Compass — the popular bankrupt


Numerous companies have gone bankrupt since the recession began in late 1990, but none have attracted the amazing public support that has gathered around the failed Compass Airlines since it closed down on December 19. Its staff and many other supporters have taken to the streets around the country in a desperate attempt to raise money to get Compass back in the air. But the last public rallies were held on January 23 as hopes of a bail-out by a major investor faded and the chances of resuscitation (estimated as 50-50 earlier this month by provisional liquidator Ian Ferrier) dwindled even further. PETER BOYLE looks at the Save Compass phenomenon.

It's not surprising that the 1200 former employees of Compass were central to organising most of the Save Compass rallies. They faced little prospect of finding equivalent jobs given the high unemployment and ongoing job shedding by most airlines. But they would never have had the confidence to take the campaign so far were it not for strong public support for the company that led the charge in last year's spectacular domestic airfares price war.

At one stage it was possible to fly from Melbourne to Perth for $99 — less than Ansett and Australian Airlines previously charged for a Melbourne-Sydney flight. It was an air traveller's dream come true. It fostered respect for Compass and resentment of traditional domestic carriers, which ripped off the public for so long with internal fares often more expensive than international fares.

For a while, when the two-airline policy was dismantled, it appeared that the promises of right-wing proponents of market deregulation and privatisation might be coming true. Leave things to the market and competition will ensure lower prices, they said.

But the deregulators told only half the story. Competition under capitalism inevitably leads to market shake-outs and takeovers and hence elimination of competition. The outcome of Australia's airline deregulation was prefigured in the experience of the airline industry in the United States.

When the US airline industry was deregulated in 1978, 75 carriers came into existence. Now, only nine survive, and three of these are in trouble. The giant Pan Am is bankrupt, and Midway and Continental Airlines are limping along under special schemes of arrangement with their creditors. The spectacular collapses in the US left hundreds of thousands of customers with worthless tickets and tens of thousands of airline employees jobless.

The Compass collapse left some 125,000 passengers stranded in the holiday season, and customers some $38 million out of pocket. Travel agents were besieged for days by people who could not believe their tickets were now worthless.

Some who bought their tickets with credit cards less than 120 days before lodging a claim may get their money back because of special arrangements involving banks, but this will account for only a small fraction of the out-of-pocket customers. Meanwhile, banks and travel agents are squabbling in the courts about who should bear the costs. Another $70 million was lost by the company's 12,000 shareholders, many of them small investors. With the company facing a net debt of $171.2 million, and with prior claims by the tax office, government bodies and large creditors adding up to about $120 million, most small investors and the ticket holders can kiss their money goodbye.

Although Compass senior management knew the airline was in trouble well before the collapse — in late November the airline owed $7 million in navigational charges and was losing $5 million a month — many of the victims blame Ansett, Australian Airlines and the federal Labor government.

There is a widespread feeling that Compass was not given a fair go. Just before deregulation, the government signed deals with the two traditional carriers giving them control over air terminals. Dependent on its competitors for terminal space, it got the worst gates (a long walk in the terminal or on the tarmac) and in Adelaide had to operate out of a big tin shed. The public had earlier seen the Hawke government's special treatment of "mate" Peter Abeles of Ansett during the pilots' strike.

The fate of Compass has not deterred new would-be carriers AAA Airlines and Transcontinental from plans to start up later this year. But they have been cowed. Each is going for a small, niche market, AAA on the main routes of the Eastern seaboard and Transcon within Western Australia.

A common view is that the cards were stacked against Compass. In reply, the chief executives of Ansett and Australian insist that Compass was beaten in fair competition. The company began a price war but didn't have the funds to outlast its established competitors. With a start-up capital of a mere $65 million, Compass was $20 million short of the amount Bryan Grey said he'd need "before moving". But fair competition is a joke when markets are dominated by large corporations. Monopoly or oligopoly is the goal of all large businesses, regardless of any weakness for rhetoric about competition.

The outraged public and the former Compass employees placed their hopes in a revival of Compass. They looked first to the NRMA and then Garuda Airlines as possible saviours. Despite accusations of mismanagement, Compass chief executive Grey remains a hero in the eyes of many simply because his price war gave millions of people their first chance to fly.

It wasn't just the gullible public that fell for Grey. Business Review Weekly nominated him Business Leader of the Year in November 1991, even though Compass had posted a $16.5 million loss by June after promising a first-year profit of $18.8 million in its prospectus.

Much of last year's ultra-cheap air travel was a one-off gift. Many of the discount fares were unsustainably low according to experts now combing through the financial wreckage. And then there was the cost of numerous bus lines going to the wall and further strain on the fund-starved railways. Jobs were lost in these sectors well before Compass started laying off.

All this is not to say that we should go back to the high fares that characterised the two-airline policy. But the Compass experience shows term low prices cannot lie with supposed "free market" solutions. A real alternative would be for the federal government to halt the privatisation of Australian Airlines (and Qantas) and compel them (or a new, amalgamated body) to operate as a non-profit, minimum cost public service — a real "people's airline".