Australian Treasurer Will Require Qantas to Maintain Full-Service Network

The $11 billion sale of Qantas hit new problems yesterday when Peter Costello threatened to use his foreign investment powers to force the airline to operate a full service on domestic routes.

News of the threat came as Australia's competition watchdog announced it would investigate the sale.

"I think what we would like to see in Australia is the maintenance of a full-service airline," the Treasurer said. "You see, there are competitors to Qantas domestically, people like Virgin, Jetstar to a degree, but Qantas is the only full-service airline on domestic routes. We would like to see that continue."

Mr Costello has the power under foreign investment legislation to block the proposed takeover on national interest grounds or approve it conditionally.

Full-service airlines, as distinct from the budget or no-frills carriers, typically operate large-scale networks and provide services such as business-class travel, lounge facilities and in-flight meals.

Australian Competition and Consumer Commission chairman Graeme Samuel said he would look at the deal, partly because many members of the consortium seeking to buy Qantas had their fingers in many other parts of the air sector. The biggest problem could be Macquarie Bank, which under the deal would take a 14.7 per cent share in Qantas, in addition to its 49 per cent share in Sydney Airport.

The bank also owns tollways in and around the airport, as well as baggage handling and taxi assets.

Mr Samuel said Macquarie's partners, including Allco Equity Partners, Allco Finance Group and Texas Pacific Group, also had links to other parts of air transport.

"The ACCC will closely assess the likely effect of the proposed acquisition on competition, including how the proposed acquisition would affect customers, suppliers and other competitors in the air transport industry," he said.

The ACCC can stop buyouts or mergers that would substantially reduce competition in a substantial market. There are fears that by having control of Qantas, Macquarie might disadvantage other airlines using Sydney Airport.

After the surge in the Qantas share price yesterday, it eased 1 to finish at $5.29 in a sign investors are yet to be fully convinced the buyout will get past regulators.

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