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Bob Ansett, “Deregulate the arrogant airline system,”
Australian Penthouse, November 1979, pp. 92-93.

The author is managing director of Budget Rent-A-Car Pty Ltd. He is son of Sir Reginald Ansett, founder of Ansett Transport industries which controls the Avis Rent-A-Car organisation.

The Australian Government’s two-airline policy is a relic of the past, an anachronism of our modern society. Over the years it has enabled Ansett Transport Industries to expand into a conglomerate acquiring a TV station, a finance company, rental cars, hotels, buslines, trucking concerns, Barrier Reef islands, manufacturing companies and a substantial shareholding in Bic pens, Diners Club and others.

The question that begs to be answered is how much has the captive Australian air traveller contributed toward the acquisition of these enterprises and, in some instances, the subsidisation of them?

Instead of propping up some unprofitable subsidiaries, the airlines would be far better directing their energies towards finding more efficient ways of running their airlines and passing the benefits on to the consumer through lower air fares and introducing innovative new services and marketing techniques — something sadly missing from our two domestic airlines.

It can well be argued that my comments are tempered by a self interest, and I would be the last to deny this fact. Of that, more later. First, let’s look back at why we have this outdated two-airline agreement. It had its origin in the early 1950s, during a period of instability in the country’s aviation industry. The policy was largely influenced by the unique situation of a private enterprise airline competing against one owned by the Government. The need for rationalisation was to ensure the Government-owned airline did not gain an unfair competitive advantage over the private company through discounting air fares, having larger carrying capacity and being able to spend greater sums of money on advertising. In other words, the policy was employed to restrict the Government-owned airline from indulging in excesses in gaining an unfair advantage that could ultimately end in the demise of the privately-owned carrier. Arguably, it may well have been an appropriate policy in the Fifties, and perhaps even the Sixties. But now, and certainly in the future, this agreement is a thorough anachronism.

Because the Airline Agreement Act, the instrument that empowers the two-airline policy, is an Act of Parliament, Ansett and TAA are exempt from many laws affecting most other commercial enterprises and, in particular, the Trade Practices Act. As a consequence, the airlines, having operated in a competitive vacuum for so many years, have adopted a position of arrogance toward the community generally. I have mentioned Ansett’s field of interests, and it is worth noting that TAA’s charter was broadened by the Labor Government to enable them to compete with Ansett in travel-related industries. They have acquired shareholdings in a Barrier Reef island, buslines and, recently, the Hertz rent-a-car company. One might ask what justification there is for the Government to be, in effect, in the car rental industry, or propping it up at the expense of the air traveller.

The basic problem of the policy is that there is no incentive to be efficient. Costs are merely passed on to the traveller, yet both airlines are crying over low growth factors which are having an adverse affect on the industry. Understandable.

Ansett and TAA should be investing in more efficient wide-bodied aircraft instead of buying car rental companies. It is not as though the country is deficient in car rental services which could have perhaps justified an acquisition by the airlines. The collusiveness that exists between the two airlines would not be tolerated in any other industry. Their high-handed attitude toward the travel industry is an example.

Failure to consider increasing commission on point-to-point air fares is an example, as is their failure to provide tour basing fares to wholesalers, enabling the airlines to monopolise domestic travel packages. We have recently been exposed to another example of the airlines’ arrogance when a direct Melbourne/Devonport service was offered by Bizjets, a third-level airline using a 20-seat passenger aircraft, the reaction was to reduce air fares in an effort to retard the growth of this newcomer. Several weeks later, Ansett and TAA applied for a general 10 percent across-the-board air fare increase, which they got, but the Melbourne/Devonport route was exempted. If this is not an example of arrogance and lack of sensitivity toward the Government and the community in general, I don’t know what is.

Parallel scheduling, identical price structures, Tweedledee and Tweedledum cabin service, and even the similarity of advertising leads one today to ask why we have two airlines. Surely, if we’re not to have competition between the two, we would be better served by having simply one airline and not costly duplication of running parallel services.

I am not advocating there be one airline. To the contrary, I want to see deregulation of the Australian domestic airlines. If this means selling TAA to private enterprise, then so be it. If our tourist industry is to expand, meaningful competition must be introduced into the stagnated industry either as a third line (the performance of Bizjets in Tasmania shows the impact of even limited competition) or total deregulation.

Thought must also be given to the rationalisation of current equipment being used not only by Ansett and TAA, but also Qantas. At a time of diminishing world energy supplies, it is ludicrous that Qantas flies near-empty 747s across this continent, prevented from picking up passengers on one side and delivering them to the other. Surely a more efficient way would be to pool equipment, enabling Qantas to use Ansett and TAA’s 727s for short-haul services and, at the same time, allow Ansett and TAA to utilise 747s for high traffic routes between say Melbourne, Sydney and Brisbane. Passengers taken on in Perth could be delivered to Melbourne or Sydney on a Qantas aircraft but processed through Ansett or TAA.

One of the frightening aspects of the present policy is the five-year notice of termination requirement. In other words, if the Minister for Transport were to decide today that the two-airline policy was to cease and meaningful competition introduced into the industry, it would take five years from day of notice before changes could be implemented. That is, unless the two airlines agree to the changes. So far there has been little indication that the airlines, particularly Ansett, are prepared to consider any form of deregulation. And why should they when they have a licence to print money? I just wonder what other industries could absorb the crash of a finance company costing them almost $20 million without incurring some major form of indigestion. Of course most other industries do not have their profits legislated by an Act of Parliament.

As I said, my comments are tempered by a self interest. Because of the two-airline policy, my company today is, in effect, competing against the airlines, which makes life difficult when you consider the major car rental market is airports and air travellers. With the airlines having a captive market, obviously they have the power to influence their customers to use their in-house subsidiary. To my knowledge, no other Western country with a semblance of anti-trust legislation would permit such a blatant act of monopolisation.

The deregulation of our domestic airlines would make an enormous contribution toward the reduction of travel costs within Australia. Irrespective of all the arguments put forward by the airlines as to why air fares are so high, the fact remains that competition changes that rationale. For example, in the United States, for many years, the airlines fought with fervour against deregulation to find that when it inevitably arrived they achieved an enormous growth, not only in gross turnover but also in profitability. Today, you can travel from Los Angeles to San Francisco for $31.00 economy, compared with Melbourne/Sydney $65.30, an almost identical distance. United Airlines have just applied for a $108 air fare from New York to Los Angeles, compared with our rather similar distance, Melbourne to Perth for $205.70.

No matter what arguments are put up by the airlines, competition invariably induces efficiency, and that is sadly lacking in Australian airlines. Efficiency brings about innovation, which ultimately results in lower costs. It’s about time someone took into account the interests of air travellers and stopped worrying about the interests of our two very privileged airlines.