BIE Industry Scorecard

Although the air transport industry represents only 1.2% of the national GDP, it is second only in importance to road transport, and greater than rail and sea combined. Of particular significance is the fact that since 1984/85 air transport has been the fastest-growing transport mode at 9% per annum as opposed to just 1.8% for rail and sea. The study has found that a significant number of people are employed in the air transport industry; for the year 1992/93, 43,000 persons were employed as against 69,400 for road, 54,500 for rail, and 22,100 for sea.

As might be expected, three-quarters of airline revenues are generated by passengers with only 10 to 15% generated by freight. Whilst there has been steady annual growth in passenger travel of 9%, air cargo has shown a decline, exacerbated by the 1989 pilot’s dispute with the overall growth in domestic cargo being largely taken up by road transport. Conversely, air cargo into and out of the country has grown by 18% and 26% respectively. Australian business—ie, wholesale and retail trade—is by far the biggest user of domestic passenger airline services, with cargo usage tending towards non-bulk, high-value commodities.

Effects Of Deregulation On The Performance Of The Aviation Sector

Australia’s domestic and international aviation has been the subject of heavy government regulation right from the outset of commercial aviation. At its worst, the “two airline” system was the symbol of a government fearful of what might develop if control was relaxed. However, in line with international trends, Australia has followed suit.

Reform commenced in the late eighties with the establishment of the Federal Airports Corporation (FAC) and the Civil Aviation Authority (CAA) as Government Business Enterprises (GBEs). The FAC is required to earn a 7.5% per annum real rate of return and has been successful, enjoying strong growth. However, the report raises the question of the Government’s intention to privatise airports and the effects this might have.

There is a detailed analysis of customer usage of airports with emphasis on passenger processing. The report reaches the conclusion that Australia is on a par with the rest of the world but below the best observed (Copenhagen and Christchurch). The CAA is on a similar footing to the FAC but has achieved its results through a 30% cut in staffing levels. Perhaps surprisingly, the study has found that the CAA’s charges for enroute air traffic services are low by world standards. On-time performance at Australia’s airports is on a par with overseas airports but below best practice.

International services capacity has been significantly increased through renegotiation of bilateral air service agreements to permit multiple carriers. This provides Ansett, and any future Australian-based airline, the opportunity to operate internationally. The report concludes it is doubtful whether the domestic market is large enough to sustain more than two trunk carriers, but deregulation has resulted in lower overall average fares in real terms through discounting competition.

Airline Performance Indicators

The study found domestic airfares and freight rates are amongst the cheapest available worldwide, rivalled only by some intra-Asian routes and North American discounts. In-cabin service is comparable with overseas competitors, and Australia’s safety record remains one of the best in the world. International airfares to and from Australia are, on average, cheaper than comparable routes overseas, though this advantage is eroded over some longer-haul routes.

Finally, the report determined that in terms of airline operating efficiency, Qantas has superior labour productivity and comparable capital utilisation compared to most overseas airlines. Qantas’ unit costs are generally below those of North American and European airlines but above those of Singapore Airlines and Cathay Pacific.

Pilot Utilisation

The report reaches the startling conclusion that Qantas pilots fly only 190 hours a year! Anyone with the vaguest knowledge of airline operations would appreciate that this is incorrect by at least a factor of four. When queried, the Bureau replied that the airlines were not willing to supply the data on pilot flying rates as it was commercial-in-confidence and as a consequence the Bureau had devised its own measure of pilot utilisation.

The method adopted was to simply divide the annual aircraft hours flown by the total number of pilots and copilots combined. The Bureau defended this ‘novel’ approach by stating that whilst incorrect in absolute terms, it provided a consistent methodology for comparison. However, even airline crewing policies would introduce inconsistencies. Whilst sympathetic to the Bureau’s problems, the report as written gives a totally misleading indication of flying rates.

Comment

Apart from the error in pilot utilisation rates, the report appears to be well-researched. Unfortunately, uncertainties such as airport privatisation, the proposed sale of Qantas, inquiries into the CAA, and Ansett’s entry into the international market make it difficult to determine the future.