June 21, 2004

The story of how discount airlines have finally arrived in Australia, although imperfectly and late.

Michael Jennings | Air - Low Cost Airlines

The following is a long essay mostly devoted to giving the history of the insane way in which Australia's airline industry has been regulated for most of the last 50 years, and the story of how Australia finally now has at least one no frills airline offering cheap fares. This story is fairly typical of how the Australian economy works and has worked in many industries, not just airlines

In terms of air transportation, Australia has quite recently reached something close to the stage in air travel that was reached in Europe five to ten years ago. Discount travel on budget airlines is real and finally cheap, although there is a potentially troubling lack of genuine competition. A decade ago air travel was very expensive, much more so than in Europe. The reasons for this were exactly what you would expect: regulation and a resultant lack of competition. But to understand exactly how and why this occurred, it is necessary to look at Australia's political history.

I came to England for the first time in the shadow of the Thatcher government. This was 1991, and John Major had just come to power as PM. Most of the large scale privatisations were over, although the government was still selling the last tranche of BT shares, the government also had plans to privatise the railways, and the prospect of post office privatisation was brought up on a few occasions but was always dismissed as too politically controversial. (This is a shame. It was perceived as a good business at the time, and might have stayed one if it had been sold. As it is it is now something that people are constantly complaining about and sneering at).

In any event, Britain was at the time full of newly privatised companies. As an Australian, this did not surprise me greatly but what did surprise me was just how much of the economy had been state owned in the first place. Britain had had state coal mines, state steel companies, state engineering firms, state car manufacturers, state airlines. Private radio stations had not existed until the 1970s. Three of the four TV networks belonged to the state. (They still do, although there is now a fifth (private) network and the cable and satellite television business is now enormous, so the state channels don't really dominate any more).

I was not used to this. In Australia virtually all of the above had consisted of private sector duopolies and other oligopolies, or industries in which there were a small number of firms, some of which belonged to the government and some of which belonged to private industry. There were relatively few state monopolies: the telecommunications company Telecom Australia (now Telstra, no longer a monopoly, but still more than 50% state owned) and most of the electricity generation business (owned by state and not federal governments, and now privately owned in some states but not others). However, governments owned quite a few businesses in industries where there were also private sector competitors, most notably in banking and in the airline business.

Actually I have been far too kind in using the word "competitors" in the above sentence, because the one thing Australia did not have in these kinds of industries was any kind of competition. In 1991 my journey from believing I was a socialist to becoming a rampant capitalist ideologue was not sufficiently advanced for me to understand this, but the real enemy in Australia was not state ownership but regulation and lack of competition. Most big business in Australia operated in industries where there were a small number of companies run by the well connected (or the government directly), regulatory barriers to new entrants were massive, companies made cozy profits by not competing with one another, and in which in most cases they were prevented from competing with one another by law. The idea behind that was that if there was too much competition companies might go bankrupt and people might lose their jobs, and we couldn’t possibly have that. While Australia had more or less full employment in the 1950s and 1960s, the resulting slow economic growth was seen as more or less acceptable and most people did not make the connection. (When unemployment became greater in the 1970s and 1980s, it was seen as less acceptable)

There is a bit of history behind why the two countries are different. The Australian Labor Party has never been as anti-business as the Labour Party in Britain. This is at least partly for sectarian reasons. The conservative parties in Australia were always dominated by people of protestant (ie mostly English) ancestry, and the Labor party thus consisted of a political outlet for Australia's (very large indeed) Irish Catholic population, meaning that the ALP was an avenue for advancement of Catholics as well as an avenue for the advancement of the interests of "the workers". Therefore, although the ALP was in favour of nationalisation after the second world war, this was never with as much enthusiasm as as the Labour party in the UK. Therefore although the ALP was in favour of nationalising industries in the 1950s, it was not nearly as dogmatic about it as the British Labour Party.

So ultimately in the 1940s and 1950s a compromise was reached between the two political parties. Australia's strategic industries would be regulated to death (at times almost literally), and in many cases there would be a mixture of state owned and private companies working in the same industry. International aviation was an exception to this. Like for most of the countries of the world, a single state owned "flag carrier" was the only Australian airline permitted to fly international routes. Qantas had once been a private company, but it was nationalised and forbidden from flying domestic routes. For domestic routes, something called the "two airline policy" was set up. When a private airline named "Australian National Airlines" went bankrupt in 1957, large numbers of people were horrified at the resulting job losses, and this system of regulation was put in place to ensure it never happened again. Another existing airline named Ansett Airlines (which took over the remnants of ANA) was allowed to continue operating, and a new government owned airline named Trans Australia Airlines (commonly known as TAA, and later renamed Australian Airlines) was established. No other airlines were allowed to fly on domestic routes between Australia's key cities. The two airlines were required to run identical operations. Both were required to charge the same fares. Both were required to fly the same routes. Both were required to fly the same types of aircraft. And, I kid you not, both were required to operate identical timetables. Yes, this meant that if TAA flew an 8 am flight from Sydney to Melbourne, Ansett also had to operate an 8am flight from Sydney to Melbourne. The two airlines did compete with each other in one way; which was that the two identically timetabled flights from the different airlines were known to race each other to the terminal upon landing, and a certain amount of bragging rights were dependent on who got there first. The aim of this policy was to keep the two airlines essentially identical to each other in size, and to restrict competition to the extent that neither airline could possibly go bust.

And this policy achieved its intentions. When the policy was in place, no further airlines went bust. Seats on flights remained a scarce good, and the prices were absurdly high. Although Australia is an enormous place and air travel is extremely important, most people could not afford it. At some of the more absurd moments, such situations existed as the cheapest fare from Sydney to Melbourne being via Auckland, or the cheapest flight from Sydney to Perth being via Singapore.

This policy lasted pretty much intact until the early 1980s. At that point, the more ridiculous aspects of the policy were weakened. The two airlines were no longer required to operate identical timetables or identical fleets of aircraft. They were finally (within limits) allowed to offer discount fares and compete with each other to some extent on price. So the two airlines were no longer essentially obliged by law to remain identical to each other. But the key aspect of the two airline policy remained. No additional airlines were permitted to enter the market.

In 1983, the ALP cane back into power after the conservative parties had governed for 30 of the previous 33 years. Under Treasurer Paul Keating, this government was actually of a deregulatory bent, and abolished many of the old monopolies. One of these was the two airline agreement, which was theoretically abolished in 1990. However, there was a catch. Although the government was genuinely supportive of free markets and deregulation, the vested interests who owned sleepy monopoly and duopoly businesses were obviously rich and powerful and governments did not want to offend them. (The most extreme industry in which this was the case was electronic media, and no government has ever really dared to take this on, but that is another post). And the catch was that Australia's airports were state owned. Traditionally the two airlines leased the land on which the terminals for domestic flights operated from the government organisation that owned the airport, and then built and operated their own terminals. And as it happened, the leases were renewed for an additional 30 years just before the two airline agreement was abolished. This meant that new entrants had to either build their own new terminals (with very tight space constraints) or to lease gates in terminals that belonged to their much larger competitors, which the airlines were required to provide them with access to under the legislation that eliminated the two airline agreement. (In practice this was highly problematic, as they found themselves with very limited access to the most remote and inaccessible gates in the terminals).

However, two new airlines launched in the early 1990s. A combination of poor management, poor economic conditions (Australia was in a deep recession at the time) and the extreme market power of the two incumbents (including the terminal issue) meant that these new airlines couldn't compete, and both airlines went bankrupt after a few months.

If you understand how bureaucrats work, there was a fairly clear explanation for this. Clearly there were people in the public service (probably in Treasury) who were in favor of deregulation, and they had the ear of government enough to get reforms made. Government was unwilling to take on short term vested interests, but probably didn't care too much about reforms that would have an impact in two electoral cycle’s time. So the bureaucrats kept up the pressure, and reforms with either de facto or de jure phase in periods were enacted.

And there was still an insane division between international and domestic airlines. Qantas was not allowed to carry passengers on domestic routes. If it had a plane flying from Melbourne to Sydney to Singapore, all the passengers on the Melbourne to Sydney leg had to be flying on to Singapore. If there were a substantial number of passengers boarding in Sydney, then this meant that the plane had to be half empty for the Melbourne-Sydney leg.

And of course neither Ansett nor Australian Airlines were allowed to fly international routes, even to New Zealand. (Somewhat hilariously, we at one point had a situation where Ansett were allowed to fly domestic flights in both Australia and New Zealand, but not to fly between their two networks).

The ALP government was eventually persuaded to see the ridiculousness of this, and so in 1993 another set of reforms took place. Qantas and Australian Airlines (both state owned) were merged. The resulting Qantas was then privatised. Ansett was allowed to fly international routes, and Ansett's foreign ownership restrictions were relaxed somewhat. Ansett were allowed to fly international routes, and they soon commenced a small number of services to Indonesia, Japan, and Hong Kong. These were never a tremendous success or market share, mainly because Ansett was massively undercapitalized and was never able to fly a large number of routes or fly high frequencies on them. The airline had a legacy of extremely poor management and (in a non-competitive environment) a cost structure that if anything was even worse than that of Qantas.

Certain moves were also made towards a single aviation market between Australia and New Zealand, and Air New Zealand were allowed to fly a few direct international routes between Australia and further markets, the most important of which was direct services between Sydney and Los Angeles. And Air New Zealand were theoretically allowed to fly domestic routes in Australia.

However, when they actually tried to do this in 1994 the Australian government (under lobbying from Ansett and Qantas) decided to change their mind at the last moment, much to the irritation of the New Zealanders. Once more vested interests won over deregulation. The New Zealanders were more or less told that if they wanted to have access to domestic routes in Australia, they would have to buy into Ansett to do so. This would not upset the cosy duopoly, and would hopefully recapitalize Ansett somewhat. In 1996, they did so. Ansett had until then been privately held, with 50% of the shares belonging to a transport company named TNT, and the other 50% belonging to Rupert Murdoch’s News Corporation. In 1996 was in financial straits (which ended up with the company divesting itself of many of its assets and the business ultimately being bought by the Dutch Post Office) and sold its stake to Air New Zealand. However, Air New Zealand was unable to gain management control, which remained with News Corp.

And this duopoly situation limped on for a few years. Surly and demoralised staff or not, Qantas was actually the better run of the two airlines, and in combination with the ability to market international and domestic services together, its market share increased. We didn't know it at the time, but this was even more dramatic than it appeared, as this was an even bigger advantage when it came to the business market than it was when it came to the domestic market. Ansett were losing big time in the business passenger market, but were holding up reasonably in the leisure travel market. (Ansett were privately held, so it was a bit hard to know for sure).

The business of Qantas could (and can) be divided into four parts main parts. There was domestic aviation, there were flights between Australia and the US, on which the one main competitor was United Airlines of the US (although Air NZ had some services too), there were flights between Australia and Asian destinations, on which the competitor was usually the national airline of the destination country. And there were flights between Australia and Europe, on which the two main competitors were British Airways and Singapore Airlines. (It is possible to fly between Australia and Europe on many other airlines, but no other carrier has the coordinated flights and high frequencies to make a big impact in the business market). When Qantas floated in 1995, British Airways purchased a 25% stake in the airline and the two airlines coordinated their services between Australia and Europe. Tickets on one airline were (and are) valid on the other, they charge the same fares, and they do not compete with each other on those routes. Singapore Airlines thus became the only major competitor on the route.

However, based in a small island rather than a large continent, Singapore Airlines had some disadvantages. It had no large domestic market from which to funnel passengers into its international routes as had Qantas. It had no access to the Australia / US market. And it was unable to fly passengers directly to Asian destinations other than Singapore. Therefore, many Australian corporate accounts went to Qantas, as Qantas could provide all these services by itself. Singapore therefore also coveted Ansett, which had rights to fly in the Australian domestic market, had rights to fly between Australia and the US, and had rights to fly between Australia and various (non-Singapore) Asian destinations. Lots of people were slightly baffled as to why Rupert Murdoch had bought 50% of Ansett in the first place, and it was clearly a non-core asset. In 1999 he was buying up satellite television businesses around the world, and he really didn’t want his capital tied up in Australian domestic aviation. Therefore he made it clear that he wanted to sell. Singapore airlines was very eager to buy, but it turned out that Air New Zealand had obtained an option to buy the other half of Ansett if it ever came on the market when they had bought the first half, and they now exercised the option and became 100% owners of Ansett.

Singapore Airlines responded to this by attempting to take control of Air New Zealand, which was a much smaller company than they were. They bought the maximum 25% of the airline that a foreign company was allowed by New Zealand law, and then made it clear that their aim was to essentially merge Singapore Airlines, Air New Zealand, and Ansett into a single airline which would be able to compete with Qantas on all its major routes. Neither airline was especially hostile to this idea.

As in much of the world, the Australian economy did very well in the late 1990s, and this led to a further attempt for new entrants to enter the domestic market. In fact, Australia got two almost simultaneously. In 2000, an existing small regional airline named Impulse leased some medium sized jets and started competing on Australia's main domestic routes, and Richard Branson's Virgin group (largely with capital obtained from other people, as is Mr Branson's wont) also started a new airline to do likewise.

These two new airlines had the advantage of having much lower cost structures than Qantas and Ansett, but they had a disadvantage in terms of lacking size, networks of scale, and (as ever) access to decent terminal facilities. What happened in 2001 was an all out price war.

Qantas and Ansett lowered their fares to the levels of the new carriers, in Qantas’ case probably and in Ansett’s case certainly losing money, and the plan was the same as with the previous new entrants to the market: keep doing this until the new entrants ran out of cash. However, there was a problem. Ansett had been badly run and undercapitalized for years, and in late 2000 this was really starting to show. In late 2000 the airline’s maintenance procedures came under scrutiny from Australia’s Civil Aviation Authority (CAA) and the airline was grounded due to non-compliance with safety regulations. This happened twice: once just before Christmas 2000 and again around Easter 2001. Business passengers deserted the airline, and the new startup carriers and Qantas got more business.

Now, at the time I was working in the investment industry in Sydney, and amongst both aviation analysts and out investors, it was simply conventional wisdom that despite Ansett’s problems, the way of previous aviation price wars would be repeated. The new entrants would not be able to compete with the advantages of incumbency for the two big airlines. It was frequently observed that the Australian market was too small for more than two airlines, there may have been an implicit thought that the government would bail Ansett out rather than see so many people lose their jobs. For some reason the discount airline structure of Europe was inapplicable to Australia. Qantas would be the dominant carrier, but Ansett would survive. The two airline structure was too familiar for people to conceive of anything different. This theory was only reinforced in the first half of 2001, when Impulse airlines ran out of money, and rather than go into liquidation was purchased by Qantas. The view in the market was that Virgin Blue would follow a few months later.

Singapore Airlines responded to the crisis at Ansett by attempting to gain control over Air New Zealand and consequently Ansett. Singapore proposed that it be allowed to raise its stake in Air New Zealand to 49% and take management control. It was then assumed that it would completely recapitalise Air New Zealand and Ansett, massively expand the number of foreign destinations that Ansett flew to from Australia, and gain the access to the Australian market that it always wanted.

However, nationalism came into play here. Firstly, neither the Australian or New Zealand governments understood how serious the crisis was at Ansett. The New Zealand government for largely chauvinistic reasons was reluctant to raise the foreign ownership stake in the airline above 25%. Qantas lobbied the Australian government about how fearsome a competitor Ansett would be if Singapore Airlines gained control over it, and the government listened, and made it known that it would be reluctant to allow Singapore Airlines to recapitalise the airline so that it could fly all the international routes it planned to fly if the deal occurred. Qantas understood precisely how bad the situation was at Ansett. By this point the price war with the new entrants was only a cover for what Qantas was really doing, which was fighting a price war with Ansett in an attempt to send Ansett out of business. Qantas was lobbying the government to help it send Ansett out of business, but the government did not understand this.

By August 2001 it finally became clear that Ansett was in a terrible state, and the governments finally figured out that Ansett going into liquidation was a real possibility. Singapore Airlines finally got a look at Ansett’s books, and was horrified by what it saw. It still wanted access to the Australian market, and made an attempt to partially recapitalise Ansett through Air New Zealand, buy Virgin Blue, and then compete in a two player market. Virgin Blue declined the offer. At this point Singapore Airlines decided that the combination of a technically bankrupt acquisition target and extremely meddlesome governments in both Australia and New Zealand were too much for it, and Singapore Airlines walked away from the deal, and sold its stake in Air New Zealand. Ansett went into liquidation, ceasing operations on September 12, 2001 (the coincidental timing of which meant that the news of this only made something like page 23 of the main Sydney newspaper the next day). Air New Zealand would have followed it into bankruptcy if it had not been essentially renationalised by the New Zealand government shortly afterwards.

One interesting thing about the bankruptcy of Ansett was that it finally got rid of one of the key bottlenecks in Australian aviation. When the books were opened, it turned out that Ansett had sold and leased back almost all of its assets, and its terminal leases were just about its only assets of value. After a period of haggling, the (by then private) owners of all Australia's major airports bought the leases off the administrators, and each major airport in Australia got a "common user" terminal from which any airline could rent gates. (This is of course how things should always have been). After a further period of haggling as to how much they should pay in rent to use the gates, Virgin Blue started using the former Ansett terminal, as did the now expanded Qantas (in addition to using its own terminals) and an assortment of regional airlines. It was now easy for new airlines to find terminal space – they could now just rent gates in the former Ansett terminals. And it turned out that there were various other closed shops that were suddenly open. Businesses that had made their livings for decades by providing services exclusively to the two duopoly airlines were suddenly scrambling for customers.

Both Qantas and Virgin Blue expanded their fleets, and after a few months the situation settled down, with Qantas having about a 70% share of the domestic market and Virgin Blue the remaining 30%. Qantas offered a two class service, and Virgin only one. Qantas had a legacy high cost structure, and Virgin Blue had a much lower cost base. Virgin was perceived as a discount airline, but it wasn't really. It was more a single class full service airline with a lower cost base.

In Europe, the discount airline sector by then was expanding massively. (The history of the discount sector in the US is longer and slightly more prone to hickups, so I will focus on the European example here). Discount airlines were based on extremely low cost bases. Unlike traditional airlines which generally cannot make money without carrying business (and preferably business class) passengers, they focus on leisure travellers. They often fly from secondary airports, both because this is cheaper and because leisure passengers often live near secondary airports (whereas business class passengers seldom do). They don't sell tickets through travel agents, and prefer to sell tickets over the internet. They don’t interline baggage. They don’t assign seats prior to the flight. If they provide food and drink for passengers at all, they don't do so for free. They have relatively simple fare structures in which the cheap seats are put on sale first and when they sell out tickets become more expensive until the time of departure, when flying can be quite expensive. There is little or anything sold in the way of through tickets - if you want to fly from point A to point C via point B, you buy a ticket from A to B and another from B to C, If you do not arrive at check in by the advertised check-in time, that's tough - you miss your flight.

Even if they had wanted to run a genuine low cost airline in Australia, Richard Branson’s people probably lacked the skills to do it properly. They certainly know how to run a full service long haul airline (Virgin Atlantic are a very good airline) but their one attempt to run a short haul discount airline in Europe (Virgin Express, based out of Brussels) has not been a success. In any event, there was little reason to run one in Australia. For one thing, the business travel market was potentially very lucrative, and they wouldn’t get any of it if they (for instance) refused to offer transferable tickets or refused to allow passengers who were running a bit late to board the aircraft. And they would only get it if they flew to major airlines. For another, non-Qantas international airlines flying passengers into Australia certainly didn’t want to route their customers straight onto the domestic networks of their main competitor (ie Qantas), so Virgin Blue started selling through tickets. And they sold tickets through travel agents, and did all sorts of other things that are a bit of a no no if you are really running a genuine low cost airline.

Which was fine, but it did mean that both Qantas and Virgin Blue were vulnerable to genuine low cost entrants. If someone who really did understand the European low cost model did attempt to enter the Australian market, the consequences would not be pretty, particularly for Qantas given their high cost structure. Qantas has been cutting costs steadily since privatisation nearly a decade ago (and CEO Geoff Dixon is loved by investors in the the Australian stockmarket for his ability to do keep doing this and keep Qantas very profitable) but it still has far too much of a legacy of being state owned in a highly regulated market for far too long. It also has a fairly predictable consequence of having been subject to ten years of cost cutting: it has demoralised staff who are often surly and unhelpful to customers. It also still has an assortment of bad habits typical of monopolies – for instance a tendency to impose unexpected charges and fees on passengers who have already bought tickets and who have little choice of airline to use in future.

To its credit, Qantas clearly does understand this. Rather than wait for someone else to enter the market with a genuine discount airline, it decided that it would beat them to it. Early this year it announced that it would be setting up a low cost airline called Jetstar that would be 100% owned by Qantas but which would be run as a completely separate operation. This would be run on the European low cost model, and would be a low cost airline in the genuine sense of the word. It would not sell tickets through travel agents. It would offer its best prices only over the internet and it would attempt to sell most of its tickets this way. It would fly to secondary airports and attempt to cater to leisure travelers who had either not flown before or who did not do so regularly. “You must check in at least 30 minutes before departure” would mean precisely that, and if you didn’t do so you would not be allowed to board late. There would be no pre-assigned seating. If you wanted a Coke or something to eat on board, you would be charged extra for it.

And this development is clearly good. It is now finally possible to fly cheaply in Australia almost as cheaply as you can fly in Europe. My parents have just moved from near Sydney to near Brisbane to retire, and visiting my brother (who lives in the Hunter Valley north of Sydney) by air from their new home will likely be cheaper and quicker than doing so by car from their old home. The discount airline revolution that reached Europe a few years back clearly has now reached Australia, despite the claims of many for a long time that Australia was somehow different and it would not work there.

And if you like, the decision of the ALP government of fifteen years ago to end the two airline policy and deregulate has finally paid off. The various concessions made by them and subsequent governments to vested interests have meant that the deregulation took time to pay off, and that in effect there has been a long phase in period, but these developments are none the less a direct consequence of that decision.

(To be honest, the present (conservative) government has been a beneficiary of a huge number of that ALP government’s deregulatory policies in this way. It was actually a very good government from a free market perspective, but its policies often had de facto or de jure phase in periods that meant that the benefits took a decade or so to really come through. The present government, that has been in power since 1996, is actually far less free market minded, but has been a beneficiary of a strong and much more competitive economy because of the policies of a decade ago. There are still lots of effective monopolies, duopolies, and the like in Australia, and lots of crony capitalism and vested interests demanding concessions from government, but it is far, far less bad than it once was)

But, much as Qantas would like the current state of affairs to stay the way they are forever, to me the situation looks unstable. Nobody doubts that Qantas has very astute management, but the record for existing full service airlines that have attempted to set up low cost subsidiaries is not good. British Airways tried it in Britain with the London Stansted based Go, but eventually the airline became more trouble than it was worth. (Go eventually became part of Easyjet) KLM tried it with the also Stansted based Buzz, which ended up part of Ryanair. Various US airlines have tried it to, but with no great success. Two things tend to happen. Firstly, the staff in the low cost subsidiary are given substantially worse working conditions and pay than those in the traditional airline. They become unhappy with this. The staff in the traditional airline become unhappy also, because they see the low cost carrier and think that those conditions will eventually be imposed on them too. If the staff in the traditional airline are unionized, the union attempts to assert power over the low cost airline as well. Often this all means that the low cost airline is unable to maintain its really low cost structure in the long term.

That’s the situation from the labour point of view. From the customer point of view, the situation isn’t great either. If the low cost airline is flying the same customers who regularly fly on the full service airline (for instance, regular business passengers when they are on holiday) then these people will likely be annoyed at the lower standard of service and this will affect the reputation of the parent airline. If the airline attempts to make exceptions to its low cost rules for (for instance) frequent fliers on the parent airline, then the low cost airline starts to import some of the frills of the traditional airline, and the purity of the low cost structure of the airline starts to be lost. And keeping your cost structure as lean as possible is everything if you are running this kind of operation. Jetstar have been running for a month and a half, and I have already seen this type of thing happening. I have read at least one article in the Australian press decrying the fact that Jetstar strictly enforces its check in times (which genuinely is vital if you are running this type of operation – this sort of airline has very short turn around times) and coming to the conclusion that this demonstrates what a lousy airline Qantas is. The discount carrier already seems to be doing damage to the reputation of the parent airline. If Jetstar is to succeed, Qantas absolutely has to resist this kind of pressure and to insist that Qantas and Jetstar are completely different airlines, but this will be hard to impossible. My gut feeling is that Jetstar will ultimately suffer the same fate as Go. It will likely be spun off as a separate company and then quite possibly acquired by a competitor.

Which makes me think that there is a genuine opportunity here. If someone was to found a low cost no-frills airline in Australia that genuinely was an independent operation and genuinely did operate using international best practice for this type of airline, I think they would make a killing. I doubt that Qantas could keep up in the long term. Either Jetstar would cease to be competitive as Qantas’ cost base polluted Jetstar’s, or Jetstar would be sold off, possibly to be ultimately acquired by that new airline. I am sure that either Michael O’Leary of Ryanair or Stelios Haji-Ioannou of Easyjet would cream Jetstar. Both probably have bigger fish to fry, however. It will more likely take someone else who has copied them closely to enter the market. Qantas have made this harder by moving first, but I am sure someone will ultimately enter the market in this way. In fact, if someone would like to lend me $10 million, I might even be willing to give it a go myself.

Meanwhile Qantas is under pressure from other angles as well. Richard Branson’s long haul full service airline Virgin Atlantic will shortly enter the UK-Australia market. It has been trying to obtain the legal authority to do this for a long time, and seems finally to have succeeded in doing so. This will mean we are back to three major competitors on the Australia-UK route, which will certainly be a good thing for passengers, but less so for the incumbent airlines. We could also do with another competitor on the US-Australia route, but that would take an American airline, and none have appeared willing to do so lately. But it may happen at some point.

The way to end this article is to be broadly optimistic. Australia for many years had a ridiculous and absurd aviation market, which was a classic demonstration of how you develop a market which helps a few vested interests but screws ordinary people if you over-regulate (and boy, how did they over-regulate). But this regulation and the vested interests that go with it can eventually be weakened and swept away if you try. Although we still have one company with something like 70% of the market, (and although in terms of progress we are still quite a few years behind international best practice) the market looks far more open to new entrants and competition, and consumers are getting a far, far better deal than was ever the case before.

Many other industries in Australia were also over-regulated like this. The other stories vary. In some (for instance the provision of mortgages to home-buyers) the old monopolies have been broken down in similar ways. In others (eg the television business) they have not been broken down at all and Australia is still run by a small number of well connected people. As to whether the overall situation is good or bad, you can argue it either way. However, this example does indicate that progress is at least possible.

Trackbacks

How deregulation has finally led to lower cost air travel in Australia.
When I was in my native Australia a couple of months back, I was pleased to discover that it is at last possible to fly around the country on Australia's airlines for something like the at times very low cost of flying around Europe. Traditionally, dom...
Samizdata.net on June 21, 2004

How deregulation has finally led to lower cost air travel in Australia.
When I was in my native Australia a couple of months back, I was pleased to discover that it is at last possible to fly around the country on Australia's airlines for something like the at times very low cost of flying around Europe. Traditionally, dom...
Samizdata.net on June 25, 2004

Comments

Sir,

good work!

Very Good Work Indeed!

Im lookin for more like it!


Rev Dr

Posted by lerevdr on June 23, 2004

A good summary of the whole sorry saga. I seem to remember though that Trans Australian Airlines(TAA) was always government owned. Marko

Posted by Marko on June 25, 2004

Er, yes. The airline was founded by the government and remained government owned until it was merged with Qantas and then privatised. That was a case of my mind thinking one thing and my fingers for some inexplicable reason typing the wrong word and my not reading it closely enough before posting. I have corrected the original text.

Posted by Michael Jennings on June 25, 2004

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November 11, 2004

Brake fault forces Virgin to cut speed on flagship tilting trains - you know, just for once it sounds as if the HSE could be right ...link
PCCC | Comments (0)
November 08, 2004

TV Alert "When trains crash", 1930 Channel 5 tonight. Talk about timing ...link
PCCC | Comments (1)
November 07, 2004

Ufton Nervet crash - 6 now confirmed dead ...link
PCCC | Comments (4)
November 06, 2004

One person dead as train derails ...link
PCCC | Comments (0)
November 04, 2004

FirstGroup wants to add the tracks to its trains - that's brave ...link
PCCC | Comments (0)
November 02, 2004

Car charge to rise to £6 ...link
PCCC | Comments (0)
October 30, 2004

Psst wanna buy a railway station? ...link
MH | Comments (0)
October 26, 2004

'Kart Vader' - He tears around Quebec City at 100mph. In a go kart. At night. Wearing black. And he films it. Spotted by Jay Jardine. ...link
MH | Comments (0)
October 24, 2004

The downside of auto-mobile bans - drivers text instead ...link
PCCC | Comments (0)

Councils ban shrines to road crash victims - a story that neatly combines both transport and the issue of the day: mawkish sentimentality ...link
PCCC | Comments (0)
October 20, 2004

The air hostess, the long hair and the sun roof - one of the more imaginative ways of staying awake at the wheel. ...link
PCCC | Comments (0)

Wheelchair-using MP travelled in 'cattle truck' - so, that's just the same as the rest of us then ...link
PCCC | Comments (1)

23 escape from burning train ...link
PCCC | Comments (3)

Wikipedia accuracy under fire - so, it's back on with the Glossary? ...link
PCCC | Comments (0)
October 19, 2004

Rail chief quits after four months - walking away from £130,000. Golly ...link
PCCC | Comments (0)
October 14, 2004

New comment on old posting - Tim Hall explains the story of the Highland Railway, its new locos and its soon-to-be-ex-Chief Mechanical engineer ...link
PCCC | Comments (0)

Out now: DVD version of leaves on the line ...link
PCCC | Comments (0)
October 13, 2004

New link - Transport Watch UK. Lots of facts, lot of comparisons. Doesn't look good for rail ...link
PCCC | Comments (4)
October 11, 2004

Take the car and save the planet - walking kills, apparently ...link
PCCC | Comments (0)

Hybrids better than the real thing - golly ...link
PCCC | Comments (0)

Don't invest in mega-projects - says Peter Gordon ...link
PCCC | Comments (0)
October 05, 2004

Prescott backs plan to reopen branch rail lines - well, he says he does ...link
PCCC | Comments (1)
October 04, 2004

New Glossary Entry - the Advanced Passenger Train ...link
PCCC | Comments (0)
October 03, 2004

People are building their own speed cameras - One fellow is even selling fully functioning ones ...link
MH | Comments (0)

Pendolinos and Voyagers may prove to be one of privatisation's disasters - says Christian Wolmar ...link
PCCC | Comments (11)

Omedetō gozaimasu! - Tech Central Station on the 40th anniversary of the Shinkansen ...link
PCCC | Comments (0)
October 02, 2004

Compulsory purchase to go - in US? Johnathan Pearce has some musings ...link
PCCC | Comments (0)
October 01, 2004

Indian railway runs out of wheels - because it refuses to import ...link
PCCC | Comments (0)

All for sprawl - Tyler Cowen links to a couple of articles including one from the NY Times magazine which is attracting a lot of attention ...link
PCCC | Comments (1)

Underground maps as art - according to Brian ...link
PCCC | Comments (0)
September 30, 2004

Recent comment - Uncle Roger on the difficulty in working out accurate subsidy figures ...link
PCCC | Comments (0)

Europe by train - Tim Hall on Stephen Karlson's adventures ...link
PCCC | Comments (0)

Carpool lanes = communist gulags - Tim Hall is beginning to get it, possibly ...link
PCCC | Comments (0)
September 29, 2004

P&O axes 1,200 jobs as ferry travel sails into past ...link
PCCC | Comments (1)
September 27, 2004

Hurtling towards a £7.6bn bill at full tilt - Alistair Osborne on the WCRM fiasco. Actually, I thought £7.6bn was on the low side ...link
PCCC | Comments (2)
September 26, 2004

A double-decked shame - RJ3 laments the passing of the Routemaster. It's those EU bastards, I tell you ...link
PCCC | Comments (0)

Tilting trains are rubbish - according to Ross Clark. Now he tells us ...link
PCCC | Comments (2)

Delays plummet by 28% - says Network Rail ...link
PCCC | Comments (0)
September 25, 2004

New glossary item - the Health and Safety Executive - in which I demonstrate my almost complete ignorance of this institution ...link
PCCC | Comments (0)

Scant improvement in train times - according to latest figures ...link
PCCC | Comments (0)
September 22, 2004

EU plan will hit safe women drivers - and it's all in the name of sex equality ...link
PCCC | Comments (0)

Unions gang up to demand railway renationalisation - they mean it isn't already? ...link
PCCC | Comments (1)
September 21, 2004

Top car makers support road-jam charging - Ford, GM, Honda, Daimler ...link
PCCC | Comments (0)

Journey times cut as 125mph tilting train sets record - after £8bn and the odd bankruptcy tilting trains that actually tilt are finally here ...link
PCCC | Comments (0)
September 18, 2004

ABD calls for environmental audit of public transport - all those particulates ...link
PCCC | Comments (2)

Camera Partnerships must come clean on real causes of accidents - says ABD ...link
PCCC | Comments (0)
September 16, 2004

The Green Quadratic - ASI paper on planning from 1988. Now available on-line ...link
PCCC | Comments (0)
September 14, 2004

Up with conductors - they're really good, you know ...link
PCCC | Comments (1)

Speeding Britons fined in car race to Spain - "Among the cars were Ferraris, Porsches and Rolls-Royces." ...link
PCCC | Comments (0)

MPs to lose free airport parking - oh, how my heart bleeds ...link
PCCC | Comments (0)

The case against driving licences - Paul Clark in Lew Rockwell ...link
PCCC | Comments (0)
September 10, 2004

Drivers trade privacy for insurance discounts ...link
PCCC | Comments (0)
September 08, 2004

Free mints infuriate delayed commuters - some even threw them away, ingrates ...link
PCCC | Comments (1)

Privatize the roads! Liberate the streets! All we have to lose are our parking tickets! - Anthony Gregory in Lew Rockwell ...link
PCCC | Comments (0)

M6 Toll hits 10m journey mark - er, about a month ago ...link
PCCC | Comments (0)
September 07, 2004

California high-speed rail plan - all sorts of claims being made but Peter Gordon doesn't like the precedents ...link
PCCC | Comments (0)
September 06, 2004

Swedish farmer fined 1,211 kronor for illegally parking a snowmobile in Warwick - Krister Nylander lives 205 north of Stockholm and has never been to Warwick. "They can wait till Hell freezes over and I can get to Britain on my snowmobile to pay the fine.” ...link
MH | Comments (0)
September 05, 2004

"Obsession is not too strong a word to describe how railway enthusiasts feel about railways" - Matthew Parris goes to Peru and meets some trainspotters ...link
PCCC | Comments (0)
September 03, 2004

Hidden costs do not justify the level of tax on petrol in Britain - says Graham Seargeant ...link
PCCC | Comments (0)

Shovelling cash - utilities to pay for digging up roads ...link
PCCC | Comments (0)

Alistair Morton, builder of the Channel Tunnel, is dead ...link
PCCC | Comments (0)

Government 'willed' Railtrack to fail - says Corbett ...link
PCCC | Comments (0)

Cyclists saddled with seafront speed trap - in Bournemouth ...link
PCCC | Comments (1)

Historic Amsterdam tram photos Aaaah. Where's amg going to pitch up next? ...link
PCCC | Comments (0)

Why so little US electrification? - Tim Hall ponders the answer ...link
PCCC | Comments (0)
September 02, 2004

London Underground Map - as it really is. ...link
PCCC | Comments (0)

Electric v steam - in 1923. But who won ...link
PCCC | Comments (0)

Freight or passenger in the US? - they're in conflict. Stephen Karlson considers the options ...link
PCCC | Comments (0)
September 01, 2004

Fares and charge up in London - says Livingstone ...link
PCCC | Comments (0)

'Fair fines' planned for speeding drivers ...link
PCCC | Comments (0)

Railtrack is cleared over Hatfield crash ...link
PCCC | Comments (0)
August 31, 2004

Thousands 'ready to quit Aslef' - where would we be without brotherly love ...link
PCCC | Comments (0)
August 30, 2004

Rural watchdog attacks road sign blight - See it's not just me who can't abide the avalanche of street furniture. ...link
MH | Comments (0)

What the traffic will bear - Bob Poole discusses the merits of tolling ...link
PCCC | Comments (0)

Prague trams - photos. Aaah ...link
PCCC | Comments (0)
August 24, 2004

What if you can't drive? - Catallarchy's Sean Lynch considers the options ...link
PCCC | Comments (0)

97% of accidents within speed limit - according to the ABD ...link
PCCC | Comments (1)
August 22, 2004

Prosecute motorway lane hogs - says RAC ...link
PCCC | Comments (3)
August 20, 2004

Radio tags for congestion charge? ...link
PCCC | Comments (0)

World's longest road opens - in Russia ...link
PCCC | Comments (0)

Sprawl is cheap - says Iain Murray ...link
PCCC | Comments (1)
August 19, 2004

Strike threat to BA and Eurostar ...link
PCCC | Comments (0)

Toll roads are safer - at least according to my reading of this Marginal Revolution post ...link
PCCC | Comments (0)

Peking metro to hit 1000km mark - I'm not sure even London's is that long ...link
PCCC | Comments (0)
August 15, 2004

Squander Two calmly talks about speed cameras ...link
MH | Comments (1)

Parking anarchy in St Albans - Police withdraw traffic wardens, Herts council won't have any until October, it's bedlam! ...link
MH | Comments (0)

The future of transport - as seen from the past ...link
PCCC | Comments (0)

Trains less efficient than cars - yes, I know, it's old news ...link
PCCC | Comments (0)

Ferry solution, please - Eamonn Butler wonders how you could introduce competition to a subsidised ferry service in the Western Isles ...link
PCCC | Comments (0)
August 14, 2004

Drink less, speed less, save on insurance - Marginal Revolution has the story ...link
PCCC | Comments (0)