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Qantas (ASX:QAN) share price drops 3% on Virgin-Qatar Airways deal

The Qantas Airways Limited (ASX:QAN) share price is down 3% on the Qatar Airways plan to buy 25% of Virgin Australia. 

The Qantas Airways Limited (ASX: QAN) share price is down 3% on the Qatar Airways plan to buy 25% of Virgin Australia.

Qatar Airways to assist Virgin Australia

Qatar Airways wants to buy 25% of Virgin Australia from Bain, the current private equity owner.

This stake sale will enable Virgin Australia to start providing long-haul flights by mid-2025 for the first time since 2020.

Virgin Australia said this deal will provide “access to scale and synergy benefits, further strengthening Virgin Australia’s financial resilience and underpinning the company’s continued strategic growth.”

Customers of Virgin Australia will also get additional benefits, including increased earn and redemption opportunities between Velocity and Qatar Airways’ Privilege Club, as well as expanded code sharing arrangements and improved schedule and connectivity options.

This deal will “drive increased competition in Australian aviation.” That sounds like troubling news for the Qantas share price.

Interestingly, Virgin Australia also said this minority stake also 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.”

Virgin Australia CEO commentary

The Virgin Australia 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.

This proposed investment is subject to regulatory approval. We do not take this for granted and have made submissions outlining the benefits of the transaction for Australian aviation, Australian travellers and the Australian economy.

Final thoughts on the Qantas share price

This could be painful for Qantas if it means a stronger competitor. If Virgin Australia captures market share/revenue and causes lower profit margins, then it could reduce how much profit Qantas would have been able to make if this deal didn’t happen.

While I wouldn’t sell Qantas shares purely based on this news, I don’t think the future is as bright for the airline. But, there is enough room for both airlines to do well in Australia, with a lot of flights taken within the country, as well as international travel. The Sydney-Melbourne route is one of the busiest in the world.

Seeing as the Qantas share price is up 30% in the last six months after a solid FY24, I wouldn’t call it a great buy at this stage.

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