Passengers will gain in short-term if Qantas debt guaranteed by government

IF the federal government guarantees Qantas’ multi-million debt, analysts reveal what it will mean for passengers.

AUSTRALIAN travellers are likely to experience short-term gain but long-term pain from any federal government move to guarantee Qantas’ debt, aviation analysts say.

Amid a predicted half-year loss of up to $300 million and growing calls for intervention to help the struggling airline, Canberra now appears poised to provide support to Qantas in the form of a debt guarantee.

Analysts say the move, which would not involve any actual government cash injection in Qantas, would allow the Flying Kangaroo to borrow more cheaply and help it regain its investment-grade credit rating.

It could accelerate the purchase of new planes and permit it to invest in services and routes that it may otherwise have been forced to scale back or cut.

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News_Image_File: Predicted half-yearly losses of up to $300 million ... Qantas Group CEO Alan Joyce. (AAP Image/Paul Miller)

Pacific Aviation Consulting managing director Oliver Lamb said the move could drive fares down and result in short-term gains for consumers.

“Assuming they want to do that rather than reduce their costs, it potentially means they could invest in better services and new aircraft,” he said.

“If they did, they could offer more to customers at lower cost.”

However, he said in the long-run this could be to the detriment of competition in Australia’s skies by enabling Qantas to entrench its market dominance at the expense of competitors such as Virgin Australia and regional carrier Rex.

“It would offer short-term benefit for Australian customers but it could come at the cost of other competitors in the industry being hurt,” he said.

“The best outcome for consumers is they (all Australian based airlines) get a level playing field.”

News_Rich_Media: Labor frontbencher Anthony Albanese says there's no reason why the government should delay making a decision over financial assistance for the airline. Courtesy Sky/Australian Agenda

Qantas has faced increasingly stiff competition on key domestic routes from Virgin Australia, which in 2011 also launched a challenge to the airline’s stranglehold on the lucrative business market.

However, despite mounting losses that have seen Qantas commit to shedding 1000 jobs as part of a program of savage cost cutting, the airline remains wedded to its strategy of maintaining a 65 per cent share of the Australian domestic aviation market.

Former Qantas Group chief economist Tony Webber said he agreed any debt guarantee could drive down airfares in the short-term, but would allow the airline to continue a counterproductive capacity war.

“What the assistance will do is to protect Qantas’ strategy of trying to intimidate a key competitor, which is what the capacity war is about,” he said.

Analysts suggest that if a debt guarantee is not forthcoming, Qantas may be forced to slash on-board services or poor-performing international routes, such as Sydney-Johannesburg or its flights to New York.

Treasurer Joe Hockey has indicated no final decision will be made on the guarantee until after the Flying Kangaroo releases its half-year results on Thursday.

Qantas yesterday declined to comment directly on the effect of a guarantee, sighting its continuing negotiations with the Federal Government.

Virgin Australia has suggested they might ask for the same guarantee if it is granted to Qantas, but an airline spokeswoman declined to provide more detail.

Instead, she referred to a statement issued last week that said the Federal Government should not provide Qantas with a “significant advantage through financial assistance, such as a debt guarantee.”

“This would be to the detriment of the entire industry, including the smaller regional carriers,” the statement said.

News_Rich_Media: Tony Abbott supports allowing Qantas to be majority overseas-owned, but won't be offering financial aid.