AUSTRALIA: Government rules out airline nationalisation

This is kind of yawny news. From a big ‘L’ liberal, or maybe better described as a ‘conservative’ government – think USA Republicans before they became nut-job Trump supporters. The Scott Morrison Liberal-National Coalition government of Australia has ruled out the nationalisation of any airline. That rules out all the majors including:

• Qantas
• Jetstar
• Virgin
• Tiger
• REX

Following the announcement of a new AU$298 million package for regional carriers (so predominantly REX and 11 other regional operators). AU$198 is for general assistance to the regional network to assist airlines with standing costs like safety, regulatory compliance and operational capability. And an additional AU$100 million for the smaller regional airlines.

If we add this to the AU5 million already announced in support for primarily Qantas and Virgin group airlines, then the total package announced totals just over an AUbillion for the airline industry.

Where this comes from

Allan Joyce, CEO of the Qantas group has been having little snipes about the Virgin Group all through the Coronavirus crisis. He’s said things about other airlines: “that have been badly managed for 10 years”, which is a less than veiled reference to the Virgin Australia group, which hasn’t made a profit for about that time. He’s also had a poke at Virgin Australia’s foreign ownership.

Let’s just remember that this is the same Alan Joyce that went running to the government for an AU$3 billion guarantee when Qantas wasn’t doing so well, and he had just grounded the airline to make a point with the unions.

There were even rumours that Joyce had asked his employees to contact their local parliamentarian to voice their displeasure that the government might support Virgin Australia. This was the proverbial straw that broke the camel’s back, and Virgin Australia CEO, Paul Scurrah complained to Rod Sims the chairman of the Australian Competition and Consumer Commission (ACCC), who’s response in part was:

“we went into this crisis with two full-service airlines and we need to come out of this crisis with two full-service airlines.”

Rod Sims, Chairman ACCC

2PAXfly Takeout

It is true that Qantas is in a way better position financially to weather this COVID-19 storm. besides having a few billion in cash, it has also mortgaged a bunch of B787’s to get another billion as a 10-year line of credit. Mind you, its share price has tanked, dropping to under a third (AU$2.14) of its highest (AU$7.34), then stabilising (?), currently around half its highest (AU$3.11.

On the other hand, Virgin Australia has dropped from AU$0.17 down to its current position of AU$0.07, and it reported an AU$349 million loss last year compared to Qantas’s ‘underlying’ AU$1.27 billion profit.

If Virgin is smart, and it looks like the new CEO Paul Scurrah is, then they will use this opportunity to do a bit of a restructure. I wouldn’t be surprised if Virgin moved more towards its discount airline Virgin Blue history when it was profitable, and consequently dumped it subsidiary Tiger Airways, which it bought entirely in 2014. It had paid $35 million for a 60% stake in 2012, and bought the rest of the airline for an additional AU$1!. That, despite Scurrah’s denial of a prospective close down as recently as December 2019.

Time will tell.