I find it amazing that given their recent differences that Qantas and a union have been able to agree on anything, but it seems they have found a common enemy in Etihad Airways, and by their bleating one would think that the sky has fallen in.
According to today’s news, Qantas execs, including Alan Joyce, have been busy knocking on doors in Canberra and telling anyone who will listen that its domestic business would be smothered if Etihad took over Virgin Australia and used it to start a price war in the domestic market.
Sadly, or should I say cunningly, Joyce and co know that among the politicians that Qantas tugs on the heartstrings, and so any attack on what is a listed, public, for-profit company will get a hearing, even if it is complete hogwash.
The argument seems to be that if taken over by Etihad, Virgin would be used in a giant pissing contest between Etihad and Emirates, something which doesn’t seem likely given that there has been very little pissing between them already.
It’s hard to miss the irony that concerns about capacity dumping are coming from the very company which in recent months announcing major increases in capacity along the eastern seaboard, and deploying more internationally configured 747-400s and A330s onto Perth routes.
But the problem with that idea is that Virgin can afford to compete on price and probably make some money, while Qantas Domestic certainly can’t afford a price war to go on too long with its much higher cost base.
In the past it would attack Virgin using the lower cost Jetstar to offer lower fares, but with Virgin now gaining traction as a more sophisticated operation that would be a dumb move, and so it must attack with Qantas Domestic, which in the long term will just lead to a bloody war which it cannot sustain for long without hitting its bank balance and bottom line.
But this may be a sign that Qantas is starting to soften up Canberra for a longer term plan of replacing Qantas Domestic’s legacy operations with a leaner, lower cost version. That may be an all-new operation or it may be Jetstar. Either way, Qantas needs to do something to address the high cost base of its existing operations.
Or it may just mean that Qantas is just pressing its case to relax the Qantas Sale Act to allow for it to separate its operations completely as Virgin has, possibly allowing a larger investor to come in and take over Qantas Domestic.
Could that be Emirates? Maybe, but as Tim Clark has said before, mergers and acquisitions are not their style. The only time they have tried that was with SriLankan Airlines and in the end they got burned, and instead have found that it is much easier (and cheaper) to establish good bilateral codeshare relationships with a variety of carriers rather than buying into one or two.
Etihad has much more form on M&A. The carrier is practically taking over Air Seychelles, and has also been quickly integrating its European operations with airberlin, in which it holds a 30 per cent stake. Ironically, airberlin is also a Qantas partner via the oneworld alliance, and maybe that is what scares Qantas so much.
But lets face it – if Etihad wanted to get into the Australian domestic market, they could have long ago by themselves. Instead, I think that the Abu Dhabi carrier is content to work together with John Borghetti’s team to maximize its investment, rather than engage in an ego match. If in doing that Qantas loses market share and sees a fall in its profitability, then that is its issue to respond to.
At the end of the day though, the scaremongering that Qantas now appears to be playing is little more than crying wolf. It does make me wonder if, as the story goes, Canberra, investors and the general public will listen when a genuine wolf comes along.
Ellis Taylor
