Sky's the limit in airline battle

The war between the CEOs of Qantas and Virgin escalated this week in what has become a deeply personal fight, writes Matt O'Sullivan.

The war between the CEOs of Qantas and Virgin escalated this week in what has become a deeply personal fight, writes Matt O'Sullivan.

Alan Joyce, the Qantas chief, will not hesitate from pushing the thermo-nuclear button. A year ago almost to the day, the Dublin-born maths whiz rounded on a group of businessmen including his predecessor and mentor, Geoff Dixon, who were agitating for management change at Qantas.

He demanded his former boss resign as Tourism Australia chairman or Qantas would suspend ties. Joyce quickly followed through with his threat and the relationship with the country's peak tourism body remains in the casualty ward.

His regular catch-ups with Dixon are a distant memory.

Australians also will not forget Joyce taking the unprecedented step of grounding Qantas' entire fleet two years ago to end a stand-off with three unions.

Now, five years into his tenure, he has opened a new front in Qantas' all-out war with rival Virgin Australia. In a well-orchestrated campaign, Joyce this week demanded the federal government block Virgin's $350 million capital raising because it amounted to a "foreign takeover" by three state-backed airlines.

Joyce, 47, claims that the pumping of more funds into Virgin by Air New Zealand, Etihad and Singapore Airlines threatens Qantas' very survival. So large was the threat that he emailed Qantas' 30,000-strong workforce urging a call to action, launched a public petition and dashed to Canberra to again press the urgency of the matter with politicians. "The agenda of these foreign airlines is to terminally weaken Qantas and Jetstar, force us to shrink our international business, and sacrifice jobs," he wrote in his email to staff.

Virgin chief executive John Borghetti immediately went on the counter-offensive.

After the leak of a letter from Joyce to senior politicians, Borghetti went public to lambast the claims, before hiring top lawyer Leon Zwier to determine whether Joyce could be sued.

An unnamed Qantas executive responded via text message this week: "Come on, you need a thicker skin than that in this industry."

The noise from both sides reveals how much is at stake for both airlines. It also exposes much about the battle between these two men, and their inner circles of loyal executives. This fight will determine their legacies.

Make no mistake: this is personal. After all, the Italian-born Borghetti, 58, missed out on the top job at Qantas to Joyce.

In June 2009, Borghetti and Qantas' then finance chief, Peter Gregg, joined Joyce in New York for a two-day Qantas board meeting.

While Joyce got a chance to make his case to the board for the top job, Borghetti and Gregg were astonished to discover they would not get the same opportunity.

Less than a year later Borghetti left Qantas, and scored the top gig at Virgin in May 2010.

Since then he has worked feverishly to reshape Virgin as a real competitor to Qantas, secured alliances with foreign airlines and gained control of Tigerair Australia and regional airline Skywest.

Borghetti insists his response this week is solely about protecting the airline.

Asked whether it had become personal, he replied: "The short answer to your question is no. But we are a serious business with serious people and serious shareholders and we have to correct any inaccurate statements."

It is impossible to hide from the fact that this battle has reached almost hysterical levels. Both sides are eager to score points against the other.

The public slanging match is just the tip of what is going on behind the scenes. Journalists are backgrounded and selective drops made to gain the best exposure.

The war has extended to the morning TV breakfast shows where Virgin believes it has been locked out by its rival. Then there is the intensive lobbying of both sides of politics in Canberra.

Joyce has had a new man in Canberra laying the groundwork since July. Andrew Parker, a former adviser to former Liberal leader John Hewson, was hired from Emirates where he had been chief spin doctor. He now leads a team that includes veteran lobbyist Tony Wheelens.

On the other side, Virgin's chief government lobbyist Jane McKeon, a former Qantas executive, ensures its voice is heard.

Both airlines have their eyes constantly fixed on each other. When Virgin announced a financing deal in the US last month, a number of Qantas senior executives were lining up to check into a Honolulu hotel. As the news broke, they frantically checked their smart phones to get a handle on what its rival was up to, and began speculating on its implications.

In days gone by, it didn't reach these heights of hysteria.

The fight between Qantas and Virgin last decade remained largely civil, apart from Virgin's then largest shareholder Richard Branson occasionally launching a broadside at Qantas and its then boss Dixon duly responding.

When Brett Godfrey stepped down as the chief executive of Virgin in 2010, both Joyce and Dixon turned up at the Ivy nightclub in Sydney for his glitzy farewell party. These days, it is hard to imagine Borghetti or Joyce turning up for the other's farewell.

But Virgin was not what is is today. It has quickly emerged as a Qantas mini-me, competing in all segments of the market - from premium to leisure and regional flying.

It leaves Qantas to raise a valid point: it faces foreign-ownership restrictions not imposed on its rival. The Qantas Sale Act limits foreign airlines to buying a total of 35 per cent of the company and a single foreign investor to 25 per cent. What rankles Qantas most is that Virgin has exploited a loophole in the Air Navigation Act, which has allowed it to retain prized air-rights as an Australian carrier.

The act requires foreign ownership to be capped at 49 per cent in order to gain access to these rights. But Virgin has been able to get around it by housing its international business in a separate vehicle to its domestic operations, which is now majority owned by foreign interests. With Virgin's major airline shareholders creeping closer to outright control, it is a logical time for Qantas to launch an aggressive lobbying campaign.

Here is an opportunity to shape public opinion. A relaxation of the Qantas Sale Act, or ultimately its removal, has been on its wish list for a long time. Much of the campaigning is straight out of the Qantas play book. Without doubt, Dixon would have taken the same action in a bid to thwart Virgin, albeit much earlier. Before the leaked letter this week, Joyce had been in talks with union leaders to bring them on board.

Both the Australian Council of Trade Union and the pilots' union have since publicly backed Qantas in its stoush, pointing to the need for a level playing field. But despite Qantas' high-stakes campaign, the silence from Canberra has been deafening. The buck stops with Warren Truss, the federal Transport Minister who so far will not be drawn publicly into the screaming match. On the other side, Labor is more than happy to leave this problem to the new government.

The question is whether Joyce will gain anything from its high-stakes campaign.

"Efforts to restructure the Qantas Sale Act are slow moving at best, and even if achieved, there is no certainty of finding long-term foreign equity partners," Morgan Stanley analyst Julia Weng noted on Friday. Even Joyce concedes there is no appetite in Canberra to change it.

The concern for Qantas now will be that the horse has bolted: the cornerstone stakes of Virgin's three major shareholders have regulatory approval.

Joyce and his steely chairman, Leigh Clifford, have shown that they are more than willing to take a no-prisoners' approach.

They have a lot on the line as they stare at a large pre-tax loss this year, and Qantas' share price hovering not far shy of all-time lows struck last year of 96ยข.

After all, this was supposed to finally be the year in which Qantas started to reap the benefits of its much-trumpeted four-pillar strategy. One of the few winners is the flying public who are revelling in cheap fares because of the pitched battle between Qantas and Virgin.

In an industry renowned for its big egos, this bout has a long way to go.

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