If Virgin fails will Qantas become a monopoly?

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Virgin Australia CEO Paul Scurrah has dismissed suggestions that the struggling airline is seeking a federal government bailout. He argues that the $1.4 billion loan facility that Virgin is seeking would have to be repaid eventually. Scurrah also warns that Qantas could emerge with a long-term monopoly in the domestic market if Virgin collapses. The government would allow a new entrant to the market, but CAPA Centre for Aviation chairman Peter Harbison says regulatory approvals would take some time, which would further entrench Qantas’s market dominance:

Virgin Australia boss Paul Scurrah has rubbished claims a new entrant to the Australian market could buy his airline’s infrastructure on the cheap and be up and running quickly in the event of a collapse… “Given that most airports are private now and they’ve got owners now, they’re not going to be patient for someone else to make up their mind whether they come or not,” he told The Australian Financial Review. “They are just going to sell those assets to Qantas”… Mr Scurrah said if his airline was allowed to collapse, Qantas could have a stranglehold of the market for a prolonged period. “If as speculated Ryanair were to come in, you can look forward to 20 years of a business and corporate monopoly.”

Would Qantas become a monopoly if Virgin exited? I doubt it. First, the federal government could easily change rules restricting foreign carriers from operating on domestic routes. This would see a entrants quickly enter the domestic market and dramatically lift competition. Second, when Ansett collapsed decades ago, there was minimal impact on overall aviation market. Ansett’s void was quickly filled by Qantas and Virgin, along with some smaller airlines that popped-up along the way. The employment impacts would also be manageable. Aviation is a services industry, which requires that employment be performed locally, irrespective of who owns or operates the airlines. Whether a passenger flies to Sydney from Melbourne using Qantas, Jetstar, Virgin, Tiger, or another provider, a similar number of Australian employees – from counter staff, to baggage handlers and airline stewards – still need to provide the function. Personally, I do not want to see Virgin fold as I like their service and tend to choose them when flying domestically. I am also a Virgin Velocity Rewards member. However, while there would be some short-term adjustment, we should not overplay the economic impact if Virgin fails.

About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.