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
it’s 200% guaranteed Qantas themselves will also need a bailout eventually. Those same words of bravado will haunt them. Not may, WILL.
Words of bluster are something that intubate better than they incubate.
Spot on Henry!
Hopefully you don’t have a trademark on this “Words of bluster are something that intubate better than they incubate.” because I want to use it 🙂
A couple of years ago I took a domestic flight on Virgin Australia from Cairns to Sydney.
It was one of the worst flights I ever took.
British company… always hires brits , I know this because i work in the industry.
Badly managed, average salary for engineers are 160k.
Can’t survive with that’s sort of wasting.
Virgin Blue as it was arrived in Australia in an economic downturn and was a big player in the demise of Ansett Australia, probably the best airline in the Western world at the time in terms of service and standards.
Like anything Virgin there has always been over promise and under delivery by Virgin Blue/Australia and a lot of whining and whinging from Branson who lives on bail outs by tax payers.
It would be fitting if Virgin Australia wen to the wall now and don’t fear, a new competitor will rise to take on Qantas.
QANTAS has become a repulsive company under Joyce: anti-consumer, monopolistic, deceitful, uncaring in respect of staff. They try to push the view that they’re an iconic brand, usually via the hokey and mawkish advertising featuring “ I Still Call Australia Home”
They tried desperately hard to eliminate the competition with the introduction of their own LCC, JETSTAR ( featuring staff agreements substantially inferior to those of the parent)
Australians, and those visiting Australia , will rue the day that QANTAS ever gets a monopoly . It’s a very scary prospect.
Weather you believe in bailouts or not, or how they achieve it, there is no way the government will allow Australia to go back to a single carrier.
“The death of Virgin Austria would create an essential monopoly for Qantas”
How would the death of an Austrian airline affect Quantas?
“Not look after the badly managed companies”
That didn’t stop the Norwegian government from bailing out Norwegian. So chances are that argument will not hold up. If the Australian government sees a need for Virgin Australia then they might make it through this. But are they entirely necessary?
Joyce is a complete and utter a-hole.
The UK situation has different nuances compared to Australia. While BA wouldn’t be sad about the loss of Virgin Atlantic, they would still face competition.
The restricted slot situation at Heathrow would mean that competition would fill the gap almost immediately, and restore competition if Virgin was to cease operations. A single take-off and landing slot pair at LHR was sold to Oman Air for US$75m earlier this year. Gatwick and Manchester might be harder hit, especially after the demise of Thomas Cook.
It would be unlikely for BA to qualify to purchase vacant slots at LHR. They may be even filled by Virgin Atlantic’s majority owners – Delta, KLM, Air France. Virgin Group only owns 20% of the airline.
We don’t want to see any airline go under, especially for the sake of their hard working employees, however a more fragmented home market would benefit BA, but competition would be alive and well (in a very sick industry in the medium term.)
Great Article. I like the stand on Qantas for taking Govt. handover. Well managed airlines survive. Great Aussie airline.