The perils of near monopoly

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Qantas has shut down and this is front page global news. The dispute — which appears to be about the usual — has now escalated to punish Qantas customers and send a signal to future ones that Qantas may not be reliable. It is, of course, this is the part that is surprising and brings us to wonder whether this was a decision truly in the interests of shareholders. But the dispute is long-running and I couldn’t really glean from the media reports what was really going on.

But here’s the thing: since 2001 and before, Qantas has had an unparalleled position in Australian aviation. It has a 70% domestic market share and a large international one for flights in and out of Australia (especially when you take into account the ACCC approved alliances with BA and American Airlines). The latter monopolistic condition is, of course, the fault of the Australian government, who for decades has resisted continual calls for opening up Australian skies. We can’t even integrate Australia and New Zealand for goodness sake. It is a travesty that harms Australian business and tourism.

Whatever the details, I am pretty sure that this dispute has occurred directly as a result of Qantas’ dominant position. It is that position that gave Qantas workers the desire to improve their conditions and it is that position that has now led to a shut down that truly negatively effects the rest of Australia. Had Qantas had market shares akin to airlines in more competitive markets, the shut down would not have had the external spillovers, publicity and also the ability to shield Qantas — both managers and workers — from personal long-term consequences of such brinkmanship.

So when Australians look for a target to blame for the conditions that led to this, the need to look at successive government decisions that have generated this outcome. And if they want to avoid it in the future, something needs to be done to free up Australian aviation.

8 Responses to "The perils of near monopoly"
  1. Not letting governments off the hook, but isn’t there an argument to suggest that Australia is too small a market to support more than a couple of airlines?

  2. How do you know? Can you point to a period of history where someone tried to find out for international markets?

    And if you are right then we have only a few. But what is the harm in trying? 

  3. What can the government do to ‘open up the skies’? You must have written about this regulation issue before, but I hadn’t realised it was any less possible in Australia than (say) Canada for airlines to start-up.

  4. What’s the source of that 70% figure, Josh, and is it for Qantas or the Qantas group?
     
    The Quantas “Fact File” [PDF] says Qantas has around 2,400 domestic flights per week, versus around 1,200 for Jetstar (QantasLink ~2000); passenger numbers for FY ended June 2010 were 22,540 versus 14,565 (QL 4,323), respectively. 
     
    These figures are obviously out of date, but if you account for Virgin and Tiger I struggle to believe Qantas alone (rather than the group) could have a domestic market share of 70% on either passenger numbers, kilometres, or revenue.
     
    That might change the analysis slightly, given that the current dispute is just with the Qantas, not Qantas group staff. (Though I might be completely wrong on this — I think Jetstar is on separate agreements but, like you, I’ve been unable to glean much detail on the original basis of the dispute from the press.)

  5. Josh, the situation has changed a lot since the figures you quote.  Only 18 per cent of departures from Australia are on Qantas planes; the other airlines are offering cheaper and much more flexible deals that do not always involve hubbing through Heathrow. There has been some liberalisation of the landing slots.

    Although Qantas domestic is a strong franchise, Virgin is a strong competitor and the market is in any case segmented between business and tourist.

    These disputes are not the same as usual – ie. about pay and conditions.  They are an attempt by the unions to lock in ‘job security’ by restricting or eliminating the company’s use of contractors/ labour hire companies; retain out of date workplace practices in engineering, including insisting on heavy maintenance of the A380s in Australia; and ensuring that the pilots of all codeshare flights are paid Qantas pilot rates (which are the highest in the world given the low number of hours they work).  The new legislation does not prohibit any of these matters being on the negotiating table (and subject to protected industrial action) which is a change from previous legislation.

    So a lot has changed and my guess is that the company regard the situation as do or die (it loses money on its international service and the whole company does not return the cost of capital) which is why it has taken such drastic action.       

  6. @Martin When we define market share it is controlled share so you have to include JetStar etc.

    @Judith If it can’t make money on international flights when it is protected, then we need deregulation. I can’t believe you of all people would be opposed to open skies for Australia. 

  7. I’m not sure I see any evidence for the points you make in your third paragraph.  For example: “I am pretty sure that this dispute has occurred directly as a result of Qantas’ dominant position.” 

    Really?  What makes you think that?  I haven’t done any research myself so I don’t know the answer but do you really think it was employees going “hey, we have 70% of the market, we deserve better conditions!!”?

    Judith has partly answered the issue about the nature of the dispute.  And still, I doubt simply getting rid of the remaining favourable conditions Qantas enjoys is the silver bullet here.

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