Qantas suffers from Australia's extremist 'free skies'

Qantas suffers from Australia's extremist 'free skies'

The following article by Barry Jackson, former AIPA President, was published in the Financial Review on Friday, 30 May 2014: http://www.afr.com/Page/Uuid/a37acabe-e6d7-11e3-879b-e7d81c167445

When The Australian Financial Review revealed Etihad Airways – a major shareholder in Virgin Australia – to be in receipt of a secret, interest-free $US3 billion loan from Abu Dhabi’s royal family it confirmed beyond all doubt what most already knew: there is no such thing as a free market in aviation.

Perhaps one day when, as some futurists predict, nation-state boundaries collapse, something close to a rational market in aviation might emerge.

But so long as sovereign governments view their airlines as instruments of influence and power projection – as they quite obviously do today – then let’s give up the delusion.

Australia has tried valiantly to ram the square principles of free-market commercialism into an obviously round aviation sector for the better part of two decades now. What do we have to show for it?

Qantas, a once proud icon of Australia, now lurches from crisis to crisis due to the pressures of unfair competition. Its brand, once the most valuable in the land, has been dragged through the mud and has lost nearly all its shine.

Meanwhile, its loss-making, foreign-owned primary competitor, Virgin Australia, has been revealed as dependent on the generosity of the Abu Dhabi royal family.

To be fair, of course, passengers have – for a brief period – benefited from irrationally cheap fares during this period of mutual blood letting.

But this can only last so long as the heat of battle continues. Once one side capitulates, the other will be in a position to crank fares back up.

It is important to note that Australia’s “free skies” policy is an extremist outlier on a global scale.

The United States limits foreign ownership of its key airlines to 25 per cent and strictly limits foreign carriers’ access to landing rights. European nations and Canada have recently drawn a line in the sand and are refusing to allow any more access to Middle East carriers Emirates and Etihad because they can see how it is eroding their own airlines’ capacity to survive.

Meanwhile, we are left squabbling about minor detail in the Qantas Sale Act. Finance Minister Andrew Robb recently flagged the idea of the state-backed Emirates buying a stake in Qantas. But why would they?

EMIRATES CAN SIMPLY SWOOP IN

Emirates already enjoys unprecedented access to Australia and operates services into Europe from Adelaide, Perth and Brisbane. As a steadily bleeding Qantas retreats further and further, Emirates can simply swoop in when and if it suits them.

What would the Australian government need to do to put Qantas on an even footing with the likes of Emirates, Etihad and their scion, Virgin Australia?

Well, for a start, the government would have to buy up all the airports in Australia and allow Qantas to land free. It would have to stop Qantas paying any corporate tax. And it would have to allow the depreciation rates on aircraft to be chopped by around two-thirds.

And if the Governor-General could write Qantas a $3 billion interest-free loan – that would certainly help, too.

Obviously this is nonsense.

Yet perhaps an answer to our looming aviation problems might lie in a unique Australian advantage: our superannuation sector.

Much has been made recently of “social privatisation” – the purchasing of infrastructure assets by superannuation interests with a view to stable, long-term management in the public interest.

Such an approach may be a refreshing change for those who have watched the more fast-and-furious approach of recent Qantas management. Of course, as things stand, you would not want your super fund touching Australian aviation with a ten-foot pole – but this is largely because of our uniquely unregulated policy settings.

Change these and suddenly you have an infrastructure asset that starts to look a lot more like a port or an airport or a road.

Of course, this kind of approach would face myriad hurdles. But I get a feeling the Australian public would be responsive to exploring the option.

After all, the status quo is allowing a mismanaged Qantas to battle on against the wealth of Abu Dhabi royalty with one hand tied behind its back. We can do better than that.

BARRY JACKSON

Captain Barry Jackson is a former president of the Australian and International Pilots Association.