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Thu 27 Feb 2014 11:14 AM

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Qantas attacks Virgin foreign owners after posting $235m H1 loss

Etihad Airways, which is owned by the Abu Dhabi government, owns 19.9 percent of rival Virgin Australia

Qantas attacks Virgin foreign owners after posting $235m H1 loss
Qantas Chief Executive Alan Joyce announces the QANTAS half year results during a press conference at The Westin in Sydney, Australia. (Getty Images)

Qantas CEO Alan Joyce has taken a fresh swipe at domestic competitor Virgin Australia’s majority foreign ownership, which includes Abu Dhabi's Etihad Airways, as the Australian national carrier on Thursday posted a record $235m half-year loss.

Describing the result as unacceptable, Joyce announced a $2bn cost reduction program through to the end of 2017 with 5,000 jobs to be axed, route cuts and more than 50 aircraft deferred or sold.

“We are facing some of the toughest conditions Qantas has ever seen,” Joyce said.

“Australia has been hit by a giant wave of international airline capacity, with a 46 percent increase in competitor capacity since 2009 – more than double the global increase of 21 percent over the same period.

“The Australian domestic market has been distorted by current Australian aviation policy, which allows Virgin Australia to be majority-owned by three foreign government-backed airlines and yet retain access to Australian bilateral flying rights.

“Late last year, these three foreign-airline shareholders invested more than $300m in Virgin Australia at a time when, as Virgin Australia reported to the ASX on 6 February, it was losing money.

“That capital injection has supported continued domestic capacity growth by Virgin Australia despite its growing losses.”

Etihad, which is owned by the Abu Dhabi government, owns 19.9 percent of Virgin Australia, alongside Air New Zealand, which has a 24 percent stake and Singapore Airlines, which owns 19.9 percent.

Australian laws cap foreign ownership of Qantas at 49 percent, prompting a strident lobbying effort by Joyce in recent times for the rules to be changed.

It also triggered a war of words between Joyce and Virgin bosses, including Virgin Group founder Richard Branson, who said this month Joyce was in “deep s***” as a result of his dogged approach to maintaining its domestic market share.

Qantas posted an underlying EBIT (earnings before interest and taxes) of $57m for its domestic operations, down from $218m for the previous six months. Qantas International reported an underlying EBIT loss of $262m over the same time, up from $91m six months earlier.

“Competitor capacity growth in the domestic market continued to outpace Qantas Group capacity growth, as it has since FY12,” Qantas said.

“At the same time, demand was lower than market growth, putting pressure on yields and passenger loads. Overall, the total domestic profit pool has shrunk from more than $700m in FY12 to less than $100m in 1H14. During this period the Virgin Australia Group added 4.5bn Available Seat Kilometres (ASKs), compared to 4.3bn ASKs added by the Qantas Group.”

Qantas said intense international competitor capacity growth also continued, with predictions of market capacity growth of 9 percent in 2014 expected to put strong yield pressure on its Asian and European markets.

Joyce said Qantas had been undertaking its biggest ever transformation over the past four years, cutting costs by 19 percent, but it had not been enough.

“With structural economic changes being exacerbated by the uneven playing field in domestic aviation, we must now take actions that are unprecedented in scope and depth,” he said.

Among the routes to be axed is Qantas’ long-standing Perth-Singapore service, which will go in Q1 2015. It will also defer orders or sell more than 50 aircraft, including deferring its eight remaining A380 orders.

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Alan Barrell 6 years ago

Your heading is misleading and disingenuous. Qantas was attacking the foreign ownership rules it suffers from, it was not "attacking" Virgin's foreign owners.

Alan Barrell 6 years ago

Your heading is misleading and disingenuous. Qantas was attacking the foreign ownership rules it suffers from, it was not "attacking" Virgin's foreign owners.