How the 'free market' ruined the airline industry

Issue 

BY ALISON DELLIT

A decade after a federal ALP government began the process of deregulating domestic air travel and privatising government-owned airlines, safety standards have fallen, services to regional areas are in crisis, airline workers who still have jobs are putting up with worse wages and conditions and air services have deteriorated.

Ansett is the fourth airline in 10 years to go belly up. The abolition of the two-airline policy has resulted in a one-and-a-half airline policy.

The collapse of Ansett — its initial tumble in September and its final demise on February 27 — will result in the largest mass sacking in Australia's history. Of Ansett's 14,000 workers, just 3000 are likely to be employed by Virgin Blue or Qantas.

For the workers who are lucky enough to be re-employed, things will not be the same. While 98% of Ansett workers were in a union, less than 10% of Virgin Blue workers are, and Virgin Blue spends 40% less than Qantas does on wages, conditions and training. Qantas is arguing that it "must" reduce workers' wages and conditions in order to "survive".

Regional and rural areas have been worst hit by the airline industry's crisis. Since August, 16 airports have lost services in NSW alone. In Victoria, some areas that have maintained services have done only because local councils have provided heavy subsidies.

Following the February 27 collapse of the bid for Ansett by Lindsay Fox and Solomon Lew's Tesna consortium, most of those involved have been playing the blame game. Regradless of the feverish finger pointing, very few economists expected Ansett mark II to survive — certainly no major bank was prepared to put its money on the line.

The airline industry crisis is a direct consequence of two decisions by federal Labor governments in the 1990s: to privatise Qantas and Australian Airlines, and de-regulate the pricing structure and government control over new entrants.

Privatisation

Qantas and Australian Airlines (formerly Trans-Australian Airlines) were fully government-owned from 1947 to 1993. During that time, Qantas maintained the best safety record in the world and one of the world's best track records for being on time. With a fully unionised work force, workers had a secure, reasonable wage.

The debate over selling Qantas began in earnest in 1990, when Labor Prime Minister Bob Hawke announced the government's intention to sell 49% of the airline.

The proposed privatisation was very unpopular with working people. Federal cabinet attempted to shut dissidents up by arguing that the government couldn't afford to purchase new planes and carry out necessary safety re-fits. The cost, the government argued, would be upwards of $2 billion to keep Qantas "competitive". The government painted Qantas as a debt-ridden liability — likely to collapse in the face of fierce international competition.

Despite this, the government allowed Qantas to purchase Australian Airlines in 1992 for $400 million, integrating domestic and international services.

In 1993, the government quietly injected $1.35 billion into Qantas, just one month before it sold 25% of the airline to British Airways for $665 million. Qantas held a 40% market share of international travel to and from Australia. The remaining 75% of the airline was sold in a public float in 1995. The total sale price for the airline was just $2.1 billion.

Writing in the July 10, 1995, Canberra Times, economics professor John Quiggan argued: "If the government believes its own prospectus [for Qantas], it should certainly not be selling." According to Quiggan, the share offer was so underpriced, it amounted to a "giveaway of public assets". Three years after privatisation, Qantas shares are worth 49% more than the government sold them for, giving shareholders a whopping 160% return on their investment.

Far from acknowledging the sale was underpriced, the ALP declared it a huge success, because of the number of small shareholders that had profited in the first few days after the sale. It was left to anti-privatisation advocates to point out that Qantas shareholders' profits came straight out of the pockets of millions of Australians.

Shortly after privatisation, Qantas launched a war on its workers, extending outsourcing and competitive tendering to every aspect of its business. As a result, staff conditions were undermined. In a 1997 submission to a Senate committee, Qantas argued that its priority since privatisation was "productivity increases", which it had successfully achieved "by increasing the direct [ie extra-union] communication between the company and staff".

Qantas is currently planning to outsource maintenance work to overseas contractors as a cost-cutting measure. The Australian Manufacturing Workers Union claims this will jeopardise safety standards.

Although Qantas denies that safety standards have slipped, a Qantas 747 in 1999 overshot a runway in Bangkok. This was Qantas' most serious accident since 1947. In April 2000, the undercarriage of a 747 collapsed at Rome airport.

Since deregulation, safety standards have been monitored by the Civil Aviation Safety Authority. CASA has been the subject of numerous complaints. In March 2001, a leaked internal CASA report found that CASA was not upholding safety laws.

Deregulation

The privatisation of government airlines went hand-in-glove with the deregulation of the industry. This was justified by the argument that "free" competition would lower prices and give customers more choice.

In 1990, the federal ALP government deregulated the main passenger routes and fare controls.

The entry of the first new domestic airline, Compass, in December 1990 was a disaster. Although offering rock-bottom fares, the immensely popular airline collapsed just 12 months later, leaving thousands of commuters stranded at Christmas.

Under pressure from price wars, regional operator Hazelton Airlines stopped services to the least profitable 35% of its country network in 1991.

Although several new regional airlines began operations during the 1990s, today there are just three airlines flying regional routes in NSW, two of which are in administration. The third is Qantas. There are fewer regional services, to fewer destinations than there were before deregulation.

Another casualty was the interstate bus industry, which shrunk from five to two major operators, at a heavy employment cost. Pressure from declining employment helped to drive down wages and conditions, jeopardising not just workers' health, but safety standards as drivers worked longer hours without a backup driver.

In 1992, Compass was relaunched only to collapse again seven months later. In 2000, Impulse Airlines and Virgin Blue were launched. Impulse lasted less than a year before being absorbed into Qantas.

Virgin Blue's success has come at the expense of Ansett, which was ill equipped to compete after having been asset-stripped by News Corporation (it had the second oldest fleet among the top 50 established airlines in the world) and then sold to Air New Zealand.

When Air New Zealand realised the shape Ansett was in, it used the airline as a tax-minimiser, even running all its fuel bills for the network through the Ansett account. These "management strategies" left Ansett the worst equipped airline to compete in the market.

Aviation is a high-investment industry. To start an airline requires the purchase of planes, access to domestic and international booking systems, links with travel agencies as well as catering and service subsidiaries, and all-important access to terminal space at airports. It simply doesn't make sense to duplicate this infrastructure several times over.

The Australian aviation industry has excess capacity. Flying many half-empty planes, all competing with each other, makes no environmental or economic sense. Nobody is going to invest in building more terminals at Sydney airport when, because local communities refuse to allow their lives to be further disrupted by aircraft noise, there are hourly limits on aircraft movements and planes cannot take off or land 24 hours a day.

Competition in the aviation industry may take the form of dramatic price cuts, but no corporation is prepared to lose profits. Instead, the aviation bosses attempt to cut costs by slashing workers' wages and conditions, increasing the number of occupied seats per flight, cutting corners on maintenance and sacking workers.

As Qantas gears up for an assault on its unionised employees, we can also expect further cuts to safety standards, a return to high prices and worse meals. More regional travellers are likely to be stranded as the privatisation of Sydney airport goes ahead, and the pressure to sell landing slots, currently allocated to regional airlines, to Qantas and Virgin Blue increases.

A more rational system would be for a publicly owned and run aviation system — which could use profitable routes to subsidise regional services, reduce environmental destruction and noise. Most importantly, it would ensure that high air safety standards are maintained.

From Green Left Weekly, March 13, 2002.
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