Abbott cool on handouts for Qantas

Prime Minister Tony Abbott has sought to dampen expectations that the government will offer financial help to Qantas to preserve its investment-grade credit rating, saying the airline has yet to tell politicians exactly what it wants.

His comments came as Qantas inked a code-share deal with China Southern that will help both airlines funnel more passengers from Australia and China onto respective networks.

After a week in which Treasurer Joe Hockey raised the prospect of government support, Mr Abbott insisted its role was to "ensure that we've got a strong and competitive aviation sector".

Mr Abbott declined to be drawn on whether the government would buy a stake, and pointed out that Qantas chief executive Alan Joyce had yet to settle on a specific proposal to put to federal politicians.

"Maybe it wants to see the restrictions on ownership lifted," he said on Brisbane radio. "I'm not sure they really want to see a new government shareholding. And the trouble with providing a government loan guarantee is where does it stop?"

Mr Joyce conceded last week it was "not realistically achievable in the current Parliament" to change laws that limit foreign ownership in the airline at 49 per cent.

He was in China's third-largest city of Guangzhou on Monday for the unveiling of the code-share alliance with China Southern. Under the tie-up, Qantas customers will be able to book on China Southern flights from Sydney, Melbourne, Brisbane and Perth to the Chinese airline's hub in Guangzhou. In turn, China Southern will code share on Qantas flights to 10 destinations in Australia and New Zealand.

China Southern, one of China's big-three airlines, has expanded aggressively on routes to Australia over the past few years and been eager to form an alliance with Qantas or Virgin Australia.

China Southern showed interest in buying a cornerstone stake in Qantas late last year, but it faded when the Australian airline strengthened its code-share alliance with Shanghai-based China Eastern early this year. The latter is also a joint venture partner with Qantas in Jetstar Hong Kong.

Commonwealth Bank analyst Matt Crowe said the code-share deal was an incremental development for Qantas, although it would provide some relief to it on highly competitive international routes.

Qantas and China Southern have agreed to look at other areas of co-operation.

Virgin released monthly traffic figures on Monday that reinforced suspicions it is chipping away at Qantas' dominance. Virgin's yields - or return on fares - from domestic operations were positive for October compared with the same month last year.