Australia’s federal government is moving to support Qantas, which is facing unprecedented competition from Virgin Australia.
Treasurer Joe Hockey said on Thursday that the country must accept that there will be a price to be paid for keeping Qantas in ''regulatory handcuffs'', which limit foreign ownership in the national flag carrier.
He has called for a national debate on Qantas’s future in the face of Virgin Australia’s foreign airline owners pouring in $350 million to support its expansion.
Virgin Australia’s major shareholders are Etihad, Air New Zealand and Singapore Airlines along with the Virgin Group.
Combined they own 68 per cent.
Under the Qantas Sale Act of 1995 a single foreign airline can only own 25 per cent of Qantas while foreign ownership is capped at 49 per cent to comply with bilateral agreements with other countries.
However, Virgin Australia has split itself into two operations – domestic and international – with the latter being 51 per cent Australian owned.
This is nothing new as Ansett was 100 per cent foreign owned, as was Virgin Blue when it entered Australia in 2000 and Tiger Airways was also 100 per cent foreign owned.
What is different is that Virgin Australia has morphed from a low cost carrier into a business class airline with a low cost structure and is either taking market from Qantas or forcing Qantas to drop its fares.
In the last 18 months the business class fare index has dropped by 40 per cent.
The government is loathed to relax the regulator conditions imposed on Qantas.
“Frankly, it's not something that I am willingly prepared to do - I don't like the idea of putting taxpayer's money or taxpayer's support behind Qantas,'' Hockey told media in Canberra.
''But if it is the view of the Australian people that we should have a national carrier that carries our flag then that does come at a cost.''
Australia’s Prime Minister Tony Abbott said that he wanted Qantas to "remain an Australian icon".
Analysts say that Qantas is looking for a government guarantee.
Qantas chief executive Alan Joyce told staff that changing the Qantas Sale Act
is ''not realistically achievable in the current Parliament''.
'”The process would be prolonged, during which time Virgin Australia would be free to continue its anti-competitive strategy aimed at crippling Qantas. We simply do not have the time,'' he warned.
Ideally Qantas wants the government to stop Virgin's $350 million capital raising but most agree that will not happen.