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.
Image source: Getty Images
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.
