Ansett Now Backing Deregulation

He said that, in some respects, the two airline policy was already a myth. “That’s because in 1981 some quite significant changes were made to allow other operators to compete for trunk route traffic,” he said. “It’s a matter of record that at least one airline has sought to take advantage of those opportunities.

“The proliferation of gateway ports and the enhanced rights of international airlines to serve a greater number of gateway ports has also added to the incursion on the rights of the ‘two airline’ partners. “Qantas and other airlines now have a far greater opportunity to carry passengers domestically between ports in Australia and I suspect the full impact of that is yet to be felt. “Once Japan Airlines, for instance, builds up a network to serve Cairns, Brisbane and Sydney, the Japanese traveller who at present flies on domestic airlines while in Australia might well be able to travel throughout the entire journey on Japan Airlines. ”

He said it was Ansett’s view that the present system was serving Australia well. It had achieved its objective which was to prevent the establishment of a government-owned monopoly but change was in the wind. “Ansett recognises that there are demands from the community to change the system and that the government should be able to respond to them,” he said. “That, in the current climate, means deregulation to some degree. ” But, he said that only one course would be acceptable to his company and that would be for Australian Airlines to cease being government owned and international airlines would have to be limited to the restricted rights they had already won to carry passengers on domestic routes. Australian Airlines would have to be sold because, if Australian Airlines was operated unsoundly in a deregulated market environment, it could be bailed out of trouble by the government while private sector operators were ultimately driven out of business. Treasury views put to the May inquiry and discussion which followed showed that a government owned airline couldn’t be allowed to go broke because it would put the government’s credit rating at risk.

International airlines were posing a risk to domestic operators because of the apparent ‘one-sidedness’ of the present arrangements. “Domestic airlines are unable to operate outside Australia while international airlines are increasing their incursions into our market,” he said. International airlines had considerable tax and cost advantages due to offshore operations and revenue advantages offered by fare control on the many bilateral agreement routes they operate.

In the absence of regulation, it would be possible for these advantages to be used to cross-subsidise domestic fares against domestic operators who, without the same advantages, would be unable to compete.

Kimpton said there had been some unfair suggestions that Ansett’s involvement in New Zealand was in some way similar to an international airline. He said that, unlike international airlines, Ansett had to recruit locally to staff the airline, maintain the aircraft and acquire a dedicated fleet of aircraft to complete a stand-alone domestic airline with none of the economies offered by operating in conjunction with another big domestic operator across the Tasman.

Kimpton also slammed the May report which produced a long list of options of which only one was really acceptable for Ansett – no change. He claimed none of the options would allow the creation of a free market saying they would all place airlines at the mercy of public servants or private sector airlines at the mercy of the government owned airline or both.

“The May inquiry options for change, if adopted, could make it very difficult to attract private capital into the domestic airline industry. ” He said that, on the other hand, complete deregulation, including the sale of Australian Airlines, would allow the fortunes of airlines to be directly linked to marketplace performance which was likely to be conducive to private sector investment. If this happened, the risk of Government funds being required to bail out Australian airlines would be eliminated. Funds were likely to be scarce for some time and the present government’s airport policy was likely to place its own strains upon public sector borrowing.

“It would be most unfortunate if domestic terminals and airports were so starved of funds that they became as inadequate as Sydney International Terminal,” he said. “This is a real possibility for most major airports because of their virtual sole reliance on government funding. ”

East West chief executive Bill Meeke also had some cutting words to say about the two airline policy and some of the proposals to end it. He said it was an outdated system that had “made champions of its only beneficiaries. I think it would be agreed by any reasonably informed observer of our industry that Ansett and Australian do compete but hardly on a level which is going to bring the average Australian flocking to them,” he said.

“Both airlines have locked themselves into vast commitments for new aircraft fleets. The purchase prices and costs of meeting lease or other payments have been adversely affected by the value of the Australian dollar. These factors will ensure both airlines must continue to address the passenger who is going to pay the full or undiscounted fare for travel and preferably those who may be attracted to the even more highly-priced business and first class travel. ”

He said deregulation could open the way for the sale of Australian Airlines but management of the sale would be critical. A widely dispersed shareholding could make it very difficult to produce strong, entrepreneurial management and performance. Lingering government social goals or even a minority government shareholding could further shackle the privatised company. “Of the greatest concern is that, if Australian were to be sold, it might well be that the two airlines agreement would have to be retained for the airline to have sufficient appeal to private shareholders. ”

Meeke said East West was not interested in an environment that was not much more liberal than the present system. East West wanted deregulation but a number of factors were critical. “It is whistling in the wind to expect deregulation to work if Ansett and Australia are allowed to maintain their strangleholds on terminal and other key airport facilities through long leases,” he said. “Most of these facilities have been provided at Australian taxpayer expense. ”

He said there was already serious doubt that deregulation would achieve much partly because of the dominant position which Ansett had built within the industry. Not only was Ansett Transport Industries the largest airline operator in Australia but it had been able to achieve a level of control over the industry that had never before been seen in Australia.

“To give Ansett its due, it has been able to achieve its dominant industry position with some astute management and planning,” he said. “But would it have gained it if there were a really competitive environment in which airlines were not allowed to consult each other on fares, aircraft utilisation levels, passenger revenue load factors and the efficient and economic operation of passenger air services?”

Meeke said the May report had listed five options for the future but a sixth option seemed to be emerging – give the lot to Ansett.

“That will be the result if the federal government insists on selling off Australian Airlines and the major city airport terminals. East West isn’t much enthused about competing with a government owned airline under deregulation but it is less interested in seeing an Australian Airlines unable to match the abilities of its major competitor. ” “All East West wants is a fair go for everybody without some having the advantages of benefits inherited from a plainly unfair system. “