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The Future of Qantas

In: Business and Management

Submitted By Karenly
Words 831
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Ryan, P. 2014, 'Qantas: what's the future for the flying kangaroo?', ABC News, 16 March, viewed 20 April 2014,

Qantas: What's the future for the flying kangaroo?
For most ABC correspondents, boarding a Qantas 747 or perhaps more recently a Qantas A380 is often the first memory of a usually hard fought but ultimately exciting post overseas. Packing up your life in Australia, farewelling families and friends, while feeling the pressure to hit the ground running to win over critics back home, can fade temporarily in that unreal world of long haul travel - even better if your seat allocation is at the pointy end. Qantas of course was once an essential part of overseas jaunts for business and government travellers - and for many Australians, boarding the "flying kangaroo" was welcome comfort that felt like home. But as aviation has become a globalised business, badly damaged by the terrorist attacks of September 2001, Qantas like most national carriers has struggled to maintain its once iconic status. Greater competition, cheaper seats, and savvy travellers who expect more for less while venting their opinions on sites like TripAdvisor - means profit margins have narrowed. And in recent years, Qantas has been making heavy losses on its international business. Now its once lucrative domestic business is under pressure and Qantas is in a loss making war to maintain its 65 per cent market share over Australian skies. Its chief rival, Virgin Australia - which began as a cut price airline in the wake of the Ansett collapse - is now enticing corporate customers to come on board. And late last year, even the ABC sidelined Qantas to make Virgin its preferred domestic airline. The sad reality is that life is getting tougher by the day for Qantas. Just a few weeks ago it posted a half year loss of $235 million and announced the axing of 5,000 additional jobs as part of a $2 billion restructuring program. Standard & Poor's downgraded its credit rating to "junk" on the day Nelson Mandela died, meaning Qantas can no longer claim to be the only "investment grade" airline left in the world. So how did Qantas get into this mess?

The most obvious answer is that "this the free market" and the forces of supply and demand are at work. And after all, Qantas is listed on the share market as one of Australia's top 100companies by market value - though getting close to the tail end of that list. But the other more complex part of the story is that Qantas remains shackled by government regulation through the Qantas Sale Act of 1992 which restricts foreign ownership to 49 per cent. Virgin, on the other hand, has been able to attract significant foreign investment and lists three state-owned airlines as its top three investors - Air New Zealand, Etihad and Singapore Airlines. Combined, they own more than 60 per cent of Virgin stock and have signalled interest in maybe buying more. Qantas has been furiously lobbying the Federal Government to have the Qantas Sale Act repealed or amended so it can compete on a level playing field with Virgin. But the messages became mixed when Qantas also urged the Government to provide a standby debt guarantee - where Qantas would use the government's sovereign credit rating for borrow at a more attractive rate than "junk". The proposal sparked a national debate over whether any flavour of government should risk potentially owning the debt if Qantas ever defaulted. Not surprisingly, Virgin's chief executive John Borghetti said he would be asking for the same treatment "within 24 hours" if the Qantas bid was approved. But providing that debt facility was never going to fly with Federal Cabinet once the Prime Minister ran his "if not one, why not all" argument on the day Qantas announced 5,000 job cuts. While Tony Abbott did agree to repeal the Qantas Sale Act he did so knowing there's little or no chance that the Senate will pass it. So Qantas knows its campaign is mired in politics more than ever - and that the government is using the repeal of the Qantas Sale Act as a political wedge against Labor. But even if Labor did agree to back the Sale Act repeal, it would almost certainly find itself in a war with trade unions - especially if any new legislation saw more Qantas jobs move offshore along with maintenance - the Qantas head office and maybe even the Qantas board. And while the Government's move to amend the Qantas Sale Act is significant, it comes after both the Prime Minister and Treasurer urged Qantas to "get its house in order".

That is seen as code for "workplace reform" as the Government continues to question "the age of entitlement" and sections of enterprise agreements relating to troubled companies such as SPC Ardmona and Toyota. And the Government's proposal to provide highly qualified support for Qantas comes troube as preparations begin for a royal commission into trade unions. Undos beorm-o

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