If there is one thing that distinguishes Qantas chief executive Alan Joyce from other common or garden variety Australian CEOs, it is his willingness to scrap. In his five years at the airline's helm, Mr Joyce has confronted his pilots, licensed aircraft engineers and ground staff on numerous occasions, and in October 2011 he locked out 10,000 employees represented by four unions, accusing them of "trashing our strategy and our brand''. Two years on (and using much the same language), Mr Joyce is engaged in another dogfight, this time with Qantas' domestic rival, Virgin Australia. He wants the federal government involved, too. Wisely, perhaps, it is showing few signs of wanting to join this corporate donnybrook, though that may change.
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The source of Mr Joyce's anger is Virgin's behaviour, which he claims extends to funding excessive amounts of airline seat capacity, and its corporate structure. That structure was re-engineered in 2011 with the approval of the then Labor government to allow unlimited foreign ownership, and it removed limits on the airline's ability to raise equity and prohibitions on its foreign shareholders taking up their entitlements. This month Virgin announced a new equity raising of $350 million, saying its three major shareholders - Air New Zealand, Singapore Airlines and Etihad Airways - would be taking up their full entitlements. In an extraordinary reaction, Mr Joyce called on the government to intervene to halt the capital raising, describing it as an exercise designed to distort the domestic aviation market and destabilise Qantas operations for the benefit of foreign interests. He has since formally complained to the government about regulatory restrictions that apply to Qantas and not to Virgin, namely the Qantas Sale Act, which caps foreign investment in the airline at 49 per cent and limits total ownership by foreign airlines to 35 per cent.
Along with being far removed from major hubs and destinations, Australia's aviation market is relatively liberal in terms of the access it allows other countries' airlines. That makes it a challenging environment for airlines intent on delivering a reasonable return on capital. Qantas, however, has long been the dominant presence in the market, and in that sense Mr Joyce's complaints have a protectionist ring about them. Stronger competition in the aviation market from Virgin or others may anger Qantas executives and shareholders but there will be few complaints from the travelling public if it results in better service and lower fares. And Qantas is as well-equipped as Virgin to raise capital.
If Mr Joyce's complaints about an uneven playing field have any basis, it is that Virgin's three large shareholders may be better able or willing to sustain losses in the short term in expectation of building market share, particularly in the lucrative business travel sector. Allowing an overseas airline with deep pockets to take a big stake in Qantas would help it counter the threat posed by a rejuvenated Virgin in the domestic market and by its partners in the international market - with passengers funnelled from Virgin.
Given the near-universal acknowledgement of the importance of foreign investment to economic development, there would seem to be little reason to continue to ring-fence Qantas from greater levels of foreign ownership. It is true that Qantas is held in fond regard by millions of ordinary Australians but that attachment is fading as more people make price the main determinant of their choice of airline. Many other uniquely Australian firms have been taken over by foreign interests, and while the option of governments commandeering Qantas aircraft for emergencies might be considered in the national interest, there are plenty of private aircraft that can be leased for such purposes.
Treasurer Joe Hockey's decision to canvas a debate about the Qantas Sale Act is, therefore, to be welcomed. One alternative response being bruited is to lift the ownership restrictions but with a safeguard of a substantial stake in Qantas to be held by the government. Enthusiasm for that within the Coalition is likely to be limited, however. Nonetheless, a foreign-owned Qantas, with stringent conditions imposed, is nothing to be feared.
