If we really care about the long-term viability of Qantas, the worst thing the government can do is offer any sort of debt guarantee.
There is no doubt that Qantas is facing serious financial difficulties. There is also no doubt that yesterday's profit results will be especially felt by 5,000 Qantas employees that will be laid off as the company looks for $2bn in savings. Ultimately, however, Qantas needs to grow up and not look to government to solve its problems.
It is easy to be swept up in sentimental feelings about having a ''national carrier'', and wanting to help an ''Aussie icon''. Beyond sentimentality, no one has offered a convincing argument as to why Qantas is a special case in need of government assistance.
A debt guarantee is corporate welfare. It would potentially put billions of dollars of taxpayers' money at risk, and provide the airline with millions of dollars' worth of tangible benefits by way of cheaper credit.
Yesterday, Qantas CEO Alan Joyce complained that Qantas was under pressure in the domestic travel market from foreign ''government-backed'' competitor Virgin Australia. If the taxpayers of Singapore, New Zealand, and the United Arab Emirates want to continue to subsidise the airfares of Australian consumers, frankly that is a matter for them. Australian consumers have been the beneficiaries of this increased competition.
Importantly, no one is claiming that Qantas is destined to fail without government intervention. The opposite is true. The great tragedy of any bailout package is that it discourages companies from being competitive by rewarding inefficiency and loss-making behaviour. In the long run, companies become dependent on corporate welfare, and the vicious cycle continues until eventually a decision is made to turn off life support.
The slow death of Australian car manufacturing is the obvious case study. Corporate welfare in that industry has finally ended after 60 years of being drip fed a mixture of quotas, tariffs, tax concessions and direct cash handouts. If the government bails out Qantas, it will be destined for the same fate.
The government's role in this situation is to foster the best economic and regulatory environment possible. Removing substantial barriers to foreign investment would be a good start towards allowing Qantas to remain globally competitive. The government should proceed with repealing sections of the Qantas Sale Act that cap foreign ownership. An ambitious government would also abolish the Foreign Investment Review Board to boost investment Australia wide.
There is also scope to reforming Australia's anti-competitive and outdated industrial relations system. Qantas has been particularly affected by the increase in union power delivered by the Rudd and Gillard governments. For example, in 2011, the Transport Workers Union (TWU) hijacked the enterprise bargaining process as a mechanism to prevent Qantas from utilising employees of its subsidiaries, and from engaging contractors, in order to remain cost competitive. Although the Fair Work Commission eventually rejected the union's restrictions, this was not before Qantas was forced to make the extraordinary decision of grounding its fleet in order to bring unions to the bargaining table.
Qantas estimated that industrial action by three separate unions in 2011 cost the company $68m, disrupted 70,000 passengers and saw 600 flights cancelled. To put these costs in perspective, Qantas yesterday announced a $252 million half-year loss. True to form, the TWU yesterday threatened strike action to prevent Qantas from restructuring to make its business viable.
While it is pleasing that the government has recently announced sensible amendments to the Fair Work Act, these changes are relatively minor compared to the entire re-regulation of the labour market under Labor. A true industry assistance package would increase access to foreign investment, deregulate the labour market, cut the cost of business and allow businesses to make their own decisions.
That would not just bail out Qantas, but hundreds of thousands of businesses right around the country.
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