Bloomberg News

Qantas Drops Funds for Tourism Agency Citing Conflict

November 28, 2012

Qantas Airways Ltd. (QAN) cut off funding for Australia’s top tourism body, saying its Chairman Geoff Dixon, the carrier’s former chief executive officer, is part of a group trying to change a planned alliance with Emirates.

Dixon “is very much out there briefing against the company” and pushing for a change of direction for Qantas, his successor Alan Joyce said at an event in Sydney today. That’s a “clear conflict” with his role as head of Tourism Australia, a government-backed travel promotion agency, Joyce said.

Australia’s largest carrier has been dogged by takeover speculation this year as the stock sank to a record low in June, when Joyce said Qantas would post its first annual loss since listing in 1995. Dixon and venture capitalist Mark Carnegie are part of an investment group that’s targeted Qantas and backs a change of direction, Peter Gregg, a former chief financial officer of the carrier, said last week.

“Why should Qantas be supporting an organization where its primary officer” is seeking a change to the carrier’s strategy, Neil Hansford, chairman of consultants Strategic Aviation Solutions Pty., said by phone from Salamander Bay, Australia.

‘Fundamental Changes’

The investor syndicate is “committed to unraveling Qantas’s structure and direction,” and “actively canvassing fundamental changes to the Qantas Group strategy, including the proposed partnership with Emirates,” Qantas said in an e-mailed statement today.

Qantas shares fell 2.2 percent to A$1.31 in Sydney trading, compared with a 0.2 percent decline in the benchmark S&P/ASX 200 index.

The carrier’s financial support to Tourism Australia is worth about A$50 million ($52 million) over three years, Qantas said in the statement.

Tourism Australia’s board will consider Qantas’s move later today, Managing Director Andrew McEvoy said in an e-mailed statement. Martin Ferguson, Australia’s tourism minister, said in an e-mailed statement that he’d referred the issues to the agency and they’d report back to him.

Dixon will push for the sale of the carrier’s Frequent Flyer loyalty program and the partial float of budget airline Jetstar, the Australian Financial Review newspaper reported last week without saying where it got the information.

Different Opinion

Gregg said in a telephone interview last week that he had a different opinion on Qantas’s strategy and expressed his views of the company in phone conversations on the matter, without giving more detail or specifying who he spoke to.

Joyce, who replaced Dixon, worked closely with his predecessor both before and after he was picked for the role in July 2008. Gregg announced he was quitting the CFO job a month later.

During his final shareholder meeting in November 2008, Dixon described Joyce as a “great aviation executive” who would keep Qantas “in very safe hands”. The pair, who met regularly after Dixon’s departure, last “got together” about eight months ago, Joyce said today.

“It’s more than a falling out” between Dixon and Joyce, Tony Webber, managing director of Webber Quantitative Consulting and a former Qantas chief economist, said by phone from Sydney. “I’m surprised by how bitter it got so quickly.”

Divesting Jetstar or Qantas’s Frequent Flyer program wouldn’t be in the interests of shareholders, Joyce said today.

‘Critical’ Relationship

Tourism Australia, a government travel promotion agency, has been a partner of Qantas for more than 40 years and a joint marketing agreement between the two bodies is worth A$44 million over three years, according to the agency’s latest annual report.

The relationship is “critical to future tourism growth”, McEvoy said in the report. In addition to the marketing agreement, direct funding from industry came to A$10 million last year, about 6.6 percent of the agency’s costs, according to the report.

Mark Carnegie didn’t respond to a call left at his office and a mobile-phone message.

Singapore Airlines Ltd. (SIA), which bought a 10 percent stake in Qantas’s main domestic rival Virgin Australia Holdings Ltd. (VAH) this month, has increased the value of its joint-marketing agreement with Tourism Australia. It also signed new agreements with state-based tourism promotion agencies, the company said in an e-mailed statement last week.

To contact the reporter on this story: David Fickling in Sydney at dfickling@bloomberg.net

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net


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