The history of commercial aviation in Australia prior to the 1980s is one of the many subjects on which I have very little knowledge.
Somehow leading up to that point a private sector domestic airline had morphed into a government owned international carrier. Clearly delineated were two domestic inter-capital carriers, one Government owned the other privately (TAA and Ansett). Finally there were a host of regional airlines.
The domestic airlines were tightly regulated - the purpose being the usual one of cross-subsidy. To guarantee flights everywhere, entry to the business was constrained to limit "cherry-picking" on the popular routes. International airlines were tightly regulated globally with most countries desperate to ensure air services to their country and thus regulating access to favour their "flag carrier." (Note that there was actually a major communications link here as the Government sponsorship of air services was linked to mail carriage services).
Australian aviation policy was one of the first areas to be subject to the 1980s and 90s wave of "competition reforms". In this they were following the work of Alfred Kahn in the great work The Economics of Regulation. Details of the reforms in Australia can be found in S.G.Corones Competition policy and international trade in air transport and telecommunications services (first published in The World Economy) gives a good theoretical outline of the issues as they apply to international services.
The primary consequence of the deregulatory thrust was the facilitation of a series of mergers that resulted in operators involved in all the markets. The biggest of these was the merger of Australian (the rebadged TAA) with Qantas. But most of the regional airlines were merged into either Qantas or Ansett as well.
The first consequence of deregulation was the collapse of Ansett, an event that occurred through a whole host of reasons, but mostly through a poorly thought out strategy by Air New Zealand to obtain the same kind of structure as Qantas. Two attempted entries under the brand Compass had put some pressure on both airlines, but both Compass attempts collapsed.
Following the Ansett collapse, Richard Branson's Virgin brand entered the Australian market, with some success. Qantas responded by creating an off brand product called Jetstar that sat at a price point below Virgin, and cleverly was structured to obtain different employment conditions. Virgin has recently responded to Jetstar and Tiger by moving itself slightly up in the quality/price stakes.
The simple facts are that the domestic operations of Qantas are still trading profitably. The reality is that we still have much the same market structure in domestic aviation as we had before, however, rather than an duopoly mimicking each other we have an oligopoly that displays the characteristics of "monopolistic competition" of differentiating themselves to different markets. This is in part managed by differentiation of service - like whether the meal is included with a ticket, etc.
The biggest development has been the application of price discrimination which entails having different ticket classes with different restrictions on changes, but more importantly different prices for each ticket type depending on the actual flight time and when it was booked. This yield management, by filling planes, has been responsible for the lower cost per seat kilometre passed on to customers.
That is, the benefits to the flying public have mostly been from the application of ICT, not the consequence of competition policy. The policy question is whether the market could have been "reregulated" in a different way to encourage these investments without the destructive consequences of the Ansett collapse and the two Compass failures.
But the issue Qantas faces today is not the domestic business, it is the international one. And in that market it is the privatisation of Qantas rather than deregulation that has the most impact. International air travel is competitive and there are less controls on obtaining route rights than their used to be. But the problem for Qantas is that some of the airlines it competes against are Government owned, and some governments subsidise air travel for the "externality" of the economic benefit of visiting passengers. Such a strategy is particularly attractive to any location that can develop as an airline "hub". Australia has no city with such an advantage.
Michelle Grattan is describes the story as having three villians and no heroes. There are actually a set of three related stories here. The first is the story of Qantas and its strategy. The second is the story of Government transport policy. The third is the question of industrial relations law itself.
Qantas is faced with a challenge in its international operations. Paul Sheehan neatly listed what he claimed were ten errors in the battle for "perceptors". The bottom line is that Qantas has announced a slash and burn and off-shoring strategy without trying to get any stakeholders on board. Most notably the current qantas strategy seems to be in breach of the articles of association provisions in the Qantas Sale Act.
But ultimately the question is whether simple off-shoring is better than reverting to the previously thwarted strategies of global merger. In this we think of the inherent logic of "code sharing" on flights, and the global "alliance" structure and question whether a better strategy is simply to fully merge a set of operators, maintain a set of brands but not actually ever fly the same segments. In such a strategy Qantas wouldn't just cut some of its UK flights, but all of them. But equally BA would stop its flights to Australia. Qantas branded flights would fly to Asian hub points to connect with BA branded flights. There seems to be no reason for the actual "code share" crap which simply makes departure and arrival boards at airports totally unintelligible.
A good first partner in such a venture is Air New Zealand. To overcome some of the initial concerns from such a strategy both airlines would fully separate their domestic and international arms.
What needs to occur first I suspect is to unstrap the CEO, and possibly the chair, so that they rethink strategy. The only truly valuable thing in Qantas is its brand - that needs to be revived before it is totally destroyed. (And it is probably better that the brand be preserved internationally rather than nationally - in other words rebrand the domestic operation).
To support this strategy the Australian Government needs to take action. To get the Government to take action requires a far more sophisticated approach than exhibited by Joyce over the weekend. To ring the PM who you know is involved in CHOGM, having already relayed to the relevant Minister the position that the shutdown was irreversible, and expect her to either take your call or call you back is the height of arrogance.
The management of Government Relations at Qantas also raises interesting questions. The report of the attempt to contact the PM shows the contact was made by Olivia Wirth who is Group Executive Government and Corporate Affairs. It looks like Qantas handles everything in house as there is no entry for Qantas as a client on the register of lobbyists.
Wirth was recruited to Qantas in 2009 to head PR where she was to report to David Epstein and work alongside Jane McKeon. The former is a long-time Government insider, the latter was the head of Government and international relations.
McKeon was poached by Virgin in June 2010 at the same time as they hired the candidate Joyce beat for the top job at Qantas - John Borghetti. Wirth was appointed to the top job in April this year following the departure of David Epstein.
Having lost its government relations expertise the decision to not employ a lobbyist reflects great hubris on the part of management and the Board. I should note that Singapore Airlines, Air Pacific, Air New Zealand, Emirate and Etihad all employ lobbyists - as do Telstra, BHP and Rio Tinto). I do not doubt the ability of Qantas management to talk directly to Government. Lobbyists however provide three essential benefits. 1. They are not as deeply involved in your strategy and will tell you the unpalatable truth about how your messages will be received. 2. They are in far more regular contact than you can ever be...they have a permanent presence. 3. They provide a very useful conduit for "unofficial" communication.
Separately from Qantas' own strategy the Government needs to urgently review its own airlines policy. Most importantly the failure to allow Qantas to become part of something bigger has to be addressed.
The first is to speed up the process of mutual border recognition with New Zealand so that the direct flights between the two are domestic flights not international. That then means these flights stay in the merged domestic Qantas Air NZ merged business. It also facilitates entry to those routes. (But a flight like the Emirates one through Sydney remains international and passengers need to do full customs and immigration.
The second is to adopt a new "competition policy" on landing rights. Basically if an airline that flies to Australia is government subsidised in any way then it faces an additional landing tax.
The third is to make the necessary changes to the Qantas Sale Act to allow Qantas to reorganise its business.
Finally, there is a "national security" argument for maintaining flight servicing facilities in Australia (could we face isolation if we could no longer access the Qantas "fleet base" in some other country). The extent to which that national security requirement exists and how much it is "worth" needs to be the subject of proper investigation.
Behind all these there is the Industrial Relations policy issue. While some like Malcolm Colless have argued that this dispute highlights the weakness of the Fair Work Act, there is actually little reason to believe that similar industrial action could not have occurred under Work Choices.
However, to the extent it is a test for the Fair Work Act, the alternative view is that it could provide a definitive case of the Act working.
But let's be abundantly clear, the issue and dispute is far more about airline competition policy than it is about industrial relations policy. But I suspect the CEO and Board of Qantas don't actually get that.
Novae Meridianae Demetae Dexter delenda est