Interview with Peter Morris

PM: That is certainly our objective and it is a daunting task for any government. It is a task which I do not believe that any government in the past has seriously addressed.

This year in particular is a challenging and exciting year because a number of major reviews are underway and there are a number of major objectives on which decisions have to be made and which have to be implemented.

JS: How much do you see it as a coordinated campaign, or do you have to address each mode of transport individually? For instance, the various inquiries you have initiated a couple of which have been reported recently seem to be proliferating somewhat. Do you have any particular program of tying these together, or co-ordinating at any stage? Is there a grand plan in all this?

PM: There is an overall coordination and strategy in transport and aviation. It is not a matter of one or the other – it is a matter of one complementing the other, each performing the task for which it is best suited.

Kim Beazley had made considerable progress in the implementation of the party’s policy and had set in place the essential framework for the reforms that had to take place.

The Bosch committee cost recovery review has already reported.

The recommendations of that report have been endorsed in principle by the aviation industry at a recent meeting with me. We are now working our way through those proposals and have taken a submission to Cabinet.

The legislative framework for new airports and airways charges has been put through.

That is task number one in aviation this year.

Task number two is the conduct of the review of the two airline agreements which Tom May is carrying out and is due to report in the first half of next year.

Task number three is the selection of the site for a second Sydney airport. The draft environmental impact statement we hope will be out in May.

Subsequent to that there will be the final EIS and then a plan to take a recommendation to the Government for a decision no later than September.

Number four is the establishment of the national airport authority.

Present planning is for that to become operational on an independent basis from July 1 next year but there is a lot of work to be done between now and the end of this year in preparation for that in association with the Bosch report because the recommendations overlap. This means a movement away from the old system of air navigation charges to a new system of airways charges and airport charges.

JS: So we will have this separated system of airways and airport charges before the NAAA is established.

PM: No we are trying to co-ordinate the development of both.

JS: There is no longer any doubt at all then that the NAAA will go ahead.

PM: The legislation is already through for the separation of airports and airways charges.

JS: As far as I am aware though, The Government has only made a decision in principle to go ahead with the NAAA.

PM: That is right. The legislation has not even been drafted.

JS: So there is no chance of any changes on that.

PM: There is an in principle decision but legislation has not been prepared. We are now working out the details. There is no doubt about that.

JS: On the recently announced terms of reference for the review of the two-airline policy, why, apart from the fact that it is government policy, at a time when most other governments with government-owned airlines are looking at some degree of privatisation, are you ruling out even any consideration of selling TAA?

PM: Long-standing policy of the Government. Changing the ownership of TAA does nothing to change the provision of services. Those who now say they want to do it had the opportunity to do it and did nothing about it.

It is really more a political slogan. The opposition are saying it but when they were in government they had the chance to do it but did nothing about it.

The plight that TAA has been through is a result of the policies espoused by those who having crippled the organisation now say the only solution is, after considerable increases in public money being put into the organisation. “you ought to sell it. ” It already belongs to all Australians. Everybody has a share in the ownership of it and just changing the form of ownership does nothing to achieve the objectives of efficiency improvement we want to see.

JS: You believe there should be a major government participation in the provision of air services?

PM: I do. But most of all, we have an organisation that has for almost all of its life been under the superintendence of conservative governments. They have a vested interest of not having those public enterprises perform to the best of their capacity. That is evident in Qantas, it was evident in TAA, it is evident in The Australian National Line and Australian National Railways. No matter which of those organisations you look at, each of them, during conservative government, particularly in the period of the Fraser Government, was denied policy and denied essential working capital – they were starved of money-dividends were taken out of TAA when they did not have enough working capital, they were screwed out of them. Most of all, they were not given clear policy guidelines. In some ways it is a miracle they survived.

JS: There seems to be a problem of succession at TAA. For some time now they have not been able to attract a suitably qualified deputy general manager who presumably, in the current circumstances, would become general manager in fairly short order. Qantas, to a lesser degree, may have a similar problem.

I gather Mr Beazley had moves underway to increase the salary payable for chief executives in the airline and I think you are continuing along the same lines. Do you see a problem there in attracting the right sort of people?

PM: The level of salary and emoluments for each of the public enterprises always creates a problem in attracting applicants for the top executive positions.

But there is a difficulty there in that whatever salary and emoluments are there have a possible flow-on effect to other publicly-owned enterprises. That is a problem which the commission and each of them have been wrestling with for some time. It does create difficulties. Generally they have had more than the usual element of dedication in the top personnel which has enabled them to get along as they have.

JS: Do you think it is possible to make any changes in that area?

PM: We are looking at a number of options which I cannot define at the moment. I hope we are able to attract people of the calibre necessary to run enterprises as large and important as they are. They are big businesses.

JS: At the moment we have a case where the senior pilots are earning $20,000 or $30,000 more than the chief executive?

PM: And more than the prime minister – not as much as the chief minister of the Northern Territory. It is a problem of relativities.

JS: I would like to kick around a bit the possible future shape of aviation regulation in Australia. I think you have already stated quite clearly that deregulation as applied in the US is not a suitable option for Australia. However, in that market context, how successful do you believe it has been for the US, in their admittedly very different market?

PM: My knowledge is that they are un- like animals. A comparison of the US and Australian market is a comparison of unlikes. The hard cold fact is we have a two-airline agreement and we are bound to uphold its provisions. It cannot be changed, other than by agreement of the parties involved, and could not be terminated, if that is so determined in the period ahead, earlier than in five years’ time.

In that situation, I do not see any point in getting our knickers in a knot over possible changes to the two airlines’ agreements. We would like to see air travel available to as wide a cross-section of the Australian community as possible. But we are bound by the terms of the agreement unless they can be modified by the agreement of the parties to the agreement. I am determined that we have this comprehensive as possible review of the airline arrangements as possible.

Tom May will be touring Australia, taking public submissions. There will be a public seminar later in the year to look at the provisions of the agreement so we can facilitate an expression of all points of view on what form future legislation might take.

JS: Would it be fair to say that the planned effects of the 1981 agreement of the Fraser Government have not really worked out quite the way people thought it would at that stage? It has been described to me as a lawyers’ paradise. You can put all sorts of interpretations into a lot of the legislation. Is it for instance, still fair to refer to it as a two-airline policy? Do we not in effect have a two and five-eighth airline policy already in the way that East-West has been able to take advantage of some of the provisions to move, in effect, onto trunk routes?

PM: Regulation in any form has some interesting aspects. Those who are out want to be in, and those who are in want all others to stay out. If it is two, there are those who want to make three, and once it is three say it should remain only three. There is an excellent example of that in the car rental agreements. Those who were out, who are now in, are unhappy at the prospect of their being further entrants to the car rental field at airports. Those who are partially in the existing airline agreement I am sure would like to be in, but, with the certainty that all others and we cannot change it without the airlines’ concurrence. It is a fact of life. would be out. But the agreement is there ter are not

JS: In comparisons of domestic fares in Australia and overseas the airlines tend to put out one set of figures and others claim other cheaper fares. The allegation is frequently made that the lat- apples-to-apples comparisons. What is your feeling on the value of airfares available to travellers in Australia? Do they have a reasonable range compared to what is available in the US, which has its own brand of regulatory system, and in Europe, where I do not think that anyone argues that the scheduled fares are considerably higher, but also have so-called charter operators who sell package deals?

PM: That again is not a fair comparison. The UK domestic airline market is a very small component of domestic travel. JS: I was thinking more of UK-European travel.

PM: The UK market is a very tiny one because there is a ready availability, with a small land mass and short distances, excellent train services and private motor vehicles.

We have a different situation in Australia, where we have a land mass about the size of the US, we have peculiar population settlement patterns, with 80 per cent of our population down the southeast corner, but a responsibility to provide jet services right across the continent.

The US has a quite different population settlement that provides a market twenty times as great as Australia, but settled in a way that it has a market at each of the edges of the continent. It makes it much more amenable to operating an aviation business.

One thing that is certain is that Australians are prepared to put up with inconvenience if the price is right. I am sure that is one of the views that will be put forward during the coming review of the two airline agreements.

You said things have not developed as was foreseen. That is true because when the review was announced when they undertook to do that, there was an expectation at that time that both of the airlines would have full utilisation of their wide-bodied fleets.

In the intervening time, we saw a collapse of the market, the economy go into recession with both airlines unable to effectively use their wide-bodied fleets. In the discussion at that time, there were constant references made to ‘when we would see the economies of wide-bodied aircraft. ” We have not yet seen the full benefit of full utilisation of those wide-bodied fleets because of the size of the market, so to that extent, things have not developed as was anticipated at that time. Instead of the aviation market beginning to go up, it went down. It is only now, recently, that we are now back to a growth of about six per cent over the first two months of this year – back up to the kind of growth that was around at the time of the new package. The market has not developed as anticipated so to that extent your assertion is correct.

JS: Is it fair to make a comparison with deregulation in the US and I take your point about it being a completely different background, scenario and everything else – has in fact shown that small aircraft are much more competitive against larger, wider-bodied aircraft, than was foreseen. The US has some very heavy. thick routes, where wide bodies are acceptable and sensible, but we have nothing remotely resembling that volume of traffic even on our heaviest trunk routes in Australia. In fact, the airlines which appear to be making a profit in the US, appear to be operating mostly small (737. DC-9) aircraft. That is an interesting comparison, with what is going on here with the IAFC, where, as I understand it, their legislation obliges them to calculate the cost advantages of all aircraft above 92 seats on the same basis. The argument at the moment appears to be. should East-West be allowed to calculate different costs, for different aircraft, on different routes, and not be tied to what appears to be a shortcoming in the IAFC legislation.

PM: The IAFC requires that there be a standard fare. One of the effects of that is to ensure that the benefits of the wide-bodied aircraft cannot be passed on down the line, because there has to be a standard fare across the range of larger aircraft.

JS: When you say “passed on down the line”, you mean cross-subsidising?

PM: No, in the fares. There is a standard fare for jet aircraft which is. defined as an aircraft with 92 or more seats. So an aircraft capable of carrying 350 or more passengers is bound to the operating economies of a 92-seater.

JS: For the sake of the calculation of the fares.

PM: Yes.

JS: It appears to be more or less by accident that East-West, with a smaller aircraft, which should by all normal reason be more expensive per seat to operate, is now able to work on a cost allocation basis which has a lower level of cost allocation and presumably a cheaper fare.

PM: East-West Airlines are subject to completely different cost allocation processes and their cost allocation review has just started, which will be immediately followed by one for Skywest.

It would be more appropriate to comment at the end of that when we see how the numbers come out. One of the defects of the current arrangement is that the operating economies of larger wide-body aircraft cannot be related exclusively to fares for use of that aircraft.

The other problem is that which you are skirting around – it is all very well to talk about Australian fares and fares overseas with the US experience.

One of the major restrictions upon Australian aviation is the very limited use of our airports. Added to that is the taxpayer, puts in about $200 million per year into servicing the infrastructure of the aviation industry. That is a very hefty contribution coming from the ordinary taxpayer.

There is a restriction on the operating ability of the airlines, and what they can do in respect of fares and services. If you look at the US, the low fares figure which is most commonly used is overnight, or late at night fares.

There is always very selective use made in these comparisons they are late at night or 3am or 4am fares. That kind of service, if the airlines wan- ted to provide it, is not available in this country. So that limitation builds in an additional cost to aviation here.

JS: Part of the reason for that not being available is of course curfews.

PM: I was referring to them in an oblique sort of way.

JS: So if the community wants curfews it has to accept. . .

PM: It is one of the costs air passengers pay because of the lesser utilisation rate of aircraft. Many of those who so quickly want to quote the American fares usually quote the midnight or 3am fare from east to west or west to east.

JS: Why do we seem to have such a generalised adverse public opinion of the cost of air services in Australia?

PM: It is very much in the mind of the beholder. It is not supported by the facts. There is growth in the market. If most people thought fares were too high, the market would not be going up. It would be going down. Certainly, the market is very sensitive to the state of the economy for discretional travel. And airfares are like taxes. Whatever the level they will always be too high.

JS: One of the reasons that we do not have a high amount of cheap airfares available domestically at the moment is the surplus capacity. East-West manages to keep its costs down by higher utilisation by in effect spilling over surplus capacity, dumping if you will, outside its traditional area.

By happy accident, it happened to get in some reasonably attractive jet aircraft that came in just under the IAFC legislation in terms of cost allocation. They are getting good utilisation. Therefore they can keep costs down. Ansett in particular, and TAA, have been pushing with ideas of getting some capacity onto regional international routes. Do you see any difference in essence? Would that be the same thing as East-West is doing at the moment setting on to trunk routes – forgetting for a moment about the policy of whether another Australian flag carrier should be allowed on international routes?

PM: I do not see a role for TAA or Ansett in the international field. That has been the view of successive governments. I see no reason to change that. I see only Qantas as the international flag carrier. Qantas is in a most competitive field and a very efficient airline. It is equipped for that market. There have been limited opportunities for the domestics to operate under Qantas flight numbers. That is something that may arise in the future. But I do not see this as like comparison the domestics going into the international field with East-West expanding on to their routes.

The assertions from the major operators about East-West in respect of cost allocation and so on are matters to be looked at by the IAFC. But Ansett and TAA are heavily over-capacitated.

JS: Yet East-West is, I gather, almost filling its aircraft.

PM: Well, they have much smaller capacity aircraft. East-West has made. considerable gains and obviously what they are doing has considerable public support.

JS: In their marketing, they are killing Ansett and TAA. Everybody perceives them as the cheap carrier. It is remarkable how few people seem to know about the availability of the 45 per cent discounts on Ansett and TAA which means they more or less match East- West fares.

PM: It is marketing and image but ask TAA and Ansett what percentage of space made available for flexi-fares is actually sold – it is a substantial percentage. You can ask yourself the reasons for that.