As the aviation industry faces financial ruin, Qantas boss Alan Joyce lashes out at a possible government bailout of Virgin Australia, a move that only accentuates the turbulence ahead. By Royce Kurmelovs.
Australian airlines in turmoil
It was in the dying minutes of a conference call to his workforce last Friday that Alan Joyce began a tirade about the possibility of the government nationalising Virgin Australia.
The calls, which the Qantas chief executive bills as “virtual town halls”, have been running twice a day, on average, since Covid-19 infections pushed the aviation business into a tailspin.
Joyce had just finished telling the workforce – some 20,000 of whom had been “stood down” a day earlier – that he believed Qantas would get through the present moment “better than any other airline group” before he broached the subject of nationalisation.
To Joyce, the idea that Virgin might be rescued through nationalisation was unthinkable.
“In the press this morning there were comments in The Australian about the potential for Virgin to be nationalised and gain government support,” Joyce said. “Our response on this one is very clear: We think everyone is entitled to a fair go. If the government is helping, it should help an industry and not a particular company.
“Governments are not there to pick winners and losers and governments are definitely not there to support companies that have been badly managed for 10 years. A government is definitely not there to support a company that is owned by Singaporeans, Chinese, Abu Dhabi and a British billionaire. They have to do what’s right for the country.”
Having laid into the rival airline, Joyce informed his freshly stood-down workforce that he’d been delivering the same message to members of government, before encouraging them to do the same.
“I would ask all of our employees, because it is in your interest, to make sure to your member of parliament – and Scott Morrison is your member of parliament – to make it very clear to them you expect equal treatment for the airlines in this country,” Joyce said.
“And it would be outrageous if Virgin or our competitors are supported, and Qantas isn’t. It would be unfair to you, it would be unfair to the country and it would be unfair to the national carrier.”
The attacks Joyce launched that day – behind closed doors and in public – would prove so concerning to Virgin Australia chief executive Paul Scurrah that he fronted his own interviews calling on Joyce to drop his “survival of the fittest” mentality and co-operate.
For good measure, Virgin Australia even lodged a complaint with the Australian Competition and Consumer Commission alleging Qantas’s timing amounted to anti-competitive behaviour.
“I have today written a letter to Rod Sims, chairman of the ACCC, to investigate public commentary and an industry-wide campaign by Qantas that is designed to ensure a lessening of competition in the aviation sector,” Scurrah reportedly told staff on Monday.
According to the Nine newspapers, the letter accused Qantas of spreading rumours about Virgin’s financial position and “briefing journalists on the false pretence that Virgin Australia cash reserves are running out within days and that Virgin Australia has appointed administrators”.
The ACCC is investigating.
The entire exchange – the opportunistic assault on a competitor during a crisis, the sudden talk of a rescue by captains of industry, the request for laid-off workers to lobby the government on the company’s behalf – would have been totally unthinkable a fortnight ago.
But the first signs that the country’s airlines were in trouble came last week, when the Australian government flagged it would include specific industry assistance measures for aviation in its Covid-19 stimulus package.
As countries around the world locked down borders, passenger numbers for commercial air travel fell dramatically.
In Australia, the first to voice its position was the regional airline Rex. The company, which provides a vital service to regional communities, announced its planes would remain on the ground last week after “conservative” modelling showed a 25 per cent drop in passenger numbers would send it bankrupt in six months.
On Wednesday, the federal government released the detail for its industry assistance package, offering a sum of $715 million that included a $159 million cash injection designed to lower the operating cost of existing air routes.
The Department of Industry denies this was a “bailout” or a “cash handout”, but it did not respond to questions from The Saturday Paper regarding whether any conditions were placed on the transfer.
Qantas would be the next to move.
The day after the government’s package was unveiled, the company said the decrease in passengers meant it couldn’t sustain its usual routes and so it had taken the decision to stand down 20,000 staff on Thursday morning.
In many ways, says the Transport Workers Union’s Michael Kaine, the decision amounted to cynical opportunism.
Six years ago, Qantas posted a multibillion-dollar loss but was denied a bailout by the federal government. To improve its position, the company mandated a wage freeze for all workers for two years.
Since then it had built up a $1 billion cash cushion – a fact that colours the airline’s decision to sack its casual workforce while telling other staff to use their paid leave to cover them for the duration of the crisis.
Where a Qantas employee did not have any paid leave accrued, the airline has said the duration of the standdown would be recorded as a debt to be earned back when the situation normalised and the person returned to work.
“It absolutely is indentured servitude,” says Kaine. “It’s outrageous. The company have said: We’re going to stand you down and if you want to hold on to your jobs, you will pay us back all the leave that is accrued. If you want a job at the end of this crisis with Qantas, you have to pay it back to us and we get a clean balance sheet.”
Last Friday, the same morning Joyce began to urge his staff to contact their local MPs, the federal treasurer, Josh Frydenberg, appeared on the ABC’s News Breakfast, where he was asked about the possibility of nationalising a company such as Virgin.
The treasurer responded with a soft no. Airlines were an “essential service”, he said, but nationalisation was “not the focus right now”, although the government would “do what it takes to support Australian jobs and business”.
“This is merely the end of the beginning,” Frydenberg said. “There is a long way to go here and the Australian government will support Australian companies.”
If Frydenberg had left open the door to an aviation sector bailout – in a manner similar to how the United States government saved car companies during the global financial crisis – the prime minister was quick to slam it shut during a late-night press conference on Friday evening.
“At this stage there are no plans from the government, and I wouldn’t want that to be misinterpreted,” Morrison said. “We’re in unprecedented times but we have no plans to be involved in those sort of nationalisation programs.
“That is a response that is not justified by what we’re seeing or anticipating at present.”
Since then, events have changed once more with Virgin Australia announcing to the ASX on Tuesday morning it had seen a 90 per cent collapse in demand and so was standing down 8000 of its 10,000-strong workforce – with similar arrangements to Qantas regarding paid leave.
Both companies have also laid off staff across their budget subsidiaries with Qantas shedding Jetstar employees last week and Virgin announcing on Thursday morning that 1000 employees – pilots, air crew and ground support staff – had lost their jobs with Tigerair Australia.
Economist John Quiggin of the University of Queensland said if the prime minister is correct – and the present crisis lasts six months – all major Australian air carriers will be bankrupt.
“In the bigger scheme of things, no airline in the world is going to emerge from this solvent,” Quiggin says. “If the crisis was only going to last two weeks, it might be different.
“My judgement is that in the end [both Virgin and Qantas] are going to have to be bailed out and, in all probability, our best option is nationalisation or re-nationalisation.
“At this point, all ideology is out the window. The objection [to nationalisation] has always been, ‘Where are you going to get the money to buy this back?’ The answer is what we have seen where the government can imagine $180 billion out of nowhere in two weeks.”
The TWU’s Michael Kaine says the Covid-19 crisis offers a moment to rebuild the country’s aviation industry for the better.
“Structurally, things have to change,” he says. “In some sectors, like aviation, the government will have to step in to nationalise these businesses, whether through an equity stake or outright, and it will have to put conditions on that which ensure Australians good-quality jobs.”
It’s a long shot, even with the billions in stimulus pouring into the economy. But, as those such as Alan Joyce have long known, in a crisis, what was once unthinkable suddenly becomes possible.
This article was first published in the print edition of The Saturday Paper on Mar 28, 2020 as "Up in the air".
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