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MERGED: Alan's still not happy......

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MERGED: Alan's still not happy......

Old 17th Nov 2013, 20:04
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MERGED: Alan's still not happy......

Whilst he probably has some valid arguments here it does sound like a bit of a tantrum, not unlike his shutting down the airline rant a few years ago.

Joyce blasts Virgin deal

Qantas has demanded the federal *government halt a $350 million foreign capital injection into Virgin Australia Holdings, claiming it is the “final act” by “predatory” state-owned airlines to undercut the national carrier, cripple it domestically and internationally, and take over its routes.

In a searing letter to Prime Minister Tony Abbott, Transport Minister Warren Truss and all state governments, Qantas chief executive Alan Joyce said the situation also compounded the disadvantage Qantas experienced from the restrictions imposed by the Qantas Sale Act. He demanded this “outdated policy framework” be urgently revisited as part of any examination of the capital raising proposal.

Qantas’s immediate priority is the $350 million capital raising announced last week which Mr Joyce said would “substantially increase” what he said has been a gradual foreign takeover of Virgin Australia and was designed to circumvent foreign investment restrictions. He demanded it be “forensically examined” by the Foreign Investment Review Board as an acquisition.

The letter, a copy of which has been obtained by The Australian Financial Review, says the $350 million raising from three state-owned airlines – Air New Zealand, Singapore Airlines and Etihad Airways – would increase the total ownership of Virgin by the trio from 63 per cent to 72 per cent.

Mr Joyce’s ultimate fear is that the capital raising, “supported and largely underwritten by three foreign governments’’,  is the latest in a strategy of subsidising Virgin so it can continue to undercut Qantas on profitable domestic routes until Qantas could no longer support its international network.

His other key concern was that *Virgin Australia would soon be effectively owned by three foreign governments but Virgin International would still be designated an Australian *carrier. This would give the three airlines, all of which compete with Qantas internationally, access to lucrative routes, or traffic rights.

This fear was exacerbated last week when Virgin chief executive John Borghetti said the three airlines would be offered board seats.
Ongoing battle

Mr Joyce argued the capital injection, required to bolster Virgin’s *balance sheet amid an ongoing battle with Qantas, “can directly be attributed to its profligate and irresponsible *strategic campaign, underwritten by its sovereign shareholders in the Australian domestic market over the last 12 months’’.

“This has seen damaging levels of capacity introduced into the market with the single objective of damaging Qantas to the ultimate benefit of *Virgin’s foreign backers.’’

Mr Joyce described the capital injection as the “final act’’ in a scenario that has been playing out for months and has “all the characteristics of predator behaviour [to] substantially weaken a major competitor, Qantas Group, and recoup the costs at a later date’’.

“It represents a material threat to the Qantas Group across its domestic and international networks and is consequently contrary to the national interest,’’ Mr Joyce said.

“Their investment,” he said of the three government-owned airlines, “ultimately will be quickly recouped in the international market.’’

Mr Joyce, who will be in Canberra this week to lobby the government directly, said the “proposal goes well beyond what should be considered a legitimate investment to one of foreign control of a strategically important Australian business with objectives to damage Australia’s national carrier’’.

“It would place in the hands of foreign governments which control these airlines extraordinary power well beyond the intention which underpins Australia’s policy of allowing foreign ownership of Australian domestic carriers. The government and FIRB must urgently consider this proposal as an acquisition with worrying strategic intent, and not as an investment in a start-up airline.’’

A Qantas spokesperson confirmed the veracity of the letter and submission but the airline declined to comment.

Last week, Mr Borghetti did not dispute the reasoning for the move, which came after Virgin Australia posted a full-year loss in August.

“This capital raising is designed to enhance liquidity and the gearing position of Virgin Australia to ensure we are in a stronger position moving forward,” Mr Borghetti said in a statement.

The capital raising would replace a $90 million undrawn debt facility extended to Virgin by the three airlines.
Bid to lure more business travellers

He told the AFR the raising would help with Virgin’s “game change” strategy of trying to lure more business travellers and to compete with Qantas on regional and low-cost routes.

It was unclear whether Virgin would return a profit this year as well. “Given the ongoing uncertain economic environment, competitive challenges and market volatility, we are unable to provide profit guidance for the 2014 financial year at this time,’’ Mr Borghetti said.

Qantas has been voicing concerns publicly about Virgin’s foreign partners since at least June last year when Etihad started increasing its share in the airline above 5 per cent.

“Virgin/Etihad will be able to flood the market with capacity until its competition is forced to significantly reduce its own operations or worse,” Qantas said in a submission to the then Labor government.

Virgin rejected the accusation at the time, saying the investment “has absolutely no impact or influence on the company’s management or strategy”.

Also at the time, then shadow treasurer Joe Hockey did not rule out changing or abolishing the Qantas Sale Act to enable the airline to compete on a level playing field, including being able to enter into similar foreign equity arrangements. “We have to make a decision about whether Qantas does become a major international airline with a majority ownership overseas, or whether we want to retain it and pay a price for retaining it as an Australian icon,” he said.

In October this year, Mr Hockey approved Air New Zealand’s FIRB bid to lift its stake in Virgin to 25.9 per cent. Etihad and Singapore are awaiting rulings to move above 19.9 per cent each.

At present, foreign airlines could buy 100 per cent of Virgin Australia’s domestic operations while, under the 1992 Qantas Sale Act, foreign investment is capped at 49 per cent, total ownership by foreign airlines is capped at 35 per cent and a single foreign investor can buy no more than 25 per cent.
National interest at threat

Mr Joyce’s submission said the policy of allowing 100 per cent ownership of Australian domestic airlines such as Virgin Australia “while at the same time maintaining the restrictions in the Qantas Sale Act in Qantas, including Qantas’s domestic operations, has resulted in serious distortions in the domestic market . . . of a kind not applicable to any other industry in Australia’’. It says the capital raising by Virgin Australia highlights the inequity.

“A shift in the market architecture as radical as this must be judged against the contemporary circumstance of the Australian market,’’ the letter says. “Much of the current policy was framed over a decade ago in very different circumstances than those present today.

“The government cannot realistically judge this proposal against an outdated policy framework. The proposal from Virgin compounds the challenges already present in the Qantas Sale Act.

“The government must urgently revisit the policy framework as a part of the examination of the proposal.”

Mr Joyce argues the national interest would also be at threat because Virgin International would be able to maintain its designation as an Australian carrier under international air services agreements.

“Because designation can be challenged by foreign governments, we are now faced with the absurd situation that the governments of Abu Dhabi, New Zealand and Singapore, which are beneficiaries of an acquisition, will be the determinants of Australia government policy in this sensitive area.’
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Old 17th Nov 2013, 21:20
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Mr Joyce argues the national interest would also be at threat because Virgin International would be able to maintain its designation as an Australian carrier under international air services agreements.
I would argue BGA (and the board/senior 'management') is a far greater threat to the national interest than anything the Borgsta does.

SB - Very good point re actively destroying International yet over reacting re anything that might upset Domestic. Very interesting.....
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Old 17th Nov 2013, 22:05
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He knows this game well , he is doing the same to his Asian rivals . Pumping money into Jetstar Asia so they can undercut competitors , with the aim of hurting their bottom line so they can't compete as aggressively on the Australian runs .
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Old 17th Nov 2013, 22:20
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It's a bit rich for QF to now cry "predatory behaviour" when they themselves formed and continue to subsidize Jetstar with the sole intention of undermining Virgin. In the process they have probably done far more damage to Qantas branded domestic and international flights than Virgin will ever do. Pot calling kettle black I think

Still if AJ's outburst finally persuades the Govt to lift the restrictions on foreign ownership in QF, he will finally have achieved his goal and Emirates will be able to take over what is left of QF....
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Old 17th Nov 2013, 22:22
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This point is made in Ben's piece today and the Fin Review has some other commentary suggesting to me that AJ's bleating will bite him on the backside.

It is also difficult to make a case for curbing the growth of international competitors in Australia when the Emirates-Qantas business partnership consisted of giving away the Qantas presence on the routes to Europe to the Dubai based giant for free in every city except Sydney and Melbourne.
Qantas has attempted to direct its loyal customers on the kangaroo routes to Emirates, which it reviled in strident terms all the way up to the give-away which was finally agreed with Emirates in June 2012, which makes its credentials and position look hollow, even if the underlying logic of its actions were accepted.

If the Qantas Sale Act is repealed, Qantas could be what Virgin Australia is becoming. A strong Australia based airline brand, managed and operating in Australia, with no artificial restrictions on where it gets its capital from.

Its somewhat shrill objections to what Virgin Australia is doing would vanish. It would do the same. And Australia would still have a Qantas, and a Virgin Australia. Provided they were well managed.
The full story can be found here.

Qantas in 'stop the Virgins' plea | Plane Talking

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Old 17th Nov 2013, 22:26
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Hong Kong will be taking note of every word and every tear that Alan Joyce sheds.
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Old 17th Nov 2013, 22:38
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Perhaps a sign of the times that Alan's 54 pillar strategy is about to collapse around his ears.
After years of neglecting the international side of the business, segmenting everything possible domestically and having the cash fire hydrant firmly in jetstars gob, the penny may finally drop that Qantas' many problems are predominately self inflicted.
Alan and the neo conservative were quite happy to blow $200 mill in grounding the airline.
Many pundits are still waiting to see where this magical jetstar fix is going to save the group. Instead we see more cash thrown down the tubes into the jetstar abyss.
The enemy in the long term battle are the other airlines Qantas competes against, not the front line staff, whom Alan and the neo are incapable of talking to, let alone delivering a strategy that all staff can believe in.
Good luck Alan, at least today, it's one day closer to your departure than it was yesterday.
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Old 17th Nov 2013, 23:22
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Emirates orders 50 A380's and 150 B777-X's @ Dubai Air Show..

I'd like them in my corner...
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Old 18th Nov 2013, 01:58
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Not when AJ still says that EK made the wrong choice.
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Old 18th Nov 2013, 02:09
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If management had spent more time over the last five years investing in Qantas instead of throwing cash hand over fist into the pathetic business unit that is jetstar we wouldn't be in this pickle.

Over the same period Virgin has grown, employed more Australians and is standing up as a real viable Australian business, employing Australians where we are becoming less Australian as each day passes as more staff are made redundant and more work is exported overseas such as our maintenance. Our whole business principle has become about slashing and burning Australian jobs while propping up the offshoring of Jetstar and staff on T&c's that are generally so poor that staff have to rent together in groups to make ends meet.
So I doubt the government are going to do anything to stop or hinder a growing business who will continue to employ more and more staff on home soil instead of flogging them off overseas.

Qf management have gambled and lost on the Jetstar adventure, and have taken their eyes well and truly off the mainline ball. It's now time to have the focus put back on where the real cash stream comes from instead of where the cash stream is going to.

It's time to go you lot, and allow new management to restore direction!
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Old 18th Nov 2013, 02:09
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Perhaps a sign of the times that Alan's 54 pillar strategy is about to collapse around his ears.
After years of neglecting the international side of the business, segmenting everything possible domestically and having the cash fire hydrant firmly in jetstars gob, the penny may finally drop that Qantas' many problems are predominately self inflicted. my bold
Alan and the neo conservative were quite happy to blow $200 mill in grounding the airline.
Pretty much sums up the strategy that has failed already, don't need to wait 5 years for the transformation process. Even if OW's ex employer Joe Hockey supports the changing of the Q sales act the momentum is lost for Q International as the management have spent too much of their time on J* International with little return..

Virgin to Qantas: It’s no longer a monopoly

Virgin to Qantas: It's no longer a monopoly | Plane Talking

Like Telstra under Sol Trujillo, or Harvey Norman decrying online retailing, Qantas’s loudmouthed approach will only serve to alert both consumers and the government as to how how much potential for competition there is. If you still own some monopoly elements then you’d best shut up about them.
If things keep going as they are, LC & AJ are running out of time & money, for me its been a long and painful 12 months watching it all unfold.

Qantas buy back announcement includes poor outlook for FY13 | Plane Talking

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Old 18th Nov 2013, 04:41
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I can't help myself. BGA's brilliant strategic mind at work....

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Old 18th Nov 2013, 04:49
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Could this have been the Qantas boards ultimate end game from the moment the acquisition of Impulse was conceived? Trash the brand to such an extent that it is no longer seen as a "Flag Carrier" hence eliminating the Qantas Sale Act?
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Old 18th Nov 2013, 05:45
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For those wondering if a mistake has been made in investing in JQ and not in QF mainline, I refer you to the Boston Matrix. Do yourself a favour and have a read. QF Group management are just blindly following what Boston told them to do many years ago. It will give you a sense of acceptance as to where this ridiculous farce has come from and is going, until we have a board and exec flush out. Unfortunately this is not on the horizon.

Boston Matrix

Here's the tip :
Network / Jetconnect are the Question Marks (allocate minimum practical resources)
Catering / Startrack were the Dogs (dispose of if you can)
JQ is the Star (invest heavily at all cost)
QF is the cash cow (milk and starve.... She'll be right!)

So don't pat yourself on the back and think that it is your answering the phone and flexibility that makes Jetstar receive more investment, it is merely their current strategy. They knew exactly what they were doing when they purchased Impulse. The above helps explain why no JQ business in Asia has returned their cost of investment, and a yet they still receive shiny new jets. It also explains why, with such doubts over the profitability of JQ Intl, they are receiving the brand new B788's. Money will continue to be thrown into the Orange Abyss no matter what.

Likewise, if you are at Q, don't despair that your extra ton of fuel is running the company into the ground, and therefore not allowing the board to allocate funds the way of mainline. It won't make a brass razoo of difference. The cash cow is there to be milked and starved of investment and that is exactly what has been occurring for many many years. Even the most cockeyed optimist would agree that Qantas has suffered a lack of investment.

So to answer the question as to why the institutional investors have not jumped up and down when those at the 'cash cow' despair at the direction of the company...

They are just simple numbers people as well. When AJ rocks up and says he is "just doing what Boston Consulting told him to do", the all "ooh" and "ah" and that is the end of it.

JMHO, but it all adds up unfortunately. Qantas will continue to fight with one hand tied behind its back no matter what we do about it.
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Old 18th Nov 2013, 06:41
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Borghetti returns serve..............

Virgin Australia chief executive John Borghetti has hit out at Qantas' claims that it is receiving an unfair advantage by emphasising that his airline has ended a monopoly in this country's air-travel market.

In a escalation of the battle between the pair, Qantas chief executive Alan Joyce has formally complained to Prime Minister Tony Abbott, Transport Minister Warren Truss and state governments about the regulatory restrictions on its business in contrast to Virgin.

Qantas has called for a review of the motives behind what it describes as ''the virtual takeover of Virgin Australia by foreign airlines, and to prevent destabilising of the domestic aviation industry, local tourism and jobs''.

Its attack on its competitor has been fuelled by Virgin’s $350 million capital raising last week, which will boost the stakes of its cornerstone shareholders Air New Zealand, Etihad and Singapore.

But Mr Borghetti said Virgin was focused on bringing stronger competition to the aviation market, pointing out that it had created more than 3000 jobs over the last three years.

''Fundamentally the landscape has changed forever, and it is no longer a monopoly,'' he told BusinessDay.

''This is all about competition and the creation of more jobs, and helping the tourism sector, which in the current global climate certainly can use all the help it can get.''

Government yet to respond

Federal Treasurer Joe Hockey has not responded publicly to Qantas' latest claims but he indicated last year that a Coalition government would consider lifting foreign-investment and business restrictions placed on Qantas.

Under the Qantas Sale Act, foreign investment in the airline is capped at 49 per cent, total ownership by foreign airlines is limited to 35 per cent and a single foreign investor can buy no more than 25 per cent.

Labor is unwilling to enter the renewed debate about the regulations governing Qantas. Shadow transport spokesman Anthony Albanese declined to comment today about Qantas' latest claims.

Pilots side with Joyce

But Qantas’ call for a review has won support from the pilots’ union, which argues that the ‘‘playing field has become too skewed due to the rising influence of foreign government-controlled investment in the market’’.

Australian and International Pilots’ Association president Nathan Safe said Virgin’s capital raising was not consistent with the intent of the country’s laws or the national interest.

“Our laws and regulations were not designed so that the interests of foreign-government backed airlines would be placed at a significant advantage to the national flag carrier,” he said.

In the wake of Virgin's capital raising, Qantas said it had decided to state its concerns ''as the national carrier about potentially damaging shifts in Australia's aviation industry''.

The capital raising could result in Virgin's major airline shareholders – Air New Zealand, Etihad and Singapore Airlines – boosting their combined stake from almost 63 per cent to as much as 70 per cent.

Richard Branson's Virgin Group will also retain a 10 per cent stake.

''The recent announcement by Virgin Australia that it would receive more than $300 million in further capital from three government-backed airlines highlights the uneven playing field created by existing policy settings,'' Qantas said in a statement today.

''The decision of these shareholders to invest in Virgin Australia's loss-making strategy highlights that these airlines aren't subject to the same commercial realities as Qantas.''

Qantas said its arch rival's foreign-ownership levels could rise to more than 80 per cent without the need for further regulatory approval, but yet it would still retain the rights as an Australian designated airline.

''If wholly privatised, Virgin Australia's ability to receive potentially unlimited capital from its government-backed owners would seriously distort the domestic aviation market for the benefit of foreign interests,'' it said.

Mr Joyce will visit Canberra this week where he is expected to press his points in meetings with politicians.

The latest outcry come just months after Qantas stepped up efforts to pressure federal politicians to take a closer look at whether Virgin was abiding by aviation laws, after its major airline shareholders boosted their stakes.

Qantas has been critical that Virgin has circumvented the Air Navigation Act by splitting its business. The act stipulates Australian airlines have to keep foreign ownership at 49 per cent to benefit from this country's traffic rights on international routes.

The split allowed Virgin to open its share register to Air New Zealand, Etihad and Singapore Airlines while retaining an Australian designation for its international operations.

Read more: 'No longer a monopoly': Virgin Australia chief hits back at Qantas claims
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Old 18th Nov 2013, 08:01
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Etihad have also just placed big orders,

From Plane Talking;

Etihad buys another 50 A350XWBs, 36 A320, 1 A330F

Etihad first at DXB13 with $25 bn of Boeings.

Etihad is the first to announce an order at the Dubai Air Show, with 25 Boeing 777-Xs, 30 Dreamliner 787-10s, and one more 777 freighter

Press release (last paragraph is very interesting for Virgin).

• Orders 117 Airbus and 82 Boeing aircraft. • Confirms 127 GE Aviation, 115 Rolls-Royce and 52 CFM engines. • Total list price of combined orders tops US$ 67 billion.*

Etihad Airways, the national airline of the United Arab Emirates, today announced its largest ever fleet order, for 199 aircraft and 294 engines, in a US$67 billion dollar deal which will enable the airline to accelerate its industry-leading growth over the next decade.

It announced firm orders at the Dubai Air Show for 87 Airbus and 56 Boeing aircraft, with a further 56 options and purchase rights.* The new aircraft will be powered by 127 GE Aviation, 115 Rolls-Royce and 52 CFM engines.

The new aircraft will be used to support the ambitious growth strategy of Etihad Airways, launching into new markets and increasing frequencies on existing routes, as well as progressively replacing its older, less efficient aircraft.*

In a unique new approach, Etihad Airways will have a capability to redirect orders to members of its equity alliance, the airlines in key markets around the world in which it holds minority shareholdings.* This will allow capacity to be allocated where most required, while improving fleet commonality and sharing significant cost synergies among equity alliance carriers.

The order, for 25 next-generation Boeing 777X aircraft, 30 Boeing 787-10 Dreamliners, one Boeing 777 freighter, 50 Airbus A350 XWB, 36 Airbus A320neo family aircraft and one Airbus A330-200F, will see passenger aircraft deliveries start in 2018.*

The airline currently has a fleet of 86 aircraft, with more than 80 on firm order.* Its last major aircraft deal was made at the Farnborough Air Show in 2008, where Etihad Airways announced firm orders for 100 aircraft, in a long-term order which was at the time one of the largest in commercial aviation history.The value of the 2008 and 2013 orders, including engines, tops US$ 110 billion at list prices.

Etihad Airways will now become the single largest airline customer for the Boeing 787 Dreamliner, with the 30 aircraft in this order being added to 41 announced in previous orders.It will also become a launch customer for the Boeing 777-8X aircraft.

James Hogan, President and Chief Executive Officer of Etihad Airways, said:“Last week, Etihad Airways celebrated its tenth anniversary.* In just one decade, we have grown into an airline with 86 aircraft, carrying more than 11 million passengers on 97 routes, served by more than 16,500 employees.*

“We now have seven equity alliance partners reaching across the world and a business strategy that has seen us create the world’s leading airline.* We have achieved all of this while reaching sustainable profitability.

“These aircraft orders provide the next step in our long-term growth strategy. They are about meeting the needs of the next 10 years, and beyond, as we grow further and faster than ever before.

“We are helping to establish Abu Dhabi as one of the world’s great aviation hubs, offering connections to cities on every continent.* This order will provide us with the capacity to continue with those ambitious aspirations.”

The mix of wide- and narrow-body aircraft will help support the development of the airline’s maturing network, focused on its hub at Abu Dhabi International Airport, which will see the new Midfield Terminal opening in 2017, significantly increasing capacity.

Mr Hogan said the ability to share the orders with members of the equity alliance offered a unique opportunity.* Etihad Airways currently holds stakes in airberlin, Air Seychelles, Aer Lingus, Virgin Australia, and Air Serbia. Etihad Airways last week received regulatory approval for a proposed 24 per cent investment in India’s Jet Airways.

Today, it also announced the acquisition of a 33.3 per cent stake in Swiss carrier, Darwin Airline, which will offer Etihad Airways’ first branded regional operations under the new Etihad Regional badge and livery.

Mr Hogan said: “The revenue benefits of our equity alliance, to all the members, have always been clear.* But the real strength of this strategy lies in the opportunity for business synergies which can improve the operating costs of all the partners. This means all our strategic partners will have the chance to benefit from it.

“When we made our last major order, at Farnborough in 2008, we structured deals that gave us great flexibility in the timing of aircraft deliveries, allowing us to match them to actual passenger demand, according to market dynamics.

“These deals take that concept a step further, allowing us to offer capacity where and when it is most needed within the equity alliance.* The opportunity to standardise fleets and align product among members – whilst always keeping the distinct brand identities of each airline – will offer both cost synergies and marketing benefits.”
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Old 18th Nov 2013, 08:28
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Qantas Group CEO Alan Joyce has compared an alliance with Etihad ahead of Emirates as "being offered a bike before a BMW".
So if Ek is a BMW,
and Etihad is a Bike,
What now best describes whats left of us (QF)????????
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Old 18th Nov 2013, 10:45
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AJ's no fool (well that's debatable I guess) this is all part of his big plan & V have played right into his hands in some ways he knows that this latest issue means he can 'justify' the winding up of QF once & for all, he has tears only for the gullible!
It's such a dirty business this flying game

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Old 18th Nov 2013, 11:02
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I'm with you Wally!
I'm afraid we will not see all the "back patting" when it all 'sadly' slides down the drain!
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Old 18th Nov 2013, 11:06
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This would be the same AJ that backed Ms G's carbon Tax seeing a political advantage.
Good Luck Pal!
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