Qantas and Virgin to receive multimillion-dollar government subsidy

The Qantas Airways Limited (ASX: QAN) share price jumped this morning on news that the airline industry will get a large capital injection from the federal government.

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The Qantas Airways Limited (ASX: QAN) share price jumped this morning on news that the airline industry will get a large capital injection from the federal government.

The Qantas share price jumped around 4% to $3.71 while the Virgin Australia Holdings Ltd (ASX: VAH) share price is suspended due to a trading halt.

In contrast, the S&P/ASX 200 Index (Index:^AXJO) dipped 0.4% into the red at the time of writing.

Virgin requested the halt as it reviews its finances and operations after the coronavirus pandemic effectively brought the travel industry to its knees.

Multimillion-dollar rescue package

There is little doubt that Virgin will be actively talking to the federal government about its plan to subsidise domestic flights. Nearly all flights in the country have been suspended as all states have gone into a lockdown to contain the COVID-19 outbreak.

The Morrison government is close to signing off on a multimillion-dollar rescues package, which will see domestic flights take off again, reported the Australian Financial Review.

That will be very welcomed news to both Qantas and Virgin as it will generate some much-needed regular income, particularly after the government warned that international travel may be banned till the end of this calendar year.

What this means for Virgin and Qantas

Any support from the government will be most helpful to the Virgin share price. The airline tried to get a $1.4 billion loan from the federal government to help it tide over the crisis, but this was rejected.

However, it remains to be seen if the new funding to subsidise domestic flights will be enough to keep the Virgin afloat.

Qantas is in a much stronger financial position after it raised $1.05 billion in additional debt funding. This takes the company's total available cash position to $2.95 billion with an extra $1 billion in undrawn debt it can call on.

Industry suffering the most

Virgin only runs a once-a-day flight between our two largest cities, Melbourne and Sydney. Qantas continues to fly to all capital cities and 25 regional airports, but with significantly fewer flights.

For instance, the flying kangaroo only runs five flights a week between Melbourne and Sydney compared to 48 flights before the coronavirus outbreak.

The federal government is already subsidising regional flights operated by Regional Express Holdings Ltd (ASX: REX) and is giving the industry a $715 million lifeline by refunding or waiving charges, such as fuel excise and landing fees.

It isn't only airlines that are hurting. Listed travel agents are also in the doldrums, although the outlook for the Webjet Limited (ASX: WEB) share price and Flight Centre Travel Group Ltd (ASX: FLT) share price improved markedly after they both managed to raise emergency capital.

Motley Fool contributor Brendon Lau owns shares of Webjet Ltd. The Motley Fool Australia owns shares of and has recommended Flight Centre Travel Group Limited and Webjet Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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