Troubled Virgin Australia has asked the Australian government for a financial lifeline. Qantas has aggressively responded, denouncing a government bailout for a “badly managed” company and arguing for a “survival of the fittest” model as the economy enters recession.
Virgin Australia In Deep Trouble
Virgin Australia is fighting for survival. It was already in trouble before the COVID-19 outbreak and now finds itself facing a new flight ban barring foreigners from entering Australia and a drastic drop in demand. By the end of the month, Virgin expects to cancel 90% of its international flights and 50% of its domestic flights. These service reductions will run through at least mid-June.
Already, Virgin Australia has cutback staff and the latest service reductions will lead to furloughing the vast majority of Virgin employees. For that reason, Virgin Australia has appeared to the Australian government for assistance to keep the lights on.
Qantas Doesn’t Want Government To Support Virgin Australia
Speaking on Sky News last Friday, Joyce decried the notion that Virgin Australia should receive government assistance, arguing it would create an uneven playing field:
“It would be completely unfair to our sector. We’d be competing against the Australian government. Qantas couldn’t do that, it would be an unbalanced, uncompetitive environment.”
Joyce added that the government should “not look after the badly managed companies which have been badly managed for 10 years”. He also said.
“The government can’t pick winners and losers, the government has to be fair to every company. Whatever aid it’s giving to one company it must give to everyone in the sector.”
The day before, Joyce told Qantas workers that “governments are definitely not there to support a company that’s owned by Singaporeans, Chinese, Abu Dhabi and a British billionaire”, an unequivocal reference to Virgin Australia even if the carrier was not named.
Qantas hopes to outlive Virgin Australia, positioning it to be even more dominant once COVID-19 passes.
Virgin Australia Complains About Qantas
Unsurprisingly, Virgin Australia is not happy about the attacks from Joyce. Virgin CEO Paul Scurrah filed a complaint with the Australian Competition and Consumer Commission, demanding an investigation.
“I have today written a letter to Rod Sims, chairman of the ACCC, to investigate public commentary and an industry wide campaign by Qantas that is designed to ensure a lessening of competition in the aviation sector.”
This becomes more a game of optics, as Virgin tries to rally the public, not just government officials, around a bailout it argues is necessary to protect competition in Australia.
The dynamic in Australia is similar to what is going on in the United Kingdom, with British Airways poised to outlast Virgin Atlantic and doing all it can to ensure the government does not bailout Virgin. I’m skeptical about bailouts, but I do know that Virgin Australia is a welcome competitive force against Qantas in Australia. The death of Virgin Australia (and Tiger Air) would create an essential monopoly for Qantas, something that will be detrimental to consumers once COVID-19 passes. The situation in Australia is quite different than in the USA, where all carriers have banded together to seek government aid.
Virgin Australia stock is trading at AUD0.04/share.
image: Andrew Thomas