Qantas share price sinks 5% on huge Qatar Airways-Virgin Australia deal

Qatar Airways is investing in Virgin Australia ahead of the latter's potential return to the ASX boards.

| More on:
A sad woman sits leaning on her suitcase in a deserted airport lounge as the Qantas share price falls

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Qantas Airways Limited (ASX: QAN) share price is having its wings clipped on Tuesday.

In morning trade, the airline operator's shares dropped as much as 5.5% to $7.00.

The Flying Kangaroo's shares have recovered a touch since then but remain down 3.5% at the time of writing.

Why is the Qantas share price under pressure?

Today's decline appears to have been triggered by a big announcement from its arch-rival, Virgin Australia.

This morning, Virgin Australia revealed that Qatar Airways Group intends to acquire a minority 25% equity stake in the airline from Bain Capital. This is subject to Foreign Investment Review Board approval.

Qatar Airways is one of the world's largest airlines. Earlier this year was awarded the world's best airline by Skytrax for the eighth time.

Management believes that this represents a significant vote of confidence in Virgin Australia and Australian aviation. It also cements a deeper strategic partnership between the two airlines.

But, importantly for Australian travellers, management expects the deeper strategic relationship between Virgin Australia and Qatar Airways will drive increased competition in Australian aviation.

It notes that this will ensure Australian consumers have access to even better value airfares and greater choice. This may mean the high airfares that Qantas has been able to command in recent years could be under threat and weigh on its profits.

Virgin Australia to return to the ASX?

Management believes that Qatar Airways Group's strategic investment will provide access to the critical scale and expertise of a world leading global airline.

It also highlights that the minority stake serves as a cornerstone investment ahead of an anticipated return of Virgin Australia into public ownership and the opportunity that would provide for Australians to share in Virgin Australia's future.

New areas

The release reveals that the equity investment by Qatar Airways will unlock new areas of cooperation with Virgin Australia.

Subject to regulatory approval, this cooperation will enable Virgin Australia to launch flights from Brisbane, Melbourne, Perth and Sydney to Doha, connecting seamlessly into Qatar Airways' global network. These extra flights will open up more than 100 new connecting itineraries across Europe, the Middle East, and Africa for Australian travellers.

The proposed wet lease services will begin in mid-2025, allowing Virgin Australia to assess the longer-term merits and viability of wide-body aircraft flying while providing Australians with greater local competition for their long-haul travel needs in the near-term.

Virgin Australia's Group CEO, Jayne Hrdlicka, said:

This partnership brings the missing piece to Virgin Australia's longer-term strategy and is a huge vote of confidence in Australian aviation. Importantly, it will further strengthen Virgin Australia's ability to compete over the long term, which will inevitably translate into more choice and even better value airfares for consumers as well as additional Australian aviation jobs.

I am delighted that our closer relationship allows us to put our 'toe in the water' regarding long-haul international, as well as the ability to deepen other areas of existing cooperation, including between our respective loyalty programs and code sharing arrangements.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Travel Shares

Man sitting in a plane looking through a window and working on a laptop.
Travel Shares

Is the Qantas share price a buy after the Virgin listing?

Should investors be excited or worried about the Virgin listing?

Read more »

A woman stands at her desk looking a her phone with a panoramic view of the harbour bridge in the windows behind her with work colleagues in the background.
Travel Shares

1 amazing Aussie stock down 40% to buy and hold

Let's see why analysts think this top stock could be a buy after a significant pullback.

Read more »

A pilot stands in an empty passenger cabin smiling with his arms crossed looking excited
Travel Shares

Virgin Australia shares take flight on ASX return after IPO

The airline's long-awaited return has started strongly.

Read more »

Woman on a tablet waiting in for her flight in an airport and looking through a window.
Travel Shares

Up nearly 70% in a year, does JP Morgan think Qantas shares can go higher?

Qantas shares have been a home run for investors over both the short and long term.

Read more »

Woman on a tablet waiting in for her flight in an airport and looking through a window.
Travel Shares

UBS reveals the biggest question facing Qantas shares over the next 12 months

UBS takes a look at the projected flight trajectory of Qantas shares post this week’s Jetstar Asia closure.

Read more »

A pilot stands in an empty passenger cabin smiling with his arms crossed looking excited
Travel Shares

What does Macquarie think Qantas shares are worth?

Let's see if the broker believes the Flying Kangaroo's shares can keep rising.

Read more »

Man sitting in a plane seat works on his laptop.
Travel Shares

3 reasons to sell Qantas shares today

A leading expert foresees headwinds building for Qantas shares.

Read more »

a passenger plane is on the tarmac with passenger shute attached with a view of the surrounding land and sunset in the background.
Travel Shares

Qantas share price lifts off on big Asian news

Qantas shares have surged more than 73% in a year. Here’s why they’re gaining again today.

Read more »