Qantas Faces Significant Challenges says Margaret Jackson

Travel News Asia 19 August 2004

The Chairman of Qantas, Margaret Jackson, said today that despite the airline's positive profit results in 2003/04, the global aviation industry had not returned to "normal" and the company continued to compete on an uneven playing field.

"The profit result announced today is excellent, but there are some significant and continuing challenges facing Qantas - challenges we are determined to meet," Ms Jackson said.

"Our industry is still far from stable, with crude oil prices at record highs and annual global traffic numbers below those for 2000."

Ms Jackson said that the competitive environment for Qantas was not only tough, the playing field was not level and these factors needed to be acknowledged by the Government and other sections of the Australian tourism and travel industries.

"One of the key areas of concern relates to government ownership, support and intervention," Ms Jackson said.

"Privatised and commercial carriers like Qantas increasingly find themselves pitted against airlines owned or funded by Governments with ambitious national agendas.

"Qantas does not suggest that government ownership is always a bad thing, however it becomes a problem when airlines have the normal commercial disciplines removed or when they become vehicles to satisfy governments' strategic aspirations," she said.

Governments and the ruling families in the Middle East, for example, were spending billions of dollars on aviation and tourism to reduce their reliance on their finite oil and gas reserves.

"Emirates committed US$19 billion last year to acquire 45 Airbus A380s and other aircraft, and the airline plans to expand its fleet to around 120 aircraft by 2010," Ms Jackson said.

"The Chairman of Emirates is not only a member of the ruling family, he is also Head of the Dubai Department of Civil Aviation, which runs Dubai Airport. I don't recall any media coverage in Australia of the recent decision by Dubai Airport to ban low cost airlines."

Emirates pays no corporate tax in Dubai. Qantas has paid $1.3 billion in income tax since privatisation and pays $180 million a year in other direct taxes, such as payroll tax and fringe benefits tax, in relation to its Australia-based employees.

Ms Jackson said Emirates' strategy was being followed by a number of Middle Eastern carriers. Etihad Airways, the Abu Dhabi based airline that only started flying last November, last month ordered 24 aircraft worth US$7 billion and took options over another 12 aircraft. Qatar Airways has ordered 34 aircraft worth US$5.2 billion and plans to operate 52 aircraft by 2008.

Ms Jackson said that two-thirds of the 40 international airlines that operated to and from Australia each week were Government owned or subsidised and US and Canadian carriers received legislated bankruptcy protection. US airlines received US$15 billion in grants and loans after September 11 and also receive substantial Government support in relation to many security measures for which Qantas is not supported.

"Japanese airlines have received significant funding from their Government, Air New Zealand has received a NZ$885 million Government bail-out and the Italian Government has recently stepped in to rescue Alitalia," she said.

"In addition, significant consolidation can be expected in the global aviation industry. Air France and KLM have been permitted to merge, forming the largest airline group in the world.

"It must be recognised that Qantas needs to be able to participate in the consolidation process if it is to achieve the scale and efficiencies needed to compete at the global level in the years ahead."

Ms Jackson said that, in contrast to the level of protection enjoyed by other national airlines, many Australians took for granted the fact that our aviation policy is one of the most open in the world. Domestic airlines in Australia, for example, can be 100 per cent foreign owned.

"In addition, Qantas remains fettered by a unique limitation - the Qantas Sale Act," she said. "This restricts the company's access to global equity capital and so increases its cost of capital.

"Qantas is the only company in Australia to be subject to such legislated shackles. In light of the substantial challenges facing Qantas, we and the Government must find a mutually acceptable solution to this issue."

Ms Jackson also noted that Singapore allowed its airlines to depreciate aircraft over just three years. If Qantas were able to take advantage of a three year write-off period, the present value benefit would be a decreased tax liability of A$1.3 billion.

"Qantas employs 35,000 people, including a very high percentage of Australians when compared with any Australian company that operates internationally and also the 'home grown' employment levels of other international airlines.

"Qantas' five major international competitors employ a total of around 1,000 people in Australia.

"We have increased jobs by more than 10,000 over the past decade and we are continuing to grow jobs at Qantas," she said.

"Qantas also continues to be a major player in the $73 billion Australian tourism industry and purchases over $2 billion of goods and services locally each year.

"We are a huge supporter of community, charity, arts and sporting organisations across Australia through the Sharing the Spirit program and play a key role in times of national crisis.

"Qantas is continuing to strive for greater efficiency so that it can increase its profitability, invest in new aircraft and product, grow its operations and jobs and maintain its reputation as one of the world's leading airlines."

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