Richard Branson has entered the war of words over Qantas, and its desire to block Virgin Australia’s $350 million capital raising.
The Virgin founder and well-known entrepreneur called out Australia’s national carrier over social media, saying the country’s government should not prop it up in the face of aggressive competition from the budget airline.
— Richard Branson (@richardbranson) December 3, 2013
Government should encourage competition, NOT prop up the weak when the going gets tough http://t.co/VeF7aUyxPI
— Richard Branson (@richardbranson) December 4, 2013
Qantas has since responded with a strongly-worded statement.
Qantas thrives on competition, but everyone except Virgin now recognises that the playing field is tipped in their favour.
Their battler status is far behind them, thanks to the backing of three government-owned foreign airlines covering their losses.
Qantas doesn’t have that luxury and yet our customers have never been better served.
That’s thanks to Qantas staff, who are the people responsible for our record customer service ratings.
We’re not interested in a slanging match, we’re interested in a serious debate about the true nature of the Australian aviation market.
After the capital raising was announced Qantas boss Alan Joyce began lobbying the Australian government, looking to have it stopped.
Joyce, who had already been involved in negotiations with the former Labor government, thinks Virgin will continue to undercut its domestic routes, to the point that Qantas will not be able to fund its international arm.
Virgin Australia is majority-owned by overseas airlines, who are participating in the equity raising. These airlines compete against Qantas’ international business.
Qantas controls around 65 per cent of the domestic market. But Virgin, led by former Qantas executive John Borghetti, is undercutting it on domestic routes, particularly its corporate accounts.
The national carrier cannot raise foreign capital as easily as Virgin, due to ownership restriction laws.
While the government has acknowledged it may have to assist Joyce’s airline, a decision has not been made. Options include a partial buy-out or securing the airline’s debt.
Qantas faces a review by credit agencies in February which could see it downgraded to junk status. It is already on the lowest possible investment-grade rating.