Allan Fels's Price Gouging Report

[Lynda2475]

Qantas had an international monopoly

This has never been true in my lifetime, overseas airlines have always competed with Qantas on international routes.

 

[moa999]

This has never been true in my lifetime, overseas airlines have always competed with Qantas on international routes.

Quite obviously from the Australian end only.
Ansett's first international flight was in 1993.

(Qantas / Australian merger was in 1992, BA bought a 25% stake in 1993, and the public offering and government sell down in 1995).

 

[jb747]

AJ has conventiently broken the company up into dozens of entities. It would be utterly hilarious if they were all sold off and then had to try to work together. Go for it.

 

[Lynda2475]

Quite obviously from the Australian end only.

My point was Aussies have always n my lifetime had a choice of more than one airline if flying internationally, Qantas doesn't have a monopoly on international routes that I am aware of.

The only international destination I can think of only serviced by 1 airline out of Australia is Vanuatu, and it is not a QF route. Virgin have the monopoly on Christmas Island (but that is an Australian territory).

Even Fells only argues competition needed not that you need 2 or more Australian airlines to service an international route to bring prices down.

 

[moa999]

I think Fels is only talking domestically..

Internationally competition just increases.
Once you had Qantas and BOAC, but the numbers of airlines flying in has continued to increase.

While a number of European airlines dropped out, the Middle Eastern, SE Asian and more recently multiple Chinese airlines have more than made up for it.

 

[drron]

And to add to the nit picking I flew TAA SYD-BNE-POM-LAE-RAB-BUA-HIR way back in 1969. Definitely not a domestic flight.

 

[dajop]

TAA SYD-BNE-POM-LAE-RAB-BUA-HIR

How did it work back then? Technically speaking it seems you had 5 flights within "Australia" and the last flight from Australia to the UK?

 

[henrus]

Queensalnaderrrrrrrr here.

I'm feeling it's about time we launch Queensland Airlines, all flights to/from/within Queensland should be operated by Queenslanders for Queenslanders (no foreigners allowed - talking about you Victorians).

/s

Seriously though, our population isn't large enough to see the sort of competition you see overseas (like EU/Asia/US) except the golden triangle routes which are already covered by QF/VA/ZL.


Now this may be controversial but with all due respect to Professor Fels, the report is a bit of a piss take. The ACTU (Australian Council Of Trade Unions) has commissioned this report which inherently introduces a bias to it. Sure there are some parts of it which are true but you need to take it at face value that it's "written" by someone who has spent years at the ACCC and has recently been paid a bucket of $$$ to write a report on behalf of the unions. Fels who as others have mentioned doesn't have the best credibility has come back from retirement to write this on their behalf.

The report which has been linked in an earlier post has some rather gaping holes
- QF received ~$2b in gov handouts sure it does mention ~$850m were in jobkeeper but many others were in keeping routes alive for critical workers or freight/waivers of air traffic fees etc - no where is this mentioned.
- It quotes many sources in an academic style as in they're official information but on further inspection they're just from the AFR or others...
- Finally the Qatar saga... Arguably this has nothing to do with Qantas and more to do with gov (either side) - scrap CL and you'll see a different opinion
- Talks about the whole "bundle of rights" saga, which again is same as elsewhere in the world - worse in Asia.

End of the day this report is "cute" and the press club address was "cute" except the AFR journalist who complained about the "Canberra tax" (which is a reflection on the AFR more than anything) but nothing will change especially with his demographic still traveling and writing reports to parliament.

The only international destination I can think of only serviced by 1 airline out of Australia is Vanuatu, and it is not a QF route. Virgin have the monopoly on Christmas Island (but that is an Australian territory).

Vanuatu is severed by both VA (Australian based) and NF (Vanuatu based).

There are plenty of destinations across the region that are similar, one AU carrier and sometimes one foreign carrier.
All of NZ (except ZQN - Queenstown airport) is severed by only one Australian carrier (counting QF/JQ as the same) then foreign ones.
New Caledonia - Qantas (a handful of flights) with a tight agreement with Air Calin (profit/route sharing) - probably worst in region.
Cook Islands - JQ only direct from Australia subsided by the Cook Islands gov and in part due to way budgets work the NZ Gov.
PNG - QF Only from Brisbane and Air Niugini from a handful of ports.

Virgin doesn't have a monopoly but instead hold a contract on a contracted Australian government route (QF to Norfolk Island is no different) although in both cases their is a big history lesson. VA actually to their credit won the contract competitively however QF was basically gifted it during covid as Air NZ struggled with border closures.

 

[OATEK]

UNSW academic calls BS on the Fels claim that QF led directly to RBA rate rises:

University of New South Wales professor of economics Richard Holden said the suggestion Qantas was to blame for interest rate hikes was “puzzling at best”.

He said when setting interest rates, the Reserve Bank looked at the “trimmed mean inflation” and not the headline figure.

“If Qantas was the category that had the largest increase in terms of contribution to CPI, the trimmed mean is the middle 70 per cent of prices so it would not be accounted for in trimmed mean inflation,” Prof Holden said.

https://www.theaustralian.com.au/business/aviation/qantas-isnt-to-blame-for-interest-rate-rises-and-fels-link-in-gouging-report-is-puzzling-say-experts/news-story/4c55d9dba2aaa66137fc58dd94e7b354

I know its paywalled, but a discussion of mean vs headline points to Fels being off target. He (the academic) also calls in to question if some sections really written by Fels.

 

[Jean Prouvaire]

I'm feeling it's about time we launch Queensland Airlines, all flights to/from/within Queensland should be operated by Queenslanders for Queenslanders (no foreigners allowed - talking about you Victorians).

How about joining with the Northern Territory so you can offer a Queensland and Northern Territory Aerial Service?

Personally I can't see Jetstar being hived off from Qantas - seems like a particularly dramatic move that I can't think of any precedent for. (Happy to be corrected.) I'm no expert, but it's my understanding that splitting an existing business (as opposed to, say, hiving off part of a company as a condition of an acquisition by another company) tends to be recommended for companies that have a monopoly or near-monopoly over their market (eg Bell being broken up into the Baby Bells in the US in the 1980s). Whereas Qantas is in more of an duopoly/oligopoly situation.

And even then I recall there was some talk some years ago of breaking Telstra up into - IIRC - a publicly owned (ie Govt-owned) wholesale organisation (as Telstra basically had a monopoly over infrastructure) and a privately owned (ie listed on the stock exchange) retail (where they competed with Optus) - and that didn't happen. Instead Telstra proposed a sort of "Claytons" breakup, an internal structural separation, which I think turned out to be a win for them.

If a Qantas/Jetstar split were to happen though, I'm wondering who gets what airport slots. Are these allocated on a Group level (ie Qantas Group and move slots between QF and JQ or at a lower level?

 

[henrus]

How about joining with the Northern Territory so you can offer a Queensland and Northern Territory Aerial Service?

I like the idea, wan can call it Qantas without a U, but don’t worry many people will spell it with a U.

 

[dajop]

History also has to be discounted as the population and economy expands, potentially creating more room for competition. Prior to Rex's entry into the golden triangle the last time there were three serious airline groups in Australia (discounting Ozjet as a non-starter) was 2001 (QF, AN, DJ) and prior to that 1993 (YM, AN, TN). Maybe Rex stands more of a chance as the market is significantly bigger now.

Population is 1.5 x when YM collapsed and 1.4x when AN collapsed.
GDP is roughly 5.5x what it was when YM collapsed and 4.5x when AN collapsed.

 

[muppet]

UNSW academic calls BS on the Fels claim that QF led directly to RBA rate rises:

University of New South Wales professor of economics Richard Holden said the suggestion Qantas was to blame for interest rate hikes was “puzzling at best”.

He said when setting interest rates, the Reserve Bank looked at the “trimmed mean inflation” and not the headline figure.

“If Qantas was the category that had the largest increase in terms of contribution to CPI, the trimmed mean is the middle 70 per cent of prices so it would not be accounted for in trimmed mean inflation,” Prof Holden said.

https://www.theaustralian.com.au/business/aviation/qantas-isnt-to-blame-for-interest-rate-rises-and-fels-link-in-gouging-report-is-puzzling-say-experts/news-story/4c55d9dba2aaa66137fc58dd94e7b354

I know its paywalled, but a discussion of mean vs headline points to Fels being off target. He (the academic) also calls in to question if some sections really written by Fels.

Well, I don’t know but The Australian’s economics commentary can be a bit off the mark.

For example, a simple review of RBA minutes shows the board did discuss headline inflation and specifically mentioned increases in travel-related services. …. In fact headline inflation was referenced 4 times vs trimmed mean once.

 

[OATEK]

Well, I don’t know but The Australian’s economics commentary can be a bit off the mark.

For example, a simple review of RBA minutes shows the board did discuss headline inflation and specifically mentioned increases in travel-related services. …. In fact headline inflation was referenced 4 times vs trimmed mean once.

And yet an Economics Professor from UNSW says the QF impact was much less than Fels argued. As a humble Politics graduate I am inclined to give some weight to a current Professor of Economics, especially his comments around what travel related services refers to being so much more than QF fares.

 

[drron]

Well, I don’t know but The Australian’s economics commentary can be a bit off the mark.

For example, a simple review of RBA minutes shows the board did discuss headline inflation and specifically mentioned increases in travel-related services. …. In fact headline inflation was referenced 4 times vs trimmed mean once.

Though Fels was referencing the 3 months of the December quarter 2022. International air travel was ramping up but no where near normal. ordinary Australians were much more likely to be doing domestic trips. plus in the School Holidays often that means road trips so fuel and local accommodation were both much higher in cost than pre covid.

 

[muppet]

Though Fels was referencing the 3 months of the December quarter 2022. International air travel was ramping up but no where near normal. ordinary Australians were much more likely to be doing domestic trips. plus in the School Holidays often that means road trips so fuel and local accommodation were both much higher in cost than pre covid.

Indeed I was referencing the Feb 2023 minutes which relate to the December 2022 quarter.

I was merely pointing out the inaccuracies of the “UNSW Professor’s claims”, I’m unable to determine from ABS data the veracity of Fells claims.

EDIT: ABS shows fuel for December 2022 QTR was up 13% from 2021. Domestic travel and accommodation up 19% from 2021.