Qantas CEO playing a 'dangerous game'

BIANCA HARTGE-HAZELMAN
Last updated 12:47 26/03/2014
Tony Fernandes
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FREE ADVICE: "I think the national carrier needs to re-evaluate its whole business," AirAsia CEO Tony Fernandes says.

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Embattled Qantas chief executive Alan Joyce has been given some free advice from the outspoken head of Malaysia's Air Asia; get on with the job and stop trying to do deals with government.

"I think the national carrier needs to re-evaluate its whole business," Air Asia group chief executive Tony Fernandes told the Australian Financial Review, adding that Joyce's attempt to gain a government guarantee on its debt, as "dangerous" and that it was good Prime Minister Tony Abbott rejected it.

"I can sympathise with him, [Alan Joyce] he may think that Virgin [Australia] is getting assistance from Etihad ... but at the end of the day it looks [like] a commercial transaction and I think governments should stay out.

"I think the problems with the airline industry are governments and I applaud Tony Abbott for making the statement that he has made."

His comments come at a tumultuous time for the Australian airline, with Qantas shares down nearly 40 per cent over the past 12 months to around A$1.03 ($1.10) amid investor concern about mounting debts, 5000 jobs being axed and a federal government trying to distance itself by refusing to back a standby debt facility.

Speaking at the Credit Suisse Asian Investment Conference in Hong Kong, Fernandes told a gathering of investors that he liked to "go into a market when there is a state of flux".

Asked separately about whether that statement pertained to him seeing opportunities opening up for Air Asia in Australia, given the problems at Qantas, Fernandes said the market was already "saturated", but that there was definitely scope to grow into the market given there are "lots of places we want to fly to in Australia".

In addition to Qantas posting a A$252 million loss for the six months to December 31 last year, investors have been left disappointed at the lack of details on a structural review, and a possible sale of a minority stake of the lucrative frequent flyer programme - estimated to be worth A$2.5 billion.

"Qantas will have to know that the good old days have gone I suppose and they have to cut their cloth accordingly and look at their whole business.

Qantas executives and shareholders are now waiting to see whether the government will deliver on a proposal to remove all foreign ownership restrictions under the Qantas Sale Act, potentiallyallow the airline's domestic arm to be majority foreign-owned while keeping the international arm Australian owned.

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"It is bizarre to me how national airlines have so much power with governments. Banks are foreign owned, telephone companies are foreign owned, airports are foreign owned, like Macquarieowns lots of airports around the whole. Heathrow is owned by a Spaniard.

Qantas is majority controlled by large institutional investors and about 40 per cent of Qantas shares are held by offshore investors.

This is below the 49 per cent limit on foreign ownership that the government is now seeking to lift by changing the Qantas Sale Act.

"I think times have changed and the Qantas Sale Act is out of date. Why does Qantas have to be Australian owned?

"I don't think foreign ownership ... makes a big difference. And you have got to question if Jetstar makes sense, should it be a separate company," said Fernandes.

In addition to its frequent flyer programme, budget carrier Jetstar's Australian operations have been one of the few money spinners for Qantas. 

Air Asia is one of Jetstar's rivals in Australia. Fernandes said he intends to continue expanding in the Australian market but he would not be drawn on whether that involved Qantas.

"I have always said that Qantas has to put its capital across many businesses. Air Asia puts it all into a short haul business, it is nice a simple. But Qantas has maintenance, long haul, short haul, turbo prop and a low cost carrier.

Qantas is spreading itself too thin.

"We have a big presence in Australia, which is growing.

"Adelaide was a recent addition and we will continue to add flights and grow in that market.

However, he said India and Japan remained the key focus for the time being because this is where more money could be made given the bigger markets.

- Sydney Morning Herald

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