A few points on this:
1. Should the Australian Government bail out Virgin and Rex? The answer to that is unequivocally no. Australia has a process for Insolvent Companies to go through and yes it will mean that a whole range of people will take haircuts in that deal. But if it allows both to survive and emerge with clean Balance Sheets then it's worthwhile doing.
2. We basically have a QF monopoly in the air right now. Do we need more than that right now? No. When the crisis has abated will we need competition then? Absolutely we will. That competition doesn't have to come from existing carriers. It can come from a new entrant or a re-capitalised one.
3. I hate to say it, but the law needs to be changed in relation to our Domestic Carriers so all have the same playing field as QF. Never again should Foreign Government Enterprises be able to own a majority in Australian Domestic Airlines. There is plenty of cash sitting in Australia's Superannuation System to allow for capitalisation of a new airline and that's where it should come from.
4. This failure, if it comes to that, really is down to John Borghetti. He was the one who burned through billions of dollars of capital trying to make a then profitable Virgin into something that it was not.
5. Australia has a [email protected]
*t as it's Deputy Prime Minister but if even he's not going to rescue Airlines then that's telling you something about the Governments view of VA and REX.
In my opinion this was always going to happen and the sooner VA can sever its ties to the leach that Richard Branson is, go through an Administration process and emerge as a leaner, nimbler, foused competitor with new owners the better!
1. It's not unequivocal. If it is unequivocal, there would be no discussion or debate. Clean balance sheets? This isn't a case of a swish of a pen and a new airline suddenly emerges from any VA ashes. T/he only reason VA exists was because it was an already-established carrier when Ansett went under. Remember the attempt at AN2? Notice how no one went ahead with that - you don't simply transfer asset and staff unencumbered by debt and obligations from one corporate entity to another and hey presto, it's all clean and dandy and ready to go.
2. Your assumptions on the resumption of competitive air services are base entirely on a pre-COVID world. The airline sector is a notoriously awful one for investors. After this phase of the crisis has passed? Even more dire. Airlines globally are going to be retrenching and defending their home turfs and operations just for survival, so that wipes out that investor category, probably the only one left that would make sense. So if we absolutely need competition in Australia after this crisis, you have to maintain that competition now.
3. Huh? What has foreign ownership got to do with this? Except to feed the xenophobic arguments against supporting foreign owned companies, noting also that Qantas' ownership regularly breaches the local ownership requirements, according to a previous poster. Though I agree restrictions on Qantas' ownership should be removed - they're unnecessary and apparently unenforced anyway. And presumably if foreign ownership was tilting things to VA's advantage, VA would have romped home against Qantas. So... what has foreign ownership got to do with this? Super funds are extremely risk-averse. That's why their aviation interests extend to airport infrastructure, not the airlines themselves.
4. It does seem a lot of mismanagement can be slotted into the Borghetti era. A lot of mistakes from Godfrey too, though, including a lot of deadweight at management level that should have been eliminated. I actually think Borghetti's overall strategy was sound - implementation was just a mess, combined with an inability to address historical muckups. The fundamental issue appears to be that corporate overheads have never properly been addressed, when on an operational basis, domestic and LAX flights are profitable. I'd also hold the Chair responsible for this era too.
5. I mean, this has hardly been a government of clarity and consistency, so their performance is not surprising, albeit this is a pretty extraordinary time. Canberra has been an odious black hole of miserableness for over ten years now. Frankly, I don't know enough about the Deputy PM to comment on his performance.
The animosity towards Branson is unusual too. Heroes of yesteryear become today's baddies. But why? He gave Australia the second carrier it needed after Ansett. Like BA in the UK, he goes up against established, monopsonistic carriers with entrenched interests, interests that usually don't align with those of the broader public. He charges a licencing fee for his brand - not unusual and not at gunpoint. I find Joyce far more odious, but I guess he gets to skate through because he's attached to a perceived Australian icon.
1. The answer on a Bailout is an Unequivocal no. There shouldn't be a debate on that. Virgin was not well run by successive Management and Governments should not bail them out. Australia has various ways, via Insolvency Laws, for an Administrator to be able to re-package Virgin while shedding debt by swapping it for Equity. They'd massively dilute shareholders in the process and would effectively hand a new Virgin to majority creditor control but that is a far more preferable approach to leaving the current state of affairs in place. A totally different scenario to AN2 which had massive structural and cost issues that AN2 still had which made them unviable.
2. I don't assume anything on a pre-Covid World. The assumption I make is that Australia's borders will be effectively closed for 12 to 18 months and that at some point within that timeframe Australia will become Covid-19 free. That will mean a return to domestic travel which, in turn, means that a re-packaged Virgin that has gone through an insolvency process and emerged "refreshed" will be in a position to re-build its business. That's what we need. We don't need to maintain the current status quo, we need a new status quo to meet a new competitive landscape.
3. Virgin is majority Foreign Owned and its the responsibility of its owners to support it during these times if they want to preserve the business that they have. The Government has no business preserving it for them with preferential treatment. Moreso, as the collapse of Ansett which was foreign owned and a probable insolvency of Virgin and Rex which are also foreign owned, goes to prove in Aviation at least that Foreign Ownership of Australia's domestic airlines has not worked as intended. The idea behind it was to create a more competitive landscape and that part has largely worked but the problem with that is that in times like this, the GFC etc Foreign Capital dries up and if you don't have Australian Institutional Investors committed your business can't raise Capital. So I'm saying that that part of our Aviation Policy has not worked as intended so it should be over-hauled so it does.
4. Godfrey might have left behind a bit of a top heavy structure but what he did have was a pretty good idea of what Virgin was, and what it wasn't. More to the point Godfrey left a profitable operation. So while naturally mistakes were made, Godfrey didn't burn through billions of dollars of capital. That was Borghetti.
5. Fair enough.
I don't find Richard Branson a hero of yesteryear. I find Richard Branson a classic whinger and rent seeker in the Airline Space constantly begging for attention and preferential treatment while at the same time wanting handouts due to his own strategic and commercial failures. The prime example of this is Heathrow where Branson has constantly and consistently complained about a competitive landscape tilted towards BA while not being able to complete any meaningful slot transactions which would have given Virgin significantly more clout. BMI was the tip of the iceberg illustrating Virgins fundamental failure at its key hub especially when you consider the number of slots transactions that occurred to give the likes of Delta, United, Emirates, Etihad, Qatar, Cathay etc more slots while Virgin seemingly was unable to do deals to do the same. Failure followed by whinging followed by failure. That is the history of Virgin Atlantic at LHR. Thank goodness Delta bought them and has given them some sense of strategy and strategic purpose. So I'm all for a competitive and level playing field but don't cry like a spoiled brat when thngs don't go your way after you've squandered opportunities.
So the "unequivocal" part is you, not necessarily the rest of us, or the policy position, or economic argument. Just you. Got it. AN had atrocious management and was encumbered with a pile of lousy debt. It went through this magical administration process, arguably in better times than now. And it died. The only reason we had a second airline was because Virgin Blue was already underway. No such alternative exists today in a far far more hostile environment.
And yes, you're assuming a helluva lot for the post COVID world. So am I. See? Uncertainty. And you know what investors hate more than anything? Uncertainty.
Your argument about foreign investment in airlines is, well, I'm not sure how to describe it. It arguably did create a competitive landscape. But because an unprecedented event threatens a foreign owned airline, the ownership is the problem? And there are institutional investors just clamouring to get into a second airline for Australia? Virgin has a billion in cash reserves - not quite the fortress cash on hand as QF, but not bad, despite its foreign shareholding. They've also recapitalised the airline a couple of times. Except, as airlines themselves, they're all racing now to shore up their own precarious positions.
And as expected, the dislike of Branson is personality-based. Got it. Setting aside his UK dealings, what is that he's done in the Australian market that has proved so offensive? Is it that he dared to take on Qantas? Is it that, because of him, Australia has had a second airline for almost 20 years now?
It is impossible for QF to breach the 49% foreign owned cap rule. By law it will start selling the foreign held shares on a LIFO basis.
I understand that's how it is supposed to work in theory. A poster on last month's Australian thread asserted that not only is this level of foreign ownership breached regularly, but it is also self-reported. Is it true? Dunno. But wouldn't it be delicious if it were. All that hypocrisy. And is it as "impossible" as you say? Shareholders have 10 days after taking share ownership to notify Qantas that they are foreign. So it relies at least on the shareholder declaring this and the company self-reporting it. That alone is a weirdly soft structure for complying with the SOQA.
Don't get me wrong, the 49% cap is a stupid, misguided law, and if it does hold QF back then absolutely repeal it.
Like BA in the UK, he goes up against established, monopsonistic carriers with entrenched interests, interests that usually don't align with those of the broader public.
Economics lesson of the day:
Monopoly = one seller
Monopsony = one buyer (think of the operator of a grain elevator in a small, remote town)
That is all.
Lesson learnt, apologies. And thanks. I was looking for the term whereby a single operator has such an outsized dominance in the market that it effectively acts as a monopoly. A near-monopoly?
So? What is the VA name worth in marketing? Actually? Ansett was a good carrier as well and they failed. Qantas is the flag carrier of Australia, and what is Virgin Australia's value other than interloper?
Their value? They directly and indirectly employ tens of thousands of Australians to dlelver a genuinely competitive product against the dominant carrier, thereby promoting tourism, enabling more affordable travel and supporting competition in the logistics supply chain. How dare they?!
And... what flag carrier? No such thing exists
Highly unlikely as NZ is effectively broke once again and has just received major loan from the NZ Government. They have no money (or skill) to tackle the AU domestic market.
Agreed. NZ will rightly be focusing on getting its own house in order over the next few years. And they're majority locally owned... majority government owned, and they still ran into trouble at the onset.