Interviews – Kim Beazley

KB: It is very premature because nothing can be achieved in liberalising regulations prior to 1989 except on the basis of a common agreement between the government and the two major airlines. That is the bottom and what the two airlines’ agreement is about.

After 1986 the government can serve notice of termination for 1989 but in terms of actual initiatives that are within government control under the terms of the legislation that is all that is possible.

I would envisage the review will attempt to arrive at a form of liberalisation in the system that would be acceptable to the airlines prior to that.

I am not committed to the idea of airline deregulation in the mode of the US. That is a siren song that must be qualified. If you look at the Australian and American situations when you are talking roughly the same geography, in the US there are now some 300 billion revenue passenger kilometres in comparison to 10 billion here.

There are at least seven or eight airlines which are of factors of twice the size of our two airlines.

Cheaper flying is both desirable and necessary. I do not believe that that is automatically concomitant of a deregulated system or a regulated system. You have to address that issue within the framework of whatever proposition or regulation that you propose.

One of the things we would be interested in doing, in amending, if you like, the regulated basis of Australian aviation, would be to give to the Independent Air Fares Committee (IAFC) a greater degree of public interest power as opposed to their essentially price-fixing power which they have at the moment.

In any system of regulation, a body performing that type of function is absolutely essential. The IAFC is a matter that will get very considerable attention . from us.

JS: You are obviously not entirely satisfied with the manner in which the IAFC is currently operating, even though it is doing so within its charter.

KB: I am not so concerned about the way the IAFC itself is operating but I am concerned about its charter.

My dealings with the IAFC are pretty spare because they operate genuinely free of ministerial direction. But my impression of the IAFC from occasional conversations that I have had with its chairman and members, is that they are building real expertise in the area of airline costing and that in itself has been fairly useful to the consumer. Add to that a more public interest power in its charter, and you get a very useful result.

JS: When you talk about a free market in certain circumstances, the old flag always pops up that the government owns about 80 per cent of the airlines operating in Australia through Qantas and TAA, and 50 per cent of the major domestics. When you talk about a free market, how concerned are you about airline profitability? Ansett are perpetually pointing out that TAA can afford to run at a loss while they cannot.

KB: That is the other area of impossible tensions under which a Minister for Aviation must operate. I take very seriously the question of airline profitability and I do not believe that TAA can justify operating at a loss.

There is no doubt at all that we cannot have a situation in which the government airline operates at a loss and a very considerable percentage of my time has been devoted to creating the conditions whereby that does not occur.

What is sometimes seen as the possibility open to TAA to engage in predatory competition on the basis of the taxpayers’ funds being injected into it is, I think, not a reality in that it is not necessary and ought not occur.

In the first case it is not necessary because I believe the problem of cheaper airfares can be and is being addressed by properly calculated discounts and in fact properly calculated discounts add to the profitability of airlines and do not distract from them.

I think that has been the case with the flexi fare which has been useful to top up and improve load factors where otherwise there would have been dead seats – perhaps unoccupied seats would be a better expression to use.

The second point is that there is a low level of tolerance in the community for government authorities which becomes substantial charges upon the taxpayer.

Making TAA profitable has been a major preoccupation of mine and I think that will be achieved.

TAA’s problems in that regard have been in very large measure a product of government decisions over the years than one or two mistakes on their part.

JS: Could you be more specific?

KB: On government decision – at different points in time an excessive dividend has been asked from them which has made it difficult for them to build reserves. A long way down the line equipment decisions have occasionally been compelled on TAA that have produced a situation in which their judgements about what would be profitable exercises have been over-ridden.

JS: Are you satisfied with the manner in which TAA has gone about proposing discounts and introducing cheaper fares has it not done all you would like it to do because of pressure from other sectors of the industry?

KB: One of the difficulties of the two airlines agreement historically has been the production of what appeared to be totally similar operations and a tendency for each airline to regard the other airline’s up-market operation as the base line to which it should aspire, as opposed to the opposite direction. In large measure, that type of attitude has dissipated. They now have fleets that look materially different. While they still respond to each other’s initiatives they are tending to respond less predictably. I do not see that trend doing anything other than continuing so I do not see TAA at the moment as excessively strait-jacketed. They are becoming a very much leaner operation than before and discarding nonaviation activities in the interest of establishing themselves as a profitable operation.

JS: And yet we have a situation recently where TAA is directing most of its marketing effort into business class and higher yield traffic which traditionally has been the Ansett preserve. Would you like to see a situation where TAA became the price leader on discounts?

KB: I think that has happened effectively by default. TAA does fly more people than Ansett does at a discount. That is not a result of necessarily of a direct marketing strategy but of public perception.

On the question of competition with Ansett and higher-yield traffic, it has to be said that success in that area offers you opportunities further down the line.

The first and business-class fares are real cream on the cake and the costs of operating aviation in Australia are very, very substantial. If you are going to be able to offer a fare that the ordinary Australian traveller can aspire to, you do have to protect areas of profitability. That is one area which has required some attention.

I can understand why TAA has pursued that area of the market.

JS: How realistic is it to be looking for cheaper airfares than are already available? It appears no matter what the airlines announce the public is not happy. What sort of discounts can you imagine?

KB: You have to look at who requires the discounts. If we are going to develop the tourism industry in this country people have to be able to fly at cheaper rates than the regular fare.

I think the airlines are beginning to address that sensibly. The flexi fare, while not quite a tourism fare, operates in a way that offers an opportunity to a person who can specify a particular date of travel on the basis of no heavy timetable commitment. It is being responded to in that way and45 per cent discount brings you into a realm of the price which in any other country is highly comparable.

The $500 and $800 tourism fares are in terms of the Australian tourism industry, good.

With these in place, we have seen quite significant strides over the last 18 months to two years on the part of the airlines to address their tourism obligations at both the international and domestic levels.

So they are opening up to the ordinary Australian with those two fares real possibilities.

I have also suggested that consideration should be given to the idea of family fares.

When you address those particular propositions you have really got just about as far in the cost structure of the Australian domestic aviation industry as the airlines can go. You will effectively have offered to the tourist the opportunity at some slight inconvenience, to operate at between 35 and 45 per cent lower than the regular economy fare.

I think that would be a very good situation indeed.

The proof of the pudding is to some degree in the eating.

Since the flexi fare has been in, some 300,000 people have utilised itin its first six months of operation. It has been particularly well utilise do some of the longer and most expensive routes – over 50,000 people utilised it from west to east and back. That is making a fairly significant impact. It is now constituting – depending on the route – between three and six per cent of the airlines’ load factors on that fare alone before you consider APEX or standby.

There is a pretty wide rangeof discounts and the public is sometimes unaware of that fact because, as you mentioned, the airlines tend to be upmarket in their advertising.

JS: How many different strataof airlines do you see? TAA and Ansett on the main trunks obviously, but we do not appear to have anything like the dedicated charter airlines in Europe and US that operate inclusive tours to popular destinations. East-West apparently think there is room within the existing arrangement for it to carve out a niche and not all is sweetness and light between the commuters and the bigger airlines deciding on who can do what.

KB: There are possibilities for charters. There is a certain amount of flexibility for charters which is occasionally used. EastWest operates charters to Tasmania. Qantas has also operated charters around Australia and the major airlines might well start to address that too. That is an area of possibility but it will require a fairly substantial upturn in the economy.

Internationally, we have liberalised our charter policy, but no one is rushing around applying for charters – and you will find the same domestically.

East-West/Skywest are adamant they will remain a low-cost operation and I do not see that changing. There is an inhibition at this point. In those conditions, I see it unlikely there will be any further dramatic reductions because very considerable expenditures are involved.

With the current East-West operation, it is really a matter of wait and see. They are absorbing a considerable number of neyV routes and going through a process of very substantial re-evaluation of what their airline is.

As a result of that they may emerge with some interesting suggestions as to what role they want to play. It is by no means certain that they will address the third airline possibility in the major domestic carrier context.

What they may well do over time is try to alter the balance at the lower level to press the major operators to become really capital city trunk route operators and nothing else, and East-West sees an expanding national role for themselves in the other area.

If I was laying bets on how I would see aviation five years from now – and I hope I would be responsible for it – Aviation Ministers do not tend to last very long – I would bet East-West moving in that direction, rather than the third airline direction.

JS: A lot of people seem to think that if they put in a new airport rain will follow the plough.

KB: It doesn’t. People have that view but it is just nonsense. Airlines in my experience have a pretty good nose for when they have a possibility of an operation and they themselves can put sufficient pressure on the department to ensure that where they want to operate to have a capability. They are just not doing that at the moment and the reason for that is the same reason why charter operators are so slow off the mark.

JS: What about applications by a number of airlines for rights to operate scheduled services to Australia? Specifically Air Lanka for example.

KB: My understanding is that they are about to enter negotiations with Qantas on that. There are huge numbers of unused rights both from Qantas going out of here and other airlines coming in.

If you looked at the opportunities for travel there is probably only one area of the globe where the current arrangements do not very effectively serve where an Australian might want to get to, and that is South America. Otherwise, the routes out of Australia offer very good opportunities for anyone to conveniently travel just about anywhere they want to go, including into Africa. South America is a gap.

JS: It is not a heavy market either.

KB: One of the great cities of South America is that you cannot mount a cost-effective operation over the Antarctic. If you could do that and you were not out of the area for search and rescue framework, you could have very economical route to South America.

JS: Obviously you cannot pre-empt the recently announced cost-recovery study but can we get some feelings on its philosophy? We currently have controlled and uncontrolled airspace and yet we have a de facto system of control even in the uncontrolled airspace through· flight service and position reporting which does not operate in the US where you are genuinely either controlled or completely uncontrolled.

The airlines are going increasingly to direct routing with the intertidal, area and Omega navigation and not need a lot of the existing ground navaids.

Do you see a changing role of government and industry relevant to operations outside the main air routes?

KB: The department is undergoing a variety of reviews on the outskirts and in some cases central to the area you mention. The department is also very conscious of the possibilities of the cost burdens it can impose on the industry.

We do have in this country a very safe operation which has a very high level of public support, as I become aware whenever there is an accident – there are very strong and very soundly based pressures for constant re-evaluation of the safety procedures and in a number of areas we are going through that.

But with the technical developments in the area I think there is an anticipation in the department that over the years there will be a change in our operations that address the technical changes in the industry and in the process the costs to the industry will fall.

The adjustments have to be very sensibly paced. You cannot willy-nilly wander round the place creating redundancies. It must have a basis to operate on in terms of public service regulations. The secretary of the department in announcing recently a two per cent annual reduction over the next three yearshas made absolutely clear that that does not involve redundancies.

We are aware of those problems and we are addressing them. I think they will make changes in the cost structure of the industry.

JS: You and the secretary are the final guardians and arbiters of safety in this.

KB: The secretary actually – the legislation is quite interesting on that point.

JS: There are constant complaints mainly from GA but to some degree the airlines that surveillance is too close and not entirely realistic. Often this gets down to certain individuals in certain regions have in fact been counter-productive to safety. Do you feel there is some legitimacy in that view?

KB: I am aware of complaints in both directions- of that complaint and another set of complaints from general aviation that we do not enforce our regulations properly and fly-by-night operators are allowed to get away with misbehaviour. Probably in many ways the basis of the complaint has some foundation in both directions.

In the latter area we are very dependent on self-regulation the industry and we are addressing the requirement for additional inspectors in that area.

On the first area, there is an awareness in the department that over the last 10 years or so on occasions in particular areas relations between ourselves and the operators have not been good.

Since the re-creation of the Department of Aviation and re-construction of some sense of esprit de corps, the conclusion of the shift to Canberra and therefore a degree of stabilisation in the department, a lot of the aspects of the system which made it difficult to address those complaints have been overcome.

I have been aware in my own discussions with the heads of our regional operations that they are aware of the problem in the past of occasionally relationships they are trying to address that.

The complaints that I have received have on the whole over the last few months been less than the complaints I received when I first got into office, which were numerous and quite heavy. That has not been the case so much recently.

I would like to believe that that was the result of the department responding and I think it has been a response to that. I think in part also it is a response to at least some general aviation operators beginning to see light at the end of the tunnel for their own economic performance as the drought recedes and spending in the country steps up.

JS: Can I get some idea of your general feeling on GA which in some ways is the Cinderella sector of the whole aviation industry? Its cost recovery factor is acknowledged to be about 15 per cent but GA operators point out that it is almost exactly the same as the GA industry in the US. To what degree, in view of changes we spoke about earlier, do you feel GA merits some special consideration as the cradle, or grass roots, of the aviation industry?

Also, are you happy with the relatively informal manner in which flying training is conducted?

KB: I agree with all those cradle arguments about GA and that it is the Cinderella in the system. That is a matter of concern to me. I am hopeful that the independent inquiry into cost recovery may point us in some useful directions in that regard. Albeit it will be done indirectly but I am hopeful they might come up with something along those lines.

I have given a lot of thought to GA since I came to office because in many ways its problems are the unsettled area of aviation operations in this country.

Where the airlines agreement operates pretty effectively on a day-to-day basis, the regionals have all carved out their niche and there is a bit of to-ing and fro-ing, there is nothing that fluctuates so dramatically in the aviation industry as the fortunes of general aviation.

I cannot say I have been able to come up with any dazzling new ideas as to how we get over the problem except to say that I am looking for opportunities, and so is my department.

They are taking very seriously the sort of complaints that you raised and trying to address them and provide a better service. More needs to be done than that.

Flying training is an area in which governments have not fully appreciated what the general aviation sector does for them. Pilots would be the only profession in this country who do not receive massive government subsidies to achieve their professional status.

If you want to be a doctor the government will pay effectively $80-90,000 for the privilege of putting you in that very high earning capacity.

If you want to be an engineer, the government will pay $40-50,000 to enable you to be one, provided you have the brains to do it and if you want to be a teacher we will pay $10-15,000 – all for the privilege of putting you into a very high earning profession.

If you want to be a pilot we will not really pay anything – unless you do it vi? The services where you will have it paid for at a very expensive level.

If you do not do it via the services you do it by yourself and to be a commercial pilot you probably have to spend up to $20,000 of your own money to do it.

I think the area of aviation education needs looking at.

I am personally not very attracted by the single aviation college, but I have some interest in the possibility of according recognising to the roles the flying clubs play. My views are very unformed at the moment but I and a few people are looking at it.

I see that as a very important function which at this time has not received from the government the recognition it deserves.

JS: You mentioned specifically clubs. Do you mean all flying training organisations – the commercial and club and for instance the integrated schools – as an area for development and recognition?

KB: AII aspects of aviation training require attention and they will receive it. I have not come to any settled view but it is an issue which will be raised in AVIAC and will be addressed over the next year or two.

JS: Are you happy with the quality of representation and feedback you get from the GA industry?

KB: Yes I am. If there is anything I regret from having held two ministries at the end of last year – and on the whole I found myself able to handle the workload – one thing I could do was to get around in the field and talk to people in the GA sector in the way in which I would want to.

Therefore I have been dependent on representation which has come forward from the peak councils of it. I have been quite impressed with the people I have met at the peak councils of GA. They are good defenders of their industry and the arguments they put forward are cogent and well-based.

At the same time I feel an obligation to talk to the people whom they represent but I have not yet had the opportunity to do that as systematically as I would have liked.

The whole GA area is one I care about a lot and I have not done as much in that area as I want to.

JS: On the airport scene we have the local ownership plan. Are you happy that many of the communities that have been propelled into this in one way or another appreciate the sort of asset that an airport can be? There are some instances of fairly high landing charges at locally owned airports, which tend to be counter-productive. The larger airports are Commonwealth territory and therefore isolated from the local community.

Then there is the proposed national airports authority.

KB: On ALOP we have just about completed an in-house review. From the point of view of the Commonwealth budget, the ALOP has been quite successful. On expenditure on maintenance and operations, including maintenance at airports, the ALOP programme to this point has saved us about $24 million per year. You cannot argue with figures like that.

We are starting to reach the position where virtually all those airports capable of transfer under the ALOP programme have been transferred and we are only really looking at about half a dozen additions. .

There have been a lot of complaints from the GA industry in particular about two things – excessive landing charges and that the cost recovery programme has bee influenced by unnecessary developments associated with an ALOP upgrade.

On the first count, we have encouraged the GA industry into a dialogue with the peak councils of the ALOP aerodromes which have just begun to get off the ground.

I am hopeful that as a result some form of modus vivendi will be achieved. Our capacity to intervene in that is very limited but I think the ALOP operators are beginning to get a real understanding of their own impact on the aviation industry as a result of being in these bodies.

On the area of unnecessary aviation developments, in the past there has been an element of truth in that. Getting into the ALOP programme there have been developments taking place at airports that would ultimately have been necessary but at the point of time at which they occurred were not necessarily functions that had to be performed.

There is a requirement on the Commonwealth that we take a much more serious look at ourselves in the way in which we do that programme and for that reason I have had that in-house review. We have not yet had the results of that but they are addressing that particular problem.

On the question of whether or not Commonwealth airports fit in with their local communities, Commonwealth aerodromes have to a degree been isolated from their local communities and particularly their immediate neighbourhoods and there has occasionally been an unnecessary level of hostility between the department and those local communities.

We are addressing that problem. There is now a peak council of the local authorities that host Commonwealth airports. I have had regular meetings with them. By the middle of this year we will have completed a rationalisation of the noise abatement committees and the like which will mean they are going to be more effective participants in the way in which those airports are used.

It has been very important to do that both from the point of getting community acceptability from the presence of an airport and ultimately also for the next stage of the development of the airports we are considering – the creation of a national airport authority.

We have a task force producing position papers on that for industry and interested party comment. The Commonwealth is not formally committed to the establishment of the authority or the basis on which it would be established but we believe that is the general direction in which we ought to be going.

I do not envisage that all Commonwealth airports will be included under it – I think it is likely at this very preliminary stage to be largely confined to the capital city airports. One of the purposes of the development of the airport authority will be to get to grips with the development of the airport as a commercial operation. We have done very well on airports as aviation operations but I am not convinced we have done well on them as commercial operations. By that I do not mean commercial in imposing impossible burdens on the aviation industry but commercial in the sense of being able to utilise that very considerable space in ancillary activities in a way that relieves burdens on the industry rather than the other way round.

This would include better utilisation of the commercial space on the airport itself and better utilisation of the unoccupied territory out of the way of aviation operations – there are usually huge amounts of unoccupied space in the airport area.

If you go to a place like Gatwick you can walk straight out of a hotel into the reception area. That hotel, when I was at Gatwick recently, prints money, and is a considerable relief to charges on the operators.

JS: So on liaison with local communities, there appears to be a bit of a hump in community attitudes to get over. It was noticeable when they created the first of these committees allegedly to decide how to get the best out of local airports, the first chairman was quoted as saying he would like to get rid of all airports because they were terrible things. That is a great point to start from.

KB: There is a very big hump to get over in that regard. On the whole what those communities do after a period of time is for the local authorities to become sensitive to the capacities to operate flight paths in a noise abatement mode, as they develop technical expertise in that area.

They also develop to a degree a willingness to accept the presence of an airport. Airports are unquestionably a mixed blessing. There is a noise problem but on the whole it is being more and more effectively addressed.

On the other hand they are tremendous employers and they bring into an area a wide variety of ancillary industries