Qantas vulnerable in fight for government travel

The Age

Monday February 15, 2010

By MATT O'SULLIVAN

MORE than a dozen airlines and large travel-management consultancies will find out within weeks whether they have broken Qantas' stranglehold on the federal government's $500 million a year travel budget.The prospect of Qantas losing a big share of the government's high-yielding domestic and international travel has been one of the biggest drags on its share price in recent months, analysts say. Even if it keeps most of the contract, it faces having to fly politicians, public servants and defence personnel at cheaper rates.Qantas is seen as most vulnerable to losing work on domestic routes to Virgin Blue and, to a lesser extent, Regional Express. Tiger Airways did not put in a tender.It is also vying for the international travel budget with almost all the biggest foreign airlines that fly to Australia. BusinessDay has confirmed that Singapore Airlines, Cathay Pacific, Etihad, Emirates, Malaysian Airlines, United Airlines and Air New Zealand have all submitted bids."You would be crazy not to be involved. It is an exciting opportunity and that is why so many people are interested," said United Airlines' Australasian general manager, Alison Espley.Travel-management consultants such as Flight Centre have also submitted bids as, it is believed, have American Express Business Travel and Carlson Wagonlit Travel.The Department of Finance has been seeking more information from the airlines in recent weeks, and the outcome of the tender is expected later this month."The bigger loss for Qantas is probably on the domestic front," an insider said, adding that the government was bound to give more work than it has previously to other Australian-owned airlines."Prima facie it looks like they are going to look at what is the best option for the government [on international routes]."We are hopeful that if you look at it on a fair and objective basis everyone stands a chance."A JPMorgan analyst, Matt Crowe, said the big risk for Qantas was in the domestic market where Virgin Blue could pick up a larger slice of the travel budget. He said Qantas was still likely to keep the bulk of the government travel work but the key would be the extent to which it would have to offer cheaper flights.Despite the bids from an array of foreign airlines, Mr Crowe said Qantas was likely to largely hold onto the international travel budget because of its network and frequent flyer scheme, which has long been a huge advantage in attracting corporate travellers."The Australian Government also likes to support an Australian company rather than a foreign airline," he said.The big attraction for travel agencies and airlines in the tender are the fees gained from the larger percentage of cancelled flights by government officials.

© 2010 The Age

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