Crunch question is whether Qantas is too big a national icon to fail?

In today’s cutthroat world, any airline that can’t compete on costs is doomed to fail. The imperative never ceases. Europe’s biggest and most successful airline is its mostly widely despised, something Ryanair CEO Michael O’Leary wears as a badge of honour, “I don’t give a shit if no-one likes me …I’m not here to make friends. I’m here to make money,” he says. He doesn’t have to nurse an icon.

The price feature intensifies when economic conditions sour. Virgin Australia has lower costs than Qantas, but higher than Jetstar, so there will be lots of need for fine-tuning all round. CEO Jayne Hrdlicka, aims to make Virgin profitable (by going for the “middle market”, of discretionary travellers and SMEs).

Salaries are the main variable lever to pull, which makes for conflict. Both Virgin Australia and Qantas have narrowly avoided industrial action in the lead-up to Christmas, and there’ll be more. As inflation bites and skill shortages continue, the staff are restless.

Today Virgin Australia is mostly owned by foreign interests, private equity group Bain Capital (93 per cent), with a tiny share held by the Virgin Group (5 per cent) and Queensland Investment Corporation (2 per cent).

It’s a temporary condition. An IPO is in the wind, although it’ll struggle to find investors if the economy founders. But one thing is certain, there will be foreign airlines keen to take a share in it, large or small.

Here’s where the story gets interesting.

Australia is rare in allowing 100 per cent foreign ownership of its domestic airlines, provided they are managed locally. This offers enormous opportunities in our small capital market.

There will always be companies like Singapore Airlines and Qatar Airways that have an interest in buying in because they want to help ferry domestic passengers onto their international flights. They know Qantas won’t do them any favours because it partners with Emirates.

In principle there’s nothing to exclude foreign buyers, if Virgin’s existing owners agree. There’s one big caveat, however. It’s called “the national interest”. It’s a vague and moveable concept. As a general proposition, it’s arguably in our “national interest” to have large, foreign government owned airlines underwriting our domestic market.

Following the recent political game-playing around Qatar’s proposed – and rejected – additional flights, it was in the national interest to protect Qantas (and Emirates) from the added capacity. By corollary the interest didn’t extend to Virgin Australia, which coincidentally would actually have benefited from greater access by its key partner, Qatar. The travelling public would have too.

Now, as Virgin emerges from its private equity ownership, more fundamental issues will arise that go right to the heart of the competitive balance in our domestic market.

The pre-administration Virgin Australia had several foreign airline shareholders, each of which required FIRB approval – effectively the treasurer. He has no obligation to disclose any reasons for his decisions. There are no clear criteria, so at no stage in the process should we expect a great deal of transparency.

Meanwhile, Transport Minister Catherine King is working on an aviation white paper, to be ready later next year. A green paper, out in public for comment, offers few hints towards defining the expression, aside from mentioning that there is a national interest. In any event, although a foreign purchase would relate directly affect aviation outcomes, any decision would be taken above the minister’s pay grade.

There’s more. Inevitably there is history. A few years ago, when Qantas was struggling to stay afloat, Virgin Australia was able to make a capital raising by tapping its wealthy foreign shareholders.

This created consternation at Mascot HQ, provoking cries of an unfair, uneven playing field. Thanks to a privatisation-era clause in the Qantas Sale Act, Qantas is restricted to under 50 per cent foreign ownership, so despite being in a deregulated market, it is handicapped.

Hence, a real conundrum is emerging for Australian policy. Should the Qantas Sale Act be amended to allow the same latitude? (There’s a snowball-in-hell chance of that happening under a Labor government). How much foreign ownership should Virgin be permitted – and who should be approved?

At the heart of all this is the big question, what is Qantas’ role in Australia’s aviation? Is the icon too important to fail? Is it to be given primacy over all other airlines, or is it really just another privatised airline in a deregulated market? If so, where does that leave Virgin, or any other entrants – when having a viable second force is so critical.

These bits of the puzzle are hard to piece together, even before adding in tiny Rex and Bonza (themselves both foreign-owned).

In short, 2024 is crunch time for our domestic airline industry. More than at any time in the past, the government will be in the business of picking winners.

That should require framing the “national interest” in a considered and reasonably transparent process. The travel industry and some 30,000 airline staff will look for a sound and competitive foundation for the future. Not to mention the travelling public.