The release yesterday of Qantas' yearly results gave another clear indication that the outdated legislation that continues to hamper its ability to successfully compete, and which threatens the very long term viability of the company, must be completely removed.
Although the statutory loss of $2.8bn will claim most headlines, it is the $646m underlying loss that is a more damning representation of the difficulties the company faces. Most of the statutory figure represents write downs of soon to be retired aircraft and costs associated with the staff cuts announced earlier this year. While less dramatic, the underlying losses represent the company's ongoing difficulties to remain competitive both in its domestic and international operations.
The finger pointing that these types of results inevitably precipitate has begun in earnest. Many will be reaching for their pitchforks with Alan Joyce in mind. Of course, they will rightfully point to some less than impressive moves to internationalise Jetstar and the ill-advised domestic capacity war with Virgin. However, allocating blame for such results remains difficult when Qantas continues to operate under restrictions that do not apply to its competitors.
Late last month, the Abbott government succeeded in passing a Qantas Sales Amendment Bill through the senate after lengthy negotiations with Labor. As a result restrictions on a foreign investor owning more than 25% of Qantas or a foreign airline owning more than 35% of Qantas have been lifted. These changes are a positive step. They will, to some extent, remove the difficulties Qantas faces in its attempts to raise capital.
But by maintaining the act in any form government continues to hamstring Qantas' efforts to remain competitive. Among other things the act continues to restrict foreign ownership of Qantas to 49% and ensures the vast majority of its service personal remains in Australia.
Maintaining 51% local ownership is necessary for the international arm of Qantas for the purposes of air traffic agreements. This enables them to meet the flag test recognised by most countries as defining national ownership and control. However, it seems completely bizarre that this needs to be enforced by government regulations.
By comparison, Virgin Australia is split into domestic and international entities with separate ownership structures and directors. While the publicly listed company is nearly 80% foreign owned, the unlisted international division's local ownership is frozen at above the 51% required. Without this flexibility, the $350m capital injection Virgin raised from foreign investors last year would have been impossible.
As it stands, Qantas will find it hard to attract a large investor because around 40% of the company is already foreign owned. This means that a major investment of over 10% would require shares to be bought from existing foreign holders.
Unlike its competitor airlines, which are able to service their aircraft in many international locations depending on costs and needs, Qantas also remains obligated to maintain the vast majority of its operational facilities for international services in Australia.
Ultimately this means that Qantas is forced to pay higher wages, but it also means that it loses the flexibility that others enjoy. Although regrettable, allowing Qantas to off shore some aspects of the business may ensure that the majority of jobs Qantas provides in Australia remain viable in the long term.
Indeed, other than a sentimental attachment to the idea of a national carrier, there are few logical reasons to continue to maintain the legislative restrictions that are thwarting Qantas' capacity to compete.
By removing the Qantas act in its entirety, the airline will finally be allowed to succeed or fail on its own merits.
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