It takes two to keep the air fair, and the airfares fairer

In a few months, Virgin Australia will celebrate its 20th anniversary. There won’t be much of a party. The airline’s leadership team is waiting nervously to find out, possibly this week, whether the Morrison government will lend the airline the $1.4bn it needs to stay in business and stay in the air.

It’s a long way from the bright blue Brisbane skies of August 2000 when the first scheduled ­Virgin Blue flight took off for ­Sydney just two weeks before the start of the Olympic Games.

The launch proved a massive success and Virgin quickly established itself as the alternative, perhaps superior, domestic option to Qantas. In the words of then Qantas chief executive Geoff Dixon, the national carrier started to get “monstered” by its new rival.

Indeed, Virgin was so successful Qantas was forced to launch a “fighter brand”. We forget now but that was the original strategic purpose of Jetstar. Like any fighter brand, Jetstar was designed to ­occupy a lower price point than its more expensive sister and take on — and ideally take out — the new, low-priced threat from Virgin.

And that is exactly what it did. And more. Jetstar’s “no frills” position in the market undermined Virgin’s “low frills” offer and left Virgin with years of losses. Jetstar opened up a whole new segment of the market for Qantas, and it now regularly delivers around a third of the group’s profits.

Jetstar famously propped up the Qantas Group when the GFC hit and even provided it with its next chief executive in the form of Irish-born budget airline supremo Alan Joyce.

But what of Virgin Australia? The John Borghetti era was catastrophic, as the airline lost big money for six of the eight years the ex-Qantas executive ran the company. His attempt to re-position Virgin towards business travel and away from the economy end of a market dominated by ­Jetstar was a strategic disaster.

Then, just as new CEO Paul Scurrah looked to be tidying up the mess, Virgin — like the rest of us — found itself in coronavirus lockdown. With literally one commercial flight a day in the air and only about $900m left in cash reserves, most experts estimate the airline has six months, at most, before it collapses.

The airline’s fate now rests on its $1.4bn loan request. Scurrah is keen to position the loan as “temporary support” rather than a government handout. This is because Virgin Australia is only about 10 per cent Australian. That’s the portion of the company listed on the ASX. The rest of the airline is co-owned by a group of international interests.

And therein lies the problem. A lot of companies are going to ask for government money in the coming months. Few will ask for as much as Virgin and almost all of them will be 100 per cent Australian-owned. If the government says yes to Scurrah, it will set a significant, unfortunate precedent.

It’s a point not lost on Joyce. He believes it would be “totally unfair” for his main competitor to receive government assistance. Joyce believes companies that “have been badly managed for 10 years” should not be the beneficiaries of taxpayers’ support. If Virgin does receive its “bailout”, Joyce claims he will immediately ask for similar assistance to the tune of $4.2bn — given Qantas is three times the size of Virgin but no less deserving of government funds.

It’s a hard line. And Joyce has gone further behind company walls, telling staff that “governments are definitely not there to support a company that’s owned by Singaporeans, Chinese, Abu Dhabi and a British billionaire”.

And yet for all Joyce’s understandable ferocity, there is surely a strong argument for government support in this case. Virgin Australia is a victim of a situation not of its own making and its owners are all otherwise engaged with much ­bigger coronavirus-hit concerns to step in down here.

The argument that the government should let Virgin Australia fail and encourage another entrant to take its place is also a moot point. We may well be entering a very extended and very serious global recession. It could be years before anyone has the capital or confidence to launch a new airline anywhere, let alone here.

The old joke is true. The quickest way to become a millionaire is to be a billionaire and then start an airline. And its never been more applicable than in the lean two years now facing us.

But the most powerful argument in favour of Virgin Australia’s $1.4bn package is to recollect what it was like to fly before the airline was launched. Remember the limited schedules? The sky-high prices? The crappy service? That wasn’t the fault of Qantas. It was the unavoidable implication of a virtual monopoly for domestic air travel.

Virgin Blue’s arrival did not just bring another brand into the mix. It made domestic air travel properly competitive. It forced Qantas to improve and evolve. And it made it create Jetstar, something that would never have happened without Virgin Australia.

We sometimes struggle in this lovely, distant, tiny island with a lack of competition and the poor service, higher prices and lower ­innovation that result from its ­absence. Australia needs a viable competitor to Qantas and we cannot afford to let Virgin Australia disappear during this trying period. It could be years before we get another competitive domestic airline and it’s unlikely we will get one with the service and value combination that Virgin Australia has consistently offered Australians for the past two decades.

The very fact that Alan Joyce is trying so hard to prevent the ­federal government from stepping in suggests Virgin Australia is a genuine rival, and one that will continue to keep Qantas on its toes — and Australians in the air, in the manner to which we all have become so fundamentally ­accustomed.