How Qantas turned taxpayer dollars into profits

Sam Hawley: Hi, I’m Sam Hawley, coming to you from Gadigal Land. This is ABC News Daily. It’s been dubbed the Spirit of Australia, but is Qantas really serving the interests of the travelling public? And why won’t the government allow airlines like Qatar Airways to create more competition by flying here more often? Today, business and economics reporter Nassim Khadem on whether Qantas is too important to fail and if it deserves special treatment to keep it profitable. Nassim, it’s that time of year when we’re finding out just how much Australian companies are making, and it’s safe to say the cost of living crisis isn’t really hurting everyone, is it?

Nassim Khadem: Well, in the past few days we’ve learned that inflation is in fact fuelling the profits of major companies. So supermarket giants Woolworths and Coles raked in more than $1 billion of profit each. We know the big banks are doing exceptionally well. And Qantas recorded a $2.5 billion profit for the year once again fuelled by higher ticket prices, and of course increased customer demand for travel after the pandemic.

Sam Hawley: Yes. Okay. So they’re doing quite nicely. So let’s stick with Qantas. It’s doing pretty well. And the Assistant Treasurer Stephen Jones argues when it comes to companies like Qantas, it’s important that it’s profitable, that we need a strong aviation sector in this country.

Nassim Khadem: Yeah, the Government argues we have to have a viable airline industry in Australia or we risk airlines collapsing.

Stephen Jones, Assistant Treasurer: We can drive prices down, but if we drive them down to a level where it’s actually unsustainable to run an airline, instead of having two carriers, we’ll design our markets in a way which will make it unsustainable for the existing Australian based carriers.

Nassim Khadem: And it’s the same argument the government used to justify the airline receiving $2.7 billion in taxpayer handouts during the pandemic, and that includes about $900 million in Job Keeper subsidies alone, which is the most any company received.

Sam Hawley: So, Nassim, what else did Qantas use that huge amount of money for?

Nassim Khadem: So Alan Joyce told ABC 730 that the then-Morrison government also hired part of the Qantas fleet to keep some services operational, such as interstate patient transport, medicine delivery and sending agricultural products overseas.

Alan Joyce, Qantas CEO: And that was half $1 billion just for the freight flights. We did 3,800. We had another over $500 million for the domestic flights that had to operate because the borders were closed down. That was to get people between hospitals, pharmaceuticals to move around the country.

Sam Hawley: But now Qantas has recorded a good profit. And the obvious question for the outgoing CEO of Qantas, Alan Joyce, is whether the airline will now give some of that money back. Sarah Ferguson on 7.30 asked him exactly that question last week. You’re reporting today.

Alan Joyce, Qantas CEO: So what happens, I think companies like us will be paying that back because as we are making money, we’ll pay corporation tax and we’ll be getting there faster.

Nassim Khadem: Alan Joyce argues the best way to repay the country is to keep making money and paying corporate tax.

Sarah Ferguson, ABC 7:30: That’s not paying money back. That’s paying the money that you have to pay according to corporation tax.

Nassim Khadem: It actually turns out the company has been paying tax, but it’s been getting back credits from the ATO because it’s been making losses for much of the past decade that it can then claim back. And that’s exactly how the tax system works for individuals as well. But many argue that if that if they are claiming back all this money, then it shouldn’t also be getting subsidised, you know, when it’s making profits.

Sam Hawley: So Nassim, bottom line is he’s not paying that money back, Alan Joyce.

Nassim Khadem: He’s not. Other companies have paid back some pandemic payments after public pressure. So Toyota, the car manufacturer, paid back $18 million of Job Keeper payments. But in Qantas’ case, Alan Joyce has made it very clear that none of the taxpayer funds will be paid back and politically they won’t be forced to pay it back. Treasurer Jim Chalmers has said the airline is under no obligation to pay the subsidies it received.

Sam Hawley: Alright. Okay. Before we go on, it is good to remember while we’re discussing this, that while we refer to Qantas as our national carrier, it’s actually a fully listed company. It’s a private carrier. There’s no government ownership of Qantas.

Nassim Khadem: Yes, that’s right. It was privatised in two stages, the first by a sale of 25% to British Airways in 1993 and then the remaining 75% by public float in mid-1995.

News Audio: It’s take off time for Qantas. The share float to privatise Australia’s national carrier was announced today. The sale is expected to bring in about $1.5 billion for the Federal Government, about half a billion lower than anticipated.

Nassim Khadem: So a national carrier or a flag carrier is a country’s national airline. It doesn’t need to be state-owned, but in Australia’s case, it needs to have a majority local ownership. So Qantas is 51% Australian owned, by law it must be, and the level of foreign ownership is constantly monitored and in return it enjoys, well, some say it enjoys preferential treatment.

Sam Hawley: Yeah. Alright. So Alan Joyce, he’s also been grilled before a Senate hearing this week.

Senate Hearing: More competition is not in the national interest. Is that what you’re saying? No, I’m not saying that. I’m saying we’re not we’re not we’re not worried about competition.

Sam Hawley: And a big focus was on a decision by the government to block competition in the market. Just remind me first, Nassim, what that decision was.

Nassim Khadem: So Qatar, which is allowed to operate 28 round trips per week into Australia’s four busiest airports, wanted to add another 21 weekly round trips per week into our busiest airports, including Sydney, Melbourne and Brisbane. And in a formal submission to the Australian government last year, Qantas said granting Qatar Airways additional traffic rights would adversely impact non-government funded airlines. At the Senate hearing on Monday, Alan Joyce also admitted personally lobbying the government and ministers directly about it, but he wouldn’t elaborate on private discussions he’s had with ministers, including the prime minister. And while critics of the decision are calling it protectionist. The government and the transport minister in particular, Catherine King, is obviously defending the decision.

Catherine King, Transport Minister: We will always consider the need to ensure that there are long term, well-paid, secure jobs by Australians in the aviation sector when we are making this decision.

Nassim Khadem: And the argument is that if we were to drive down prices to a level where it’s actually unsustainable to run an airline, then our Australian based carrier would collapse. And she said that’s not in the national interest.

Sam Hawley: Okay, so Qantas profits are in the national interest, is the argument there?

Nassim Khadem: Well, that’s sort of what Qantas argues, right? And the government seems to have with this decision accepted that argument that allowing Qatar more access to this market could harm that.

Sam Hawley: And Alan Joyce, he was really grilled on this point by the committee chair, Senator Jane Hume.

Senator Jane Hume: Industry experts and commentators from right around the country have said that had Qatar been granted those additional routes, that the cost of airfares to consumers would have gone down. Is that true?

Alan Joyce, Qantas CEO: So the cost of airfares are coming down.

Senator Jane Hume: Would they have gone down further if Qatar had have had the additional?

Alan Joyce, Qantas CEO: So. Well, I would say…

Nassim Khadem: Alan Joyce refused to say whether more competition from Qatar Airways would lower international airfares. He conceded only that prices were coming down anyway. The Nationals Senator Bridget McKenzie asked Mr. Joyce why Qatar had done the heavy lifting rescuing Australians from overseas during Covid-19.

Senator Bridget McKenzie: Why is it up to other international airlines to do the heavy lifting for Australians during Covid?

Alan Joyce, Qantas CEO: So one, a lot of those airlines are fully government supported…

Sam Hawley: Alright. So the government and Qantas, they don’t have a problem with this decision to block this competition from Qatar. But the Virgin chief executive, Jayne Hrdlicka, she has a very different view, doesn’t she?

Nassim Khadem: Yeah, she slammed the government’s decision. But it’s worth remembering, of course, that Virgin has an interest here as they have a co-share agreement with Qatar and would have profited from additional air rights. But she argues airfares could come down by 30 to 40% if Qatar Airways was allowed to schedule more flights to Australia and more capacity was returned.

Jayne Hrdlicka, Virgin Australia CEO: That’s a lot of jobs, that’s a lot of reinforcement to vital parts of the economy that were hurt pretty badly during Covid, and it’s hard to walk past that. You need to have a very good reason to walk past that.

Nassim Khadem: And speaking on Radio National Breakfast, she had said airfares are about 50% higher today than they were pre-Covid.

Sam Hawley: Gosh, and don’t we know it? Oh gosh, so expensive to fly anywhere at the moment. Alright. So let’s return to this idea of Qantas being our national carrier, even though it’s privately owned and the government protection of it, and whether that’s really in our national interest as the government argues it is. What do you think?

Nassim Khadem: Well, Qantas and specifically Alan Joyce argued during the pandemic that it was just 11 weeks away from insolvency. And realistically there’s no government that would let Qantas collapse. You know, it’s a major employer. There’s no way they would let that happen. And so the government argues it really did have little option but to step in. But, you know, another argument is that if the taxpayer investment in the carrier was secured, it could have been easily repaid once the airline was operational again. Instead, Alan Joyce has been able to hand back $1.5 billion to investors via share buybacks, which boosts the share price and of course maximises benefits to Qantas executives, including Joyce. The question is, if a nation needs a national airline, should a government just fully own and run one? And that’s the case for many airlines overseas: Emirates, Etihad, Qatar. Others are partly state owned, like Air New Zealand, which is majority government owned. So you have this structure now where Qantas is a private company responsible for delivering returns to shareholders, but also seen as a vital institution that must stay afloat no matter what happens.

Sam Hawley: Nassim Khadem is a business and economics reporter based in Melbourne. Alan Joyce will retire from Qantas in November this year after 15 years at the helm. Complaints about Qantas rose by 68% in the 2022-23 financial year, according to the ACCC, making it the most complained about company that year. This episode was produced by Lara Corrigan, Veronica Apap, Nell Whitehead, Sam Dunn and Anna John, who also did the mix. Our supervising producer is David Coady. I’m Sam Hawley. ABC News Daily will be back again tomorrow. Thanks for listening.