Terry McCrann: Qantas chief will go for throat of struggling competitor
Get ready for a price war, because Qantas chief Alan Joyce will do everything he can to kill off a wounded Virgin Australia — even $19 airfares between capital cities, writes Terry McCrann.
Terry McCrann
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Alan Joyce’s — potential — return to $19 Melbourne-Sydney airfares throws an ice-cold reality check smack bang into the middle of the complex arm wrestle getting under way over the corporate carcass of Virgin Australia.
As it was fully intended to: hey guys, the feisty boss of Qantas was gently interjecting, remember me?
In his near dozen years in the job — and he has zero intention of going anywhere anytime soon — Joyce has proved not only one of our best but toughest CEOs, belying his Irish charm.
He is not, to put it bluntly, of a mind to roll out the red carpet for a reborn Virgin competitor. Buckets of red ink for it? Absolutely.
The prospect that Qantas will be coming after Virgin for every passenger it can, when the planes finally get back into the air, seriously complicates the process of turning the administration of Virgin into a Virgin Mark II without going through a liquidation first.
Bluntly, it says that any reorganisation-sale will have to be built on bigger haircuts for the $6.7 billion of Virgin bank, bond and other creditors; and that the new Virgin will have to be an even more slimmed down version of the existing one.
Before Joyce’s intervention, it was clear all the international routes and associated planes would have to go; now the cuts will bite even deeper into any prospective domestic-only Virgin Mark II.
The comparison with what happened after 9/11 when Ansett went down is instructive and chilling.
Back in 2001 Ansett and Qantas were roughly the same size and the Qantas of 2001 was nothing like the lean and mean — OK, delete the mean — Qantas of 2020. Virgin, which was just getting going, was tiny; it had only six planes.
This meant when you took half the capacity off the market in one stroke — just when air travel was about to rocket — both the dominant Qantas and the fledgling Virgin faced, relatively, open skies.
Clearly, that’s not so now. The full Virgin fleet would represent massive over-capacity into the market for the next 2-3 years, assuming Qantas won’t be stepping back beyond what it has to.
Indeed, even half the Virgin fleet would be too many planes. Yes, that would be great for flyers; and you’d get those $19 fares as Joyce did to Virgin what Sir Richard Branson was doing to Qantas in the early 2000s.
But any expectation of that would be devastating for what creditors could expect to get now.
The counterfactual for a reorganisation of the existing Virgin is whether it makes more sense to let it actually be liquidated — losing all the IP it owns from routes, safety certificates, ticketing software and the like — and to then start again with equally none of the baggage of the existing Virgin with a Mark II version of what Branson was doing 20 years ago.
The reorganisation option turns on how big the creditor haircuts are and how much money can be extracted from the federal and state governments in a two-tier bidding war.
But critical also to this is the proposed business strategy and that turns on who’s in the winning bid, like a Singapore Airlines or an Etihad.
Let the arm wrestle proceed, with plenty of continuous “help” from Joyce.
RBA NONSENSE DOES HAVE SOME REAL VALUE
The Reserve Bank hasn’t got a clue.
Now I say that, not unkindly or to suggest incompetence. The simple truth is that no one has a clue.
We’ve never been here before, when not just our government but every government has essentially ordered their economies and so the entire world into recession; and not just “a” recession, but the worst since the Great Depression of the 1930s.
Further, they all accompanied that with massive monetary and fiscal stimulus. That’s like pressing on both the brake pedal and the accelerator at the same time. Except again, it’s uniquely not; because the accelerator is not allowed to work. At least, not until the lockdowns are ended or eased.
So, just as “we’ve” never been here before — where we are right now — we’ve never been through a recovery out of something like this ever before; so self-evidently, and undeniably, “no one” knows what is on the “other side”.
And then there’s the virus itself. Who knows how that is going to play out through this first wave — and beyond.
Economic forecasts are at the best of times “ambitious” — unless you are China and you can “ensure” the outcomes match what you forecast.
So, the idea that you can meaningfully forecast what will happen to jobs, to inflation, to anything is obviously a nonsense. And the RBA knows that only too well.
The forecasts are relevant in terms of establishing a structure for understanding what happens in the economy as we head through 2020 and into 2021; and also in terms of the policy decisions the RBA will be making.
It has even more emphatically committed itself to an unchanging 0.25 per cent policy rate and to deliver that out to three years on the bond yield curve.
There will be no change until inflation is “sustainably” in the 2-3 per cent band and we are heading towards full employment.
The one thing I would suggest that we can — unhappily — predict is that the prospect of getting to full employment is almost unimaginable.
It was already looking increasingly impossible before the virus and the mandated lockdowns struck. Now, forget it.