tag:theconversation.com,2011:/au/topics/qantas-sale-act-2282/articlesQantas Sale Act – The Conversation2014-07-17T04:31:48Ztag: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>
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<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/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/237542014-02-27T00:45:44Z2014-02-27T00:45:44ZQantas to slash 5000 jobs in bid to save $2bn: experts react<figure><img src="https://images.theconversation.com/files/42600/original/6krtw2wv-1393457779.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Qantas CEO Alan Joyce: "An unacceptable result".</span> <span class="attribution"><span class="source">Paul Miller/AAPImage</span></span></figcaption></figure><p>Qantas will cut 5000 jobs, freeze wages of all staff, and sell or defer buying more than 50 aircraft in a bid to cut A$2 billion in costs.</p>
<p>The airline said the roles to be lost include 1500 management and non-operational roles, operational positions affected by fleet and network changes, and maintenance and catering roles lost as a result of the previously announced closure of the Avalon maintenance base and Adelaide catering centre.</p>
<p>Qantas <a href="http://www.asx.com.au/asxpdf/20140227/pdf/42n1589jxk6g8j.pdf">today posted</a> a pre-tax half-year loss of A$252 million, within forecasts, and amid what chief executive Alan Joyce has called “the toughest conditions Qantas has ever seen”.</p>
<p>Joyce said “comprehensive action would be taken” in response to the “unacceptable” result, but reiterated the airline was operating in a distorted market “which allows Virgin Australia to be majority-owned by three foreign government-backed airlines and yet retain access to Australian bilateral flying rights”.</p>
<hr>
<p><strong>Previous coverage:</strong></p>
<p><a href="https://theconversation.com/qantas-cant-have-it-both-ways-on-foreign-ownership-23307">Qantas can’t have it both ways on foreign ownership</a></p>
<p><a href="https://theconversation.com/qantas-needs-tough-love-not-corporate-welfare-23706">Qantas needs tough love, not corporate welfare</a></p>
<p><a href="https://theconversation.com/asia-should-shine-brighter-for-blinkered-qantas-21269">Asia should shine brighter for blinkered Qantas</a></p>
<p><a href="https://theconversation.com/cost-heavy-qantas-must-look-beyond-government-bailout-21206">Cost-heavy Qantas must look beyond government bailout</a></p>
<hr>
<p>Qantas has been in a capacity war with Virgin Australia on once profitable domestic routes, and today revealed its total domestic profit pool has shrunk from more than $A700 million in FY12 to less than $100 million in the first half of 2014.</p>
<p>Today, Joyce said Qantas was happy to compete “in any fair fight”, but that Virgin Australia was a competitor with foreign investors that were helping it to sustain losses.</p>
<p>Qantas has been seeking amendments to the Qantas Sale Act which, together with the Air Navigation Act, caps foreign ownership of Qantas at 49% and also means a single foreign entity can hold no more than 25% of the airline’s shares. Amending the Act has little support in the Parliament.</p>
<p>Qantas has also been seeking a debt guarantee from the government that would allow it to raise capital at a cheaper rate than its current junk credit rating allows. </p>
<hr>
<p><strong>Paul Gollan, Associate Dean, Research and Professor of Management at Macquarie University</strong></p>
<p>The real problem for the airline is the Qantas Sale Act and that’s unlikely to change in the near future, leaving the debt guarantee probably the only feasible option for them. For them to get that there needs to be a degree of political as well as popular support.</p>
<p>With such a massive restructuring, which British Airways did about a decade ago, without a very clear strategic direction on where they want to go and what sort of airline they want to be, it could create a series of issues for them in trying to retain good people.</p>
<p>If it’s not handled correctly a lot of the changes in the Act won’t occur. They wont get the political support because they haven’t got the popular support.</p>
<p>If I were Alan Joyce I would have taken the momentum of that period of the strike action and the shutdown to radically change Qantas. I’m not saying there hasn’t been cost cutting or a level of restructuring, it’s the major restructuring that has to be undertaken now when they knew many years ago this was going to be a major issue.</p>
<p>There is now a purpose and a role for a debt guarantee from the government for a limited time, after which there will be a very rigorous debate about the Qantas Sale Act. It belongs in the dustbin of 20 years ago, in order to get the playing field back into equilibrium with Virgin or any other airline that might emerge over coming years.</p>
<p>There needs to be an understanding that Qantas, though an Australian airline, is like any other company. It can go, but if you don’t want it to go then it will come at a cost of subsidising.</p>
<p>The government’s made it clear it won’t subsidise these sorts of companies, so the issue here is if the public and the politicians want the company to exist in its current form then some form of subsidy will need to be made over the medium to longer term. </p>
<hr>
<p><strong>Margaret McKenzie, Lecturer, School of Accounting, Economics and Finance at Deakin University</strong></p>
<p>The devil is in the detail. The results just announced have to be a consequence of poor management as well as the market failures typical of airlines. They should not be used by Qantas management to hold its employees or the Australian public to ransom.</p>
<p>By contrast Air New Zealand has announced a $140 million dollar profit. Virgin apparently has better pay and conditions for its staff now and yet maintains profitability nonetheless, covering routes where it’s competing with Qantas. </p>
<p>It appears that Qantas has loaded its losses on the Jetstar Asian routes into its international arm. It has also failed to exploit the economies of scale that existed in its business by splitting and ringfencing its services resulting in unnecessary duplication and inappropriate cross subsidy. At the same time it has cut ‘backroom’ staff upon whom safety and the quality of service depend.</p>
<p>If the government cuts Qantas loose by repealing the 49% limit to foreign ownership, any government stake in Qantas should cease then, including the proposal of a debt guarantee. The Australian public should accept that unlike many other countries it no longer has a national flagship carrier. Qantas workers would then be added to the long line of unemployment that this government is chalking up. This of course includes highly skilled and specialised workers who could be in marginal seats. </p>
<p>The strike last year did a good job of changing public perceptions of Qantas as the flagship anyway, as people switch their loyalties away. This was the fate of British Airways when Thatcher privatised it. If the government makes the call that Australia needs a national carrier as most countries have, then it needs to treat it as other countries do and take full control.</p>
<hr>
<p><strong>Sinclair Davidson, Professor of Institutional Economics at RMIT</strong></p>
<p>It may not be too late for Qantas, but at the moment it’s too little.</p>
<p>There’s a three-point test companies should think about when restructuring, given companies don’t restructure unless they are in serious trouble.</p>
<p>What are they doing about their financial state of affairs, their balance sheet and income statement? Looking at today’s announcement it’s all about that. </p>
<p>The second thing is what are they doing to re-establish their product and market presence? The third thing is they need to get rid of their senior management. I see no movement on that front. I see no movement on what are they going to do to make Qantas more attractive to paying customers.</p>
<p>Yes they do need to cut costs, but what are they going to do to grow their revenue? Why should people fly with Qantas?</p>
<p>More or less the flying pubic are coming around to the idea that flying an airline is like catching a bus and you’re not going to pay too much for that.</p>
<p>Having planes on the tarmac in Asia is a very damning indictment of the management of Qantas. They’ve got a very fat balance sheet with assets not doing much – that too is an indictment of the management.</p>
<p>Alan Joyce may have inherited these problems, but he’s the CEO now and the board has to take responsibility for it.</p>
<p>Some sort of short term debt guarantee while the government tries to modify the Qantas Sale Act is probably the solution we’re looking at.</p>
<p>I’d like to see something more concrete where the debt guarantee only lasts until the Qantas Sale Act is repealed, or for a fixed term.</p>
<p>Then to hammer it home to the people in the Parliament who don’t want to repeal the Qantas Sale Act that there are very real consequences for not doing so.</p>
<p>If people are choosing not to fly with Qantas they certainly don’t want to have their tax dollars propping it up.</p>
<p>If unions and management are smart they will work together proactively to ensure the company survives.</p>
<hr>
<p><strong>Richard Holden, Professor of Economics at UNSW</strong></p>
<p>The rationale for supporting Qantas is twofold.</p>
<p>For one, it’s not obvious that they’re playing in a level playing field market to start with, and secondly there are real positive externalities to what they do.</p>
<p>We’re a country the same size as the US on a continent level, but we’ve got 22 million people who need infrastructure to get around. In that sense it doesn’t matter who owns it but having a full service airline both domestically and internationally is a critical thing.</p>
<p>Virgin is an important part of that infrastructure, but given Qantas has two thirds of the market it needs to be there in some ways.</p>
<p>To me this is what’s different about Qantas - not just that it’s iconic but that it’s different to talking about car manufacturing or canning companies – they are just fundamentally different pieces of national infrastructure.</p>
<p>It’s hard to make the case that we need to manufacture cars, but we need to be able to travel around the country for various reasons that aren’t factored into price.</p>
<p>A debt guarantee would be a very helpful thing in combination with the very difficult restructuring measures Qantas has announced today. Qantas has got a lot of cash on its balance sheet which reduces the risk of default.</p>
<p>In terms of people who argue a government debt guarantee would distort the market, you’re putting in a distortion, but trying to remedy one that already exists.</p>
<p>Having shareholders who don’t necessarily ask for commercial returns is a distortion. It’s far from perfect to have a debt guarantee, but the idea of distorting the market forgets it’s a distorted marketplace in the first place.</p>
<hr><img src="https://counter.theconversation.com/content/23754/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><p class="fine-print"><em><span>Margaret McKenzie, Paul Gollan, and Richard Holden 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>Qantas will cut 5000 jobs, freeze wages of all staff, and sell or defer buying more than 50 aircraft in a bid to cut A$2 billion in costs. The airline said the roles to be lost include 1500 management…Margaret McKenzie, Lecturer, School of Accounting, Economics and Finance, Deakin UniversityPaul Gollan, Associate Dean, Research and Professor of Management, Faculty of Business and Economics, Macquarie UniversityRichard Holden, Professor of Economics, UNSW SydneySinclair Davidson, Professor of Institutional Economics, RMIT UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/237062014-02-26T03:30:21Z2014-02-26T03:30:21ZQantas needs tough love, not corporate welfare<p>So it begins – a company running to Canberra with a good story and in need of some or other political favour. To be fair, these companies tend to have very good stories – consumer safety, national security, skills development, employment prospects, and the like. It is very hard to say “No” and for a long time Canberra has tended to say “Yes”.</p>
<p>The problem being that the amount of money available to be spent on corporate welfare is finite, the demand for corporate welfare infinite, and the prospects of those companies needing corporate welfare poor.</p>
<p>To its credit the Abbott government has being saying “No” to some companies – but not others. We know that government is poor at picking winners, so while saying “No” is an improvement on previous practice there are likely to be problems with the new practice.</p>
<p>It looks like Joe Hockey has developed a <a href="http://www.afr.com/p/national/qantas_ticks_all_boxes_for_assistance_h6euvzoEkl8bruRjJveJXK">four point test</a> to inform his decisions on corporate welfare.</p>
<p>These four points can be summarised as follows:</p>
<ol>
<li><p>Is the firm subject to unique regulation that impedes its business model?</p></li>
<li><p>Does the firm provide an essential service?</p></li>
<li><p>Does the firm compete against foreign State Owned Enterprises (SOE)?</p></li>
<li><p>Is the firm working to restructure its operations?</p></li>
</ol>
<p>The Abbott government is likely to argue that Qantas meets all four criteria. My opinion is that it meets one, at best, with the other criteria being arguable or irrelevant.</p>
<p>Qantas is subject to the <a href="https://theconversation.com/qanda-qantas-the-australian-airline-or-not-20922">Qantas Sale Act</a> and this does impede its business model. The solution to this problem is to repeal, or at least relax, the Act. This is the course of action that the government should pursue to the exclusion of any other support. Prime Minister Tony Abbott has signalled support for this option. Unfortunately it appears there is little political will in the Parliament for it.</p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/42520/original/x8tgm2m6-1393378679.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/42520/original/x8tgm2m6-1393378679.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=1205&fit=crop&dpr=1 600w, https://images.theconversation.com/files/42520/original/x8tgm2m6-1393378679.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=1205&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/42520/original/x8tgm2m6-1393378679.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=1205&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/42520/original/x8tgm2m6-1393378679.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1515&fit=crop&dpr=1 754w, https://images.theconversation.com/files/42520/original/x8tgm2m6-1393378679.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1515&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/42520/original/x8tgm2m6-1393378679.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1515&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Who should do the heavy lifting to help return Qantas to profitability?</span>
<span class="attribution"><a class="source" href="http://www.flickr.com/photos/jasoneppink/22649599/sizes/o/">Jasoneppink/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>We need to be clear – Qantas does not provide an essential service. We need to differentiate between the service being provided and the service provider. It is true that the failure of the company would cause a temporary disruption and inconvenience to the travelling public, but very quickly we would find planes flying the same routes and providing much the same service.</p>
<p>Competing against a state-owned enterprise is a furphy. Every single Australian firm that competes in any international market is competing against an SOE on some margin. We in Australia decided long ago that the government had no business running airlines (or most other types of business) - it was a good decision to privatise Qantas and that decision should not be revisited. </p>
<p>Finally there is the question of whether the firm is restructuring its own operations, with Abbott <a href="http://www.smh.com.au/federal-politics/political-news/pm-to-qantas-get--house-in-order-20140222-338oi.html">stating</a> Qantas must get its “house in order”. The Abbott government is looking closely at industrial relations when thinking about this question. Quite rightly so, but that isn’t enough.</p>
<h2>Premium price for premium service?</h2>
<p>Qantas appears to be pursuing a strategy where it will provide a premium service while charging premium prices. I’m not convinced – as a long-time Qantas customer – that it’s succeeding in providing a premium service. Nor do I believe Qantas will be able to maintain its premium prices. As Sam Wylie <a href="http://www.afr.com/p/opinion/qantas_peculiar_case_09kDiXbvek4iPX7qSCmjwL">explained</a> in the Australian Financial Review, the capital markets share this opinion. </p>
<p>Qantas has a book value of A$6 billion and a market value of just A$2.7 billion. Qantas has turned each dollar invested into 45c. Turning that around is going to be a lot harder than being tough on unions or cutting back on the drinks menu.</p>
<p>Allowing Qantas to borrow at the <a href="http://www.bloomberg.com/markets/rates-bonds/government-bonds/australia/">government bond rate</a> – even if it has to pay a fee – will distort the market. The thing is that Qantas can borrow – just at junk bond rates. Borrowing at the government rate would mean Qantas could borrow more and more cheaply than the market thinks it should. That means Qantas would maintain its size and dominance when the market thinks it should contract.</p>
<p>Government has no business propping up businesses that should be contracting. As things stand Qantas is a poor investment. Yes; unique government regulation is partly to blame for that and the Qantas Sale Act should be repealed. Yet I suspect Qantas’ current strategy has more to do with its troubles than the Qantas Sale Act.</p>
<p>By repealing the Qantas Sale Act Qantas will have to survive on its own terms - this is the outcome that would best serve the interests of the flying public (broadly defined). Any other form of assistance is likely to leave Australians worse off in the long run. </p><img src="https://counter.theconversation.com/content/23706/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>So it begins – a company running to Canberra with a good story and in need of some or other political favour. To be fair, these companies tend to have very good stories – consumer safety, national security…Sinclair Davidson, Professor of Institutional Economics, RMIT UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/233072014-02-18T03:31:22Z2014-02-18T03:31:22ZQantas can’t have it both ways on foreign ownership<figure><img src="https://images.theconversation.com/files/41758/original/mnfgq9tx-1392691815.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Qantas is poised to receive some form of government assistance, but will it act in the national interest?</span> <span class="attribution"><span class="source">griffs0000/Flickr</span></span></figcaption></figure><p>The Federal Government appears ready to “<a href="http://www.smh.com.au/federal-politics/joe-hockey-ready-to-throw-qantas-a-lifeline-20140213-32jxc.html">throw a lifeline</a>” to Qantas, which has been seeking a government-backed debt guarantee and a lifting of the 49% foreign ownership limit in the Qantas Sale Act. </p>
<p>Although the government is yet to announce any assistance <a href="http://www.afr.com/p/business/companies/qantas_debt_deal_seen_as_inevitable_YLXnHA2olBL0zx9lCg9iYP">ahead of Qantas’ financial results</a> on February 27, Treasurer Joe Hockey says the airline’s request for assistance meets four essential preconditions:</p>
<ul>
<li>existing restrictions on the business imposed by the Parliament </li>
<li>an essential national service</li>
<li>an environment where other sovereigns are engaging in direct competition to the massive disadvantage of an Australian business. </li>
</ul>
<p>And finally, in the words of Mr Hockey:</p>
<blockquote>
<p>The business has to do its own heavy lifting on its own reform. We are not going to run the business or tell them how to reform.</p>
</blockquote>
<p>The Qantas Sale Act legislated for the privatisation of Qantas at a time when large scale privatisations were deemed to be desirable. It included setting restrictions on foreign ownership meaning:</p>
<ul>
<li>no more than 49% of Qantas can be owned by foreign persons</li>
<li>no more than 35% can be owned by a foreign airline</li>
<li>no one foreign person own more than 25% </li>
<li>no more than one third of the directors can be voted in by those representing foreign shareholdings.</li>
</ul>
<p>Qantas is also required to maintain a register of shares in which foreign persons have a relevant interest.</p>
<p>Presumably if the Qantas Sale Act were repealed, the heavy lifting on foreign ownership would be left to the Foreign Investment Review Board (FIRB) as it is for other businesses in Australia. FIRB could potentially reject, as contrary to the national interest, foreign investment proposals above the current threshold of A$248 million. The threshold for investment from American or New Zealand interests is higher at A$1078 million. </p>
<p>A proposal of any value by foreign governments, including other government-owned airlines, would be subject to review by FIRB. Rejection does not happen very often, but competition regulation could also apply.</p>
<h2>Is Qantas ‘essential’?</h2>
<p>Referring to Qantas as “an essential national service” might suggest a debt guarantee or other financial support is more palatable to the government than increased foreign ownership. </p>
<p>US multinational Archer Daniels Midland’s bid for Australian grain handler GrainCorp, knocked back by the FIRB, is a case in point. </p>
<p>The Qantas case has similarities to GrainCorp in economic terms. They are both infrastructure services that are crucial to economic activity. They are both networks. In the case of airlines this means the addition of one more destination can add more than proportionately to the value of the business, although this depends on travel density. There is also a tendency to natural monopoly because costs fall as the scale of operation gets larger. This is why policy has favoured keeping at least two airlines operating on low density Australian routes, in order to maintain competition. </p>
<h2>Facing up to global competition</h2>
<p>Qantas does face competition from government-owned airlines, at least on international routes. Government-owned airlines which operate on similar routes to Qantas include Air New Zealand, Emirates, Garuda, Malaysian, and Singapore. Qantas itself was government owned until 1995. </p>
<p>Airlines are an infrastructural service industry where government ownership is frequent. This is because the service is regarded as crucial, yet it tends to alternate between profits and losses. The activity is inherently commercially unstable because the costs of provision aren’t always covered by sales revenue. Yet the overall benefits to society remain greater than the costs of providing the service. </p>
<p>Yet Qantas also faces competition from private airlines. These tend to be owned by firms operating in a range of activities and/or the airlines frequently go broke or merge. This lends to the instability which may be regarded as against the national interest, as in the current issue with Qantas.</p>
<p>The suggestion that the government guarantees the debt of Qantas amounts to de facto government ownership in that activities become subject to a “soft budget constraint” and would be covered from government coffers. However it differs from government ownership because it would not offer the controls for the locations of maintenance and operations, workforce etc. that government ownership would offer.</p>
<h2>Who’s really in charge?</h2>
<p>Joe Hockey’s claim that Qantas would have to manage its own reform is an escape clause. Perversely, a debt guarantee would leave the possibility that Qantas avoids commercial constraint but at the same time there is no requirement of its conduct. Alternatively, increased foreign ownership could be allowed, but this presents problems for the view of it as an essential national service. </p>
<p>Qantas cannot have it both ways. Qantas chief Alan Joyce seeks a government debt guarantee without which he argues Qantas cannot remain a national carrier. This would offer the benefits to the business that government owned airlines get, but without the quid pro quo where the government requires the carrier to operate in the national interest, for instance in choosing the location of maintenance facilities, and workforce conditions. </p><img src="https://counter.theconversation.com/content/23307/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Margaret McKenzie 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 Federal Government appears ready to “throw a lifeline” to Qantas, which has been seeking a government-backed debt guarantee and a lifting of the 49% foreign ownership limit in the Qantas Sale Act…Margaret McKenzie, Lecturer, School of Accounting, Economics and Finance, Deakin UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/71672012-05-22T06:40:18Z2012-05-22T06:40:18ZQantas splits operations, but break up speculation premature<figure><img src="https://images.theconversation.com/files/10924/original/2fb3xrmr-1337661431.jpg?ixlib=rb-1.1.0&rect=81%2C69%2C4100%2C2670&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Qantas will split its international and domestic operations.</span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>Qantas has announced it is splitting its loss-making international business from domestic operations, as part of a five year turn-around plan announced last August.</p>
<p>The two companies will have separate management structures and chief executives. Alan Joyce will remain chief executive of the overall group. The move comes a day after 500 engineers were made redundant at Qantas’ Melbourne operations.</p>
<p>But Ian Douglas, Senior Lecturer, Aviation at the University of New South Wales warns against break-up speculation.</p>
<p><strong>What impact will this decision have on the wider aviation industry?</strong></p>
<p>I think almost none. The reason I think almost none is that structurally the business is set up that way anyway. The revenue management unit that looks after the domestic routes is not the same set of people who look after the international markets. The pricing policy and the customer base – none of that changes. All that happens is breaking out the consolidated reporting of the Qantas branded carrier.</p>
<p><strong>Is this is the beginning of a process to break up the Qantas domestic and international businesses for possible sale?</strong></p>
<p>I think they’re going down the path that Virgin did, by taking the international business into a separate non-listed company. But not a break up. A Qantas domestic business without the international network would have a tough time supporting the frequent flyer program and that’s where a lot of the value of the business sits at the moment. Qantas international without the domestic would be taking Qantas back to pre-1992 or 1995, where you can’t really operate an international carrier without a domestic arm in an environment like this.</p>
<p>I think that both of them have more value integrated in the group than either of them would have separately. Having said that, the change could only happen if they could get rid of the <a href="http://www.austlii.edu.au/au/legis/cth/num_act/qsa1992120/">Qantas Sale Act</a> which was was put in place before the students I’ve been teaching this year were born. </p>
<p>If they could get rid of that anachronistic bit of legislation maybe Qantas could a take a shareholder into the domestic business and use that as a source of capital in the group. But to me that makes little sense. Qantas would basically be saying “I’ll give away that bit of the business that makes money so I can hang onto the bit of the business that doesn’t”.</p>
<p>To me the split is almost an accounting exercise. There was discussion in the last annual report about the international business performing poorly compared with the domestic one. All this really does is give the shareholders and the market clarity around the reporting of those different parts of the business that are performing differently at this point in time</p>
<p><strong>So are media headlines suggesting a Qantas break up wrong?</strong></p>
<p>I think it’s a bit of an overreaction. If Woolworths said “we’re going to change the way we report the sales through petrol station stores and aggregate those or disaggregate those from the supermarket sales of products, it wouldn’t rate a mention. Invariably because Qantas is a high profile business, everybody has an opinion on it. The industry generally, it’s not just an Australian issue or a Qantas issue, everybody has an opinion. Everybody believes that they "own” the carrier. I think Senator Nick Xenophon was making statements about it this morning. The Commonwealth Bank at one stage absorbed the state bank, but no one is saying we should be unwinding that merger, or we should be re-privatising the Commonwealth Bank, or asking how come the Commonwealth Bank is not reporting its NSW revenue separately? You take it out of the Qantas context and put it into any other business or industry, and it becomes a really tiny story.</p>
<p><strong>So this tells us something about the place a national carrier continues to have in the national psyche?</strong></p>
<p>It really is an odd thing. If we asked someone what the national soap company of Turkey was, no one would know or care. It’s an industry where everyone gets emotional about it. It shows up a bit in the naming as well. Air India or British Airways or American Airlines, they’re so nationally identified. But this is 25-30 year-old history, when governments owned most of the world’s airlines. These days that thinking is way out of date – it’s just a another business.</p><img src="https://counter.theconversation.com/content/7167/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ian Douglas was employed by Qantas Airways prior to 2003.</span></em></p>Qantas has announced it is splitting its loss-making international business from domestic operations, as part of a five year turn-around plan announced last August. The two companies will have separate…Ian Douglas, Senior Lecturer, UNSW Aviation, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/53142012-02-10T03:22:59Z2012-02-10T03:22:59ZFight for flight: are there grounds for Senator Xenophon’s changes to the Qantas Sale Act?<figure><img src="https://images.theconversation.com/files/7523/original/t9hv8y6s-1328836604.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Senator Xenophon's proposals for the Qantas Sale Act won't fly with Qantas CEO Alan Joyce, who says the effects could be detrimental for the beleaguered airline.</span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>Senator Nick Xenophon’s call for change to the Qantas Sale Act has made headlines across the world this week. He has challenged the Senate committee to support amendments to the Act that would require Qantas, and its low-cost sibling, Jetstar, to pay all employees at Australian rates of pay and to base aircraft maintenance operations in Australia. </p>
<p>Jetstar CEO Bruce Buchanan stated that if the airline was forced to make these changes, it would have to cut back on flights to Darwin and Cairns. At the same time, Qantas CEO Alan Joyce <a href="http://www.news.com.au/travel/news/grave-fears-for-future-of-qantas-and-jetstar/story-e6frfq80-1226263538573">responded</a> to Senator Xenophon’s motion, expressing “grave fears for the future of Qantas if these legislative proposals come into effect”, provoking the Senator to label Mr Joyce’s response as “ridiculous”.</p>
<p>Whilst the Senator’s initiative might be seen as a staunch defence of Australian business and jobs, the impartial observer might also consider it nationalistic and protectionist in a globalised business world – politically motivated rather than based upon business rationale. That said, Alan Joyce’s ‘"we’re all doomed’ response" - threatening closure or sell-off of Jetstar and deep cuts to Qantas - might be viewed as crying wolf yet again.</p>
<p>The Australian political/business arena has been dominated of late by calls for and some action towards protection of Australian onshore businesses and jobs. We have seen federal government commitment to funding Ford’s continuing production in Victoria, conflict over plans for and cost of replacing the ageing Collins submarines and <a href="http://theconversation.com/more-offshoring-of-australian-jobs-can-you-bank-on-it-5214">criticism of the banking sector</a> for offshoring jobs and retrenching Australian staff.</p>
<p>Whatever our personal views on these matters, we need to consider them in a global context and, in addition, in a more inclusive local context. In relation to the latter, the retrenched employee, or owner of the many small businesses forced into liquidation each year, might wonder why their company is not being offered the lifebelt of government subsidies. </p>
<p>That argument aside, what are Qantas’ worries as a global player? The airline must compete internationally and must be free to do so within its industry sector. To do so, it must be free to hire and fire employees, buy and lease aircraft and to sell their seats in the same “bull ring” as its competitors, who will show no mercy in seeking to take over its market share.</p>
<p>Before this week’s debacle, and with the pre-Christmas closure a fading memory, the most serious issue facing Qantas, along with Jetstar and their major Australian competitor Virgin Australia, was the <a href="http://www.theage.com.au/business/rising-jet-fuel-prices-weigh-heavily-on-qantas-virgin-20120126-1qjm7.html">cost of aviation fuel</a>. Australian airlines buy their fuel, which represents <a href="https://theconversation.com/the-upside-to-qantas-and-jetstars-price-hikes-5175">upwards of 40% of their operating costs</a> in a global market. They also buy and lease their aircraft, their financing and much more in this global market in which there is economic stagnation and contraction and political conflict in many parts. Whilst Australia stays the ‘lucky country’ and the dollar remains strong, this is a very difficult market for Qantas specifically because of the scale of its international operations.</p>
<p>In the 2011 <a href="http://www.qantas.com.au/infodetail/about/investors/2011AnnualReport.pdf">annual report</a>, Qantas chairman Leigh Clifford AO stated that “with considerable uncertainty in global economic conditions, fuel prices, foreign exchange rates and the industrial relations environment, it is vital that the Group continues to manage capital effectively … [and] allocate[s] capital to business areas that deliver sustainable returns in order to maintain earnings and profitability.”</p>
<p>Arguments about Qantas/Jetstar’s need for business competitiveness will, however, cut no ice with those who cry: “What about Australian jobs?” Here, however, I see a wider concern with Senator Xenophon’s call. If he has serious concerns about poor levels of pay and conditions for non-Australian employees and contractors, he must express these in relation to all in so-called ‘developing economies’, not just the select few that work for Qantas/Jetstar. Does he seriously want to elevate them to become a new socio-economic elite in their own countries, where they will stand above their counterparts working for their own national carriers?</p>
<p>This is an unequal world, in which businesses exploit inequalities, whilst governments appear unwilling and unable to do anything about it. We, as consumers in the global marketplace, take advantage of this on a daily basis, with very few of us having the full-time commitment to seek out “fair trade” or “ethical trade” products and services. Even if we wish to do so, we may not be able to without withdrawing from the “consumption society”.</p>
<p>Overall, Senator Xenophon’s initiative - should it be successful - offers the Australian traveller no benefit or incentive to remain loyal. Qantas/Jetstar will operate with one hand tied behind their backs and their shareholders will lose value. Australian jobs may appear to be protected in the short-term, but ultimately it is likely that only foreign competitors - and jobs - will benefit. At the same time, nothing will have changed in relation to issues of socio-economic disparity and privilege, either globally or locally.</p><img src="https://counter.theconversation.com/content/5314/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>Senator Nick Xenophon’s call for change to the Qantas Sale Act has made headlines across the world this week. He has challenged the Senate committee to support amendments to the Act that would require…George Cairns, Professor of Management, RMIT UniversityLicensed as Creative Commons – attribution, no derivatives.