Qatar Airways plans to buy a 25% stake in Virgin Australia from its private equity owner, in a deal set to shake up the local aviation market by pressuring Qantas on airfares and service.
The proposed sale will allow Virgin to start offering long-haul flights for the first time since 2020 and compete more vigorously in the lucrative domestic market. It also bolsters the airline’s loyalty program against Qantas’s rival points offering.
The Virgin Australia chief executive, Jayne Hrdlicka, on Tuesday said the deal represented the “missing piece” in the airline’s strategy.
“Importantly, it will further strengthen Virgin Australia’s ability to compete over the long term, which will inevitably translate into more choice and even better value air fares for consumers as well as additional Australian aviation jobs,” Hrdlicka said.
“This proposed investment is subject to regulatory approval. We do not take this for granted and have made submissions outlining the benefits of the transaction for Australian aviation, Australian travellers and the Australian economy.”
Virgin Australia fell into administration in April 2020, weighed down by billions of dollars of debt, in the biggest upheaval of the local aviation sector since the collapse of Ansett almost two decades earlier.
The airline was subsequently sold to the US private equity group Bain Capital, which has been looking to cash in on its investment via a company float or trade sale.
The tie-up is set to allow Virgin to operate international flights on Qatar’s widebody aircraft under an arrangement called wet leasing.
From mid next year, the airline plans to launch flights from Brisbane, Melbourne, Perth and Sydney to Doha, and then connect into international routes.
The announcement comes a year after the Albanese government rejected Qatar’s request to almost double its flight operations to Australia, sparking accusations that the government was “running a protection racket” for Qantas.
The public sentiment has turned sharply against Qantas since that decision, with the airline’s dominance partly blamed for elevated air fares, poor service and arrogant business practices.
Qantas struck a deal with the competition regulator earlier this year to pay a $100m penalty and pay $20m to customers in compensation, after conceding it misled consumers by selling tickets for thousands of flights it had already cancelled.
The stake sale, which requires approval from the Foreign Investment Review Board and competition regulator, should give Qatar more of the lucrative slots to fly into Australia it previously sought.
The treasurer, Jim Chalmers, said on Tuesday it “wouldn’t be appropriate” to preempt regulatory scrutiny of the proposed deal.
“I will say, more broadly, we do want to see a strong, competitive airline industry that delivers for consumers.”
Fare competition
The equity injection into Virgin comes at a time of Qantas dominance, with the national carrier emerging from the pandemic disruptions to post record profits in a market with weakened rivals.
While Virgin has lacked the backing of a major airline shareholder for almost five years, the domestic market also witnessed the collapse of low-cost carrier Bonza and Regional Express, known as Rex, this year.
Qantas’ return-on-invested-capital measurement, which tracks how well a company generates profits, was at 57.9% last financial year – about three times the pre-pandemic rate.
Its share price hit a record high last week, and is up more than 30% in 2024. In a sign of the competitive threat from Virgin, shares in Qantas fell by 3% early on Tuesday.
Angel Zhong, a finance researcher and associate professor from RMIT, said the proposal was good news for travellers, given a stronger Virgin Australia could better compete on airfares and customer experience.
“Qatar coming in will strengthen competition because it represents a strong investment from an airline with a lot of experience that can easily reach economies of scale,” Zhong said.
“The Australian airline industry has been dominated by Qantas, and Australians have been upset by the poor service quality as well as the cost effectiveness in that space.”
The Transport Workers’ Union said the proposed deal “provides an opportunity for the airline to expand and take on the aggressive competition of Qantas”.
“It’s crucial that the workers who made sacrifices to get Virgin Australia flying again are those to benefit from the opportunities this deal provides in an industry dominated by aggressive competition,” said Michael Kaine, the TWU national secretary.
