Will Qantas cop a Tourism backlash?
Alan Joyce's decision to strip Qantas' support to Tourism Australia risks angering the federal government, which could open the way for an easing of restrictions on its big rivals.
The verbal onslaught Alan Joyce directed at Mark Carnegie, Geoff Dixon, Peter Gregg, John Singleton and Gerry Harvey in an address to the National Aviation Press Club was buttressed by Qantas’ announcement that it would withdraw its planned $44 million three-year funding of Tourism Australia, which Dixon – Joyce’s predecessor as Qantas chief executive – chairs.
Qantas had no doubt hoped that the threat would force the relevant minister, Martin Ferguson, to intervene and either ask Dixon to relinquish the Tourism Australia role or quit agitating and plotting behind the scenes to put together a shareholder putsch to get rid of Joyce and impose a significant change to Qantas’ strategies.
So far, despite federal opposition calls for Ferguson to get involved and to examine the potential for conflict between Dixon's role at Tourism Australia and his involvement in the group, which has accumulated about 2 per cent of Qantas’ capital, Ferguson has maintained a silence that is ominous for Qantas. Dixon and Ferguson are said to have a close relationship, although the same could be said of Ferguson and Qantas itself.
Tourism Australia itself, after a hastily-called board meeting on Wednesday evening, has backed its chairman, saying any potential conflicts were manageable – although how having its chair not only privately but openly criticising the major sponsor and national carrier and being part of a group planning to overthrow its board and management can be ‘’managed’’ is an interesting question.
If the situation could be managed Tourism Australia wouldn’t be facing the loss of $44 million of Qantas’ funds, which will be redirected to state tourism bodies.
It’s not the failure to immediately dynamite Dixon out of the Tourism Australia role, or alternatively force him out of the activist group, that represents the biggest risk for Qantas from the decision to confront and attempt to flush out its stalkers before they could gain traction and credibility in the market and community at large.
The Qantas international business is in heavy losses while the powerful domestic franchise is under an extremely aggressive assault from Virgin Australia’s John Borghetti, who now counts as allies Singapore Airlines, Etihad Airways, Air New Zealand and Delta Airlines. The intensity of that attack will increase once Borghetti has taken control of Tiger Airways Australia and Skywest.
Singapore, one of the world’s best and best-run airlines, will emerge as a 10 per cent shareholder in Virgin Australia and Qantas would be well aware that it has been talking to Richard Branson about Virgin Group’s 26 per cent stake in Virgin Australia, with price the major sticking point.
If Singapore could get control of Virgin (which would upset Etihad’s James Hogan no end) it would have the beachhead in the Australian market it has long lusted after and Qantas would have more formidable and well-resourced competition in its heartland than it has ever confronted.
Singapore doesn’t need to get control of Virgin Australia, however, to do a lot of damage to Qantas and that’s where the withdrawal of funds from Tourism Australia could backfire badly.
Next to a slice of the Australian domestic market, or perhaps even alongside it, in Singapore’s wish list for this part of the region is access to the trans-Pacific route that Qantas has generally dominated and which is of the few international routes on which it has been generating significantly positive cash flows.
Singapore has lobbied for access to that route for years but been denied by successive Australian governments concerned that granting it ‘’beyond’’ or ‘’fifth freedom’’ rights would damage Qantas International’s profitability and stability, as it would. (Fifth freedom rights give an airline the right not just to fly between its home country and another but to add passengers within that other country on flights that terminate in a third market).
There are those who draw a link between Qantas’ massive funding commitment to Tourism Australia and the protection it has been afforded from the damage it would experience if Singapore were granted those rights.
Qantas, after last year’s confrontation with three of its unions and the grounding of its entire fleet, isn’t warmly regarded by the Labor government or the union movement generally.
Threatening to rip $44 million of funding from Tourism Australia – with another $18 million under threat if its proposed alliance partner Emirates (which has no love for Geoff Dixon and knows the activists oppose the alliance) follows it lead – isn’t going to help repair the relationship with the federal government and risks annoying Ferguson, who has been supportive of the airline and whose department has made submissions in support of the alliance.
With the election countdown getting closer and the funding cut not scheduled to take place until the middle of next year, there is a real risk that the Gillard government might take the opportunity to punish Qantas by allowing Singapore access to the trans-Pacific route and/or waving through a deal, if one can be struck with Branson, which would see it emerge with control of Virgin Australia.
With Qantas pursuing a five-year turnaround strategy for its international business and very reliant on the profitability of its domestic businesses and its frequent flyer program to maintain financial stability while it attempts to stem the losses within the international arm, the last thing it needs is Singapore attacking one of its best routes or, worse still, a Singapore-backed Virgin, free of the capital constraints it now operates under, further intensifying its assault on the domestic market.
With his former colleagues and friends out to get him and creating a major distraction in the process, and few if any friends within the government or unions, Joyce is in the midst of a very difficult and potentially dangerous set of quite different challenges and vulnerabilities that he can ultimately only overcome by demonstrating, if he’s given the opportunity, that his strategy and his tactics are producing positive results.
The decision to confront his opponents is potentially as risk-laden as many of the decisions he is having to make in his day job of trying to stabilise the national carrier.