By Ayesha De Kretser
Virgin Australia will resume long-haul international flights using Qatar Airways planes and crew after selling a major stake to the Gulf airline in a deal that could circumvent government resistance and poses a challenge to the dominance of national carrier Qantas.
In the most significant shake-up to the country’s travel and tourism sector since the pandemic, Qatar will buy 25 per cent of Virgin from its private equity owner Bain Capital and use the airline to expand its services in Australia where it has been stymied by federal government restrictions.
Treasurer Jim Chalmers said the government wanted the airline sector to be ‘‘stronger and more competitive”, even as he left it to the Foreign Investment Review Board to decide whether the deal should proceed. ‘‘We know across the economy, not just in the airline sector, that foreign investment can be in our national interest,” he said.
Government Services Minister Bill Shorten, who will leave parliament in February, said he hoped FIRB approved the deal, adding the sale to Qatar would mean certainty for Virgin workers.
‘‘Four years ago Virgin was on its knees. Now one of the world’s best airlines wants to buy 25 per cent of it,” he said. ‘‘I caught a Virgin flight this morning. The Virgin staff are up and about. They see job security, and that can’t be a bad thing for the flying public and for the people who work for the airline.”
Labor has had a difficult relationship with Qatar ever since blocking its request last year to fly more services into Sydney, Melbourne, Brisbane and Perth. As part of the transaction, Virgin will launch its own long-haul routes using Qatar planes, effectively bypassing the need for approval for the flights provided the competition regulator gives the leases the go-ahead.
‘‘It is embarrassing for Transport Minister Catherine King, who used 11 excuses to stop Qatar coming through the back door, to see them knocking on the front door,” said Coalition transport spokeswoman Bridget McKenzie.
The deal will allow Virgin to integrate its frequent flyer program, Velocity, into Qatar’s extensive route network more closely. It will also allow it access to a deep-pocketed Gulf investor – Qatar is owned by the government – which can fund an expanding fleet and other upgrades.
Virgin chief executive Jayne Hrdlicka said the decision to start flying international routes was not a change in strategy for Virgin, despite the airline’s focus on reducing the complexity of its fleet and flying domestically.
‘‘All this is, is Qatar and Virgin Australia saying we’re deepening our existing relationship and we’re doing that in two ways: one with the equity investment and two, by ensuring we can compete better domestically … to improve the value of their equity investment,” Ms Hrdlicka said.
She added Virgin would not strike strategic partnership with other global airlines and still intended to list on the ASX. Private equity owners such as Bain try to sell assets or float them on the sharemarket at a profit after holding them for a number of years.
‘‘The opportunity for us is one that we wouldn’t have had otherwise. The supply chain issues in aviation mean it would have probably been five or six years before we could get aircraft, and we don’t have the infrastructure or the scale to be able to do this,” she said of the plan to lease Qatar planes and crew.
James Kavanagh, Flight Centre Travel’s managing director, said the deal would make Virgin ‘‘stronger and more competitive which is good for the entire industry following a period of uncertainty”.‘‘We believe this is further great news for travellers at a time when international airfare prices are falling significantly in Australia, capacity is increasing and airlines are innovating by introducing more direct services, like Qantas offering Perth to London,” Mr Kavanagh said yesterday.
Jakob Cakarnis, an analyst at Jarden, said the deal would allow Qatar to bypass a time-consuming negotiation to fly more services, allowing it to compete with Qantas and Emirates.
He said the largest jump in capacity across Qantas’ major international markets was in the Middle East, where the carrier expects up to 7.7 per cent growth by the end of the year. But Mr Cakarnis said the impact on Qantas’ domestic operations would probably be very limited from the deal.
‘‘In the near term, our base case is that the Australian domestic market remains rational from a capacity growth perspective,” he added.
Qatar already owns 25 per cent of the International Airline Group, the operator of British Airways and Spain’s Iberia. The Australian Financial Review first reported Qatar was in discussions to buy into Virgin in June. Qatar will buy the stake from Bain, with Queensland Investment Corporation and Britain’s Virgin remaining as investors.
Virgin collapsed into administration at the start of the COVID-19 pandemic. Under Ms Hrdlicka, the airline had abandoned its long-haul international routes in favour of flying a fleet of Boeing 737s domestically, as well as to Bali, Fiji and close overseas destinations.
Before it collapsed, the then ASX-listed company’s shareholders included Singapore Airlines, Etihad and two Chinese carriers.
Wilson Asset Management’s Geoff Wilson, who had met with the airline when it was considering listing on the ASX last year, said the deal with Qatar was ‘‘very positive” for Virgin. ‘‘The challenging part for Virgin previously when it was listed and we were shareholders was that you had a dysfunctional ownership structure with all the different airlines,” he said. ‘‘From my perspective, Jayne Hrdlicka has done an exceptional job turning the company around and she’s done all the logical steps, taken all the costs out and then creating growth opportunities, like the return to long-haul.”
Ms Hrdlicka announced in February that she will leave the airline.
The deal between Qatar and Virgin comes at a difficult time for the aviation industry. Bonza, a low-cost carrier, and Regional Express, better known as Rex, both collapsed this year. Qantas and its budget subsidiary Jetstar control about two-thirds of the local aviation market.
Qatar Airways chief executive Badr Mohammed Al-Meer said the deal would ‘‘bring even more great value and choice to all Australians”. ‘‘Not only that, we believe competition in aviation is a good thing, and it helps raise the bar, ultimately benefiting customers,” he said. ‘‘This agreement will also help support Australian jobs, businesses and the wider economy.”
Qantas had lobbied the government against allowing Qatar to expand its landing rights on the basis that the state-owned airline was not subject to the same increasing wage bills and industrial action. Qantas has previously told investors it would have to pay flight attendants an extra $60 million a year to align with Labor’s same job, same pay workplace reforms.
Qantas fell 3.4 per cent to $7.17. Virgin told staff earlier this year that it had recorded $2.8 billion in revenue for the six months to December 31, up from $2.5 billion one year earlier. It said the company had recorded a profit of $236 million for the period.
Virgin Australia CEO Jayne Hrdlicka says the Qatar investment will give the airline a huge boost to compete better with Qantas domestically.
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