Pressure to let foreign airlines fly domestic

[Justin L]

This one will be interesting...

http://www.smh.com.au/news/news/let-foreign-airlines-fly-domestic/2008/11/02/1225560645337.html

Pressure to let foreign airlines fly domestic
Mark Davis Political Correspondent
November 3, 2008

FOREIGN airlines would be allowed to fly domestic passengers between Australia's big capital cities to improve competition in the aviation industry under reforms being pushed by the Federal Government's Department of Foreign Affairs and Trade.

In a submission to a Government review of aviation policy, the department is arguing for a significant freeing up of the complex web of trade agreements and local regulations which limit competition on international and domestic air routes.

It wants the Government to negotiate deals with other countries by which their carriers would be allowed to carry domestic passengers inside Australia, in return for Qantas and other Australian carriers being given the same rights in other countries.

But the proposal is being strenuously resisted by Qantas and Virgin Blue, which have warned it would allow international airlines to "cherry pick" busy routes like Sydney to Melbourne and Sydney to Brisbane, undermining the viability of less profitable regional services.

The debate has been triggered by a Government policy review on everything from regulation of international air services to tackling shortages of skilled workers.

The Transport Minister, Anthony Albanese, is about to release an aviation green paper and wants a white paper by the middle of next year to set out a long-term policy framework for the future of the industry.

The DFAT submission to the review adopts an unusually strong pro-competition position on international and domestic passenger air services, a stance which is likely to be at odds with that of Mr Albanese's own department.

In the Canberra bureaucracy, DFAT is responsible for trade policy and for negotiating almost all of Australia's multilateral, regional and bilateral international trade agreements.

But Mr Albanese's department is in charge of the complex agreements with other countries that determine which airlines can fly to and from Australia, where Australian airlines can fly internationally, and how much competition is allowed on international and domestic routes.

DFAT's submission says removing restrictions on flights between countries provides benefits for consumers and industries which rely on the aviation sector by allowing competition among airlines on price, convenience, destinations and service quality.

It says that even though Australia had negotiated so-called "open skies" agreements with countries like the US, Britain and Singapore, these still contained restrictions on airline services.

The submission also calls for other reforms, including:

- Allowing more foreign airlines to operate on the Australia-US route which is currently effectively restricted to Qantas, Virgin's V Australia international carrier and United Airlines.

- Lifting the 49 per cent foreign ownership cap on Qantas.

-Allowing foreign-owned but Australian-based airlines to fly on international routes in competition with Qantas.

[Jon Harris]

UA does not have full traffic rights on the SYD-MEL tag - it can only carry pax that will continue their journey on UA's services to LAX and SFO however they can stop in SYD and it doesn't have to be an immediate connection. TG has the same set up for their SYD-BNE. MH has no traffic rights at all on the SYD-BNE.

QF's traffic rights on the LAX-JFK tag is the same as UA's on SYD-MEL.

For a while just after AN's collapse in 2001, UA had full traffic rights on the SYD-MEL - I remember their $50.00 fares in Y and $150 in C and $200 in F.

[Justin L]

UA does not have full traffic rights on the SYD-MEL tag - it can only carry pax that will continue their journey on UA's services to LAX and SFO however they can stop in SYD and it doesn't have to be an immediate connection. TG has the same set up for their SYD-BNE. MH has no traffic rights at all on the SYD-BNE.

QF's traffic rights on the LAX-JFK tag is the same as UA's on SYD-MEL.

For a while just after AN's collapse in 2001, UA had full traffic rights on the SYD-MEL - I remember their $50.00 fares in Y and $150 in C and $200 in F.

I believe PR also has similar rights to UA and TG for SYD-MEL vv.

[Jack B]

Have foreign airlines operated domestic flights out of Sydney before

if so, what ones?

[James R]

The BA9 and BA10 used to continue on to/from Melbourne.

I'd assume you could previously purchase domestic tickets on these sectors?

[Nigel C]

I think if you searched for which airlines operated here during the pilot strike days, you'd find a host of foreigners doing domestics.

Air Canada is one that I think was here...

[Andrew P]

CX also has limited rights ADL-MEL & CNS-BNE

Banjo

[NickN]

Sounds like allowing this to happen could open a real can of worms and set a dangerous precedent. If this ever happened there would be no going back.

[Andrew McLaughlin]

Sounds like allowing this to happen could open a real can of worms and set a dangerous precedent. If this ever happened there would be no going back.


What's "dangerous" about it Nick?

[NickN]

Setting a precedent such as this is dangerous. If everything goes to the dogs and foreign carriers take over the domestic market you can't just turn around and tell them to go. Once they are in, they are in.

There has to be some sort of protection offered by this government for Australian business. Something the Rudd government has a lacklustre history in. The Australian marketplace is constantly under attack from overseas interests, in almost every sector. The last thing we should be supporting is yet another way for foreign companies to muscle in on Australia.

I find it very un-Australian to be supporting and assisting overseas business to profit from Australian customers when we could be promoting a home grown business instead. Personally I always prefer to choose a home grown business to deal with over one that is under foreign ownership to help support Australian business.

[Nigel C]

There has to be some sort of protection offered by this government for Australian business. Something the Rudd government has a lacklustre history in. The Australian marketplace is constantly under attack from overseas interests, in almost every sector. The last thing we should be supporting is yet another way for foreign companies to muscle in on Australia.


Australian businesses need to learn to stand on their own 2 feet and become competitive in their own right, without the backing of the Federal Government. The Fed Govt is there to run the country by way of the public sector, not prop up the private sector.
I, for one, didn't support the widespread idea of the Fed Govt propping up Ansett when it was going under in 2001, and I'm glad they didn't sink public money into a rotting corpse.

Nick, can you give a few examples of the 'lacklustre history' of the KRudd government when it comes to protecting inefficient businesses?

If the Australian marketplace is under foreign attack, then perhaps certain sectors need to look at ways of doing business smarter, rather than relying on government protection. The Australian taxpayer deserves for their money to be spent wisely.

[Andrew McLaughlin]

Sorry mods if we're headed off on a tangent here, but I think it's important for Nick to qualify his statements...

Setting a precedent such as this is dangerous. If everything goes to the dogs and foreign carriers take over the domestic market you can't just turn around and tell them to go. Once they are in, they are in.

And what if it doesn't all "go to the dogs"? What if the competition provides a better market for the customer?

There has to be some sort of protection offered by this government for Australian business. Something the Rudd government has a lacklustre history in.

That would be the Rudd government that has only been in for 10 1/2 months after 12+ years of coalition rule? Please cite some examples where this "lacklustre history" has occurred?

The Australian marketplace is constantly under attack from overseas interests, in almost every sector. The last thing we should be supporting is yet another way for foreign companies to muscle in on Australia.

Wake up and smell the coffee Nick! We live in a global economy and, with a population of <23 million, we have neither the industrial base nor the population to stand on our own. If you want the government to favour home grown products by selectively choosing who can and cannot enter our market or by selectively applying tarrifs, then you may as well kiss most export opportunities for Australian industry goodbye!

I find it very un-Australian to be supporting and assisting overseas business to profit from Australian customers when we could be promoting a home grown business instead.

"un-Australian"...oh puhleese!! :rolleyes:

Personally I always prefer to choose a home grown business to deal with over one that is under foreign ownership to help support Australian business.

And having foreign airlines here shouldn't change your preference to choose! If you want to continue flying Qantas or Jetstar, then go for it. If someone else offers a better product at an equal of cheaper price, you still have that choice.

[D Chan]

Is there a need to further de-regulate the market? I believe the answer is no.
More interestingly perhaps Air New Zealand could try operating domestic sectors - afterall Australia and New Zealand are under the Single Aviation Market agreement?

And what about those airlines from city-states like Singapore and Hong Kong? What could our airlines possibly ever gain in return for giving them access to the domestic Australian market?

Look at the major carriers in the US at the moment. All are struggling due to over-competition - who really is benefiting out of all these? Not airline employees, not airlines, not shareholders, and to some extent not the travelling public. Yes, after de-regulation airfares sharply declined, but there is a point when airfares can't go lower because airlines can't sustain profit on routes anymore, which forces them to pull out of the route etc. (This is exactly what would happen if foreign airlines were allowed to fly domestic). Then have a look at the domestic Chinese market - a few years ago the Chinese government did something unthinkable - consolidating the smaller carriers under the 'big 3' - Air China, China Eastern, China Southern. This mightve been considered 'stupid' back then but this decision actually makes a heck of a lot of sense in the current climate.
Controlled growth is better than uncontrolled growth that results in undesired outcomes.

And what about the long-held notion that the Australian airspace could only sustain 2 majors? At the moment you've got Virgin Blue and the Qantas Group (incl Jetstar and QFlink). Virgin Blue isn't in a particularly good shape at the moment (just look at its abysmal share price as an indicator). I would expect Qantas's profits to fall as well.

Now is simply not the time to let foreign airlines fly domestic.

[Al.B.SYD]

I don't think a wholesale "fly anywhere and as much as you want" approach is palateable, but a limited opening such as allowing Domestic pax on those triangulated routes (a la UA MEL-SYD and the old TG/NG/MS/SA/MH style connections) isn't going to be much of an issue given it's probably one or two flights a day.

Some routes are crying out for extra capacity/competition - I don't think anyone would decry an International carrier offering domestic seats/fares on a ADL-DRW leg en-route to Asia or CNS-DRW enroute to Asia as examples. Good for the locals and helps fill empty seats for the carrier, which in turn could spur more direct services opening up outside of the golden triangle.

[Mike W]

I find it very un-Australian to be supporting and assisting overseas business to profit from Australian customers when we could be promoting a home grown business instead. Personally I always prefer to choose a home grown business to deal with over one that is under foreign ownership to help support Australian business.


I the mean time then, the Australian customers can pay through the nose through lack of competition?

[Adam P.]

Compare fares (in real terms) uder the two-airline policy to those we see today.

I hardly think Australian customers are "paying through the nose" for airfares.

[Rhys Xanthis]

Compare fares (in real terms) uder the two-airline policy to those we see today.

I hardly think Australian customers are "paying through the nose" for airfares.

I have to agree here.

I personally am happy with the way it is at the moment - fares are not ridiculously high, service is pretty good, and so is the quality of service.

Paying $220 for perth to melbourne seems perfectly reasonable to me.

[NickN]

D Chan, Adam P and Rhys have all made exceptionally good points.

We don't need foreign airlines here. Things are definately fine the way they are. Airfares here are cheap and as mentioned the service is fine.

If it aint broke don't fix it.

[Grant Smith]

D Chan, Adam P and Rhys have all made exceptionally good points..

Why is that Nick? Because they all more or less agreed with what you were trying to say?

Hardly exceptional...

[Andrew McLaughlin]

D Chan, Adam P and Rhys have all made exceptionally good points.

We don't need foreign airlines here. Things are definately fine the way they are. Airfares here are cheap and as mentioned the service is fine.

If it aint broke don't fix it.

So, you're not going to qualify your previous comments then? :rolleyes:

[Ellis Taylor]

If this does end up happening, I would hardly think that we'll see foriegn airlines setting up major networks to take on QF and DJ on major trunk routes with the frequencies to really make a good go of it. If anything, it would be those tag type routes, such as SYD-MELs, SYD-BNEs etc.

I think the Australian market isn't that attractive to most airlines anyway. It's a competitive, commoditised market which really doesn't yield all that well - especially when the economy's unstable. And if it was an attractive market, why have more airlines not started their own domestic subsidiaries as Tiger has done?

I personally think it'd be great. More competition is always good for the consumer, and it may put a rocket up the US and EU and get them to agree to offer their own cabotage rights.

[Will T]

The Australian Government obviously needs to weigh up a number of factors when it formulates its long-term position on cabotage.

A critical part of that evaluation will be the importance to Australia of its indigenous aviation industry (which is in no small part driven by the airlines at the top end), versus the potential consumer and public benefit achievable by effectively 'outsourcing' (through cabotage rights) the provision of some or all domestic air services to cheaper or more efficient foreign providers who - for reasons of domicile geography, government, tax and labour arrangements, scale etc - may well be able to develop a lower cost airline operation than any Australian-based operator ever would.

Our Government would need to test factual and couterfactual scenarios, and would need to examine the impact on the size, scope and sustainability of Australian-based/indigenous airlines that the granting of cabotage rights might have, as well as the flow-ons throughout the entire Australian aviation industry (skills, E&M, R&D etc). It would need to evaluate the desirability of these impacts, and calculate a net public benefit or detriment deriving therefrom. There may also be national defence and strategic implications from allowing the indigenous airline industry to be materially weakened by foreign competition.

Lastly, assuming major foreign-based carriers were able to quickly scale up domestically, and displace some of their less-efficient Australian competitors (economics 101), one would need to consider whether in fact long-run airfares would then return to historical levels, or whether this consumer Utopia - touched on by Andrew and Ellis - would persist.

These aspects - and many more - would be critical in the formulation of any long term position on domestic air rights to foreign carriers, on any scale.

[D Chan]

And if it was an attractive market, why have more airlines not started their own domestic subsidiaries as Tiger has done?

possibly a few factors:

- foreign ownership cap
- difficulty in starting up operations
- risks involved and capital required
- previous history of the domesic market (demise of Ozjet (as an all business class RPT, Ansett, Compass etc.)
- difficulty with operating with small fleets e.g. less than 5 aircraft etc.

[Will T]

Further to D Chan's points, a number of studies done in the 1990s, post Compass Mk II, concluded that the Australian domestic market (as currently regulated) was a natural duopoly. What's changed since then has been the emergence of a very clear distinction between the price-sensitive/low-end leisure and premium/high-end leisure markets, driven largely by the advent of LCCs (ie. Virgin Blue).

I don't think the market's tendency to duopoly has changed, but in order to be a sustainable player in the duopoly, you need to have both of these segments covered (ie. two brands) such that each duopoly player is now a coordinated airline grouping.

In this way, Tiger's entry was probably catalysed by a perception that Virgin Blue had lost its (cost) competitiveness in price-sensitive leisure, and that there existed an opportunity for a cost-efficient rival to Jetstar at that end. And while Virgin has attempted to move upmarket, it has never stated designs on becoming a full-service, differentiated network carrier, but rather a 'bit of both' New World Carrier strategy.

For all of the reasons listed by D Chan, there are significant barriers to entry domestically. Consider, however, that cabotage rights were granted to Singapore Airlines, with its deep pockets, substantial fleet and network assets, and ability to rapidly achieve sustainable scale in full-service domestic operations. Were it allowed to do so, a rapid scale-up of Singapore Airlines (Australia), as a full-service premium differentiator, in conjunction with its low-cost Tiger entity could form a viable second player in the duopoly (with the Qantas Group as the other), and this would almost certainly squeeze Virgin Blue out of the market in the long run. In any case, such a possibility would likely give SQ ample cause to lobby our government for domestic rights!

[Ellis Taylor]

possibly a few factors:

- foreign ownership cap
- difficulty in starting up operations
- risks involved and capital required
- previous history of the domesic market (demise of Ozjet (as an all business class RPT, Ansett, Compass etc.)
- difficulty with operating with small fleets e.g. less than 5 aircraft etc.

...Which are some of the reasons it is an unattractive market to enter. The only exception is that there is no foreign ownership cap if you want to fly domestically. It's how Virign Blue got started (remember they used to a wholly owned subsidiary of the Virgin Group back then) and TT is 100% owned by Tiger Aviation Group Pte Ltd.

What I'm saying is that if any Tom, Dick or Emirates wanted access to the domestic market to seriously take on the likes of QF, they could already do it, but they would likely not do well out of it. I think even if the routes are opened, at best we'll just see a few widebodies doing some extra tag flights with maybe some interesting aircraft rotations, eg DXB-PER-SYD-DXB.

[Arthur T]

What I'm saying is that if any Tom, Dick or Emirates wanted access to the domestic market to seriously take on the likes of QF, they could already do it, but they would likely not do well out of it. I think even if the routes are opened, at best we'll just see a few widebodies doing some extra tag flights with maybe some interesting aircraft rotations, eg DXB-PER-SYD-DXB.

I think CX is doing what you want, but just they cannot sell the domestic sectors:

HKG - MEL - ADL - HKG
HKG - BNE - CNS - HKG

Under the one market agreement, NZ just don't want to start it after the pain of Ansett Australia (Otherwise what an opportunity they can have while having some A320s flying major ADL/MEL/SYD/CBR/BNE routes to connect with their *A partners?), where Australia government can negotiate with some countries open domestic skies while ask for something in exchange. For example:

1. If Singapore wants to have domestic rights, Changi Airport must make a special discount to Australian carriers;
2. If Hong Kong wants it, HK Govt must open its sky fully to Australia (that QF DJ etc may even able to operate HK - China flights freely to compete with CX KA and have rights to fly anywhere from HK at their wish, so that Qantas may be able to make some adventurous profits from operating SYD - HKG - PVG/PEK routes, even extend their European network through HKG by operating SYD - HKG - KPH/OSL/ABR/MAD/MAN/DME etc., where even they can't attract Australian passengers, they can attract Cathay's OneWorld passengers to switch to Qantas. Note: Recently there is more and more Northern Europeans would like to go to Hong Kong, so that's a thing that QF worth to think about)
etc...