The government appears sanguine about the possibility of Virgin collapsing and Qantas being restored to the role of monopolist it held after the collapse of Ansett. Or, at least, it wants the owners and creditors of Virgin to think it is while the company struggles to find a source of funding to stay afloat in the crisis.
Officially the government doesn’t want to “pick winners” — an argument that was conveniently forgotten when it (like previous governments) picked winners in defence manufacturing, steel manufacturing, health insurance, energy, housing and the media.
The experience of Qantas as a monopolist provided ample evidence of why preserving competition in domestic aviation on major routes is a critical policy goal.
Domestic airfare data from the Bureau of Transport Economics shows a significant and long-term fall in airfares after Virgin Blue, as it was initially, entered the domestic wake in the early 2000s. The most obvious result was the establishment by Qantas of low-cost, low-quality airline Jetstar to compete with Virgin Blue, ending the days of $500 airfares to Sydney from Melbourne (one way, thanks).
For a nation heavily reliant on tourism, and without any serious alternatives to air travel between capitals, the re-establishment of Qantas’ monopoly would be economically damaging and a substantial transfer of wealth from Australian businesses and the community to Qantas’ shareholders, more than a third of whom are foreigners.
And no foreign airline will be entering the Australian domestic market for a long time to come, given the extent to which the international aviation market has been shut down, along with much of the world’s domestic aviation markets.
Qantas will be able to go back to its gouging old ways, at least until the smoking ruins of the world aviation industry are rebuilt some time in the 2020s.
Rather than propping up a competitor, whether by loan or taking an equity stake, the government could achieve similar goals by regulating Qantas as a utility. Its prices and those of Jetstar could be capped by regulation, and it could be required to maintain identified levels of service. This would end discount and sale pricing, of course, but there would be little of that anyway in a new era of Qantas monopoly.
Alternatively, the blunt force of regulation could be avoided if the government took a majority equity stake in Qantas as a condition of any support and operated it to preserve the lower-price environment of the world before the pandemic.
A government-owned monopolist, however, tends not to work out in practice. Those old enough might remember the days of Telecom, an empire run by engineers, unions and bureaucrats where customer service was an afterthought at best.
A government-owned Qantas is likely to produce the worst of both worlds of privatisation and public ownership — bureaucratic, inwardly focused, uninnovative, feather-bedded.
Qantas’ Alan Joyce has been ghoulishly campaigning against any help for Virgin since the crisis began, desperate to see the main competitive pressure on his company, and the primary obstacle between him and a return to monopolistic gouging, fall victim to the pandemic.
If he gets his heart’s desire, the government should make sure it’s of the “be careful what you wish for” kind, and lock Qantas into a pricing straitjacket that will preserve the benefits of competition in the absence of a competitor.
It’s a second-best solution for a market that has seen repeated failure over decades.
“A government-owned monopolist, however, tends not to work out in practice. Those old enough might remember the days of Telecom, an empire run by engineers, unions and bureaucrats where customer service was an afterthought at best.”
Not sure that a regulated monopoly would be any better.
“The experience of Qantas as a monopolist provided ample evidence of why preserving competition in domestic aviation on major routes is a critical policy goal.”
It seems abundantly clear that Australia is not big enough for two domestic carriers, especially since flights will probably be down for some time to come.
As I have said before, nationalise both and merge them.
Build the HSR newtork on the east coast, preferably with MagLev technology.
I flew home to Hobart from Sydney last week.
The economy fare SYD – HBA was $920, and Qantas postponed my flight to the following day with an hour’s notice (as I discovered when the staff at the check-in desk could find no record of my upcoming flight.)
We NEED Virgin to keep Qantas to some semblance of honesty.
Yes, I remember Telecom, Bernard. A Telco where you could ring up and speak within seconds to an Australian who would actually help you. As you say, terrible customer service. A Telco that actually maintained its network and operated it in the national interest. And a Telco that returned its profits to the people. Thank God we were saved from that hell and now can enjoy hours on hold before speaking to an operator in the Philippines or India who has no interest in helping, a network consisting mainly of verdigris, and profits going to the already rich. Heaven!
Hear, hear. Give me the old system any day, rather than the tyranny of pseudo-choice. Same goes for energy and every other thing that’s been privatised. Why does Keane keep churning out this discredited ideological nonsense?
And I should have added the contribution which those public utilities made to training and employing apprentices, but that’s not much of a priority for middle class neo-liberals.
Bravo, well said. I also remember Telecom but not in the derogatory way Bernard suggests, quite the contrary. It’s all uphill trying to understand the accents of current telco staff with Oz sounding names like Bruce. As if.
Slightly off topic but here’s a reminder that it was Barnaby Joyce who had the balance vote (when in the Senate) which privatised Telstra.
I do not think that–in this new millenium–those bad old features of a govt-owned utility need be perpetuated. We’ve learnt a lot since then. But a Qantas (merged with its Jetstar) left to wreak havoc on pricing will be a nightmarish scenario. Let’s release Joyce to go off and find another corporation to keep him in the bonuses to which he’s become accustomed.
Yes, the last dealings I had with Telstra before it was sold off I got prompt help from a local Australian call centre operator. I now use TPG and the last time I needed help I spoke to someone very capable in the Philippines but with the big shutdown in Luzon I doubt that a call centre there could maintain its staffing. As for Telstra, we bought a mobile phone locked to Telstra and tried for several months to get the account ported over from the previous provider. Many calls, always to the Philippines, many times the problem was “escalated to our manager.” Eventual success but I’ll never use Telstra mobile again if I can avoid it.
Well HT, I too remember the Telecom of old. I remember, in the 80s, trying to grow a business with multiple locations. Having to deal with ‘state of the art’ phone systems that were incredibly expensive. Having to deal with a company that never seemed to give a stuff. Having to deal with waiting six or more weeks to get a new office connected. Yes I remember.
Having said that, the aftermath of privatisation with almost no regulation very quickly delivered us a system that, while more efficient, was also far more expensive and predatory. Telecom was a behemoth which needed modernising and proper management. It could have been earning money for all of us instead of the wealthiest in the land. Telstra is a monster which could have easily been avoided by having appropriate oversight and controls.
Let’s hope governments will remember all the lessons when they nationalise Qantas and at least one of our major banks :-).
Damn regulation. Nationalise Qantas. In fact, it should long have been the case that direct government assistance to any individual business should be on the condition that the government, on behalf of its citizens, take equity commensurate with the assistance provided. If that were the case, Australia would probably still have a viable car industry, and industry the government, as a significant equity holder, could have steered towards EV production.
And enough with the fairy stories about government monopolies. Give me some evidence that the mish-mash we now have in telecommunications, including massively expensive and unnecessary duplication, is actually superior to the engineering powerhouse and technology innovator that was Telecom.
“If that were the case, Australia would probably still have a viable car industry, and industry the government, as a significant equity holder, could have steered towards EV production.”
Under the Gillard government the subsidies were contingent on the car manufacturers develop more fuel efficient vehicles. Ford developed the 4 cylinder Falcon, Holden built the Cruze and Toyota built hybrid Camrys.
Under that situation, a push for the development of EVs would have been possible.
“And enough with the fairy stories about government monopolies. Give me some evidence that the mish-mash we now have in telecommunications, including massively expensive and unnecessary duplication, is actually superior to the engineering powerhouse and technology innovator that was Telecom.”
You just have to look at the energy industry to see how well regulation has controlled costs.
Spare Bernard, please. He has dusted off his old Hayek books, which tell him that with fierce competition in airlines, telephone systems and railways, privately owner providers serve customers better. The evidence from France that SCNF pioneered high speed trains and has far superior customer service to Britain’s railways, where you can’t get tickets to cross differently owned lines, is to be ignored. Markets are great, except when they are not. Australia is littered with businesses offering poor customer service but Bernard was taught to pretend that they don’t exist. Leave him to dream.
My subscription expires in June I believe. At that point I probably will leave Bernard and friends to dream.
I see that comment more & more often here.
The decline of Crikey is very sad but was entirely preventable.
Once, but that time is past.
If the IMF can demand that democratic governments base their economies on their dictates (i.e. they let the IMF run their country) in return for dosh, surely we deserve to run the companies we’re paying for.
As Satyajit Das recently said to Philip Adams, it’s stupid for the basic economic infrastructure of the country to be in private hands. And as John Ralston Saul said decades ago, the idea that controlling monopoly or semi-monopoly entities has anything to do with entrepreneurial capitalism is ridiculous.
How quickly we all forget. The domestic arm of Qantas is the privatised remains of the the former government owned Trans Australia Airlines, more commonly known as TAA, and then morphed into Australian Airlines (dropping the Trans) before finally being flogged off to the Flying Roo.
TAA was run as a cosy duopoly with Ansett. Identical fares, identical timetables, and for the most part identical equipment until TAA broke ranks and went for the A300 instead of the B767 as their first widebody in the 1980’s
The real issue is if Qantas does become a monopoly operator (something Australia really hasn’t seen since the ANA days of the late 1940’s, Virgin arrived before Ansett collapsed and EastWest, Compass, and Impulse all had a bash at taking the big players on) then we will be in uncharted territory. The best outcome is for either SIngapore Airlines or Air New Zealand to buy the wreckage of Virgin ANZ may be wary having had it’s fingers burnt trying the same thing with Ansett, but it would give them an opportunity to finally break into the Australian market since succesive Australian governments have backed away for plans for a single Australia/New Zealand travel area. Singapore would love the opportunity to get into the trans-Tasman and trans-Pacific markets, I’ll bet they’re already looking at it.