The australian government cannot fix the commercial disaster of Qantas. The airline is in crisis and in need of radical surgery and the first partial limb to be harvested and auctioned to the highest bidder will undoubtedly be its lucrative Frequent Flyer program.
The next might be the budget carrier Jetstar. Qantas will retain some stake but the company has little choice but to engage in a giant hangar sale.
Despite its impeccable airline safety record, from a financial perspective Qantas is careering towards a crash. It has endured numerous external shocks since it was privatised in the early 1990s – the bombing of the World Trade Centre, SARS, the global financial crisis and the industrial relations-inspired grounding of the fleet.
But it now faces its first operating loss in the six months to the end of December. Qantas is solvent but bleeding at the rate of up to $300 million per half year, and these losses could deepen.
Qantas has so far survived most of the external shocks, but has been felled by simple competition.
Despite the rhetoric, times in the airline industry have been far tougher than they are today.
Tourism statistics show that even though consumer confidence is low we are still spending plenty on travel and holidays.
But the emergence of a fierce and well-funded competitor in Virgin Australia has knocked Qantas around and exposed the strategic mistakes of the dominant carrier which refused to budge from its position of holding 65 per cent of the local market. Instead, it added more capacity into the local market – running flights that too often were only two-thirds full. It was outfoxed by Virgin.
Any rescue for the carrier will come with a fair share of pain and dislocation. More than 1000 jobs will be lost, costs will be slashed and local maintenance facilities closed.
The heady days of Qantas financing the colonisation of Asian destinations like Hong Kong and Japan using the Jetstar brand must be reined in. The new strategy is austerity. But this won’t be enough.
The clock is ticking for the increasingly out-of-favour chief executive Alan Joyce, who needs to raise money and fast. His first port of call was the government but following an initial burst of interest from Joe Hockey, the trail to Canberra lost some heat. There are still conversations about debt guarantees but there is nothing like a political uniformity of view.
The door may be open for some changes to foreign ownership down the track but Qantas’s current problems are more urgent.
The airline needed the government to stop its competitor, Virgin, from raising money to continue to finance a market share war. Joyce was never going to receive that Christmas present.
Qantas must fix its own problems, which is what management is paid well to do. Another option would be for Qantas to seek fresh funds from its shareholders, but the money wouldn’t come cheap and Joyce is loath to go there.
With the share price hovering just above $1, an equity issue would have to be discounted deeply below that level.