Letting Qantas Fail Is The Shake-Up Australian Aviation Needs

This post originally appeared on the Bronte Capital blog, run by Sydney hedge fund manager John Hempton. More details below.

When I was in my twenties I worked for the Government of Australia and I watched the privatisation of Qantas fairly closely.

In those days the Finance Department swallowed the Qantas lobbying totally. What was good for Qantas was good for Australia.

In all seriousness bureaucrats who should have Australia’s interest at heart were all for restricting competition on the Kangaroo route [Sydney-London] to keep Qantas’s profits sweet. After all more profits meant a higher sales price.

Photo: Getty Images

Tourism those days was a huge industry – driven in part by the then low Australian dollar. Londoners came over by the plane load and tourism operators up and down the coast of Queensland were making hay.

What Qantas was arguing for was restricting their customer numbers.

If the average middle-income coastal town knew about and understood the issues they would have rioted. But Qantas obscured their self-interest by wrapping themselves in the Australian flag.

Little has changed except now the issue is the solvency of Qantas, not the sale price. Qantas has been so mismanaged it is almost the only airline in the world in financial trouble now. The rise in Chinese demand (including Chinese demand on say Shanghai-Sydney flights) has meant that fuel efficient aircraft are in short supply and any airline who has managed their fleet well is making excess profits. [Just look at the stock charts for US airlines.]

Qantas however has mismanaged its fleet to a degree that is now ludicrous. This week I will by flying Sydney to LA on a 777 – a two-engine jet. Qantas does the route on old 747s (four engine jets). These are tens of tonnes of fuel less efficient and Qantas is higher cost because of fleet mismanagement as much as anything else.

But the fleet mismanagement goes further. They are left with the most amazingly heterogeneous fleet in the world. This airline deserves to go bust.

But like the Qantas of old, it goes to government who seem to think for some ungodly reason that the business is even important.

There will be other airlines after Qantas. They will be cheaper, have better service and use more fuel efficient planes.

And they won’t believe that what is good for them is good for Australia.

It is time to let Qantas fail.

*And just for the record: we are not short Qantas. But two decades later I retain my anger about their false patriotism.

This post originally appeared on the Bronte Capital blog and is republished with permission.

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