VIRGIN AUSTRALIA: Qatar Airways to be shareholder next week?

The usually reliable AFR is reporting that Qatar Airways will acquire a 20% stake in Virgin Australia. The purchase might happen as soon as next week.

Qatar Airways is one of the largest airlines in the world. It’s the recent winner of the Skytrax Best Airline Award . The airline is owned by the Qatari government. It’s also associated with the controversial intimate searches of female passengers after a newborn was abandoned in a rubbish bin at Doha’s Hamad International terminal.

Virgin Australia and Qatar Airways already have a partnership agreement. That may appear strange since Qantas and Qatar are members of the same airline alliance, OneWorld. The Qantas partnership with Emirates for its Middle Eastern hub, has not made Qatar Airways very happy. There also seemed to be some animosity, between the ex-CEOs, Akbar Al-Bakar for Qatar and Alan Joyce for Qantas.

Qatar’s partnership strategy

Partnering with other regional airlines is part of Qatar Airways’ strategy. It already holds stakes in Cathay Pacific (10%) and a 20% stake in British Airways/Iberia/Aer Lingus owner IAG. Any such ownership strategy of an Australian-based airline like Virgin requires government approval via the Foreign Investment Review Board. That is not necessarily a slam-dunk.

If Qatar gets the additional 28 flights it has re-applied for, that would confirm its partnership with Virgin Australia. Partial ownership would assure it of access to the domestic market. Qantas ain’t gonna like that!

Contrary to one commentator’s view, I don’t think Qatar’s partial ownership of Virgin Australia will lead to an expansion back into the long-haul international market. Arguably, that move was their financial downfall prior to the most recent period of administration and ownership change.

What happened to the IPO?

Virgin Australia was bought by Bain Capital during the pandemic in 2020 after it went into administration. Virgin was planning a listing on the Australian Stock Exchange (ASX) last year. It had engaged a range of bankers, including Barrenjoey, Goldman Sachs, and UBS, to facilitate the float.

Those plans were nixed when the market didn’t have the appetite for such a listing. So the ASX listing has been suspended, if not cancelled. CEO Jayne Hrdlicka couldn’t wait around for the listing or stay to settle in the new owner. She announced her departure earlier this year. She is set to finish as soon as Bain appoints a new chief executive. Some high-profile candidates in the aviation industry, like Gareth Evans, former Jetstar executive, have reportedly already refused offers. It is expected that the candidate will now rise internally, and Paul Jones, Virgin’s chief customer officer is now expected to captain the airline.

Additional investor scrutiny

The apparent abandonment of the IPO has analysts scrutinising the airline and noting that Virgin is losing ground to industry behemoth Qantas/Jetstar. Profitability also looks a little challenging. The company has reported to staff that revenue in the last two half-years has been in the AU$2 to AU$3 billion range. In the most recent accounts filled with the ACCC (Australian Competition and Consumer Commission) for the 12 months to June 30, 2023, profit is listed at AU$129 million.

What will be the effect on Australian travellers?

If Qatar Airways is successful in its application for an additional 28 flights per week from Doha, that would give them double daily flights to Brisbane, Perth, and Sydney and triple daily access to Melbourne.

Part ownership of Virgin could also enhance their case to add those flights, especially if it was a harbinger of even more.

The intimacy that part-ownership would give may also feed into additional benefits for members of either airline’s frequent flyer schemes.

Qatar Airways currently prefers Virgin Australia’s Velocity frequent flyer scheme members for award points seats, especially in its Business Class QSuites. Qantas frequent flyers are left with only lesser-valued economy redemption seats.

2PAXfly Takeout

We live in exciting times! Such a partnership and partial ownership by Qatar of an Australian domestic airline might provide a little sparkle to the local industry. Let’s just hope it doesn’t end in Virgin Australia being owned by multiple overseas airlines as it was prior to administration.

That didn’t seem to assist it in agile decision-making. If anything, it led to progress torpor, which made the airline vulnerable when COVID-19 arrived. All those airline shareholders lost all their money too. No one wants to see that again.