Virgin Australia and COVID-19

There is ongoing media discussion about the financial position of Virgin Australia, and whether or not they should receive Federal Government Support to ensure post-COVID-19 we have a level competition in the domestic aviation market in Australia.

Qantas is in a financially stronger position and is complaining that if Virgin Australia is offered financial support, then they should as well even if they don’t need it. Qantas has longed for a monopoly aviation market in Australia.

For business and tourism to flourish post-COVID-19, we do need some effective competition in the aviation market.

Just think of what would happen to pricing on the worlds thirds largest sector, Melbourne to Sydney is there was only Qantas?

I think it is essential to understand some history of the aviation market to understand why Qantas is so dominant and why there should be some support for the second player for the future of our aviation market.

If we go back many decades, the Australian market was highly regulated, Qantas was government-owned, and the exclusive international carrier and there were two domestic carriers, the privately owned Ansett and government-owned Australian Airlines/TAA. Until the introduction of wide-bodied aircraft into the Australia local market, (when TAA went for the Airbus A300, and Ansett went for the Boeing 767), not only did they fares and flight schedules have to be the same but also the aircraft.

Governments in Australia have been on a privatisation spree, and unfortunately, there have been some unintended outcomes, such as:

  1. Airports in major cities, airlines are unhappy about aviation charges, and consumers are very unhappy about the cost of parking, which is often equal to downtown city pricing.
  1. Ports in NSW has mean that the Port of Newcastle can not cost-effectively create a container terminal because of penalty clauses due to the sale of other ports in the state, effectively reducing competition.

Government privatisation activities are usually short term focused, immediate revenue, rather than long term structural and competitive implications.

Coming back to The Australian aviation market. Qantas’ strength is in part due to strong management over a long period, but also the fact that it was gifted a massive head start. Prior to the sale of Qantas, the Federal Government decided to merge Australian Airlines into Qantas, thereby making a significantly larger airline than its nearest competitor, with a significant international and domestic operations where the remaining serious competitor primarily was a domestic operator.

Through the early days of deregulation, several new airlines were established, one seemingly successful one was Impluse, Qantas ultimately purchased, which became the vehicle for Jetstar, a Qantas entity at the low-cost end of travel. Again Qantas has been highly successful with Jetstar where most other traditional carriers who started equivalent subsidiaries closed them as market-place failures.

Virgin Blue as they were known then was relatively small, but with the collapse of Ansett (after Air New Zealand acquired it), eventually grew in size. Still, Qantas with its dominant position, acted reasonably aggressively against the growth of Virgin Blue (now Virgin Australia), with their famous 65% market share line in the sand strategy.

So as we think of the competitive strength of Qantas, we need to remember, that their power was somewhat gifted a the start for financial benefit to the government from their privatisation, an artificial advantage.

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Disclosures

Jason Masters is a Platinum Frequent Flyer with Velocity, Virgin Australia’s frequent flyer program, and formerly a manager/executive with TAA/Australian Airlines, but departed before the merger into Qantas.

Originally posted at

Business leader, LGBTIQ Advocate, Gay, Christian, Author, Occasional Blogger, Father, Traveller

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