Treasurer Jim Chalmers has given the green light^[1] for Qatar Airways to buy a 25% stake in Virgin Australia, as part of a strategic alliance. The deal will shake up the Australian aviation market.

The announcement follows a detailed assessment by the Foreign Investment Review Board, and a draft determination^[2] to authorise the deal by the Australian Competition and Consumer Commission (ACCC).

The deal allows Qatar Airways to buy the 25% stake from the US private equity firm Bain Capital, and makes an eventual initial public offering of Virgin more likely. It also allows Virgin to operate regular services from some of Australia’s major capital cities to Doha.

Chalmers said the agreement will be subject to enforceable conditions^[3], including retaining Australians on the board of Virgin and protecting consumer data.

The ACCC has previously said the tie-up would boost competition and benefit consumers.

The announcement comes on the same day as competitor Qantas posted its latest half-year earnings, showing statutory profits up 6%^[4] on the same period last year. So, will Australian flyers be the ultimate winners?

Getting Australians around the world

For many Australian travellers, getting where they want to go around the world has long meant making a stopover, especially if travelling to Europe.

Currently, Qantas does operate direct flights^[5] between Perth and three cities in Europe: London, Paris and Rome.

However, other international carriers – including Emirates, Singapore Airlines, Thai Airways, Malaysia Airways and some Chinese carriers – all provide connecting flights via an international hub airport.

Doha’s Hamad International Airport is one such hub, and Qatar Airways currently flies from there to more than 170 destinations.

At the heart of this new partnership is what’s called a “wet lease arrangement”. Virgin will be able to use both the aircraft and crew of Qatar Airways to operate its own flights.

That will allow Virgin to compete as if it were an established international carrier, because it provides access to Qatar’s international network. It should also mean streamlined transit procedures, minimal waiting times, and better baggage handling.

This deal is expected to create 28 new weekly return services^[7] to Doha, from Melbourne, Perth, Sydney and Brisbane. Having additional flights to this hub by Virgin will give travellers many more options for getting around the world.

More competition for Qantas

The agreement will greatly expand Virgin’s international reach and make it more competitive with Qantas. Virgin had to scale back its international footprint after it went into receivership in 2020.

Qantas will continue to be a major player in flying Australians to Europe. It has also recently added more direct flights from Perth to European destinations.

But we may be seeing signs of more robust competition pressures already. In its profit announcement on Thursday, Qantas outlined a plan^[8] for cabin upgrades for its Boeing 737s as it awaits delivery of new Airbus aircraft.

Turning things around

Virgin Australia has come a long way since entering voluntary administration^[10] in April 2020. After being sold to Bain Capital, the airline restructured its cost base, fleet and commercial functions.

With a focus on cutting costs and improving its Velocity frequent flyer program^[11], Virgin has since been able to bounce back from the brink and win back market share.

That success means Virgin is now better positioned to return to international markets and compete with Qantas there, too.

It will give the airline’s owners more confidence in handing over to a new chief executive^[12] and preparing the ground for a long-delayed initial public sharemarket offering^[13] that would see Virgin return to the Australian Securities Exchanges (ASX).

References

1. ^{^} green light (ministers.treasury.gov.au)
2. ^{^} draft determination (www.reuters.com)
3. ^{^} enforceable conditions (ministers.treasury.gov.au)
4. ^{^} up 6% (investor.qantas.com)
5. ^{^} direct flights (www.qantas.com)
6. ^{^} Light Orancio/Shutterstock (www.shutterstock.com)
7. ^{^} 28 new weekly return services (ministers.treasury.gov.au)
8. ^{^} outlined a plan (investor.qantas.com)
9. ^{^} Seth Jaworski/Shutterstock (www.shutterstock.com)
10. ^{^} entering voluntary administration (theconversation.com)
11. ^{^} Velocity frequent flyer program (www.afr.com)
12. ^{^} new chief executive (www.theaustralian.com.au)
13. ^{^} long-delayed initial public sharemarket offering (www.afr.com)