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Perspectives — Jim Bain
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The International Air Services Commission was established in 1992 under the Labor Government’s “One Nation” policy statement, and according to the then Minister, was a fundamental component of one of “the most significant aviation reforms ever undertaken in this country.”
In June 1996 the International Air Services Commission (IASC) gave notice of its requirement to review rights allocated principally to Qantas, under a 1992 government decision which grandfathered the airline’s rights on more than 20 international routes for a five-year period. While the airline will be hopeful that the cream of its international routes in the ‘Section 54’ review will remain unchallenged, the IASC will determine the allocations with the same balanced and unbiased approach it applies to all other applications. Australian Aviation recently spoke with the Chairman of the IASC, Mr Jim Bain, about the Commission’s role in determining an equitable balance for existing and prospective Australian airlines for new and shelf capacity available under Australia’s bilateral air services agreements. The Commission consists of three members; Jim Bain as Chairman and two additional commissioners, Professor Brian Johns and Mr Russell Miller. The three members are assisted by an executive director, Mr Danny Scorpecci, and a Secretariat which provides the research and basic framework of draft determinations. Operating under a legislative framework supplemented by Policy Statements issued by the Department of Transport and Regional Development, the Commission’s sole responsibility is to determine the merits of competing applications by Australian airlines according to such criteria as tourism, trade, competition, public benefit and the existing industry structure. As Jim Bain explains, one of the principal features of applications from proposed new airlines which is examined carefully by the IASC, and one which has come to light in a number of recent determinations, is the capital structure of the company under which the airline proposes to carry out its operations. “Any new international airline operation is likely to need in excess of $30 million, and this is where most applications fall down — they simply haven’t been able to raise the capital. We want to see more than an undertaking from a major financial institution that they will provide the money. It needs to be virtually in the bank and in the form of either permanent capital and/or loan funds. Generally it would be a mix of the two.” “The proposed management (of the airline) should be experienced in business management — if not airline management. Because fledgling airlines have not had any flying experience in their own right, we also want to see experienced pilots and the like on the operating side. Generally speaking, applicants have usually done quite a good job with their business plans, although they are generally optimistic — as is the nature of an entrepreneur. We also need to know where the airliners are coming from: the aircraft is usually leased and we require confirmation of a leasing agreement, and that the terms of the lease are realistic.” The IASC most recently demonstrated its requirements for new carriers to possess sound financial capacity during the determination of applications for capacity to India by Australian Connection Airlines (ACA) and Qantas. In carrying out its responsibility in allocating the rights, the IASC determined that ACA had not successfully demonstrated evidence of sufficient funds to enable it to mount and maintain services on a long-term basis. “In the public interest,” Bain explains, “the Commission cannot give out rights unless an airline can prove that it has the capital structure and capacity to survive for at least a reasonable period of time.”
36 Australian Aviation October 1996
It is against this background that the International Air Services Commission will determine current applications by three airlines for rights to China made available under an extended bilateral agreement between Australia and the PRC. The applications, by incumbent Qantas, Ansett and Australia Connection Airlines are now being reviewed. As for the review of Qantas’ Section 54 allocations on more than 20 of its prime routes to Asia, the UK, Europe, USA, Africa and the Pacific, it is possible that Qantas could lose some of its existing capacity entitlements, particularly on routes still in the start-up phase. Jim Bain says, “Whether Qantas’ market share should be more or less is not an issue for the Commission. On the other hand, we would want to be sure that the decisions we make would not seriously disadvantage Qantas, Ansett or any other Australian airline. As long as we do not seriously disadvantage any Australian airline, I don’t think it would matter if their market share came down a bit because in most cases the markets concerned are growing rapidly and their passenger numbers would still be very healthy — so the overall result would have a minimal effect on their overall performance. “We simply take an arm’s length approach from the government and objectively distribute (capacity) to one or more airlines.” When the final determinations are handed down in June 1997, the IASC may well have created a slightly more competitive environment for the Flying Kangaroo. Although the IASC is concerned with giving Australian airlines sufficient sustainable capacity to become a viable competitor in a market, it has no control over the competition Australian airlines will face from overseas airlines. “The IASC has nothing to do with allocating capacity to foreign airlines,” says Bain. “Their access to capacity is simply a consequence of bilateral agreements and is allocated by their own governments. The (foreign) carriers do not always use that capacity.” “The international aviation sector is extremely competitive and the marketplace determines their success or failure. We certainly want to build up strong Australian carriers which can compete with overseas airlines like Singapore and Malaysia. It is not for the Commission to say whether an Australian airline is making a wise business decision when they are going into a very competitive market. We are trying to increase competition by encouraging new airlines into the international market by granting extra capacity where this is available. However, it is up to the airline to decide whether there is a demand and whether it can compete. “In the case of Ansett establishing a network in the Asian region over the last three years, we have tended to give them a bit more than Qantas out of the expanded capacity because we had to get them started,” Bain explains.
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