/file-20230504-27-72jqhp.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/524536/original/file-20230504-27-72jqhp.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">A Qantas plane parked at Southern California Logistics Airport in Victorville, California, in December 2022.</span>
<span class="attribution"><span class="source">Shutterstock</span></span>
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<p>Never in the history of civil aviation have airlines had to store so many aircraft. Returning them to service requires exhaustive maintenance checks and tests. Limited skilled maintenance crew can only ready so many aircraft to return to flying.</p>
<p>Which leads to the second, more important, issue: the need to fill jobs.</p>
<p>Even before the pandemic, the industry was grappling with a global shortage of experienced pilots. Now it’s grappling with replacing all the workers – air and ground crew – retrenched when borders were closed in 2020. </p>
<p>Qantas <a href="https://www.smh.com.au/business/companies/qantas-commits-to-hiring-thousands-unveils-new-engineering-academy-20230303-p5cp2n.html">laid off almost a third</a> of its 30,000 employees, included unlawfully retrenching almost 2,000 ground-crew workers. It is now looking to recruit about <a href="https://www.travelandleisure.com/qantas-airline-job-hiring-training-academy-7229086">2,000 workers by the end of 2024</a> and a total of 8,500 by the end of the decade.</p>
<p>Many who have found employment in different industries are not returning. Some in the industry fear aviation is no longer an attractive career. And the pilots, flight attendants and mechanics that are being re-employed all require refresher training before being cleared to work. </p>
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Read more:
<a href="https://theconversation.com/averting-a-plane-crash-what-to-do-about-the-global-pilot-shortage-102784">Averting a plane crash: what to do about the global pilot shortage</a>
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<p>Labour shortages are affecting the entire aviation supply chain, including manufacturers. Qantas currently faces delays of about <a href="https://www.reuters.com/business/aerospace-defense/qantas-swings-first-half-profit-announces-buyback-plans-2023-02-22/">six months</a> on new aircraft deliveries.</p>
<h2>Competing for customers</h2>
<p>Competition for customers will be a relatively minor concern as Qantas struggles to catch up to demand. But this won’t last as airlines rebuild fleet capability, and current high prices for air travel decline. In the US market, for instance, airfares <a href="https://www.bts.gov/content/national-level-domestic-average-fare-series">returned to their pre-pandemic levels</a> (in inflation-adjusted terms) at the end of 2022. </p>
<p>By the end of 2023 or early 2024, I expect Qantas will be grappling with substantially the same competitive pressures that drove its pre-pandemic cost-cutting and outsourcing. For this, it can partly blame global government assistance to airlines, which had the perverse consequence of fewer airline collapses in 2020 <a href="https://theconversation.com/the-airline-industry-hasnt-collapsed-but-thats-the-only-good-news-for-overseas-travel-158867">than in 2018 or 2019</a>. </p>
<p>While Qantas <a href="https://investor.qantas.com/FormBuilder/_Resource/_module/doLLG5ufYkCyEPjF1tpgyw/file/annual-reports/2019-Annual-Report-ASX.pdf">turned a profit for each year between 2015-2019</a>, profit margins were quite thin. </p>
<p>There has been a lot of talk that the pandemic changed the air-travel market irrevocably. Business travel, for example, may never recover. Consulting firm McKinsey predicted in February 2021 that the post-pandemic market of business travel would <a href="https://www.mckinsey.com/featured-insights/future-of-work/the-future-of-work-after-covid-19">be 20% smaller</a>.</p>
<p>With the jury still out on this and other questions, the challenge for Qantas and other airlines will be to plan and adapt services accordingly.</p>
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Read more:
<a href="https://theconversation.com/qantas-the-trying-kangaroo-why-things-wont-get-better-any-time-soon-189558">Qantas, the trying kangaroo: why things won't get better any time soon</a>
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<h2>New challenges for an ageing fleet</h2>
<p>Longer term, Qantas must reduce its environmental footprint. </p>
<p>From 2027, all international air carriers will be required to offset the carbon emissions associated with flights – a condition set by the International Civil Aviation Organization’s <a href="https://www.icao.int/environmental-protection/CORSIA/Pages/default.aspx">Carbon Offsetting and Reduction Scheme for International Aviation</a>.</p>
<p>More generally, the drive to decarbonise commercial aviation also makes stricter domestic environmental requirements very likely. </p>
<p>This will be harder for Qantas than competitors, due to airline’s extensive network of medium and long-haul flights (which use more fuel) and ageing, less fuel-efficient fleet. </p>
<p>The average age of the Qantas fleet is <a href="https://www.theguardian.com/news/datablog/2022/oct/04/qantas-planes-are-relatively-old-it-doesnt-mean-theyre-unsafe-just-less-efficient">just over 15 years</a>, more than double that of rivals such as Singapore Airlines. Fleet renewal will be a formidable task.</p><img src="https://counter.theconversation.com/content/204903/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Volodymyr Bilotkach is an External Instructor for IATA Training. </span></em></p>From not enough staff to get planes in the air, to reducing the environmental footprint of an ageing fleet – an international aviation expert on why the next few years will be a bumpy ride for Qantas.Volodymyr Bilotkach, Associate Professor, Purdue UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1895582022-09-05T06:31:28Z2022-09-05T06:31:28ZQantas, the trying kangaroo: why things won’t get better any time soon<p>Unlike many airlines, Australia’s flag carrier Qantas has survived the pandemic. But its return to normal service – and profitability – is proving to be a bumpy ride. It could well get worse before it gets better.</p>
<p>As domestic and international travel picks up, the airline is struggling to keep up – having laid off thousands of staff whose experience, it turns out, was quite valuable for running such a complex business. Cancelled flights, lost luggage, long delays at airports and low staff morale are pummelling its carefully cultivated reputation. </p>
<p>Qantas engineers <a href="https://www.abc.net.au/news/2022-08-25/qantas-engineers-strike-safety-annual-profit-result/101368062">took industrial action</a> last month. This week there’s <a href="https://www.abc.net.au/news/2022-09-05/qantas-staff-far-airlines-reputation-at-risk/101391324">a strike by baggage handlers</a> employed by the contractor used since the airline retrenched almost 2,000 ground crew workers in 2020. (The Fair Work Commission has since ruled this outsourcing <a href="https://australianaviation.com.au/2022/05/qantas-loses-bid-to-overturn-illegal-outsourcing-ruling/">was unlawful</a>.)</p>
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Read more:
<a href="https://theconversation.com/qantas-fights-on-against-court-ruling-it-unlawfully-sacked-2-000-workers-167434">Qantas fights on against court ruling it unlawfully sacked 2,000 workers</a>
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<p>Former staff have told the ABC’s <a href="https://www.abc.net.au/news/2022-09-05/qantas-staff-far-airlines-reputation-at-risk/101391324">4 Corners program</a> they fear the cutbacks will undermine the airline’s safety record.</p>
<p>There is no quick or easy fix. These issues are tied to the airline’s profitability – or lack of it. Last financial year it reported an underlying loss before tax of <a href="https://cdn.theconversation.com/static_files/files/2281/q899.pdf">A$1.89 billion</a>. Since 2020, total losses have been A$7 billion, with the shutdown of travel costing about <a href="https://www.bloomberg.com/news/articles/2022-08-24/qantas-announces-share-buy-back-as-air-travel-demand-surges">A$25 billion in revenue</a>, according to chief executive Alan Joyce.</p>
<h2>A challenging industry</h2>
<p>Qantas is by no means alone when it comes to the challenges of rebuilding after COVID. Even <a href="https://www.mckinsey.com/industries/travel-logistics-and-infrastructure/our-insights/the-six-secrets-of-profitable-airlines">in normal times</a>, airlines are notoriously hard businesses to keep in the black. </p>
<p>The products they sell – seats – are highly perishable. Once a flight takes off, any empty seat becomes worthless. It is tempting to fill seats by discounting, but this can lead to competitors doing the same, and create a perception that leads customers to undervalue the product. </p>
<p>There’s a reason so many national carriers are fully or partly <a href="https://gulfbusiness.com/gulf-carriers-spotlight-eu-addresses-unfair-airline-competition/">government-owned</a> – including Air New Zealand, Emirates, Etihad, Garuda Indonesia, Malaysia Airlines and Singapore Airlines. </p>
<p>It’s debatable how many of these airlines would be viable as standalone commercial operations. An airline regulated by a government with a vested interest in its prosperity may be assisted in a variety of ways, from bailouts and tax subsidies to policies that help protect it from competition on domestic routes.</p>
<h2>How to cut costs?</h2>
<p>Adding to these difficulties in 2022 are fuel prices, inflated since Russia invaded Ukraine in February. Fuel costs typically account for about a <a href="https://www.iata.org/en/iata-repository/pressroom/fact-sheets/fact-sheet---fuel/">quarter of airline costs</a>. </p>
<p><a href="https://simpleflying.com/what-is-fuel-hedging-and-why-do-airlines-do-it/">Hedging contracts</a> have protected Qantas from the full impact of these increases. Like other airlines, it has few options to cut fuel costs besides cutting routes or buying more fuel-efficient aircraft. (It is buying 12 new Airbus planes, but with the plan to offer long-haul flights without stopovers, which will <a href="https://theconversation.com/bucking-the-trend-is-there-a-future-for-ultra-long-haul-flights-in-a-net-zero-carbon-world-183212">increase fuel consumption</a>.)</p>
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Read more:
<a href="https://theconversation.com/bucking-the-trend-is-there-a-future-for-ultra-long-haul-flights-in-a-net-zero-carbon-world-183212">Bucking the trend: Is there a future for ultra long-haul flights in a net zero carbon world?</a>
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<p>So cutting staff costs has become the default option. </p>
<p>Qantas has never shied away from this under Joyce, who was appointed chief executive in 2008. </p>
<p>In 2011 he notoriously <a href="https://www.abc.net.au/news/2011-10-29/qantas-locking-out-staff/3608250">grounded the fleet</a> and locked out staff during “hardball” collective bargaining with three unions (the Australian and International Pilots Association, Australian Licenced Aircraft Engineers Association, and Transport Workers Union).</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/482681/original/file-20220905-18-lay0oe.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Qantas passengers stranded at Hong Kong International Airport on Saturday, October 29 2011 after management grounded the airline's global fleet and locked out workers during enterprise agreement negotiations." src="https://images.theconversation.com/files/482681/original/file-20220905-18-lay0oe.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/482681/original/file-20220905-18-lay0oe.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=393&fit=crop&dpr=1 600w, https://images.theconversation.com/files/482681/original/file-20220905-18-lay0oe.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=393&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/482681/original/file-20220905-18-lay0oe.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=393&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/482681/original/file-20220905-18-lay0oe.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=493&fit=crop&dpr=1 754w, https://images.theconversation.com/files/482681/original/file-20220905-18-lay0oe.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=493&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/482681/original/file-20220905-18-lay0oe.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=493&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Qantas passengers stranded at Hong Kong International Airport on Saturday, October 29 2011 after management grounded its global fleet and locked out workers during enterprise agreement negotiations.</span>
<span class="attribution"><span class="source">Kin Cheung/AP</span></span>
</figcaption>
</figure>
<p>But this combative stance on wages and conditions, and outsourcing so many key activities, has thinned corporate knowledge. Qantas’ problems with <a href="https://www.9news.com.au/national/brisbane-man-bag-destroyed-by-qantas-still-waiting-for-airline-to-resolve-his-2000-dollar-claim/2fdf9865-7350-4735-bc1a-b02201a3a7eb">lost luggage</a> are clearly linked to sacking so many experienced staff and replacing them with contract workers who don’t necessarily understand how the airline’s <a href="https://www.ft.com/content/42e15d6d-bc05-4a5b-af16-c8c7f72af0fd">complex systems work</a>.</p>
<h2>A difficult outlook</h2>
<p>It’s easy to look for scapegoats – there are mounting calls for Joyce to go, for example – but there are no easy solutions to the problems Qantas faces.</p>
<p>In the short term it must to balance the cost-cutting required with the reality that further aggravating its workforce will lower customer service – and ultimately its reputation. </p>
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<p><strong>Australian domestic airlines by market share, January 2019 to April 2022</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/482679/original/file-20220905-1142-bxu7se.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/482679/original/file-20220905-1142-bxu7se.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/482679/original/file-20220905-1142-bxu7se.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=360&fit=crop&dpr=1 600w, https://images.theconversation.com/files/482679/original/file-20220905-1142-bxu7se.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=360&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/482679/original/file-20220905-1142-bxu7se.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=360&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/482679/original/file-20220905-1142-bxu7se.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=453&fit=crop&dpr=1 754w, https://images.theconversation.com/files/482679/original/file-20220905-1142-bxu7se.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=453&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/482679/original/file-20220905-1142-bxu7se.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=453&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://centreforaviation.com/analysis/reports/australias-domestic-market-nearing-full-recovery-but-short-term-problems-blunt-capacity-618938">CAPA - Centre for Aviation; ACCC</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<hr>
<p>Domestically it has the advantage of its major competitor, Virgin Australia, being in an even worse position. Virgin only survived the pandemic by being sold to US private equity giant Bain Capital. This should save Qantas from a domestic discounting war for the foreseeable future.</p>
<p>But even with subdued domestic competition, the airline industry remains unattractive. For the flying kangaroo, the path back to profitability looks set to be one of many ups and downs.</p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/why-covid-19-means-the-era-of-ever-cheaper-air-travel-could-be-over-172149">Why COVID-19 means the era of ever cheaper air travel could be over</a>
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<img src="https://counter.theconversation.com/content/189558/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Galvin does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>there are no easy solutions to the problems Qantas faces. It must balance the cost cutting required with further aggravating its workforce.Peter Galvin, Professor of Strategic Management, Edith Cowan UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1622412021-06-27T19:49:34Z2021-06-27T19:49:34ZAirline policies mandating vaccines will be a turbulent test of workplace rights<p>Airlines want you vaccinated. They want as many people as possible vaccinated. The sooner that happens, the sooner borders open and they can get back to profitability. </p>
<p>They also have reasons to want to protect both customers and staff from COVID-19. Qantas staff, for example, have been <a href="https://www.theguardian.com/business/2020/apr/13/qantas-staff-consider-class-action-alleging-airline-failed-to-protect-them-against-covid-19">considering legal action</a> over workplace transmissions. </p>
<p>Qantas <a href="https://www.news.com.au/entertainment/tv/morning-shows/sunrise-host-david-koch-fires-up-over-covid-vaccine-during-interview-with-qantas-boss-alan-joyce/news-story/27521c7382807835e96ed271f6d3b1e3">has dangled the carrot</a> of extra frequent flyer points for fully vaccinated passengers, plus ten “mega prizes” of a year’s free travel for familes. Virgin Australia has similar plans. It also has a scheme to encourage its workers to get vaccinated. This will reportedly include the chance to win extra annual leave.</p>
<p>Could they go further and mandate vaccines? This is something Cathay Pacific is doing, telling its Hong Kong-based flight crews they must be vaccinated by August or their <a href="https://www.scmp.com/news/hong-kong/health-environment/article/3138552/coronavirus-cathay-pacific-makes-vaccinations">employment will be reviewed</a>. </p>
<p>Qantas chief Alan Joyce signalled in November that once vaccines are widely available it will require international travellers to be vaccinated. This implicitly suggests it will require the same from international flight staff.</p>
<p>But the legal ground in Australia for employers to insist that employees be vaccinated remains murky. </p>
<p>Whether Qantas or Virgin – or indeed any other company – do so may depend on the case of Queensland regional carrier <a href="https://www.allianceairlines.com.au/">Alliance Airlines</a>, the first employer in Australia to insist all employees be immunised. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/the-airline-industry-hasnt-collapsed-but-thats-the-only-good-news-for-overseas-travel-158867">The airline industry hasn't collapsed, but that's the only good news for overseas travel</a>
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</em>
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<h2>A question of common law</h2>
<p>Alliance Airlines specialises in flights to and from mining sites. It is <a href="https://www.accc.gov.au/media-release/investigation-into-qantas%E2%80%99s-stake-in-alliance-airlines-continues">19.9% owned by Qantas</a>, and collaborates with both Qantas and <a href="https://www.accc.gov.au/public-registers/authorisations-and-notifications-registers/authorisations-register/virgin-australia-alliance-airlines">Virgin Australia</a>. </p>
<p>It announced its mandatory policy for both influenza and COVID-19 vaccinations <a href="https://www.theaustralian.com.au/business/aviation/airline-orders-staff-to-get-vaccinated-or-face-action/news-story/42b5f71907125e63f8511c6b93083eb3">in late May</a>. Its <a href="https://simpleflying.com/alliance-vaccination-requirement/">stated reason</a> is to fulfil its duty to employees and passengers. But unions have questioned the policy’s lawfulness, arguing it is beyond the airline’s powers. </p>
<p>In Australia, there has been no general government guidance on whether employers can insist on employees getting COVID-19 vaccinations. </p>
<p>This differs to the United States, where the federal Equal Employment Opportunity Commission ruled in December 2020 that employers could (with some exemptions for medical and religious reasons) require employees to be vaccinated.</p>
<p>The Queensland and Western Australian governments have issued public health directions requiring workers be vaccinated, but only in certain health and quarantine workplaces. </p>
<p>Whether Alliance Airlines’ policy is lawful therefore depends on a general common law “test” for determining the validity of workplace policies. </p>
<p>This test asks if a policy or direction is “lawful and reasonable” given the circumstances. These include: </p>
<ul>
<li><p>the nature of the job, especially where it requires regular interactions with colleagues, clients and suppliers</p></li>
<li><p>if the work can be done remotely, or other reasonably practical precautions exist </p></li>
<li><p>the effectiveness or success rates of the vaccine</p></li>
<li><p>any guidance or directives from government and medical experts</p></li>
<li><p>the circumstances of individuals employee, such as whether they have reasonable grounds to refuse vaccination.</p></li>
</ul>
<h2>Unfair dismissal cases</h2>
<p>Australia’s Fair Work Commission has demonstrated the balancing act needed to apply these factors in its most recent ruling in an unfair dismissal case involving a refusal to get an influenza vaccination.</p>
<p>The <a href="https://www.fwc.gov.au/documents/decisionssigned/html/pdf/2021fwc2989.pdf">claim</a> was brought by Maria Corazon Glover, a 64-year-old community care assistant, against Queensland aged and disability care provider <a href="https://www.ozcare.org.au/">Ozcare</a>, her employer since 2009. </p>
<p>In May 2020, public health orders in Queensland required influenza vaccinations for entry into aged care facilities. Ozcare went “above and beyond” those requirements, mandating the flu vaccine for all its aged care workers, even those who did not work in facilities. Glover, a home-care provider, refused. She said she believed she would suffer an allergic reaction, based on what she understood had happened to her as a child. She was ultimately dismissed.</p>
<p>Commissioner Jennifer Hunt upheld her dismissal despite Ozcare’s policy exceeding the relevant public health orders and Glover’s concerns. Hunt ruled those factors were outweighed by the vulnerability of Ozcare’s clients, the frequency with which care workers visited clients’ homes (and their potential to become “super-spreaders”), and the employer’s “prerogative” to make a decision considered necessary to safeguard its clients and employees “so far is practicable to do so”.</p>
<h2>Individual circumstances do count</h2>
<p>Perhaps the most important takeaway from <a href="https://www.fwc.gov.au/documents/decisionssigned/html/pdf/2021fwc2989.pdf">Glover v Ozcare</a> is that it was decided on its particular facts. Employers must carefully assess employees’ situations to decide if a mandatory vaccination policy is justifiable. </p>
<p>An airline might reason that cabin crew interact with people in environments with a higher risk of COVID-19 transmission and where social distancing is impossible. </p>
<p>But an employee might counter that, unlike aged or disability care workers, they have much less close contact with high-risk, vulnerable individuals. </p>
<p>The case-by-case nature of the reasonableness test means any generalised “all in” vaccination policy is problematic. Even more so if there is employee resistance. </p>
<h2>Discrimination may be valid</h2>
<p>Employees who are dismissed for refusing to vaccinate might also argue it amounts to discrimination on prohibited grounds such as disability or pregnancy, where COVID-19 vaccination may be unsafe or pose medical risks.</p>
<p>Under the Fair Work Act, however, employers have a valid defence for discriminatory action if a policy or decision is based on the “inherent requirements” of the job.</p>
<p>In November 2020, Fair Work Deputy president Ingrid Asbury noted that vaccination against influenza was likely to be an inherent requirement for a position involving caring for young children, and so could be justified for child-care employees. </p>
<p>However, outside high-risk contexts such as child and health care, this defence may be limited and will turn on the employee’s role and the organisational context. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/can-my-boss-make-me-get-a-covid-vaccination-yes-but-it-depends-on-the-job-154054">Can my boss make me get a COVID vaccination? Yes, but it depends on the job</a>
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</em>
</p>
<hr>
<h2>Looking for safe ground</h2>
<p>The Fair Work Commission’s rulings on influenza vaccines give a fair indication of the principles it will apply to any case involving COVID-19 vaccines.</p>
<p>But given the different circumstances, whether it will give a green light to a general policy like that of Alliance Airlines remains up in the air.</p>
<p>Qantas and Virgin might be on safer ground because of their international operations, if proof of vaccination becomes mandatory for other destinations.
However, I think the issue of employee vaccinations for the airline industry will ultimately be resolved via government intervention. </p>
<p>In other sectors, owing to the complexities in determining whether mandatory policies are “legal”, many employers will likely stick with the safer route of voluntary “incentive schemes” to encourage vaccinations.</p><img src="https://counter.theconversation.com/content/162241/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Giuseppe Carabetta does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The legal ground in Australia for employers to insist that employees be vaccinated is murky.Giuseppe Carabetta, Senior Lecturer, Sydney University Business School, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1588672021-04-14T20:08:13Z2021-04-14T20:08:13ZThe airline industry hasn’t collapsed, but that’s the only good news for overseas travel<p>We thought things would be so much better by now.</p>
<p>A year ago I wrote about <a href="https://theconversation.com/once-the-pandemic-is-over-we-will-return-to-a-very-different-airline-industry-134124">the future of the airline industry</a>. Along with many other experts, I expected international air travel by this point would still be below pre-pandemic levels but well on its way to recovery. </p>
<p>We are not even close. </p>
<p>After a disastrous 2020, in which passenger traffic globally fell by two-thirds, the International Air Transport Association’s <a href="https://centreforaviation.com/members/direct-news/2020-worst-year-in-history-for-air-travel-demand-550629">latest forecast</a> (published in February) doesn’t expect this year’s total traffic to be more than halfway back to pre-pandemic levels. Full recovery isn’t expected before 2023. </p>
<p>For some countries it might be even longer. </p>
<p>Deloitte Access Economics in Australia, for example, published a report on Monday predicting international air travel may <a href="https://themarketherald.com.au/deloitte-australian-economy-is-roaring-back-but-full-international-travel-is-years-away-2021-04-12/">not fully recover until 2024</a>; and that prediction was locked in before the Australian government announced on Sunday it was abandoning its target to have all Australians vaccinated <a href="https://theconversation.com/as-australias-vaccination-bungle-becomes-clear-morrisons-political-pain-is-only-just-beginning-158704">by the end of October</a> – a time frame on which the opening of international borders was predicated. </p>
<p>That’s particularly bad news for Qantas, Australia’s main airline, which last year hoped to resume international operations by July. Now its plan (<a href="https://www.bloomberg.com/news/articles/2021-02-24/qantas-pushes-backs-expected-restart-of-international-travel">announced in February</a>) to restart 22 of its 25 overseas routes in November also looks unlikely.</p>
<h2>No large-scale bankruptcies</h2>
<p>But things could be worse. </p>
<p>A year ago I (and others) expected many airlines to fail as prolonged revenue losses strained their liquidity positions beyond breaking point. I was wrong. </p>
<p>According to aviation and travel analytics company Cirium, <a href="https://www.cnbc.com/2020/10/08/over-40-airlines-have-failed-in-2020-so-far-and-more-are-set-to-come.html">43 airlines</a> went out of business in 2020. But this was fewer than 2019 (when 46 carriers went bust) and in 2018 (when 56 airlines went out of business). </p>
<p>Most of the bankruptcies were smallish regional carriers, such as Britain’s <a href="https://www.theguardian.com/business/2020/mar/05/flybe-collapses-two-months-after-government-announces-rescue">Flybe</a> or AirAsia’s Japanese subsidiary <a href="https://asia.nikkei.com/Business/Transportation/AirAsia-Japan-files-for-bankruptcy-leaving-23-000-flyers-without-refunds">AirAsia Japan</a>. </p>
<p>So far no mid-sized and larger carriers went out of business, though a few have come close. For example, <a href="https://www.thaiairways.com/en/news/news_announcement/news_detail/news98.page">Thai Airways</a> and Columbia’s <a href="https://www.reuters.com/article/us-avianca-bankruptcy-idUSKBN26Q2ZJ">Avianca</a> (Latin America’s second-biggest airline) requested bankruptcy protection. Australia’s second major airline, Virgin Australia, also went into <a href="https://theconversation.com/voluntary-administration-isnt-a-death-sentence-for-virgin-australia-or-for-competition-136832">voluntary administration</a> but was saved from collapse – at least temporarily – by being sold to <a href="https://theconversation.com/virgin-sacrifice-boardroom-bloodletting-signals-a-classic-private-equity-hijacking-148244">US private equity firm Bain Capital</a>. These are the kinds of airlines I expected to collapse a year ago.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/cutbacks-may-keep-virgin-australia-alive-for-now-but-its-long-term-prospects-are-bleak-141876">Cutbacks may keep Virgin Australia alive for now, but its long-term prospects are bleak</a>
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<hr>
<h2>But at what cost?</h2>
<p>The main reason for the lack of large-scale airline bankruptcies has been government assistance. The International Air Transport Association’s latest tally puts the amount of state aid to airlines globally at <a href="https://travelweekly.co.uk/news/air/state-aid-to-airlines-now-exceeds-225bn">US$225 billion</a>. That’s equal to more than a quarter of the global airline industry’s revenues in 2019. </p>
<p>IATA’s analysis of <a href="https://www.iata.org/en/iata-repository/publications/economic-reports/government-aid-and-airlines-debt/">the first US$123 billion</a> (published in May 2020) shows about 60% of the aid has been in loans or loan guarantees (with the balance being wage subsidies, equity financing, tax relief, operating subsidies and direct cash injections). Those loans must eventually be repaid.</p>
<p>As I predicted, governments have put little care into directing aid to the airlines with the best chance of surviving in the longer term. IATA’s analysis shows no correlation between the airlines’ likely viability <a href="https://www.iata.org/en/iata-repository/publications/economic-reports/government-aid-and-airlines-debt/">and the amount of aid received</a>.</p>
<p>This means many carriers could struggle to repay their debts post-crisis. It also means lending governments have greater incentives to keep them afloat so they can.
One possible consequence is governments offering further support by protecting struggling airlines from competition post-COVID. A government could restrict flights, for example, to make routes more profitable. That would mean higher airfares.</p>
<figure class="align-center ">
<img alt="Passengers at Roissy Airport, near Paris, April 11 2021." src="https://images.theconversation.com/files/394707/original/file-20210413-17-sjmh61.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/394707/original/file-20210413-17-sjmh61.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/394707/original/file-20210413-17-sjmh61.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/394707/original/file-20210413-17-sjmh61.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/394707/original/file-20210413-17-sjmh61.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/394707/original/file-20210413-17-sjmh61.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/394707/original/file-20210413-17-sjmh61.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Passengers at Roissy Airport, near Paris, April 11 2021.</span>
<span class="attribution"><span class="source">Christophe Petit Tesson/EPA</span></span>
</figcaption>
</figure>
<p>But at least the industry concentration I feared would result from collapses, mergers and acquistions – leading to less competition and higher prices for customers – <a href="https://airlines.iata.org/ceo-interviews/the-business-of-freedom-will-fly-again-alexandre-de-juniac-former-iata-director">looks unlikely</a>.</p>
<h2>The world is not as global as we thought</h2>
<p>The single biggest disappointment of the past year has been governments’ inability to effectively collaborate to relax international travel restrictions. Even between countries that have managed COVID-19 well, such as Australia and New Zealand. Their “<a href="https://www.bbc.com/news/world-australia-56645990">travel bubble</a>” could and should have started much earlier.</p>
<p>IATA’s efforts to have governments embrace a system of COVID tests for travellers before departures, rather than quarantine of arrival, <a href="https://www.cityam.com/iata-calls-for-worldwide-airport-testing-to-replace-quarantine/">fell on deaf ears</a>. </p>
<p>Travel bubbles have proved difficult to agree on and maintain. Taiwan’s bubble with Palau, for example, only allows for miniscule travel numbers. The Singapore-Hong Kong arrangement was suspended days before it was scheduled to commence following a minor outbreak in Hong Kong. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/a-quarantine-free-trans-tasman-bubble-opens-on-april-19-but-flyer-beware-remains-the-reality-of-pandemic-travel-158423">A quarantine-free trans-Tasman bubble opens on April 19, but 'flyer beware' remains the reality of pandemic travel</a>
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<p>Pretty much all such discussions have been bilateral. These are a start, but what is really needed are multilateral agreements for regional safe-travel areas. Australia and New Zealand, for example, could team up with countries with similar epidemiological situations such as Singapore, Taiwan, China and Vietnam.</p>
<p>Had governments adopted a more cooperative approach, they might have saved money paying local airlines for not flying. This lack of cooperation, if it continues, will ensure international travel resumes slower than it could have.</p>
<figure class="align-center ">
<img alt="New self-service check-in machines introduced by Japan Airlines at Tokyo's Haneda airport enable passengers to complete the procedure without touching the screen." src="https://images.theconversation.com/files/394946/original/file-20210414-23-1oc47as.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/394946/original/file-20210414-23-1oc47as.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=392&fit=crop&dpr=1 600w, https://images.theconversation.com/files/394946/original/file-20210414-23-1oc47as.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=392&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/394946/original/file-20210414-23-1oc47as.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=392&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/394946/original/file-20210414-23-1oc47as.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=492&fit=crop&dpr=1 754w, https://images.theconversation.com/files/394946/original/file-20210414-23-1oc47as.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=492&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/394946/original/file-20210414-23-1oc47as.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=492&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">New self-service check-in machines introduced by Japan Airlines at Tokyo’s Haneda airport enable passengers to complete the procedure without touching the screen.</span>
<span class="attribution"><span class="source">Kyodo/AP</span></span>
</figcaption>
</figure>
<h2>Vaccines are now the key</h2>
<p>The IATA’s February forecast of global travel volumes being back to 80% of 2019 levels by the last quarter of the year now principally rests on the speed of vaccination programs around the globe, and what happens with new COVID-19 variants. </p>
<p>Until a considerable share of people are vaccinated, protective measures (masks, distancing, reduced capacity at events, track-and-trace) will remain necessary, both during travel and while out and about on the ground. </p>
<p>Crucial to international travel returning to normal will be “<a href="https://www.usatoday.com/story/travel/news/2021/03/22/vaccine-passport-who-covid-travel-will-you-need-one/4762495001/">vaccine passports</a>”, some form of which will likely be needed for most international travel for at least the next five years.</p>
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<strong>
Read more:
<a href="https://theconversation.com/vaccination-passport-apps-could-help-society-reopen-first-they-have-to-be-secure-private-and-trusted-157219">Vaccination passport apps could help society reopen – first they have to be secure, private and trusted</a>
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<p>I expect requirements such as the need to quarantine will start to be lifted for those who have been vaccinated between July and October. But there will be big differences between nations. Some may open their borders to everyone as soon as a sufficient share of domestic population has been vaccinated. Others may open quarantine-free travel only to vaccinated individuals for the next several years. </p>
<p>The more governments cooperate and learn from each other’s successes, though, the quicker we can return to a world of unfettered travel. The livelihoods of tens of millions of people worldwide depend on it.</p><img src="https://counter.theconversation.com/content/158867/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Volodymyr Bilotkach is an External Instructor with IATA Training.</span></em></p>We thought things would be so much better for international air travel by now, though things could be worse for the airlines themselves.Volodymyr Bilotkach, Associate Professor, Singapore Institute of TechnologyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1482442020-10-16T04:13:19Z2020-10-16T04:13:19ZVirgin sacrifice: boardroom bloodletting signals a classic private-equity hijacking<figure><img src="https://images.theconversation.com/files/363806/original/file-20201015-15-9z550m.jpg?ixlib=rb-1.1.0&rect=746%2C773%2C3740%2C2159&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Richard Wainwright/AAP</span></span></figcaption></figure><p>US private equity firm Bain Capital won’t formally assume control of Virgin Australia until November. But its <a href="https://asx.api.markitdigital.com/asx-research/1.0/file/2924-02294197-2A1256598?access_token=83ff96335c2d45a094df02a206a39ff4">coup this week</a> against chief executive Paul Scurrah, dumping him for Jayne Hrdlicka, a former Bain employee with a reputation for toughness, signals the start of a classic private equity smash-and-grab operation.</p>
<p>When Virgin’s administrators and creditors formally accepted Bain’s bid for the stricken airline, they did so in part due to undertakings job losses would be minimised. Administrator Vaughan Strawbridge optimistically <a href="https://asx.api.markitdigital.com/asx-research/1.0/file/2924-02277430-2A1248212?access_token=83ff96335c2d45a094df02a206a39ff4">said in September</a> the deal would provide “certainty for employees and customers” as well as “maintaining a competitive Australian aviation industry for the benefit of consumers”. </p>
<p>Now, just weeks later, Scurrah’s exit indicates Bain’s intentions. He <a href="https://www.theaustralian.com.au/business/aviation/virgin-australia-to-aim-lower-asceo-paul-scurrah-flies-off/news-story/82a806ac0bc5713cb3eb73a908ff39b8">was reportedly reluctant</a> to undertake the cost-cutting Bain wants as part of a plan to position Virgin Australia between Qantas and its budget carrier Jetstar.</p>
<h2>Hand-picked appointment</h2>
<p>Hrdlicka spent about 15 years working for Bain in both the US and Australia. She joined Qantas as a senior executive in 2010, where she reportedly gained a <a href="https://www.afr.com/chanticleer/virgin-s-epic-fight-with-unions-20201015-p565e0">reputation for being tough on unions</a>. She was appointed group chief executive of Jetstar in 2012 (a position she held until 2017). </p>
<p>Replacing the existing boss with a hand-picked replacement is standard practice in private equity deals. It is one of the most important strategic decisions (and typically the first) a private equity owner makes. </p>
<p>As such, the choice says a great deal about what an owner hopes to achieve, and how it plans to achieve it.</p>
<p>In contrast to the chief executive of a public company (the shares of which are traded on a stock exchange) who must act on behalf of a multitude of shareholders, the head of a private-equity company answers solely to the private equity owners. </p>
<p>This relationship, therefore, is an intensely personal one, with private-equity partners being very “hands-on” owners. </p>
<h2>Urgency trumps empathy</h2>
<p>What are the qualities private-equity owners look for in a chief executive?</p>
<p>According to researchers who interviewed 32 managing partners of private-equity firms to find out what they valued, <a href="https://www.huffpost.com/entry/how-to-pick-ceos-when-you_b_10362104">a handful of key</a> qualities are particularly sought after. </p>
<p>They want candidates with a track record in overcoming setbacks, who are team builders, and who won’t shy away from telling their bosses (the private equity firm) how things are. Previous experience is less important. So too is empathy. As one interviewee told them:</p>
<blockquote>
<p>I’m not down on empathy, but there are times when empathy needs to take a back seat to urgency. Some highly empathetic leaders are not able to make the tough personnel decisions that need to be made - which compromises performance.</p>
</blockquote>
<p>In this vein, Bain’s jettisoning of Scurrah for Hrdlicka is highly suggestive of the management approach Bain would like to see.</p>
<p>Among other things, it is likely to involve a more combative approach to employee relations with a view to aggressively, and quickly, driving down Virgin’s cost base. </p>
<p>Scurrah’s dumping has already reportedly led to the Transport Workers Union (representing the biggest proportion of Virgin Australia employees) <a href="https://www.theguardian.com/business/2020/oct/14/union-walks-away-from-virgin-australia-talks-after-reports-ceo-is-leaving">suspending negotiations with management</a>. Unions had reportedly been <a href="https://www.afr.com/rear-window/bain-installs-hrdlicka-at-virgin-having-promised-not-to-20201015-p565js">assured months ago</a> Hrdlicka would not be made chief executive.</p>
<h2>Private equity’s poor track record</h2>
<p>Yesterday, Virgin’s administrator Vaughan Strawbridge again (somewhat optimistically) “<a href="https://newsroom.virginaustralia.com/release/virgin-australia-holdings-limited-subject-deed-company-arrangement-virgin-australia-group">reaffirmed</a>” that “Virgin Australia will not be repositioned as a low-cost airline”:</p>
<blockquote>
<p>Virgin Australia will be a ‘hybrid’ airline, delivering high value to its customers by delivering a distinctive Virgin experience at competitive prices. </p>
</blockquote>
<p>But Bain’s dumping of Scurrah for Hrdlicka fits the classic narrative of how private-equity players squeeze money for themselves out of takeover targets before bailing out before those companies nose-dive.</p>
<p>As <a href="https://theconversation.com/cutbacks-may-keep-virgin-australia-alive-for-now-but-its-long-term-prospects-are-bleak-141876">I wrote</a> after Virgin Australia’s August announcement that it would axe its budget brand Tigerair and sack about 3,000 of its 9,000 staff:</p>
<blockquote>
<p>Private-equity owners have a poor track record in creating strong, sustainable companies with long-term prospects. At their worst they can act a bit like used-car salesmen who know how to spruce up and turn a profit on a vehicle with underlying mechanical problems. </p>
</blockquote>
<p>If the typical private-equity experience is anything to go by, Bain, having acquired Virgin with mostly borrowed money, will seek to maximise cash flow by operating only high-margin, high-volume routes (consistent with servicing “premium corporate” and “budget-focused” travellers). It will abandon other low-margin, mostly regional routes to the vagaries of the Qantas monopoly. </p>
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Read more:
<a href="https://theconversation.com/cutbacks-may-keep-virgin-australia-alive-for-now-but-its-long-term-prospects-are-bleak-141876">Cutbacks may keep Virgin Australia alive for now, but its long-term prospects are bleak</a>
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<p>Bain will also likely seek to reduce staffing costs through renegotiating pilot and cabin-crew employment contracts, using the threat of further redundancies as leverage. On the most popular trunk routes, where it will provide a parallel service to Qantas, customers will face cosy duopoly prices.</p>
<p>The upshot of all this: to allow Bain and its co-investors to pay themselves handsome dividends upfront, thereby facilitating an exit at the earliest opportunity at a tidy profit. This would be a classic debt-fuelled private-equity play. </p>
<p>In public-interest terms, however, it will be a costly missed opportunity to build a robust long-term domestic competitor to Qantas. </p>
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<em>
<strong>
Read more:
<a href="https://theconversation.com/home-away-from-home-reflecting-on-past-airline-collapses-in-australia-136840">'Home away from home': reflecting on past airline collapses in Australia</a>
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<p>Inevitably, once the private equiteers have left the building, a once-proud airline will be left labouring under a mountain of debt, marking time until it capitulates at the onset of the next economic crisis; the unfortunate plaything of financial, not aeronautical, engineers.</p><img src="https://counter.theconversation.com/content/148244/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Mark Melatos has received funding from the Australian Research Council. </span></em></p>In pushing out Virgin Australia’s chief executive Paul Scurrah, new owner Bain Capital has signalled more cost-cutting is on the cards.Mark Melatos, Associate Professor of Economics, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1418762020-08-05T05:27:19Z2020-08-05T05:27:19ZCutbacks may keep Virgin Australia alive for now, but its long-term prospects are bleak<p>Virgin Australia’s plan <a href="https://www.abc.net.au/news/2020-08-05/virgin-australia-airline-to-slim-down-post-coronavirus/12525186">to sack about 3,000</a> of its 9,000 staff, axe its budget brand Tigerair, streamline its fleet to only Boeing 737s and suspend long-haul international flying indefinitely should come as no surprise. </p>
<p>Its main competitor, Qantas, announced <a href="https://theconversation.com/qantas-cutbacks-signal-hard-years-before-airlines-recover-141522">its cutbacks in June</a>.</p>
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Read more:
<a href="https://theconversation.com/qantas-cutbacks-signal-hard-years-before-airlines-recover-141522">Qantas cutbacks signal hard years before airlines recover</a>
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<p>“Demand for domestic and short-haul international travel is likely to take at least three years to return to pre-COVID-19 levels, with the real chance it could be longer,” Virgin Australia chief executive Paul Scurrah said. “Which means as a business we must make changes to ensure the Virgin Australia Group is successful in this new world.”</p>
<p>The big question, though, is whether Virgin can ever become a sustainable competitor to Qantas.</p>
<p>That seems highly unlikely under its new owner, US private equity firm Bain Capital, which acquired <a href="https://thenewdaily.com.au/finance/consumer/2020/06/28/virgin-australia-bain-capital/">the ailing airline in June</a> after it went <a href="https://theconversation.com/voluntary-administration-isnt-a-death-sentence-for-virgin-australia-or-for-competition-136832">into administration in April</a>.</p>
<p>Even before the impact of the COVID-19 pandemic, Virgin had posted years of losses with debts <a href="https://www.livewiremarkets.com/wires/virgin-australia-s-very-junky-debt-raising">approaching A$7 billion</a>. </p>
<p>Private equity owners have a poor track record in creating strong, sustainable companies with long-term prospects. At their worst they can act a bit like used-car salesmen who know how to spruce up and turn a profit on a vehicle with underlying mechanical problems. </p>
<p>They are undoubtedly masters of financial (not necessarily aeronautical) engineering; generally ill-equipped to provide the long-term investments in physical capital and service quality that an airline like Virgin Australia needs to be competitive. </p>
<h2>How private equity works</h2>
<p>Private equity firms raise money from private investors such as wealthy individuals and superannuation funds. That money is <a href="https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.23.1.121">pooled into a fund</a>, which the private equity firm manages for a fee. Funds are typically used to buy undervalued and often financially distressed businesses, such as Virgin.</p>
<p>These funds have a short life – <a href="https://pitchbook.com/news/articles/pe-hold-times-keep-going-up#:%7E:text=LPs%20take%20heed%3A%20Private%20equity,years%2C%20according%20to%20PitchBook%20data">about six years on average</a>. They acquire a portfolio of companies, nurture those businesses to apparent commercial health and then sell them off (usually through a public float on a stock exchange) at a large profit. They can then divest themselves of their remaining ownership stake while the share price remains high.</p>
<p>Private ownership can be advantageous for a struggling company, because it removes the regulatory and other distractions that come with being a listed public company. It means management can make decisions without worrying about the short-term stock implications, for example.</p>
<p>But private equity players often fail to create long-term profitable companies, as the fate of some iconic Australian companies shows.</p>
<h2>Take the money and run</h2>
<p>In 2006 the then Coles-Myer group sold its Myer department store business to a US private equity consortium led by TPG Capital. In 2009 the private equity owners floated Myer on the Australian Stock Exchange and <a href="https://www.smh.com.au/business/private-equity-owners-exit-myer-20091029-hm7l.html">sold all their shares</a>, making almost six times their <a href="https://www.afr.com/companies/retail/ten-years-on-myer-float-still-rankles-20191024-p533uv">original investment</a>. </p>
<p>Six months after its float, Myer issued a profit warning. It has never traded above its issue price of A$4.10 a share. Its share price now is about 20 cents. </p>
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Read more:
<a href="https://theconversation.com/seven-ways-to-tell-whether-a-private-equity-backed-ipo-should-be-avoided-60851">Seven ways to tell whether a private equity-backed IPO should be avoided</a>
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<p>Dick Smith Electronics suffered even worse when Woolworths sold it in 2012 to Australian private equity investor <a href="https://www.abc.net.au/news/2012-09-27/dick-smith-sold-to-private-equity/4283098">Anchorage Capital Partners</a> <a href="https://www.afr.com/chanticleer/dick-smith-exam-puts-private-equity-back-in-the-hot-seat-20160905-gr9csm">for A$94 million</a>. </p>
<p>Its new owner floated the company 15 months later at a valuation of A$520 million, (and a share price of $2.20). By September 2014 Anchorage <a href="http://www.anchoragecapital.com.au/investments-dick-smith/">sold its entire stake</a>. By the end of 2015 the share price was about 30 cents. In January 2016 the company <a href="https://www.afr.com/chanticleer/dick-smith-exam-puts-private-equity-back-in-the-hot-seat-20160905-gr9csm">went into administration</a>.</p>
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Read more:
<a href="https://theconversation.com/the-ugly-story-of-dick-smith-from-float-to-failure-55625">The ugly story of Dick Smith, from float to failure</a>
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<h2>Maximising short-term profit</h2>
<p>The fact that private equity firms are short-term investors who eschew regulatory oversight means they are ill-suited to own and operate any business - such as an airline - that is heavily regulated and requires large, long-term investments. </p>
<p>For a start, Bain has bought Virgin using mostly borrowed money. This debt will most likely, and in large part, be used to front-load dividend payments to Bain and its co-investors, allowing them to recoup their original investment before Virgin’s performance under its new owners can be adequately judged.</p>
<p>Bain will likely need to maximise cash flow to pay these dividends. How will it do this? We can predict the probable strategy:</p>
<ul>
<li><p>only operate on the highest-margin, highest-volume routes</p></li>
<li><p>zealously control costs, with potentially significant implications for service quality and employee conditions</p></li>
<li><p>charge the highest possible prices the market will bear in a cosy duopoly with Qantas</p></li>
</ul>
<p>Such a strategy will do nothing for Virgin’s long-term reputation, customer loyalty or indeed its commercial viability after Bain sells out. Bain will likely exit as soon as it can, when the stock market looks particularly frothy and it can find buyers prepared to buy Virgin Australia shares at a big premium. </p>
<p>None of this will make Virgin Australia a robust and long-term competitor to Qantas. It will in all probability be left with a debt-laden balance sheet, an orphan engaged in a fight to the death with a much stronger Qantas. </p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/home-away-from-home-reflecting-on-past-airline-collapses-in-australia-136840">'Home away from home': reflecting on past airline collapses in Australia</a>
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<p>In short, Virgin will most likely find itself in exactly the same vulnerable position it was before the COVID-19 pandemic, in no shape to survive the inevitable next aviation crisis without a taxpayer bailout.</p>
<p>It means a duopoly in the short term and an effective monopoly for Qantas in the longer term. And for Australian travellers that will mean higher ticket prices and lower quality service.</p><img src="https://counter.theconversation.com/content/141876/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Mark Melatos has received funding from the Australian Research Council. He serves on the HSC Standards Committee of the NSW Education Standards Authority and on the Reserve Bank of Australia's Educators Advisory Panel.</span></em></p>Virgin Australia’s cutbacks leave a big question unanswered. Can it ever become a sustainable competitor to Qantas under private equity ownership?Mark Melatos, Associate Professor of Economics, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1382692020-05-18T03:36:45Z2020-05-18T03:36:45ZHow to survive a crisis: what Virgin Australia staff can learn from ex-Ansett workers<p>As the COVID-19 economic crisis crimps travel and hurts airlines worldwide, Virgin Australia has been placed under <a href="https://theconversation.com/virgin-australia-was-never-going-to-last-136847">external administrators</a>. The Queensland government has <a href="https://www.abc.net.au/news/2020-05-15/coronavirus-queensland-virgin-australia-explainer/12247046">put a $200m bid on it</a> (a move <a href="https://www.abc.net.au/news/2020-05-14/virgin-australia-queensland-government-investment-coronavirus/12235934">derided</a> by several federal ministers) but what’s clear is this is a period of enormous uncertainty for Virgin’s 10,000-strong <a href="https://www.ibisworld.com/au/company/virgin-australia-holdings-limited/8879/">Australian workforce</a>.</p>
<p>It must feel like déjà vu for former Ansett Airline employees – especially those who went on to work at Virgin Australia (some of whom may still be there now). But the experience of ex-Ansett staff may offer clues on how Virgin employees can cope.</p>
<p>I (Helena Steel) interviewed former Ansett Airlines employees ten years after the airline’s collapse in 2001 (shortly after the <a href="https://airlinegeeks.com/2015/10/14/tbt-throwback-thursday-in-aviation-history-a-look-back-at-ansett-australia/">September 11 Twin Towers attacks</a>), to see what career changes they had made and what lessons they had learnt.</p>
<p>What I discovered was a workforce much more resilient than expected - and that was often due to the efforts of the ex-employees themselves. </p>
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Read more:
<a href="https://theconversation.com/home-away-from-home-reflecting-on-past-airline-collapses-in-australia-136840">'Home away from home': reflecting on past airline collapses in Australia</a>
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<h2>What Ansett employees did next</h2>
<p>After its collapse, most Ansett workers had remained in the airline industry and joined the then-growing Virgin Airlines. Fewer received jobs at Qantas, citing a lack of openings.</p>
<p>A small percentage joined overseas airlines or retired. A decade after the collapse, many had opted for a career change outside the airline industry.</p>
<p>I was employed by Ansett Australia/Air New Zealand and managed corporate HR in both New Zealand and Australia. After the collapse, I returned to Ansett Australia to assist with HR, winding up the company under administration.</p>
<p>It was hard to sell Ansett assets at the time – the September 11 attacks had punctured the airline industry worldwide and few were in the mood for buying planes. </p>
<p>In the end, Ansett was under administration for ten years, making it Australia’s longest and still the largest collapse.</p>
<p>Over 16,000 direct jobs were <a href="https://pdfs.semanticscholar.org/9065/b7535c1dc6f0fa560772fcb69f1489f25a84.pdf">lost</a>, not including the wider impact on allied jobs. It took ten years for Ansett employees to recoup their entitlements and, in the end, they received 96 cents for every dollar they were owed.</p>
<p>Many of these workers survived this stressful period by helping and supporting each other.</p>
<h2>The Ansett family</h2>
<p>There was an unwritten “hire family” policy at Ansett, with entire families on staff. Loyalty was strong; Ansett employees had on average 15 years service and many reported they loved their jobs. But entire families were left jobless when the collapse occurred. </p>
<p>Nevertheless, this family-oriented approach may also have helped staff survive the crisis.</p>
<p>Under administration, I (Helena Steel) set up an official company staff support and recruitment website but it was soon replaced by self-made employee sites offering information and advice. This shows a high level of collegiality in the workforce and how much staff wanted to help each other through the crisis. </p>
<p>Today, the “Ansett family” has survived, with annual and sometimes monthly <a href="https://www.facebook.com/groups/438190929694762/">get-togethers</a> organised via groups on <a href="https://www.facebook.com/AnsettANA/">Facebook</a> and elsewhere online.</p>
<p>Ex-staff have used these informal groups to keep updated on the next redundancy payments, superannuation entitlements, news from Ansett administration and importantly, job referrals and leads. </p>
<hr>
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Read more:
<a href="https://theconversation.com/virgin-australia-was-never-going-to-last-136847">Virgin Australia was never going to last</a>
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<h2>The current crisis is different - but some lessons still apply</h2>
<p>The COVID-19 economic crisis Virgin Australia employees find themselves in today is clearly different to the Ansett collapse in many ways. For starters, the effects are economy-wide, with far greater costs to the public purse and governments don’t seem too keen to bail out Virgin. The ability for ex-staff to find jobs elsewhere in the airline industry is diminished.</p>
<p>That said, Virgin Australia employees can learn a few lessons from former Ansett staff about how to survive, or even thrive. </p>
<p>First, it really helps to know you’re not going through this on your own. The “Ansett family” made ex-staff feel less alone and less likely to blame themselves for their fate. Many said they got some comfort from sharing their redundancy journey with colleagues, and hearing how others made it through and faced challenges along the way. </p>
<p>Second, the “Ansett job loss family” helped remove the stigma many feel when you suddenly lose your job.</p>
<p>Third, being part of networks can help you find new opportunities, stay up to date on entitlements and keep abreast of industry news. </p>
<p>There are already many Facebook groups for Virgin <a href="https://www.facebook.com/search/top/?q=virgin%20australia%20cabin%20crew&epa=SEARCH_BOX">cabin crew</a>, union members, and people with an interest in how the Virgin Australia <a href="https://www.facebook.com/groups/170378030935805/">administration</a> is being handled. Finding an airline “family” in such places may help Virgin employees, potentially for many years. </p>
<p>These social support practices should be encouraged by airline leadership and HR to help foster resilience and survive a crisis.</p><img src="https://counter.theconversation.com/content/138269/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Helena Steel was employed by Ansett Australia/Air New Zealand and managed corporate HR in both New Zealand and Australia. After the collapse, she returned to Ansett Australia to assist with HR, winding up the company under administration.</span></em></p><p class="fine-print"><em><span>Bernadine Van Gramberg received funding from the Australian Research Council between 2013- 2016. She no longer receives funding. The project was unrelated to this article </span></em></p><p class="fine-print"><em><span>Santina Bertone does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Interviews with Ansett Airlines employees ten years after the airline’s collapse reveals a workforce much more resilient than expected - thanks mostly to how much staff helped each other.Helena Steel, Lecturer HRM, PhD Candidate - Job loss, career adaptability & HRM interventions, Swinburne University of TechnologyBernadine Van Gramberg, Pro Vice Chancellor (Graduate Research and Research Training), Swinburne University of TechnologySantina Bertone, Professor of Management, CQUniversity AustraliaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1368402020-04-22T00:27:09Z2020-04-22T00:27:09Z‘Home away from home’: reflecting on past airline collapses in Australia<p>The coronavirus crisis has challenged the global aviation industry in previously <a href="https://www.theguardian.com/business/2020/mar/15/coronavirus-airlines-emptied-flights-changing-flying">unimaginable ways</a>. The latest announcement is Virgin Australia has <a href="https://www.theguardian.com/business/2020/apr/21/virgin-australia-what-does-voluntary-administration-mean-and-how-will-it-affect-you">entered voluntary administration</a>. </p>
<p>While Virgin’s future hangs in the balance, over the one hundred years of civil aviation in Australia there has been a long list of airline casualties. Regardless of what the future holds for Virgin and its staff, the future of the company (and air travel) is certain to be irreparably changed by the pandemic.</p>
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<a href="https://theconversation.com/voluntary-administration-isnt-a-death-sentence-for-virgin-australia-or-for-competition-136832">Voluntary administration isn't a death sentence for Virgin Australia – or for competition</a>
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<p>Airline crew tend to consider their occupation as not just a job but a way of life. As teary cabin supervisor Tony Smith <a href="https://www.news.com.au/travel/virgin-australia-reportedly-set-for-voluntary-administration/news-story/8a4faa1fb26655f05b32bdc140ece8ce">told the media</a>: </p>
<blockquote>
<p>Virgin is my home away from home. They are my brother, my sister, my mum and dad, my grandfather and my grandmother. They’re people I can turn to, to help me get through things, and it’s not just me, it’s a lot of other crew as well … It’s a sense of worth, it’s what keeps a lot of us sane, it keeps our mental health in check.</p>
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<p>This strong allegiance to the company is due in part to the emotional labour required to be a flight attendant – the hard work of endlessly smiling and always being polite – and the personal sacrifices of the job. Flight crew routinely miss birthday parties, weddings, funerals and school concerts because of their service to an industry that works around the clock. </p>
<p>Pilots and cabin crew give up a lot to be in the industry – something of themselves and the lives that they might have otherwise lived. This means when airlines collapse they lose more than just a place to go to work: they lose a key part of their identity.</p>
<h2>The luxury and the labour of air travel</h2>
<p>There is a long history of loyal workers being badly affected by corporate collapses and changes in government aviation policies in Australia, but long-defunct regional airlines have dedicated custodians in regional museums and collections all around Australia.</p>
<p>The <a href="https://qam.com.au/collection/">Queensland Air Museum</a> maintains relics from an Australian-registered Douglas DC-6 airliner Resolution, which crashed outside San Francisco in 1953. Its loss was the final straw for the financially precarious British Commonwealth Pacific Airlines. </p>
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<img alt="" src="https://images.theconversation.com/files/329323/original/file-20200421-126552-m69o8n.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/329323/original/file-20200421-126552-m69o8n.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=786&fit=crop&dpr=1 600w, https://images.theconversation.com/files/329323/original/file-20200421-126552-m69o8n.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=786&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/329323/original/file-20200421-126552-m69o8n.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=786&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/329323/original/file-20200421-126552-m69o8n.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=987&fit=crop&dpr=1 754w, https://images.theconversation.com/files/329323/original/file-20200421-126552-m69o8n.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=987&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/329323/original/file-20200421-126552-m69o8n.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=987&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">An advertisement for British Commonwealth Pacific Airlines in Australian Women’s Weekly, 1952.</span>
<span class="attribution"><span class="source">Trove</span></span>
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<p>In Cooma, the <a href="https://visitcooma.com.au/attractions/aviation-pioneers-memorial/">Aviation Pioneers Memorial</a> marks the loss of the Avro Ten airliner Southern Cloud in 1931, which spelled the end of the short-lived <a href="https://en.wikipedia.org/wiki/Australian_National_Airways_(1930)">Australian National Airways</a> established by Charles Kingsford Smith in 1929. </p>
<p>The shock of the 2001 collapse of Ansett Airlines was as profound and unsettling as the concurrent September 11 terrorist attacks. Two days earlier, the airline had gone into voluntary administration. On the 14th, the airline was grounded. Thousands of passengers and crew were left stranded.</p>
<p>Over the next few months there were attempts to keep a few flight services operational, but the company closed completely on March 4 2002, leaving 16,000 without jobs. </p>
<p>Established in 1935, by the 1960s Ansett was <a href="https://www.youtube.com/watch?v=ymjAZGe8jlc">a mainstay</a> of domestic air travel under the government’s “two-airline policy”. At the time of its collapse, Ansett accounted for almost half of the domestic aviation market.</p>
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<p>The fallout ran deep: families were separated as pilots sought work overseas, there was a high rate of marriage breakdowns, and a number of crew <a href="https://www.theage.com.au/national/hidden-toll-of-ansetts-collapse-20041114-gdyzpd.html">died by suicide</a>. </p>
<p>As Ansett air hostess Pat Ward <a href="https://uwap.uwa.edu.au/products/smile-particularly-in-bad-weather-the-era-of-the-australian-airline-hostess">said</a>:</p>
<blockquote>
<p>There wasn’t great value in being thrown around the sky every day. But the value was in the people that were there and what you could do for them. You were, very often, their lifeline. </p>
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<a href="https://images.theconversation.com/files/329361/original/file-20200421-104265-1ti1vmr.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/329361/original/file-20200421-104265-1ti1vmr.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/329361/original/file-20200421-104265-1ti1vmr.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=1060&fit=crop&dpr=1 600w, https://images.theconversation.com/files/329361/original/file-20200421-104265-1ti1vmr.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=1060&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/329361/original/file-20200421-104265-1ti1vmr.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=1060&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/329361/original/file-20200421-104265-1ti1vmr.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1332&fit=crop&dpr=1 754w, https://images.theconversation.com/files/329361/original/file-20200421-104265-1ti1vmr.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1332&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/329361/original/file-20200421-104265-1ti1vmr.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1332&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">A classified ad for TAA air hostesses published in 1968. Applicants should ‘be of attractive appearance with a good speaking voice’.</span>
<span class="attribution"><span class="source">Trove</span></span>
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<p>If you visit the <a href="https://www.taamuseum.org.au">Trans-Australia Airlines Museum</a> on any Tuesday morning, you will meet a vibrant group of volunteers who care for the unique collection of memorabilia for the company that flew from 1946 until it merged with Qantas in 1992. </p>
<p>The volunteers include former “hosties” who mingle with technicians and retired pilots. They are eager to share reminiscences about having to “weigh in” when flight attendants’ weight was monitored, or about apprenticeships working alongside fathers and brothers. </p>
<p>John Wren, president of the TAA 25 Year Club, remembers the airline as “a community and source of lifetime employment for my family. In comparison, Qantas was more like the public service!”</p>
<h2>More than an industry</h2>
<p>Our <a href="https://heritageoftheair.org.au/">Heritage of the Air</a> project has been researching Australia’s civil aviation to build a better understanding of what it is about this industry that inspires loyalty.</p>
<p>But aviation is not just an industry: it’s a complex linkage of technology, imagination, design and fashion, with a special kind of emotional attachment.</p>
<p>As airlines have been shut under coronavirus, the flow of people made possible through technologies of flight is being challenged in a way never seen before. </p>
<p>Yet, even as we see aircraft standing idle and airport halls eerily silent, we still rely on airlines and their workers to get everyone home. Air crews are frontline workers and are well aware of the value and necessity of their skills. </p>
<p>As Miranda Diack, vice president of the Flight Attendants’ Association of Australia, told ABC’s The Drum <a href="https://www.abc.net.au/news/2020-03-19/the-drum:-tuesday-19th-of-march/12072432">last month</a>:</p>
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<p>[The] aviation industry has been always there in every major disaster to rescue people. We’ve been there to bring our citizens home when they have needed help. Maybe it’s time for the government to remember … it might be time to rescue us for a change.</p>
</blockquote><img src="https://counter.theconversation.com/content/136840/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Tracy Ireland receives research funding from the Australian Research Council, Airservices Australia and the National Museum of Australia.</span></em></p><p class="fine-print"><em><span>Peter Hobbins receives funding from the Australian Research Council. He is an Honorary Research Fellow with the Civil Aviation Historical Society/Airways Museum.</span></em></p><p class="fine-print"><em><span>Prudence Black receives funding from the Australian Research Council. </span></em></p>Virgin Australia has gone into administration. From the collapse of former airlines we know staff might not only lose a job, but a family.Tracy Ireland, Professor of Cultural Heritage, University of CanberraPeter Hobbins, Honorary Associate, Department of History, University of SydneyPrudence Black, Research Associate, Department of Gender and Cultural Studies, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1368322020-04-21T05:41:22Z2020-04-21T05:41:22ZVoluntary administration isn’t a death sentence for Virgin Australia – or for competition<p>With its plea for a A$1.4 billion government loan rebuffed, Australia’s second major airline has entered voluntary administration.</p>
<p>Virgin Australia’s chief executive, Paul Scurrah, said <a href="https://www.asx.com.au/asxpdf/20200421/pdf/44h3kq7kcb12fl.pdf">the decision to appoint external administrators</a> (from Deloitte) “was about securing the future of the Virgin Australia Group and emerging on the other side of the COVID-19 crisis”.</p>
<p>Voluntary administration means the board of an insolvent company – one that can’t pay its bills – hands full control to independent administrators. They then work out if it can be saved by being restructured or sold to other investors. This is similar to what is called Chapter 11 bankruptcy protection in the United States.</p>
<p>If the administrators can’t save the company, their job is to wind up operations and sell off assets to pay creditors (including staff owed entitlements). </p>
<p>For now, with almost all of Virgin Australia’s fleet grounded and the federal government subsidising it flying a few critical routes, voluntary administration won’t make much difference to customers. The company says it will continue to operate its scheduled international and domestic flights.</p>
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Read more:
<a href="https://theconversation.com/government-funding-to-qantas-and-virgin-to-ensure-air-services-on-key-routes-136554">Government funding to Qantas and Virgin to ensure air services on key routes</a>
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<h2>Administration is not a death sentence</h2>
<p>Virgin Australia isn’t the first airline victim of the COVID-19 pandemic. </p>
<p>Norway’s largest airline, Norwegian Air, <a href="https://www.flightglobal.com/strategy/four-of-norwegians-crew-subsidiaries-file-for-bankruptcy/137975.article">announced on Monday</a> it had “no choice but to apply for bankruptcy” for three subsidiaries in Denmark and one in Sweden. </p>
<p>Like Virgin, it too entered this crisis in far from tip-top shape, as it struggled over several years to make its long-haul low-cost airline model work.</p>
<p>Virgin Australia has long been financially fragile. Last financial year it posted a <a href="https://www.abc.net.au/news/2019-08-28/virgin-to-chop-750-jobs-as-it-posts-349m-loss/11455840">A$349 million loss</a>, its <a href="https://www.reuters.com/article/us-virgin-australia-strategy-focus/turnaround-may-prove-tricky-for-new-virgin-australia-ceo-scurrah-idUSKCN1VG01O">seventh consecutive</a> annual loss. In response the airline announced a “<a href="https://www.theguardian.com/business/2019/aug/28/virgin-australia-to-cut-750-jobs-after-349m-full-year-loss">rightsizing</a>” program that included cutting about 750 jobs (about 7.5% of its workforce). </p>
<p>The question now is whether the Deloitte administrators can do better.</p>
<p>It is possible. </p>
<p>Three of the world’s biggest airlines – Delta, United, and American Airlines – have survived near-death experiences. </p>
<p>Delta filed for Chapter 11 bankruptcy <a href="https://www.reuters.com/article/us-delta-bankruptcy/delta-exits-bankruptcy-after-19-month-restructuring-idUSWNAS850820070430">in 2005</a>, United <a href="https://www.theguardian.com/world/2002/dec/09/usa.theairlineindustry">in 2002</a>, and American Airlines <a href="https://marketrealist.com/2016/06/american-airlines-turnaround-bankruptcy/">in 2011</a>. All were restructured over several years and all emerged from the process as more efficient operations. They are now the world’s first, second and fourth-biggest airlines (<a href="https://viewfromthewing.com/the-10-biggest-airlines-in-the-world-ranked/">by passenger capacity</a>). </p>
<p>Reports suggest, however, that Virgin Australia’s administrators are looking for a <a href="https://www.afr.com/street-talk/deloitte-targets-quick-deal-for-virgin-australia-20200421-p54lo9">much shorter timeline</a> – about eight weeks – to find new owners for the airline.</p>
<p>This would make the process far different to that of Ansett Australia, the last major Australian airline to go into voluntary administration. Ansett entered administration on September 12 2001. Its last flight landed in Sydney on March 5 2002. Liquidating its assets and paying money owed to creditors and staff <a href="https://www.smh.com.au/national/ansett-workers-get-closure-10-years-on-20110902-1jpqa.html">took almost a decade</a>. </p>
<p>If the administrators can work out a deal that injects new investments and wipes Virgin’s debts of about A$5 billion – a major obstacle to the federal government lending it A$1.4 billion – Australia’s airline industry will arguably be more competitive than it is now. </p>
<h2>Consequences for customers</h2>
<p>If new owners cannot be found, Virgin Australia’s collapse would leave the Australian market dominated by Qantas (and its budget subsidiary Jetstar) – at least in the short to medium term. </p>
<p>Less competition almost always means reduced services and higher prices for customers. </p>
<p>But the airline market is complicated. As I’ve <a href="https://theconversation.com/prix-fixe-is-airline-consolidation-to-blame-for-sky-high-airfares-45086">noted previously of the US market</a>, there can be many competitors yet still effective monopolies on some “thin” routes. What economists call “multi-market contact” can lead to “tacit collusion”, in which competition is tempered without any explicit agreement among the market participants. </p>
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Read more:
<a href="https://theconversation.com/prix-fixe-is-airline-consolidation-to-blame-for-sky-high-airfares-45086">Prix fixe: is airline consolidation to blame for sky-high airfares?</a>
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<p>Research shows, for example, that airfares are about 5% higher in markets with two legacy airline competitors than on the monopoly routes. But when a legacy carrier faces new competition from a low-cost airline, the prices can go down by as much as a third.</p>
<h2>Demand factors</h2>
<p>Tempering the likelihood that market dominance by one company will lead to higher prices is that demand will take time to return to pre-pandemic levels after restrictions are lifted. </p>
<p>In China, for example, domestic passenger numbers for 2020 are expected to be <a href="https://www.scmp.com/business/companies/article/3080361/chinas-airlines-are-poised-bout-revenge-travelling-bookings">20% lower than 2019</a>, and international passenger numbers 50% lower.</p>
<p>Fuel costs, which <a href="https://www.iata.org/contentassets/ebdba50e57194019930d72722413edd4/fact-sheet-fuel.pdf">accounted for about 24%</a> of the global airline industry’s operating costs in 2019, are also likely to be lower. The oil price is at its lowest level in history – so low, in fact, oil producers are now paying customers to take it. </p>
<p>Both these factors suggest ticket prices won’t rise in the short term.</p>
<p>In the medium term, once demand recovers, lack of competition could well lead to higher airfares. </p>
<p>But in the long run there is better news. </p>
<p>As any economics textbook will tell you, profitable markets attract new competitors. </p>
<p>With more airline bankruptcies around the world quite likely, conditions will be ripe for new airlines to be established. There will be no shortage of aircraft and skilled workers. If oil prices stay low, new entrants could even be competitive using older, less fuel-efficient aircraft.</p>
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Read more:
<a href="https://theconversation.com/once-the-pandemic-is-over-we-will-return-to-a-very-different-airline-industry-134124">Once the pandemic is over, we will return to a very different airline industry</a>
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<p>For the sake of Virgin Australia’s 10,000 employers, and the jobs of thousands more that depend on it indirectly, I hope the airline survives administration and emerges better for it, as US carriers have done with Chapter 11 bankruptcies. </p>
<p>But if it doesn’t, the pain for customers through higher prices is likely to be temporary. The laws of economics tell us that, so long as governments ensure markets remain open to new entrants, monopolies do not last.</p><img src="https://counter.theconversation.com/content/136832/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Volodymyr Bilotkach is an External Instructor with IATA Training.</span></em></p>Virgin Australia could emerge from this crisis in better shape.Volodymyr Bilotkach, Associate Professor, Singapore Institute of TechnologyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1363992020-04-17T02:23:22Z2020-04-17T02:23:22ZVirgin Australia gets a lifeline, but will it be enough?<p>With commercial airline fleets grounded due to lack of demand, the Australian government will pay the nation’s two biggest airlines, Qantas and Virgin Australia, $A165 million to ensure they keep flying critical metropolitan and regional routes over the next two months. </p>
<p>This measure comes on top of a <a href="https://minister.infrastructure.gov.au/mccormack/media-release/additional-new-support-critical-regional-aviation-services-through-covid-19">A$198 million assistance package</a> for regional airlines and the waiver of A$715 million in fees and charges for domestic airlines. </p>
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Read more:
<a href="https://theconversation.com/government-funding-to-qantas-and-virgin-to-ensure-air-services-on-key-routes-136554">Government funding to Qantas and Virgin to ensure air services on key routes</a>
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<p>It’s particularly important for the cash-strapped Virgin Australia. The company this week asked the Australian Stock Exchange to <a href="https://www.businessnewsaus.com.au/articles/virgin-suspended-from-asx.html">suspend trading of its shares</a> after the federal government rebuffed its request for a $A1.4 billion loan. </p>
<p>Without a significant cash injection, <a href="https://www.abc.net.au/news/2020-03-17/coronavirus-airline-support-package-qantas-rex/12064316">industry experts</a> say, the airline will collapse within six months. Prior to the government’s latest announcement there were reports it <a href="https://www.theguardian.com/business/2020/apr/14/virgin-australia-considers-going-into-administration-as-labor-calls-for-government-rescue">could go into administration</a> within weeks. </p>
<p>Virgin Australia is 90% owned by five international companies – Etihad Airways, Singapore Airlines, China’s Nanshan Group and HNA, and Richard Branson’s Virgin Group. Facing their own difficulties, they have signalled they will not inject further capital.</p>
<p>This funding package gives the airline more time to find <a href="https://www.afr.com/politics/federal/private-equity-investors-circle-over-virgin-20200415-p54jwd">other investors</a>. But its longer-term future remains up in the air.</p>
<h2>Desperately seeking $1.4 billion</h2>
<p>While the US government has agreed to provide <a href="https://www.nytimes.com/2020/04/14/business/coronavirus-airlines-bailout-treasury-department.html">US$50 billion</a> in loans and grants to its ten biggest domestic airlines, with the option to take equity stakes, Treasurer Josh Frydenberg said this week the Australian government was “not in the business of owning an airline”.</p>
<p>Having two major airlines had served Australia well, <a href="https://www.abc.net.au/news/2020-04-16/virgin-australia-disspears-from-skies-which-airline-coronavirus/12151072">he said</a>, but “our approach has been sector-wide support”.</p>
<p>Complicating that type of support has been disagreement between Virgin Australia and Qantas. </p>
<p>Qantas chief Alan Joyce has argued for “<a href="https://www.abc.net.au/news/2020-03-24/qantas-boss-comments-unhelpful-says-accc-boss/12085672">survival of the fittest</a>” and against assistance to “badly managed” businesses. His airline did not need government support, Joyce said this week. But if the government loaned Virgin Australia A$1.4 billion, <a href="https://www.abc.net.au/news/2020-04-16/virgin-australia-disspears-from-skies-which-airline-coronavirus/12151072">he wanted A$4.2 billion</a>. </p>
<h2>To bail or not to bail</h2>
<p>The federal government’s dilemma is whether it is better to bail out Virgin Australia or allow commercial forces to rule, as it has done in the past.</p>
<p>Its interest in sector-wide support reflects the fact the entire domestic aviation industry is hurting.</p>
<p>Freight and logistics, aircraft maintenance and repair, flight training and simulation, component manufacturing and research and design operations are all bundled together into a tightly bound sector. </p>
<p>All up, the industry’s five subsectors – domestic commercial aviation, international commercial aviation, general aviation, freight transport and aviation support infrastructure – have provided employment for about <a href="http://www.australianindustrystandards.org.au/wp-content/uploads/2018/02/Aviation-Key-Findings-Paper2018V4Web.pdf">90,000 Australians across 1,900 businesses</a>. So it’s not just the 10,000 people employed by Virgin Australia the government needs to think about.</p>
<h2>Systems shocks are nothing new</h2>
<p>History is also a factor. The global aviation industry is no stranger to “system shocks”. These have included the Global Financial Crisis of 2008, the SARS outbreak in 2003, the World Trade Centre attacks in 2001, the Asian Financial Crisis in 1997 and the oil shocks of the 1970s.</p>
<p>Typically the sector has “bounced back” within a year. </p>
<p>The last big shakeup of the Australian airline industry was in 2001. Just days after the September 11 terrorist attacks, Ansett Airlines – flying since 1935 – went into administration. </p>
<p>After Ansett’s collapse, Virgin Blue (established in 2000) saw explosive growth
and former Ansett employees helped create regional operator Rex in 2002.</p>
<p>So from the rubble of failure new enterprises and forms of aviation business can grow, just as Virgin Australia has taken Ansett’s place as the nation’s second major domestic carrier.</p>
<p>Of course, the extent of the crisis is somewhat different this time. </p>
<p>With domestic travel restrictions likely in place for at least six months, and international flight restrictions set to continue even longer, the sector will be changed forever. </p>
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Read more:
<a href="https://theconversation.com/once-the-pandemic-is-over-we-will-return-to-a-very-different-airline-industry-134124">Once the pandemic is over, we will return to a very different airline industry</a>
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<p>But history shows Australia can support two major airlines. We have extensive domestic aviation routes that will enable an early recovery compared with airlines in other parts of the world that rely on international routes.</p><img src="https://counter.theconversation.com/content/136399/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The federal government’s dilemma is whether it is better to bail out Virgin Australia or allow commercial forces to rule, as it has done in the past.Stephen Fankhauser, Deputy Chair, Aviation Department, Faculty of Science, Engineering & Technology, Swinburne University of TechnologyMatt Ebbatson, Senior lecturer, Swinburne University of TechnologyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1067652018-11-13T05:04:45Z2018-11-13T05:04:45ZOn the offensive: why Virgin Australia gets called a publicity hound<p>Parading your patriotism might look like a corporate plan that can’t possibly go wrong. ANZAC Day sporting commemorations by the AFL and NRL, for example, are hugely successful, embraced by veterans groups and the general public alike. </p>
<p>But Virgin Australia’s attempt to get in on the action has proven as much a strategic miscalculation as the Gallipoli campaign.</p>
<p>A week before Remembrance Day the airline announced it would jump aboard a NewsCorp-confected campaign by <a href="https://www.theguardian.com/australia-news/2018/nov/04/virgin-australia-honours-veterans-on-flights">emulating US airlines</a> that publicly honour military personnel on their flights. </p>
<p>Within 24 hours it was retreating in disarray.</p>
<hr>
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<em>
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Read more:
<a href="https://theconversation.com/100-years-since-the-ww1-armistice-remembrance-day-remains-a-powerful-reminder-of-the-cost-of-war-103232">100 years since the WW1 Armistice, Remembrance Day remains a powerful reminder of the cost of war</a>
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<p>Its plan didn’t go quite as far as the Americans do. Other passengers would not be expected to stand up and applaud. Nor would it offer a military discount, as Virgin Atlantic does. But it did promise proclamations of gratitude and priority boarding for military veterans.</p>
<p>Veterans’ representatives described the idea as embarrassing, tokenistic and opportunistic. Chief among the criticisms: Virgin Australia was <a href="https://www.theguardian.com/australia-news/2018/nov/05/virgin-australia-priority-boarding-for-veterans-derided-by-defence-association">fatally misreading the local culture</a> by thinking it could import an American practice out of step with the Australian temperament. </p>
<p>How did the airline blunder so badly? </p>
<p>This is a case study in how to get the fundamentals of corporate social responsibility completely wrong. Virgin Australia chose the wrong cause to support, in the wrong way. </p>
<p>There are three key things it apparently failed to do. Other companies should take note, or risk their own embrace of social causes being dismissed as publicity chasing. </p>
<h2>No imagination</h2>
<p>Virgin Australia apparently didn’t imagine the beneficiaries might think its plan hasty and mindless.</p>
<p>It didn’t factor in that military veterans might be uncomfortable with being singled out for public thanks. As Rodger Shanahan, a research fellow at the Lowy Institute and former army officer <a href="https://www.lowyinstitute.org/the-interpreter/would-you-like-thanks">noted</a>, there are many others “who provide service to the community more continually, and are exposed to more trauma on a much more regular basis than the average Australian Defence Force member”. </p>
<p>It short, it didn’t put itself in the stakeholders’ shoes.</p>
<p>Understanding stakeholders is essential to the success of a company’s social responsibility initiatives. A better appreciation of military veterans would have led it to a different plan. </p>
<h2>Leaping before listening</h2>
<p>Being able to see an issue from the perspective of stakeholders is far easier if you listen to them first.</p>
<p>Virgin declared it would consult with veterans’ organisations only after its announcement bombed. It should have consulted before. Involving stakeholders in the decision-making process could have avoided the controversy. </p>
<p>Nowadays companies can easily use social media to engage stakeholders and gauge community sentiment prior to making or announcing a decision. Sony and Microsoft are <a href="https://www.tandfonline.com/doi/abs/10.1080/10696679.2017.1389238">good case studies</a>. Both have successfully used social media prior to launching their new game consoles to involve consumers in “cocreation”. </p>
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<strong>
Read more:
<a href="https://theconversation.com/this-remembrance-day-digital-commemoration-makes-it-impossible-to-forget-65560">This Remembrance Day, digital commemoration makes it impossible to forget</a>
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<p>With tools like <a href="https://www.salesforce.com/au/products/marketing-cloud/social-media-marketing/">Social Studio</a> any company can analyse what is being said about it across internet platforms. Reviewing this sentiment can be provide insight and ideas. Like this one:</p>
<blockquote>
<p>“I am happy that I served my country to protect the values that we Australians hold dear but do not want to see Australia follow the path of America… Virgin Australia would do better by providing some discounts to airfares or Lounge access rather that what I see proposed today.” </p>
</blockquote>
<p>Of course, social media should not be the only medium for obtaining feedback. Other techniques such as focus group and surveys are also important. But feedback from stakeholders is tremendously valuable. </p>
<h2>Fitness test</h2>
<p>Corporate social responsibility initiatives need to be the right fit. <a href="https://www.inderscienceonline.com/doi/abs/10.1504/IJMP.2015.068301">Research</a> shows the importance of stakeholders seeing the connection between a company and the causes it supports. </p>
<p>That’s probably why the AFL and NRL can get away with leveraging the “ANZAC spirit” to promote football games. Those who died at Gallipoli and professional footballers at least share the common attribute of being young men.</p>
<p>In the case of Virgin Australia, simply importing an American idea failed to take account of the need to show a connection between military personnel and the airline’s brand values in the Australian market. </p>
<p>What this proves is that companies need to be smarter and more sensitive than media and politicians that see advantages in sanctifying military service.</p>
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Read more:
<a href="https://theconversation.com/the-politics-of-public-monuments-its-time-australians-looked-at-what-and-whom-we-commemorate-82751">The politics of public monuments: it's time Australians looked at what, and whom, we commemorate</a>
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<p>Other Australian companies can learn from Virgin’s military blunder. The lesson here is that corporate social responsibility needs to be driven by real engagement, and doing the hard yards, not by short-term opportunism. </p>
<p>Perhaps they can take the sentiments of Rodger Shanahan to heart and put more energy into recognising “all those who work on behalf of the greater good in often traumatic, and always difficult circumstances at home”.</p><img src="https://counter.theconversation.com/content/106765/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Mehran Nejati does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Virgin Australia’s great military blunder of 2018 is a case study in corporate social responsibility gone wrong.Mehran Nejati, Senior Lecturer in Management, Edith Cowan UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/509072015-11-20T03:37:49Z2015-11-20T03:37:49ZJetstar and Virgin caught out for overlooking mobile commerce<p>This week’s <a href="https://www.accc.gov.au/media-release/court-finds-that-jetstar-and-virgin-australia-engaged-in-misleading-%E2%80%98drip-pricing%E2%80%99-practices">successful prosecution</a> of airlines Jetstar and Virgin Australia by the Australian Competition and Consumer Commission comes after the regulator <a href="https://theconversation.com/the-accc-wants-to-take-the-drip-out-of-pricing-23520">warned</a> it would crack down on drip pricing.</p>
<p>The Federal Court found both airlines had contravened sections 18 and 29 of Australian Consumer Law by drip pricing, and while the airlines now avoided the practice on their websites, their mobile sites failed to keep up.</p>
<p>Drip pricing is the practice of disclosing only incrementally the various fees and charges consumers must pay. Typically these take the form of booking fees, or fees for using credit cards, that are revealed only when the consumer has reached the end of their online purchase. Especially when associated with a seductively attractive headline price, this practice misleads consumers about the true cost of the transaction. It also distorts the competitive process by disadvantaging those firms that do not mislead consumers in this manner. </p>
<p>Although sometimes the additional costs involve seem minor when compared with the total cost of the transaction, this is not always the case. For example, using Jetstar’s website before May 2013, a listed fare of A$49 would have cost a consumer booking the fare using a non-Jetstar branded credit card a total of A$66. This represents almost 35% more than the headline price - something to which consumers were not alerted until they had reached the payment stage of the booking process.</p>
<p>The present case concerned the websites, mobile sites and email communications of both Jetstar and Virgin. In the case of Jetstar, the Court found that its website in May 2013 contravened the misleading or deceptive conduct and false representation provisions of the ACL. Both Jetstar and Virgin’s mobile sites were also found to contravene the ACL. </p>
<p>However, the Court found that neither Jetstar’s nor Virgin’s current websites did so because early in the booking process they now include (no doubt influenced by the ACCC’s vigilance) an “explicit disclosure of the existence of the booking and service fee and of its quantum”. The effect of these disclosures is to prevent those sites from misleading consumers or making false representations. </p>
<p>On the other hand, their mobile sites were found to have contravened the law because they did not do this. Rather, the consumer needed to undertake what (when referring to Virgin’s site) the judge described as “a series of relatively annoying steps … to ascertain the existence of the booking and service fee” and when it would be charged.</p>
<p>The morale of this case for online sellers is clear: if they wish to charge consumers more than their headline price they must make this very clear to them and do so very early in the purchasing process, both on their websites and mobile sites. If they do not, they are likely to contravene sections 18 and 29 of consumer law. </p>
<p>However, taking this step will give sellers protection only in relation to those provisions. If the total price that a consumer must pay for a product or service is divided into components, such as a fare + a booking fee, then they need to also be alert to the operation of section 48 of the law. This prohibits what is often referred to as “component pricing” - effectively disguising the actual cost by dividing it into a number of components. Importantly, the Act requires the supplier to prominently specify what the consumer is required to pay as a single amount.</p><img src="https://counter.theconversation.com/content/50907/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Those annoying fees at the end of your online booking? They should be disclosed early.Julie Clarke, Associate Professor, Deakin Law School, Deakin UniversityPhilip Clarke, Emeritus Professor, Deakin Law School, Deakin UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/423502015-06-02T00:46:40Z2015-06-02T00:46:40ZExplainer: cabotage and why foreign airlines don’t fly domestic<figure><img src="https://images.theconversation.com/files/83488/original/image-20150601-17832-19zcgdz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Foreign airlines are currently not permitted to fly domestic routes in Australia.</span> <span class="attribution"><span class="source">Bas Bogers/Flickr</span>, <a class="license" href="http://creativecommons.org/licenses/by-nc/4.0/">CC BY-NC</a></span></figcaption></figure><p>Later this month federal Cabinet will consider whether to allow foreign air carriers to fly domestic Australian routes in <a href="https://northernaustralia.dpmc.gov.au/">Northern Australia</a>. The right for foreign carriers to operate domestically is known as “cabotage”, and it is one of nine <a href="http://www.icao.int/Pages/freedomsAir.aspx">“freedoms of the air”.</a> </p>
<p>It is also a right, or a freedom, that is rarely granted or exchanged between countries. Australia already leads the world in terms of liberalisation of its domestic aviation market, so why would it propose to get even further ahead of almost every other country?</p>
<h2>The Australian cabotage proposal</h2>
<p>The proposal that will <a href="http://www.afr.com/business/transport/aviation/foreign-airlines-could-fly-domestic-in-the-top-end-20150524-gh8c3k">reportedly</a> be taken to Cabinet would allow foreign airlines to carry domestic passengers between Australian airports in northern Australia above the Tropic of Capricorn. For example, this could mean foreign airlines carrying passengers from Darwin to Townsville or from Broome to Cairns.</p>
<p>The rationale for the argument appears to be an expected boost to tourism.</p>
<p>It’s a peculiar argument to make. Cabotage rights (as with other air traffic rights or freedoms) are traded on a reciprocal basis, and even then they are traded very rarely. </p>
<p>It appears from various media <a href="http://www.news.com.au/finance/business/cheap-airfares-and-foreign-airlines-on-northern-australia-agenda/story-fnkgde2y-1227343236829">reports</a> that the domestic Australian cabotage proposal is a unilateral one, and that no international carrier has raised it, though the <a href="http://competitionpolicyreview.gov.au">Harper review</a> did recommend cargo and passenger cabotage on poorly served routes and for certain areas.</p>
<p>Neither Virgin Australia or Qantas, needless to say, support such a proposal, <a href="http://www.news.com.au/finance/business/cheap-airfares-and-foreign-airlines-on-northern-australia-agenda/story-fnkgde2y-1227343236829">arguing</a> it would have damaging consequences for them. </p>
<p>Qantas has also said:</p>
<blockquote>
<p>“This would be the thin edge of a very large wedge, with overseas carriers willing to render point-to-point domestic routes unprofitable in order to increase their traffic in-and-out of Australia.”</p>
</blockquote>
<h2>Air services agreements</h2>
<p>Countries have exclusive sovereignty over the airspace above their territory. As set out in the 1944 <a href="http://www.icao.int/publications/pages/doc7300.aspx">Chicago Convention</a> on international civil aviation, states grant “special permission” or authorisation to other states to operate scheduled international air services. These permissions are granted in bilateral air services agreements (ASAs). Countries then exchange treaty rights bilaterally with one another that allow airlines to fly internationally. </p>
<p>Without such exchange of treaty rights, airspace would be “<a href="http://www.kluwerlaw.com/Catalogue/titleinfo.htm?ProdID=9041137297">closed</a> for the operation of international scheduled air services”.</p>
<p>There are over 3,000 bilateral ASAs in place that regulate international aviation. They include provisions dealing with routes (or traffic rights), capacity (the number of flights and the number of passengers), airline ownership and control provisions, and prices or tariffs. The Australian Government has <a href="http://www.infrastructure.gov.au/aviation/international/bilateral_system.aspx">negotiated</a> 90 bilateral air services agreements and associated arrangements. </p>
<p>There are also a small number of multilateral ASAs concluded between groups of countries. The <a href="http://www.maliat.govt.nz">Multilateral Agreement on the Liberalization of International Air Transportation</a> (MALIAT), for example, which entered into force in 2001, has nine parties including New Zealand, Singapore and the United States (Australia is not a party).</p>
<h2>Freedoms of the air – and cabotage</h2>
<p>Within the nine “freedoms of the air” variously exchanged in ASAs, the third freedom provides for the right to carry passengers from the airline’s home country to another country. The fourth freedom provides for the right to carry passengers from another country back to the airline’s home country. The fifth – and very important – freedom sets out the right to carry passengers from a destination in a foreign country to a destination in another foreign country, such carriage related to third and fourth freedom traffic.</p>
<p>In terms of cabotage, the eighth freedom of the air is the right to carry passengers from one point in the territory of a foreign country to another point in the same country as part of a flight which originated (or terminated) in the airline’s home country (also known as consecutive cabotage). The ninth freedom is the right to originate a flight in a foreign country and carry passengers to another point in that foreign country (stand-alone cabotage).</p>
<p>The <a href="http://www.icao.int/publications/pages/doc7300.aspx">Chicago Convention</a>, however, provides that a state:</p>
<blockquote>
<p>“shall have the right to refuse permission to the aircraft of other contracting States to take on in its territory passengers … destined for another point within its territory. Each contracting State undertakes not to enter into any arrangements which specifically grant any such privilege on an exclusive basis to any other State or an airline of any other State, and not to obtain any such exclusive privilege from any other State.”</p>
</blockquote>
<p>Australia is a party to the Convention.</p>
<p>Given it <a href="http://www.news.com.au/finance/business/cheap-airfares-and-foreign-airlines-on-northern-australia-agenda/story-fnkgde2y-1227343236829">seems</a> foreign carriers are not arguing for domestic Australian cabotage rights, the current debate is even more peculiar.</p><img src="https://counter.theconversation.com/content/42350/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>If Cabinet approves of a proposal to open up some domestic aviation routes to foreign airlines it would put Australia at odds with almost every other country.David Hodgkinson, Associate Professor, Law School, The University of Western AustraliaRebecca Johnston, Adjunct Lecturer, Law School, University of Notre Dame AustraliaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/367732015-01-29T19:33:30Z2015-01-29T19:33:30ZExplainer: fuel hedging and its impact on airlines and airfares<figure><img src="https://images.theconversation.com/files/70426/original/image-20150129-22292-1b1l54e.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">When airlines fill up, it's not always easy to work out the cost.</span> <span class="attribution"><span class="source">Patrick Lauke/Flickr</span>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span></figcaption></figure><p>With oil prices on the decline, and analysts <a href="http://www.news.com.au/national/cheap-fuel-tipped-to-pump-up-qantas-profit-to-1-billion/story-fncynjr2-1227199457714">predicting record profits</a> for the 2014/15 financial year, Qantas and Virgin Australia are under increasing pressure to abolish fuel surcharges and lower their fares.</p>
<p>The Australian Competition & Consumer Commission is <a href="http://www.smh.com.au/business/aviation/watchdog-accc-will-probe-qantas-fuel-surcharges-despite-changes-20150127-12z733.html">investigating</a> whether Qantas has been misleading with its surcharges, amid a growing perception airlines are pocketing all the fuel savings without passing any of the benefits on to their loyal customers. </p>
<p>Virgin Australia <a href="http://www.smh.com.au/business/virgin-purges-fuel-surcharge-references-from-ticketing-20150122-12vxq2.html">moved first</a> by reintegrating the fuel surcharges on the Sydney to Los Angeles route, the only Virgin route to which the surcharge applied. <a href="http://www.qantasnewsroom.com.au/media-releases/qantas-lowers-frequent-flyer-charges-reviews-international-fare-structure">Qantas followed</a> this week by lowering the fuel surcharge for frequent flyer point redemption tickets on some routes, including to the US and Asia, but not Europe. Qantas will absorb all fuel surcharges into the base fares as soon as hedge contracts allow it and/or competition forces it to do so. As consumers are traditionally less price sensitive to the fuel surcharge compared to the base fare, unbundling both has been beneficial to airlines. The question is not if but when fuel surcharges, which only apply on international flights, will be reintegrated into the ticket price. All fares (including domestic) are also expected to come down further. </p>
<p>Over the past decade fares and cargo rates have fallen globally by around 60% after adjusting for CPI inflation, according to the International Air Transport Association. Qantas’ international airfares, including the fuel surcharge, have never been lower than today. Consumers have therefore enjoyed lower fares while jet fuel prices went up, which is not something other transport modes can claim. </p>
<p>In theory, airlines should be among the top beneficiaries of the oil price slump as fuel costs have become the largest cost category for airlines in the last decade, often representing 30-40% of total operating expenses. </p>
<p>Low-cost carriers are particularly exposed to fuel price changes, as they have reduced all other costs (such as staff costs) to a minimum. For example, Air Asia’s aircraft fuel expenses are around 47%. This means nearly all low cost carriers hedge, with the most famous and successful example being <a href="http://www.bloomberg.com/news/articles/2014-12-12/southwest-resets-fuel-hedges-as-oil-collapse-creates-instability">Southwest Airlines</a>. </p>
<h2>The impact of hedging</h2>
<p>While it is a no brainer that airlines will benefit from the recent sharp decline in oil prices (more than 50% since last year’s peak) in the long run, in the short to medium term hedging contracts and foreign exchange rate risks can make things a lot more complex.</p>
<p>The International Air Transport Association expects airlines to post a collective global net profit of some US$25 billion in 2015 with lower oil prices being one of the main drivers behind the improved profitability. Given that the 40 year average net post-tax profit margin of global airlines is around 0.1%, the soon to be materialised profits are important for much needed capital and debt management as well as fleet modernisation and product improvements. </p>
<p>That said, despite all the excitement about the massive profits the hedged airlines will soon be making, IATA expects the return on invested capital (ROIC) is to grow to 7.0% only. While this is a significant improvement on the 6.1% 2014 ROIC it is still 0.8 percentage points below the 7.8% expected weighted average cost of capital (WACC), so most airlines will still destroy shareholder value. For Australian airlines the recent 20% depreciation of the Australian dollar means that some of the fuel price gains will be diminished as most of the jet fuel (and many other airline expenses) is traded in US dollars.</p>
<p>What is more, most airlines (and their customers) need to be patient as lower fuel prices will be realised with a time lag, due to forward fuel-buying practices that are aimed at protecting both airlines and their consumers. Qantas is no different, with the airline expecting only a A$30 million benefit from lower fuel prices in the first half of FY 2015, which is in the context of an annual fuel bill of around A$4.5 billion. Not exactly a huge cost saving (yet) that could translate into profits or eventually lower fares.</p>
<p>Fuel hedging is just one example of the risk mitigation strategies taken by airlines. The exposure to risk relating to the volatility of fuel prices, currency fluctuations and interest rates are widely hedged by airlines using different types of financial instruments. </p>
<p>How different airlines approach hedging varies (e.g. disciplined Lufthansa versus Ryanair, which tries to out-manoeuvre the market). Some will hedge almost all of their fuel requirements, currency and interest rate exposures, some do not hedge at all. </p>
<h2>Hedging doesn’t always work</h2>
<p>During the last sharp fall of spot market oil prices (FY 2008/09 and related to the GFC), many airlines reported huge hedging losses (on paper) - for example Cathay Pacific (-$974m), Air China (-$994m) and Emirates (-$428m). More recently Delta Air Lines reported a <a href="http://ir.delta.com/news-and-events/news/news-release-details/2015/Delta-Air-Lines-Announces-December-Quarter-Results/default.aspx">US$1.2 billion charge</a> for mark-to-market adjustments on its fuel hedges in 2014. As a result many airlines, including British Airways and Air France, scaled back their hedging for a while, and others stopped hedging altogether. </p>
<p>China’s government went one step further by banning all its airlines from fuel hedging. This means they are now in the best position to reduce international fares, but may pay down the track through full and immediate exposure to future fuel price increases. </p>
<p>Other airlines will report similar paper losses but will at the same time benefit from the fuel price drop as not all of their requirements are hedged and those that are hedged are often designed to cap losses both ways. </p>
<p>To determine whether airlines speculate with the fuel price requires in depth analysis on the types of fuel hedge instruments they use. </p>
<h2>Transparency of charges</h2>
<p>A lack of disclosure requirements makes it almost impossible to establish how exactly or when airlines have hedged. None of them would of course publicly discuss details of their strategies, as successful fuel hedging is a competitive advantage. Most airlines use “costless” collar hedging which is using a call option while at the same time going short with a put option at a lower strike price. By doing so the airlines can cap their losses and pay for it by also limiting the upside benefits, which therefore limits volatility and clearly shows hedging is not a bed of speculation but is purely protection from volatile fuel prices.</p>
<p>Locally, Qantas, Virgin Australia and Air New Zealand are all heavily hedged. Qantas at 94% (1H2015), Virgin Australia at 72% (at A$110/bbl for FY15) and Air New Zealand at 78% of 1H2015 and 56% of their 2H2015 estimated fuel requirement.</p>
<p>Etihad has stopped its fuel hedging recently and Chinese carriers are not hedged at all. This makes them currently more flexible in their pricing strategy, but they can only be so as they are state backed and less concerned with their exposure to future oil price hikes.</p>
<p>Ultimately, large privately run airlines rely on stable ticket pricing and costs for achieving profitability. If they are not hedging, then they are essentially speculating (that oil prices will fall further), don’t engage in hedging because their balance sheet is not strong enough (e.g. American Airlines for many years) or have the ability to immediately pass on fuel-driven inflation to customers (which in Australian is nearly impossible). It is therefore inevitable that there will be a time lag in terms of customers being able to enjoy lower fares as a result of lower jet fuel prices. </p>
<p>Once the airlines are paying fuel prices close to the current low spot market prices, competition will force them to pass on much of those savings to their customers. What will not be passed on will ensure that private investors will see at least some return on their investments in this extremely competitive market.</p><img src="https://counter.theconversation.com/content/36773/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Rico Merkert owns shares in both Qantas and Virgin Australia.</span></em></p>With oil prices on the decline, and analysts predicting record profits for the 2014/15 financial year, Qantas and Virgin Australia are under increasing pressure to abolish fuel surcharges and lower their…Rico Merkert, Senior Lecturer in Aviation Management, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/310512014-09-01T04:11:22Z2014-09-01T04:11:22ZQantas turn-around: is Alan Joyce the right leader for the job?<p>Since becoming CEO in November 2008, Alan Joyce has led Qantas through one crisis after another: the global shut-down of operations in the 2011 industrial dispute; a major downgrade of Qantas credit rating; the decision to abandon its Singapore hub in favour of Dubai; thousands of job losses… and, now, <a href="http://www.asx.com.au/asxpdf/20140828/pdf/42rt7chn2bqvmv.pdf">the mother of all operating losses</a>.</p>
<p>He has faced ongoing and persistent criticism from unions, industry experts, shareholders and loyal customers. Since taking on the top job, Joyce has overseen net after-tax losses of more than $2.5 billion. </p>
<p>Not surprisingly, calls for his head have only intensified over the last week.</p>
<p>Writing in Fairfax Media last week, <a href="http://www.smh.com.au/business/aviation/can-qantas-airways-boss-alan-joyce-keep-his-head-20140828-109p1y.html#ixzz3BvL0NqRI">Adele Ferguson</a> suggested that Joyce has become “one of the most disliked chief executives since Telstra’s Sol Trujillo”.</p>
<p>But to blame Alan Joyce for Qantas’ current predicament seems somewhat simplistic, and misunderstands the challenges he face as the leader of one of Australia’s most iconic brands. </p>
<p>There have been a number strategic blunders, to be sure.</p>
<p>The decision to shut down Qantas operations in a standoff with unions still looks like a bad decision. While it expedited a resolution to the immediate strike action, it did not produce the major workplace reforms Qantas had hoped to achieve. Nor did it impress customers.</p>
<p>Going hand-in-cap to the federal government seeking a bailout in 2013 did not go down well with government or the general public. Qantas certainly needed a cash injection, but surely not a handout. </p>
<p>Nor has the company moved fast enough to restructure its internal operations and improve efficiency. Instead of focusing on accelerating change that would yield operational efficiencies, Qantas engaged in a destructive price war with Virgin Australia – a strategy that has is in part been responsible for the disastrous results announced last week.</p>
<p>However, a lot that has gone wrong over at Qantas can hardly be laid at the feet of Alan Joyce. In many ways he has faced a perfect storm in which the conflation of domestic and international challenges have all worked against his attempts to turn around the airline.</p>
<p>Internationally, new no-frills and low-frills carriers, especially in Asia, have eaten away at Qantas’ ability to compete as a full-service operator. Like Qantas, legacy carriers around the world are losing money. All of them have been scrambling to reduce operating costs and regain market share. Qantas has faced a particularly intense challenge in Asia and the Middle East where most major international carriers operate as fully or partially state-owned businesses, or benefit from subsidies and tax concessions. </p>
<p>For some of Qantas’ major regional competitors, their business model is as much driven by the imperative to promote domestic tourism, as it is by the need to run a profitable airline. Add to this the high Australian dollar, which affects the costs associated with major inputs such as fuel, revenues generated in foreign currency, and the value of its asset base.</p>
<p>The question remains, however, is Alan Joyce the right person to lead the Qantas turnaround?</p>
<p>I think there are good reasons to conclude that – at least for now – he is Qantas’ best bet. To begin with, Joyce appears to have the full backing of his Chairman, the Board and its major shareholders. This will be critical for any CEO expected to turnaround a business from the position Qantas now faces.</p>
<p>Although slow in coming, the CEO and the Board have articulated a clear strategy for turn-around, and begun to implement it. Qantas is now in the middle of major restructure which will see a freeze on expanding capacity in its domestic operations, the formal separation of its domestic and international operations into separate business units, and a significant reduction in its staff numbers. So far it has managed to deliver on this strategy. With full implementation of these changes, Qantas expects to be back in profitable territory within 12 months. </p>
<p>Joyce will need to do more than just catch up with competitors. Other operational changes will be required. Jetstar is bleeding money on both its domestic and international operations, and is failing to keep pace with innovations in the low cost sector. </p>
<p>Qantas also faces ongoing pressure to compete in the full service sector, where other carriers are experimenting with different passenger load models and have manage to utilise their aircraft fair more efficiently and profitably. This is a key difference, for example, between Qantas and Air New Zealand, which this week <a href="http://www.airnewzealand.com.au/assets/PDFs/2014-annual-financial-report.pdf">posted a $NZ262 million profit</a>. It will also need to work out how to respond to what may be an emerging regional war in the Asia Pacific for its lucrative business travel market.</p>
<p>In an industry notorious for thin margins it is not hard to see why the business of running an airline is getting harder and harder. But in many respects, the most costly phase of the turn-around strategy now underway in Qantas is close to complete. But few pundits can see light at the end of the tunnel. </p>
<p>Right now, more than anything, Qantas may need Joyce’s leadership and dogged focus on implementing tough change if it is to find its way back to profitability. If he manages to pull off his ambitious plans for Qantas, Joyce may quickly go from being one of the most criticised business leaders in the country to one of the most admired. If he cannot do so, then along with the Chairman and other Board members, he will need admit failure and move on.</p><img src="https://counter.theconversation.com/content/31051/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Gahan receives research funding from the Australian Research Council, the Commonwealth Department of Employment, and the Commonwealth Department of Industry.</span></em></p>Since becoming CEO in November 2008, Alan Joyce has led Qantas through one crisis after another: the global shut-down of operations in the 2011 industrial dispute; a major downgrade of Qantas credit rating…Peter Gahan, Professor of Management + Director, Centre for Workplace Leadership, Faculty of Business and Economics, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/309992014-09-01T03:51:32Z2014-09-01T03:51:32ZDid Qantas bet the house on the wrong planes?<figure><img src="https://images.theconversation.com/files/57794/original/rs483d9y-1409533510.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Questions are being asked of the Qantas board over fleet decisions made years ago.</span> <span class="attribution"><span class="source">Halans/Flickr</span>, <a class="license" href="http://creativecommons.org/licenses/by-nc-sa/4.0/">CC BY-NC-SA</a></span></figcaption></figure><p>When Qantas posted a A$2.8 billion loss - the <a href="http://www.sbs.com.au/news/article/2014/08/28/qantas-insists-worst-over-after-announcing-284-billion-loss">highest in the airline’s history</a> - last week, one critical point was that $2.6 billion came from a write-down of the value of the aircraft in the Qantas international fleet, as it plans to <a href="http://www.sbs.com.au/news/article/2014/08/28/qantas-insists-worst-over-after-announcing-284-billion-loss">to split its domestic and international arms</a>. It is the result of a devaluation intended to reflect the fleet’s value in today’s market.</p>
<p>Qantas wants investors to consider this loss part of its restructuring efforts to get the airline back in the black. </p>
<p>But given the acquisition of aircraft (leased or purchased outright) is the single most critical type of investment for airlines, can leadership decisions on fleet be blamed for the impact Qantas is now feeling on its financial health?</p>
<hr>
<p>Alan Joyce:</p>
<blockquote>
<p>“We have now come through the worst. There is a clear and significant easing of both international and domestic capacity growth.”</p>
</blockquote>
<hr>
<p>Virgin Australia isn’t immune to losses either. The company last week <a href="http://www.businessinsider.com.au/virgin-australia-has-tripled-its-losses-to-355-million-2014-8">announced</a> it was looking to cut costs after it posted a A$356 million net loss in fiscal 2014.</p>
<p>Efficiently running an airline is a tough business. It requires a high capital investment to build the fleet, high labour costs, strong exposure to market fluctuations, and it involves making decisions today with long-lasting impacts in a volatile and ever-changing industry.</p>
<p>In the United States, considered by many to be the most competitive domestic aviation market on the planet, every major <a href="http://money.cnn.com/infographic/news/companies/airline-merger/">US airline has entered Chapter 11</a> bankruptcy protection and has had to restructure its labour force. </p>
<p>Globally, <a href="http://www.iata.org/pressroom/pr/Pages/2013-12-12-01.aspx">industry net profit margins</a> remain low at 1.1% of revenues in 2012, 1.8% in 2013 and 2.6% expected in 2014.</p>
<h2>Aircraft acquisition is a long-term game</h2>
<p>The aircraft acquisition business is not for the faint hearted as it involves large sums of money - a <a href="http://www.boeing.com/boeing/commercial/777family/">Boeing 777</a> has a <a href="http://www.boeing.com/boeing/commercial/prices/">list price</a> starting at US$269.5 million. </p>
<p>Airlines make large calculated risks on their financial future when they decide to expand or update their fleet, and legacy airlines (such as Qantas) tend to acquire in batches.</p>
<p>Last week, Qantas announced some changes to its fleet, as it has <a href="http://australianaviation.com.au/2014/08/qantas-defers-dreamliner-options-to-2017/">pushed back its purchase options</a> for <a href="http://www.boeing.com/boeing/commercial/787family/">Boeing 787 Dreamliner</a> aircraft for 12 months and delayed delivery of <a href="http://www.airbus.com/aircraftfamilies/passengeraircraft/a320family/spotlight-on-a320neo/">Airbus A320neos</a> for Jetstar by four years. </p>
<p>The airline will also not renew the leases on two of its Qantas Domestic <a href="http://www.airbus.com/aircraftfamilies/passengeraircraft/a330family/">Airbus A330s</a>, and sell two <a href="http://www.boeing.com/boeing/commercial/737family/737_800back.page">Boeing 737-800 planes</a>. Qantas is continuing with its plan to update its fleet while strategically consolidating it over the next few years.</p>
<p>In the past, Qantas has been <a href="http://www.ausbt.com.au/opinion-don-t-blame-alan-joyce-alone-for-qantas-woes">criticised</a> for being slow at responding to changes in the aviation industry, particularly in relation to cabin offerings, with late adoption of back-seat screens and premium economy seats.</p>
<p>However, Qantas has been at the forefront of new generation aircraft acquisition by adding planes such as the <a href="http://www.airbus.com/aircraftfamilies/passengeraircraft/a380family/">Airbus A380</a> and the Boeing 787 Dreamliner to its fleet. </p>
<p><a href="http://www.ausbt.com.au/opinion-don-t-blame-alan-joyce-alone-for-qantas-woes">Industry insiders</a> point the finger to Qantas’ heavy investment in the Airbus A380 and Boeing 787 for its current troubles. Orders for the Boeing 777 were put aside despite it being a more established and flexible aircraft. </p>
<p>The issue became of particular importance following the gaps left by the temporary <a href="http://www.heraldsun.com.au/news/plane-reportedly-qantas-sheds-parts-before-landing-at-singapore/story-e6frf7jo-1225947832315">grounding of its A380s</a>. It is <a href="http://www.ausbt.com.au/opinion-don-t-blame-alan-joyce-alone-for-qantas-woes">estimated</a> that if Qantas had bought the B777, it would have saved more than A$1 billion in fuel in the past 10 years. However, buying the 777 would mostly have resulting in a delaying for the acquisition of A380 and B787 aircraft.</p>
<h2>Leasing rather than buying: the new emerging players in global aviation</h2>
<p>As airlines are facing increased competition to turn a profit, leasing has emerged as an increasing trend for airlines to update their fleet.</p>
<p>Indeed, over <a href="http://www.afm.aero/magazine/trading-legal-and-finance/item/556-operating-leases-their-role-in-today%E2%80%99s-market">one-third of the world’s airline fleet</a> is being rented through “operating leases”, and you may have never heard of the big players in this growing industry. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/57786/original/z4fywhyz-1409532158.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/57786/original/z4fywhyz-1409532158.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/57786/original/z4fywhyz-1409532158.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/57786/original/z4fywhyz-1409532158.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/57786/original/z4fywhyz-1409532158.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/57786/original/z4fywhyz-1409532158.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/57786/original/z4fywhyz-1409532158.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Qantas has delayed its purchase options for the Boeing 787 Dreamliner.</span>
<span class="attribution"><span class="source">John P./Flickr</span>, <a class="license" href="http://creativecommons.org/licenses/by-nc-sa/4.0/">CC BY-NC-SA</a></span>
</figcaption>
</figure>
<p>They include <a href="http://www.smbc.aero/">SMBC Aviation Capital</a> (formerly RBS Aviation Capital), a lessor based in Dublin and <a href="http://www.rbs.com/news/2012/06/sale-of-rbs-aviation-capital.html">recently acquired</a> by a Japanese bank; <a href="http://www.alafco-kw.com/">Alafco</a>, a Kuwaiti lessor with clients including Turkish Airlines; and <a href="http://www.aercap.com/">AerCap</a>, one of the world’s largest aircraft leasing companies with a fleet of over 1,000 planes and headquartered in Amsterdam.</p>
<p>However, large airlines are still better off buying planes outright. By keeping them for their full lifespan (30 years or so), buying becomes cheaper than renting in the long term.</p>
<p>Leasing only makes sense financially for small airlines that lack capital, or for big airlines trying out new offerings. Qantas has <a href="http://www.qantas.com.au/travel/airlines/media-releases/jan-2013/5482/global/en">leased some Boeing 717 planes</a> in the past for instance.</p>
<p>As the largest and most critical type of investment for airlines, decisions surrounding aircraft acquisition and fleet management are key to an airline’s financial health. <a href="http://www.abc.net.au/newsradio/content/s4076779.htm">Many are pointing the finger</a> at the <a href="http://www.qantas.com.au/travel/airlines/board-of-directors/global/en">Qantas board</a> for its decision-making on fleet management over the past few years. </p>
<p>The A380 is prime candidate for long-haul routes offering large capacity and high quality cabin offerings - Emirates built <a href="http://www.emirates.com/au/english/flying/emirates-a380/hub.aspx">an entire hub at Dubai airport</a> to accommodate its A380 fleet - and as such the Qantas board was likely trying to build its fleet for the future by betting big on the A380.</p>
<p>However, as the competition increased, Qantas has found it difficult to stay competitive and <a href="http://www.theaustralian.com.au/business/aviation/qantas-struggles-to-fill-a380-super-jumbos-during-off-peak-seasons/story-e6frg95x-1226782003042">fill its planes</a> to full capacity. The B777 would have offered more flexibility and its international performance has suffered as a consequence. </p>
<p>With this massive write down now complete, let’s hope the flying kangaroo can find a safe way back to black over the coming quarters.</p><img src="https://counter.theconversation.com/content/30999/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Hamza Bendemra received funding from Boeing in 2011 for engineering materials research.</span></em></p>When Qantas posted a A$2.8 billion loss - the highest in the airline’s history - last week, one critical point was that $2.6 billion came from a write-down of the value of the aircraft in the Qantas international…Hamza Bendemra, Research Engineer, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/292832014-07-17T04:31:48Z2014-07-17T04:31:48ZQantas: still ‘Australian’ but struggling in a competitive market<figure><img src="https://images.theconversation.com/files/54056/original/mgvnfwb3-1405560242.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Qantas: a troubled giant.</span> <span class="attribution"><span class="source">Prayitno/Flickr</span>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>The Qantas Sale Act amendments are set to pass the Senate this week, following a deal the government made with Labor which has consistently opposed majority foreign ownership of the “Australian” airline. For Qantas, little has changed.</p>
<p>Qantas has been bound by both the Air Navigation Act, 1920, and the Qantas Sale Act, 1992. The Air Navigation Act requires Australian airlines to have 51% local ownership to fly into and out of Australia. The Qantas Sale Act places more specific restrictions on foreign ownership. These restrictions have now been eased to allow a maximum of 49% foreign ownership in Qantas by a single foreign investor or airline. </p>
<p>Qantas may now be able to gain access to increased equity finance and this would help with funding changes required to increase the profitability of the company. </p>
<p>But things are still not looking good for Qantas with analysts <a href="http://www.smh.com.au/business/a-flight-less-ordinary-how-air-new-zealand-became-australasias-most-profitable-airline-20140714-zt6di.html">forecasting</a> a pre-tax full year loss of more than $700 million for the airline, on the back of a $235 million reported loss for the six months to December 2013. </p>
<p>Its competitor, Virgin, while bound by the Air Navigation Act, is not affected by the Qantas Sale Act, and has been able to get around the 49% restrictions set out in the Air Navigation Act through careful management of its equity structure. </p>
<p>Virgin has also found the going tough with a loss of A$83.7 million reported for the six months to December 2013, and some analysts <a href="http://www.smh.com.au/business/aviation/qantas-loses-ground-with-business-travellers-virgin-gains-on-lower-fares-20140710-zt2dd.html">forecasting</a> a full financial year pre-tax loss of $241 million. </p>
<p>It is interesting to look at the change in share prices of the two companies over the longer term. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/54039/original/735hmdmm-1405555048.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/54039/original/735hmdmm-1405555048.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=378&fit=crop&dpr=1 600w, https://images.theconversation.com/files/54039/original/735hmdmm-1405555048.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=378&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/54039/original/735hmdmm-1405555048.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=378&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/54039/original/735hmdmm-1405555048.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=476&fit=crop&dpr=1 754w, https://images.theconversation.com/files/54039/original/735hmdmm-1405555048.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=476&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/54039/original/735hmdmm-1405555048.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=476&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Comparison of total return to an investment in Virgin, Qantas and the ASX/S&P200 share market index using monthly data from December 2003 to June 2013.</span>
<span class="attribution"><span class="source">Author</span></span>
</figcaption>
</figure>
<p>The chart above shows the outcome of an investment of A$1.00 in both Qantas and Virgin at the end of December 2003 and how this investment panned out over the period through to now. While your investment in the largest 200 Australian stocks is looking good, neither of the airlines has performed particularly well. Virgin has basically flat lined over the period from 2009 to the present and Qantas’s value has fallen over this period. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/54040/original/5sqzhp75-1405555255.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/54040/original/5sqzhp75-1405555255.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=380&fit=crop&dpr=1 600w, https://images.theconversation.com/files/54040/original/5sqzhp75-1405555255.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=380&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/54040/original/5sqzhp75-1405555255.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=380&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/54040/original/5sqzhp75-1405555255.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=477&fit=crop&dpr=1 754w, https://images.theconversation.com/files/54040/original/5sqzhp75-1405555255.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=477&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/54040/original/5sqzhp75-1405555255.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=477&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Comparison of total return to an investment in Virgin, Qantas and the ASX/S&P200 share market index using daily data from 2 January 2014 to 15 July 2014.</span>
<span class="attribution"><span class="source">Author</span></span>
</figcaption>
</figure>
<p>The chart above provides a similar picture for the period from January 2 through to July 15, 2014. This shows that an investment in Qantas has performed a little better than the market with the airline earning a little more than Virgin over the period. In short, while Qantas is complaining about restrictions, both Qantas and Virgin are facing difficult times. </p>
<p>The returns for Qantas and Virgin are fairly highly correlated as might be expected in a competitive market such as aviation. </p>
<p>While reading share price movements is fraught it is interesting to see the recent increase in share price of Qantas over the last couple of days. The Qantas share price has lifted 5% since news of the deal emerged, suggesting shareholders were not so unhappy with the change introduced into Parliament. On the other hand Virgin saw its share price fall by 1.2% over the same period. </p>
<p>There seems little good reason to retain the present restrictions on Qantas, particularly given the competition that exists between Qantas and Virgin. Rather than ask why Qantas should be allowed to take on more foreign ownership, perhaps we should be asking why there is any restriction at all. Virgin provides a good example of how the model could work if the Qantas Sale Act were repealed.</p>
<p>Given increased flexibility in ownership it is likely that Qantas will be looking for strategic investors to help with its restructure. Yet, it seems unlikely that Qantas will be selling off assets for now. Qantas identifies its long-term competitive advantage in terms of customer experience and the Qantas domestic dual-brand. Further, the recent losses earned by Jetstar would make it difficult to offload. </p><img src="https://counter.theconversation.com/content/29283/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Richard Heaney receives funding from the ARC</span></em></p>The Qantas Sale Act amendments are set to pass the Senate this week, following a deal the government made with Labor which has consistently opposed majority foreign ownership of the “Australian” airline…Richard Heaney, Winthrop Professor, The University of Western AustraliaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/239612014-03-04T04:01:59Z2014-03-04T04:01:59ZQantas can bleed now or later, but capacity war must end<p>Tony Abbott has thrown a curve ball at Qantas in refusing to offer up the debt guarantee it wanted, but seeking to <a href="https://theconversation.com/cabinet-scraps-qantas-foreign-ownership-limits-but-company-split-needed-23936">abolish Part 3 of the Qantas Sale Act</a> in its entirety. This opens the door to foreign ownership above the current 49% cap and more concentrated ownership by one overseas airline, among other things.</p>
<p>Should the proposed legislation pass, will Qantas inevitably split its international and domestic operations, along the lines of Virgin?</p>
<p>The Air Navigation Act requires that for an international airline to be designated “Australian” it must have majority Australian ownership — limiting foreign ownership to 49%. This provision does not apply to domestic carriers, thus allowing majority foreign ownership of a potential “Qantas domestic”. As an example, Virgin’s domestic operations are 66.9% foreign owned (by Air New Zealand, Etihad Airways and Singapore Airlines).</p>
<p>Fine, so it would be possible. But would it happen? Well, as the great American baseball player Yogi Berra said, “It’s difficult to make predictions, especially about the future”. But here goes.</p>
<h2>A dogged strategy</h2>
<p>Qantas CEO Alan Joyce has repeatedly claimed Virgin is being supported by cash infusions from its foreign investors. Those investors: Air New Zealand, Ethiad and Singapore Airlines, clearly see some advantage in holding a majority stake in Virgin, presumably as providing solid linkages with their own networks. And as is often the case in complex industries, such linkages can be more easily and fully achieved by ownership rather than a mere alliance. So does it not stand to reason that British Airways, Emirates or other international airlines want to do similarly with Qantas?</p>
<p>Perhaps, but it’s far from clear. In response to Tony Abbott’s announcement last night, Qantas characterised that foreign support as being designed “to fund a loss-making strategy against Qantas”. That loss-making strategy is designed to provide a strong foothold in Australia, which makes the linkages to the foreign owners more valuable. But Qantas already has more than a foothold: it has two thirds of the domestic market. </p>
<p>Why invest in a loss-making strategy to either retain that share or even try and increase it, especially when there is already a triumvirate that seem committed to preventing that from happening?</p>
<h2>No easy money</h2>
<p>In short, it’s not obvious that there will be a queue of international airlines eager to throw money at a price war in domestic Australian air travel. If there is not then it makes little sense to split Qantas’s foreign and domestic operations, particularly as there are some ongoing costs to doing so.</p>
<p>If the proposed legislation fails to pass the Senate, which seems likely given the stated opposition of Labor and the Greens (and despite possible support from incoming crossbench senators David Leyonhjelm and Bob Day), what options remain?</p>
<p>For Qantas there seems little to do than push forward with the aggressive restructuring program it recently announced and to revisit its stated goal of maintaining 65% domestic market share, regardless of the short term profit consequences. </p>
<p>It may be that ceding market share to Virgin could lead to an equilibrium with less aggressive capacity expansion by both players, and consequently higher ticket prices. Market share does not equal profit, as Qantas’s recent results are testament to.</p>
<h2>Political suicide</h2>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/43042/original/23ntz3mq-1393903034.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/43042/original/23ntz3mq-1393903034.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=641&fit=crop&dpr=1 600w, https://images.theconversation.com/files/43042/original/23ntz3mq-1393903034.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=641&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/43042/original/23ntz3mq-1393903034.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=641&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/43042/original/23ntz3mq-1393903034.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=806&fit=crop&dpr=1 754w, https://images.theconversation.com/files/43042/original/23ntz3mq-1393903034.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=806&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/43042/original/23ntz3mq-1393903034.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=806&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Prime Minister Abbott doesn’t want to “let Qantas bleed”.</span>
<span class="attribution"><a class="source" href="http://www.flickr.com/photos/wheredidgogogo/5908160705/sizes/m/">Anthony Gherghetta/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>Perhaps an equally interesting question is what options remain for the Coalition if the legislation fails to pass. </p>
<p>If, when the new Senate sits in July, the legislation still fails to pass then the Coalition will be in a tricky position. Abbott has already made it very clear that the current playing field is not level. The government would then either have to do what Abbott yesterday implored Labor not to and let “Qantas bleed”, or reverse its position on the debt guarantee, or a related option. </p>
<p>Option A: Holden/SPC Ardmona tough love; option B: the Gonski flip-flop redux. Neither of those prospects seem politically enticing.</p>
<p>What’s next for Qantas? A great deal of uncertainty about its ownership, operational structure and the possibility of support from this or future governments. The only thing that seems certain is that 5,000 loyal Qantas staff will lose their jobs.</p><img src="https://counter.theconversation.com/content/23961/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Richard Holden receives funding from the Australian Research Council as a Future Fellow.</span></em></p>Tony Abbott has thrown a curve ball at Qantas in refusing to offer up the debt guarantee it wanted, but seeking to abolish Part 3 of the Qantas Sale Act in its entirety. This opens the door to foreign…Richard Holden, Professor of Economics, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/237662014-03-03T23:39:40Z2014-03-03T23:39:40ZNothing short of a debt guarantee will save Qantas<figure><img src="https://images.theconversation.com/files/42954/original/jxkcprv3-1393841968.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Qantas: out of options?</span> <span class="attribution"><a class="source" href="http://www.flickr.com/photos/neuwieser/8093914769/sizes/l/">Neuwieser/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span></figcaption></figure><p>Imagine that Virgin Australia was majority owned by a Chinese state-owned enterprise (SOE). Then, if the owners of Virgin tipped A$350 million of new equity into the company to sustain Virgin through a war over market share. How would the federal government react to that? Not very favourably I think.</p>
<p>We don’t need to imagine this scenario - Virgin is a state-owned enterprise. About 75% of Virgin shares are owned, in aggregate, by Air New Zealand, which is 53% owned by the NZ Government; Singapore Airlines, which is 54% owned by the Singaporean Government through its Temasek Holdings investment vehicle; and Etihad Airways, which is entirely owned by the government of the UAE.</p>
<p>Virgin could be owned by any of the world’s millions of global investors. Why is Virgin owned by three “flag carrier” airlines of three foreign governments? In part because those airlines will be the beneficiaries of a weakened Qantas shrinking its unprofitable international business. They will fill some of the void of Qantas shutting down international flights out of Australia. </p>
<p>Qantas announced last week it would no longer fly from Perth to Singapore – a case in point. It is also true that because of their government backing these airlines have deep enough pockets to finance Virgin through a long capacity war with Qantas. </p>
<p>Why does the Australian government tolerate this situation? Isn’t there a role for diplomacy here? We might expect the Australian government to quietly tell the governments of NZ, Singapore and the UAE that Australia is not happy with their government owned airlines waging this war with publicly owned Qantas, in Australia. </p>
<p>If Virgin were majority publicly owned, then that would be another thing – the matter should be resolved through competition in the airline markets and governments should not be involved. But Virgin is not publicly owned.</p>
<p>An alternative, or perhaps supplement, to quiet diplomacy would be a guarantee of Qantas’s bank and corporate bond debt by the federal government. Unfortunately, the federal cabinet has now ruled out a debt guarantee. </p>
<p>Qantas desperately wants this guarantee for two reasons. First, a debt guarantee makes Qantas’s commitment to defend its 65% market share more credible.</p>
<h2>Winning a game of chicken</h2>
<p>The lose-lose battle for market share that Qantas and Virgin are locked in is all about credibility. If both parties act rationally, then whichever party can demonstrate the most commitment to staying the course will win. In a game of chicken, in which two cars are speeding toward each other, whichever party can commit to not swerving (by throwing the steering wheel out the window) will win.</p>
<p>Virgin’s credibility comes from its demonstrated ability to raise hundreds of millions of dollars of new equity from its government backers. But a debt guarantee for Qantas would trump that. It would allow Qantas to raise billions of dollars of relatively cheap debt capital. It would force Virgin, if Virgin’s board is acting rationally, to back away from the battle for more market share.</p>
<p>The second reason that Qantas wants the debt guarantee is to do with its frequent flyer points business. The loyalty business, which is mostly about selling frequent flyer points, generated about A$1.2 billion in revenue for Qantas in the year to June 2013. </p>
<p>In the last six months, unlike the domestic or international businesses, the loyalty business made a considerable profit. In many ways that is money for jam for Qantas. Many of the points sold by Qantas and then attached to other products such as credit cards are never used. Even when they are redeemed, it is by putting passengers in seats that would otherwise be empty.</p>
<p>The fear that Qantas will slip into bankruptcy, just as Ansett Airlines did in March 2002, eats away at the perceived value of Qantas points and hence how much they can be sold for. </p>
<p>When Ansett went bankrupt its frequent flyer points holders became unsecured creditors of the firm and received nothing for their points. A debt guarantee would assuage the fear that Qantas frequent flyer points will become worthless and hence underwrite a valuable part of Qantas.</p>
<h2>The case for a guarantee with conditions</h2>
<p>The federal government wants Qantas to work its way through its problems, without resorting to government guarantees. The government does not want to create the precedent of providing a debt guarantee even if the good health of the firm or industry in question is manifestly in the public interest. But that precedent already exists. The deposits of banks are guaranteed.</p>
<p>Treasurer Joe Hockey has said a guarantee could amount to an unsecured loan of up to A$7 billion, but the government would not have to guarantee all of Qantas’s debt. </p>
<p>The guarantee could be linked to measured improvement in Qantas’s efficiency and also the amount of new equity capital provided to Virgin by its foreign government owners. </p>
<p>The survival of Qantas as a large, efficient, full service, domestic carrier is very much in the nation’s interest. The best way to guarantee the survival of Qantas is for Alan Joyce to radically improve the efficiency of the airline and for the federal government to guarantee Qantas debt. </p>
<p>There are no easy choices for the federal government in terms of providing support for Qantas. A debt guarantee was the cleanest and most easily justified way of providing that support. </p>
<p>If Virgin continues to press Qantas in the market share war, with the support of its three national backers, then the federal government may find it has painted itself into a corner.</p><img src="https://counter.theconversation.com/content/23766/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Sam Wylie does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Imagine that Virgin Australia was majority owned by a Chinese state-owned enterprise (SOE). Then, if the owners of Virgin tipped A$350 million of new equity into the company to sustain Virgin through a…Sam Wylie, Principal Fellow, Melbourne Business SchoolLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/235212014-02-28T04:41:10Z2014-02-28T04:41:10ZQantas job cuts just the start in long haul to recovery<p>Virgin Australia has joined arch rival Qantas in delivering a multi-million dollar half-year loss - albeit on a smaller scale.</p>
<p>Both airlines have swung from profit to loss - <a href="http://www.asx.com.au/asx/research/companyInfo.do?by=asxCode&asxCode=VAH">Virgin</a> from a prior half-year profit of A$23 million to a loss of $49.7 million, and Qantas from a half year profit of $148 million to a loss of $305 million.</p>
<p>Qantas reported net free cash flow outflows of $358 million, and this was largely responsible for the reduction on cash balances. Virgin reported a net free cash outflow of $218 million.</p>
<p>This situation is clearly not sustainable for either airline and Qantas has already announced a series of initiatives with the goal of removing $2 billion in costs by 2017.</p>
<h2>The productivity challenge</h2>
<p>Qantas has identified productivity and consolidation improvements as delivering $1.05 billion worth of cost savings, and a major contributor to this will be the restructuring of operations and a reduction of 5,000 jobs. This is endeavouring to address staff costs which is perhaps the most persistent problem.</p>
<p>Staff expenses continue to be high and accounted for 24% of total revenues in the last half year, and while Qantas claims to have achieved a 22% improvement in labour efficiency since 2008, this is likely overstating the gains. This gain is calculated on the basis of staff members per passenger, whereas most productivity measures are based on available seat kilometres (ASK). This difference is significant as passenger numbers grew by 25% over this period, while ASK grew by only 10%. This creates the illusion of much greater gains. </p>
<p>The challenge for Qantas management will be to ensure that real productivity increases materially. Another way of thinking of this dilemma is that employee expenses as a percentage of total revenues have changed little for Qantas over the last decade at around a quarter of total revenues. In comparison, the ratio is 15% for Singapore Airlines. Put simply, the announced job losses are a step in the right direction, but they are unlikely to reduce the gap by half, and this is inevitably just the beginning.</p>
<h2>Getting the fleet right</h2>
<p>Other cost cutting initiatives planned by Qantas include “right sizing” the fleet which will deliver savings of $600 million. Practically it means the early retirement of ageing and relatively fuel inefficient 747, 767 and 737-400 aircraft. While this will reduce fuel expense which is important, it will also streamline aircraft operations and a manifestation of this is the recently announced closure of the 747 heavy maintenance facility. </p>
<p>A fleet of seven aircraft types is cheaper to maintain and operate than a fleet of 11 aircraft types. But does this go far enough? It is notable that Ryanair, possibly the lowest cost airline in the world, operates a fleet of 303 aircraft of only one type - 737-800’s. While this comparison is not strictly appropriate, it does demonstrate the principle that minimising aircraft types is important for minimising costs.</p>
<p>Qantas has also announced the deferral of aircraft acquisitions. Doubtless the downgraded credit rating factored into this decision as major acquisitions would need to be debt financed, and this would have become increasingly expensive.</p>
<h2>Asset crunch</h2>
<p>However, these acquisitions are necessary to maintain a cost efficient fleet, and notwithstanding the limited aircraft purchases in the current period there still was a net free cash outflow of $358 million. While this can for a short time be financed from cash reserves, new borrowings will be necessary in the longer term. Hence the intense lobbying for a government guarantee. </p>
<p>Doubtless parallels will be drawn to the government guarantee for bank debt during the GFC. But there are fundamental differences. During the GFC the problem for the banks was more one of liquidity rather than value. For Qantas the issue is value, and this is the dilemma for government.</p>
<p>Virgin has followed suit today and said its business efficiency project was on track to deliver more than $400 million in productivity gains by the middle of next year and return the airline to profitability. Reflecting on potential government support for Qantas, which could be in the form of a debt guarantee, Virgin Australia chief executive officer John Borghetti today said “Any government or opposition should think very carefully before it decides to pick winners in any industry”.</p>
<p>Value is also at the heart of another issue for Qantas – asset impairment. </p>
<p>There is a basic principle in accounting that the book value of assets should not exceed the fair value of the assets, and if this occurs assets should be written down or impaired. A market to book value of less than one is an indicator of asset impairment, and Qantas has been in this position for many years. This would necessitate impairment testing of assets in accordance with accounting regulations, but problematically there is little (no) information disclosed by Qantas on how this is satisfied. </p>
<p>With poor operating profitability and a weak market for used aircraft more information would be useful. The concern is that the market is sending a clear signal it does not see the value in the assets that Qantas management does. This is an issue not just for Qantas, but also for auditors and regulators to determine if the regulation is being complied with, or whether the disclosures required by the regulation are sufficient.</p>
<p>The only certainty from these announcements is that the cost-cutting strategy announced by Alan Joyce yesterday is just the beginning of a long and painful journey for Qantas and all its stakeholders.</p><img src="https://counter.theconversation.com/content/23521/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Wells does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Virgin Australia has joined arch rival Qantas in delivering a multi-million dollar half-year loss - albeit on a smaller scale. Both airlines have swung from profit to loss - Virgin from a prior half-year…Peter Wells, Head of Accounting Discipline Group, Accounting, University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/237612014-02-27T04:02:53Z2014-02-27T04:02:53ZThe 5000 Qantas job losses should include Alan Joyce<p>As was widely expected, Qantas this morning announced a major restructure of its operations. </p>
<p>Included in that announcement are: 5000 job losses. A fleet restructure. Salary freezes. Route restructures. In other words almost every aspect of the operating business. </p>
<p>But is that really enough?</p>
<p>I suspect not. There are three criteria to think about when a firm is in the kind of trouble Qantas finds itself in:</p>
<ul>
<li>Re-establishing product market presence</li>
<li>Gaining control over the financial statements (income statement and balance sheet)</li>
<li>Ridding itself of senior management.</li>
</ul>
<p>Right now Qantas is working on the second point: cutting costs. To be sure, cost management is an important aspect of every business. It is the bread and butter of management. Qantas doesn’t just have a cost management problem, however, its strategy is failing.</p>
<p>It is all very well cutting costs but how will Qantas re-engage with paying customers? What does Qantas have to offer that its many competitors don’t offer, and often at a lower price? Like many other products and services, airline travel is now a commodity. It isn’t clear that there is a viable market for a premium airline charging premium prices.</p>
<p>Cost cutting doesn’t fix the challenge Qantas faces in generating paying customers and then repeat business. </p>
<p>Senior management has to go. That means Alan Joyce and the board. To be fair, these problems have been a long time coming and Mr Joyce has been talking about Qantas’ “legacy cost base”. That doesn’t excuse two damning reports that have appeared in the media over the past two days.</p>
<p>Yesterday <a href="http://www.afr.com/p/opinion/qantas_peculiar_case_09kDiXbvek4iPX7qSCmjwL">Sam Wylie</a> writing in the Australian Financial Review revealed that Qantas has a break-up value of nearly A$6 per share, while its share price is currently hovering at $1.17 per share. His argument being that Qantas is not being run in the interests of shareholders. It is a serious problem when the book value of a firm is $6 billion and the market value only $2.7 billion. The market signal is clear - such a firm should be looking to contract its business. </p>
<p>Qantas, however, has no such plans. It has been defending its market share while trying to expand into new markets. It is here that a second media report highlights significant problems at Qantas.</p>
<p>Writing in The Australian <a href="http://www.theaustralian.com.au/national-affairs/opinion/joyce-takes-abbotts-advice-to-get-house-in-order/story-e6frgd0x-1226838576540">Ben Sandilands</a> reveals the extraordinary consequences of Qantas’ expansion into Asia via Jetstar. Six A320 planes idle in Hong Kong, four or five planes idle in Japan, problems in Vietnam and Singapore. This cannot be described as a “legacy” issue. Current management have to accept responsibility for the botched Asian expansion. </p>
<p>In many respects my argument seems to lay all the blame on the current management. But as Lord Keynes is often misquoted, “everything depends on everything else”. It is true that Qantas is hampered by the Qantas Sale Act, it is true that competition in the industry has become brutal, it is true that consumer preferences and tastes have changed over time. There are many good reasons for Qantas’ woes. None of that, however, detracts from the fact that the Qantas management have the obligation to manage the business in that complex dynamic environment and are ultimately responsible for Qantas’ current predicament.</p>
<p>The Australian flying public have been choosing to fly less with Qantas and more with its competitors over a long period of time. Now Qantas wants the Australian taxpayer to (help) reverse the consequences of those consumer choices. There may well be good reasons to do so, but before doing so the government (acting on behalf of taxpayers) is well within its rights to ask for much more detail. </p>
<p>That detail should include a timetable for refreshing the Qantas management, starting with Alan Joyce. He has been in the position for a long time and his vision has failed to sustain Qantas. A new perspective and fresh set of eyes is what Qantas needs over and above any taxpayer support.</p><img src="https://counter.theconversation.com/content/23761/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Sinclair Davidson is Professor of Institutional Economics at RMIT University and a senior fellow at the Institute of Public Affairs. He has previously held research grants from the Australian Research Council.</span></em></p>As was widely expected, Qantas this morning announced a major restructure of its operations. Included in that announcement are: 5000 job losses. A fleet restructure. Salary freezes. Route restructures…Sinclair Davidson, Professor of Institutional Economics, RMIT UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/185502013-10-27T10:31:25Z2013-10-27T10:31:25ZRomance reborn: can glamour reboot Virgin Australia’s image?<figure><img src="https://images.theconversation.com/files/33345/original/w6zbx5dm-1382325324.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Virgin Australia is trying to revive the supposed romance of aviation's past.</span> <span class="attribution"><span class="source">Virgin Australia</span></span></figcaption></figure><p>Remember when airline travel was all about glamorous hostesses, dashing pilots and the stylish, well-behaved jet-set class?</p>
<p>No, I don’t either. But it’s a rose-tinted view of the past Virgin Australia is hoping to resurrect with its current advertising campaign. The question is, will it work?</p>
<p>After a tough year, Virgin Australia recently placed a double-sided wrap-around cover in one of the Sunday papers. The tag line was “<a href="http://sydney.clemengerbbdo.com.au/#!&pageid=0&subsection=0&itemid=20">the romance is back</a>” and the <a href="http://sydney.clemengerbbdo.com.au/#!&pageid=0&subsection=0&itemid=20">images</a> were of a smiling workforce marching forwards in a flying V formation. </p>
<figure>
<iframe width="440" height="260" src="https://www.youtube.com/embed/eEhAoZa16rc?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">The Romance is back – Virgin Australia TV commercial.</span></figcaption>
</figure>
<p>In a shift from the long flowing locks of past campaigns, the young female flight attendants with their hair tied back create a streamlined, efficient outfit interrupted only by the occasional male flight attendant among the pack.</p>
<p>Leading the charge, as always, is the steady form of the male captain, in this instance accompanied by a female first officer. In the background, the <a href="http://a330-virtual-tour.virginblue.com.au/">Airbus A330</a> glistens with all the reassurance of modern technology.</p>
<p>Romance, back again? The advertisement was filmed on the salt flats of <a href="http://en.wikipedia.org/wiki/Lake_Lefroy">Lake Lefroy</a> in Western Australia, and screened in time for the 2012 AFL Grand Final kick-off.</p>
<p>Virgin Australia CEO <a href="http://www.virginaustralia.com/au/en/about-us/company-overview/virgin-australia-group-executive-team/">John Borghetti</a> may well wish to bring back romance but he should know, more than most, there’s little romance to be had in the airline industry. It’s a tough business. And it’s a battleground out there with two airline groups with multiple brands fighting it out over multiple market segments.</p>
<p>Virgin Australia, by reviving the idea of romance, is attempting to take us back to the past, a past that is long gone. They are drawing on a time when passengers would put down their newspapers to stop and stare at young women as they strolled through airport terminals wearing figure-hugging suits, the half-winged badge twinkling on jacket lapels.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/33298/original/jqxz34s6-1382312908.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/33298/original/jqxz34s6-1382312908.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=575&fit=crop&dpr=1 600w, https://images.theconversation.com/files/33298/original/jqxz34s6-1382312908.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=575&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/33298/original/jqxz34s6-1382312908.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=575&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/33298/original/jqxz34s6-1382312908.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=722&fit=crop&dpr=1 754w, https://images.theconversation.com/files/33298/original/jqxz34s6-1382312908.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=722&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/33298/original/jqxz34s6-1382312908.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=722&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Did flight attendants ever really look like this?</span>
<span class="attribution"><span class="source">sewyerown</span></span>
</figcaption>
</figure>
<p>Today – for all airlines – the reality might go more like this: a crew worn down by the emotional labour of smiling day and night, badly behaved passengers (the gloves and hats are long gone), perpetual jet-lag. As with other shift workers, they lack the certainties of being home for birthdays, weddings and Christmas year in, year out.</p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/33296/original/hqck9d6c-1382311523.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/33296/original/hqck9d6c-1382311523.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=574&fit=crop&dpr=1 600w, https://images.theconversation.com/files/33296/original/hqck9d6c-1382311523.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=574&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/33296/original/hqck9d6c-1382311523.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=574&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/33296/original/hqck9d6c-1382311523.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=721&fit=crop&dpr=1 754w, https://images.theconversation.com/files/33296/original/hqck9d6c-1382311523.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=721&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/33296/original/hqck9d6c-1382311523.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=721&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Airline staff are more likely to encounter grumpy customers than glamorous jet-setters.</span>
<span class="attribution"><span class="source">AAP Image/Dean Lewins</span></span>
</figcaption>
</figure>
<p>The crew is window dressing parading down the aircraft aisles, in their smart, snappy, and increasingly sexy uniforms. The economic rationalists might deny the importance of symbols. Who needs window dressing when it’s the bottom line that matters?</p>
<p>Nostalgia can’t save an airline but Borghetti knows mixed messages and soft contradictions help punters see the airline as part of an extended national family. The message being sent by the company seems to be: “Don’t worry about the future because you can always go back to the past.” </p>
<p>Can a way of being in the world be brought back? In the Virgin advertisement, the only evidence to support this suggestion is exactly the same apparatus that was in place when the romance of travel was “real”. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/33314/original/skp5pvqh-1382319553.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/33314/original/skp5pvqh-1382319553.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=475&fit=crop&dpr=1 600w, https://images.theconversation.com/files/33314/original/skp5pvqh-1382319553.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=475&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/33314/original/skp5pvqh-1382319553.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=475&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/33314/original/skp5pvqh-1382319553.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=597&fit=crop&dpr=1 754w, https://images.theconversation.com/files/33314/original/skp5pvqh-1382319553.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=597&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/33314/original/skp5pvqh-1382319553.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=597&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="attribution"><span class="source">Archives New Zealand</span></span>
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<p>Virgin Australia is trying to revive a time when glamorous girls in uniforms, styled to within an inch of their lives, would sit on the edge of your seat talking familiarly about exotic destinations and five-star hotels – even before they had five stars.</p>
<p>But it wasn’t all romance then, any more than it is now. Those glamour days the airlines try to recall for us are a mythical distortion of a time when the sky was full of unpressurised planes with no air-conditioning that risked dropping out of the skies like flies, saved only by the cavalier skills of the former air-force pilots who flew them.</p>
<p>It is a kind of fib that the industry is telling: “Go back to the past if you feel insecure about the future or the present.” It’s no coincidence that The Romance is Back TV advertisement has a cover of the old Ira and George Gershwin song from 1927, <a href="http://www.youtube.com/watch?v=MLI8mj0i07M">S’Wonderful</a>.</p>
<p>The cosmopolitan mystique of the airline has long been parodied, most recently in Pedro Almodóvar’s film I’m So Excited.</p>
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<iframe width="440" height="260" src="https://www.youtube.com/embed/-jrAaDPWR94?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">Pedro Almodóvar’s I’m So Excited.</span></figcaption>
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<p>In Almodóvar’s tale the “flight hostess” is replaced by three gay flight attendants who prepare a plane for a crash landing. The economy-class passengers are drugged so they are blissfully unaware of the impending disaster, while the first-class passengers and crew are out of control, fuelled up with mescaline and alcohol.</p>
<p>That’s not quite what Virgin Australia Chief Customer Officer <a href="http://www.virginaustralia.com/au/en/about-us/company-overview/virgin-australia-group-executive-team/">Mark Hassell</a> meant when he said the company is trying to put the “magic back into flying”. </p>
<p>It remains to be seen whether magic, romance and nostalgia is enough to give the firm the upper hand in Australia’s fiercely competitive airline industry. </p><img src="https://counter.theconversation.com/content/18550/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Prudence Black receives funding from the Australian Research Council</span></em></p>Remember when airline travel was all about glamorous hostesses, dashing pilots and the stylish, well-behaved jet-set class? No, I don’t either. But it’s a rose-tinted view of the past Virgin Australia…Prudence Black, ARC DECRA Fellow in Gender and Cultural Studies, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/191992013-10-17T19:14:49Z2013-10-17T19:14:49ZAirline lounge war could prove futile for Qantas and Virgin<figure><img src="https://images.theconversation.com/files/33190/original/cr84t9h5-1381979256.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Airport lounges, loved by frequent flyers, don't necessarily engender brand loyalty.</span> <span class="attribution"><span class="source">Richard Moross/Flickr</span></span></figcaption></figure><p>Recently Qantas and Virgin have been fighting a war for “high value” corporate contracts by refurbishing their invitation-only lounges. But is this a wise strategy? </p>
<p>The airline industry has long been stuck in the mindset of Pareto’s Law: that 80% of your profit comes from 20% of your customers. Qantas and Virgin are no different, going head to head to refurbish their lounges in order to attract lucrative corporate accounts. </p>
<p>Ansett followed a similar approach during my time as a marketer at the airline: Focus on the high value customer, give them lounge access, priority baggage and a range of other privileges that will make them feel “valued”. But the evidence on consumer and business purchase patterns suggests focusing on high value corporate clients may be a little short sighted, and narrow minded. </p>
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<img alt="" src="https://images.theconversation.com/files/33188/original/w9kcn7xg-1381978823.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/33188/original/w9kcn7xg-1381978823.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/33188/original/w9kcn7xg-1381978823.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/33188/original/w9kcn7xg-1381978823.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/33188/original/w9kcn7xg-1381978823.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/33188/original/w9kcn7xg-1381978823.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/33188/original/w9kcn7xg-1381978823.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Airline lounge perks are growing in variety.</span>
<span class="attribution"><span class="source">ChrisCruises/Flickr</span></span>
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<p>Firstly, in most cases, high value customers not in corporate contracts (or in what is described as a repertoire market) are the least likely to be loyal to an airline. </p>
<p>Airline marketers may believe they offer select customers exclusive benefits, but thanks to the natural competition that occurs in a marketplace; the offering across competitors often ends up being indistinguishable to the customer. </p>
<p>In Australia, it is very likely such “high value” customers at an aggregate level switch across the competing airlines such as Qantas, Virgin, Jetstar and Tiger in line with their market share. Don’t believe me? Just ask anyone who flies regularly how many frequent flyer cards they hold. </p>
<p>Statistically, a customer who buys from a category most frequently is most likely to share their purchases across a small group of brands (because there are more purchase occasions during which switching may happen). This is known as the Duplication of Purchase (DoP) Law. </p>
<p>In airlines, because there is a natural limitation to the distribution it may even be more likely that customers spread their purchases across more brands, but this is to be empirically confirmed. </p>
<p>In the case of corporate contracts, the travellers are simply tied into contracts for a period of time, and at the end of the contract it is very likely the switching occurs just as would be predicted by the DoP Law. That is, the switching of corporate contracts would be most likely to be distributed in line with each airline’s market share in the corporate market when they are being renewed. </p>
<p>While it is a good idea to give customers a decent level of service, the second issue is that many companies do this for “high value” customers, but believe there is no point doing it for low yield customers. Yet, as demonstrated by Professor Byron Sharp in his book <em>How Brands Grow</em>, it is precisely such infrequent users of the brand that offer the best likelihood of brand growth. </p>
<p>We know that consumers spread their purchases across a repertoire of brands. The question is, do airline marketers know what their “typical” customer (as in on the 50th percentile on a distribution of purchase frequency) looks like? </p>
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<img alt="" src="https://images.theconversation.com/files/33189/original/s2dvhz2g-1381978963.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/33189/original/s2dvhz2g-1381978963.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/33189/original/s2dvhz2g-1381978963.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/33189/original/s2dvhz2g-1381978963.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/33189/original/s2dvhz2g-1381978963.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/33189/original/s2dvhz2g-1381978963.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/33189/original/s2dvhz2g-1381978963.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Airports are getting busier and it’s getting harder for “typical” travellers to escape the hustle and bustle.</span>
<span class="attribution"><span class="source">Yamazaki-kun/Flickr</span></span>
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<p>It is likely that a “typical” customer flies with them once a year, not once per week. Such customers have recently seen access to lounges made more difficult by both Qantas and Virgin. Qantas has over recent years significantly increased the cost of Qantas Club membership to their less regular flyers and Virgin has recently ceased its partnership with Priority Pass. </p>
<p>Both of these factors have probably reduced the attractiveness of both airlines to their “typical” customers, and also to high value customers of their competitors who occasionally travel with them as part of the customer’s repertoire of airlines. </p>
<p>A final issue is specific to airlines. Not impressing lower yield customers may seem irrelevant. But particularly in the airline industry they are crucial. Such customers often buy lower yield fares and have more flexibility in their travelling times. It is precisely this that allows an airline to have a more flexible timetable that enables the “high value” customers to fly at times that are convenient to them. </p>
<p>Qantas and Virgin need to take a look at what they are doing. Spending millions of dollars on lounges that will benefit a very small proportion of their customer base while reducing the attractiveness of their airline to “typical” customers may not be the best way forward. But constructing flash lounges that most Australians will never see does get plenty of PR. </p>
<p>To Alan Joyce and John Borghetti, ‘typical’ customers may seem irrelevant. Ignore them at your own risk. </p><img src="https://counter.theconversation.com/content/19199/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Associate Professor Maxwell Winchester does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Recently Qantas and Virgin have been fighting a war for “high value” corporate contracts by refurbishing their invitation-only lounges. But is this a wise strategy? The airline industry has long been stuck…Associate Professor Maxwell Winchester, Discipline Leader, Marketing , Victoria UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/175042013-09-02T04:07:24Z2013-09-02T04:07:24ZAussie airlines feel the pressure as international competition strengthens<figure><img src="https://images.theconversation.com/files/30317/original/mhwgqm5j-1377838987.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The Qantas vs Virgin war is now being fought on a broader battleground, with new players rapidly gaining ground</span> <span class="attribution"><span class="source">Michael Coghlan via Flickr</span></span></figcaption></figure><p>The most recent round of what is presented in Australia as a battle for supremacy in a two-horse race saw Qantas and Virgin Australia revealing their annual results. Qantas reported a net profit for the year of around $6 million accompanied by a cautiously optimistic forward outlook. After last year’s $245 million loss, this result is certainly worth cheering about. </p>
<p>This report must have been particularly pleasing for Qantas CEO Alan Joyce when, the day after, Virgin Australia posted a net loss of $98 million, down from a net profit of $23 million in the previous year. However, the battleground on which these two face up is not easily defined with clear boundaries. It is not just the core business of flying that delivers financial results, as demonstrated by Qantas’s earnings from its Frequent Flyer program. Also, in the global air travel context, there are factors other than financial results that will determine future winners and losers. </p>
<p>On internal flights, the two airlines dominate the national network with very similar profiles and offerings that have converged over recent years. Virgin has moved up-market with new business offerings both on the ground and in the air, while Qantas has increased its low-cost offerings, largely through its Jetstar brand. </p>
<p>The example of the Melbourne-Perth route shows how the two compete on very similar terms. However, even in the domestic arena this is not entirely a two-competitor field, particularly in financial terms. Australia’s most profitable domestic airline in the past year was Regional Express (Rex) with a net profit of $14million. This result is a 45% drop on the previous year and comes with warnings of unpredictable times ahead from Executive Chairman Lim Kim Hai. </p>
<p>If the domestic market is uncertain in the current economic and political climate then the international market is certainly even less predictable. Here, the Qantas versus Virgin battle unfolds in a crowded market with many interesting challengers to consider. Both airlines operate internationally with their own flight schedules and through partnership and code share arrangements with other airlines. </p>
<p>Qantas attributes a major turnaround in its international losses to its tie-up with Emirates earlier this year, moving its major hub for European links from Singapore to Dubai. Virgin has a partnership with Etihad linking through the latter’s Abu Dhabi hub. Of course, both Emirates and Etihad fly their own aircraft into Australia and so compete with their partners. </p>
<p>Both Emirates and Etihad are examples of a new breed of international airline that has grown rapidly to challenge the long-established carriers. Emirates made its first regional flights in 1985 with just two aircraft. Etihad has only existed since 2003. However, both benefit from major home investment in their hub airports and their aircraft fleets. Also, they are not as dependent upon stock market investors and shareholder confidence as their Australian partners or other competitors.</p>
<p><a href="http://www.theage.com.au/business/alan-joyces-remake-of-qantas-showing-results-20130829-2ssds.html">Alan Joyce makes a point</a> of Qantas overall now having its lowest average aircraft age in the two decades since privatisation at 7.9 years. However, this includes the Jetstar fleet that, <a href="http://www.airfleets.net/home/">with an average age of 5.3 years</a> is considerably newer than Qantas’s own branded fleet, which comes in at 10.3 years average vintage. As Qantas refits its aging Boeing 767 aircraft and unveils new interiors for its fleet of Airbus A330s, the group has directed its new Boeing 787 Dreamliners to the Jetstar brand. </p>
<p>Virgin Australia currently has a fleet of 89 aircraft with an average age of 4.3 years, much more in line with the Middle East partners. Emirates has over 200 aircraft, including 32 Airbus A380 Super Jumbos, with an average age of 6.4 years for its fleet. Etihad has 70 aircraft with an average age of 5.1 years. All three make Qantas’s main fleet seem positively geriatric.</p>
<p>The Australian media may be fixated on the Qantas versus Virgin competition as a major battle that has some possible “winner takes all” outcome. However, this parochial view fails to take account of the big picture of a global air travel and transport market that is highly unpredictable and in which there are many players. </p>
<p>On August 30, Air India re-entered the Australian market with its first landings in over 16 years. Its Boeing 787 Dreamliner landed in Sydney en-route from Delhi to Melbourne to establish a new route in what the airline sees as a high potential market.</p>
<p>Chinese carriers are becoming key players on international routes to Australia. China Eastern flies to both Melbourne and Sydney from Beijing, Shanghai and Xian. China Southern recently announced daily flights to be established from Guangzhou to Brisbane. The airline will fly A380s between Guangzhou and Sydney from October this year, linking into the “Canton route” to London. </p>
<p>All of this competition is set in a global air travel market that has many competitors and in which alliances might be less about making friends than about “keeping your enemies closer still”. In the short term, the cost of aviation fuel is highly volatile, conflict in Syria and unrest across the Middle East are major areas of uncertainty, and both business and leisure markets are unpredictable.</p>
<p>Qantas and Virgin must be mindful of each other and of their market position in the competition of the domestic arena. But, their futures will be determined within a global arena in which airline survival and success is determined by a vast array of economic, political, social and environmental factors. </p><img src="https://counter.theconversation.com/content/17504/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>George Cairns does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The most recent round of what is presented in Australia as a battle for supremacy in a two-horse race saw Qantas and Virgin Australia revealing their annual results. Qantas reported a net profit for the…George Cairns, Professor of Management, RMIT UniversityLicensed as Creative Commons – attribution, no derivatives.