Friday, December 08, 2006

Open skies

In the cover page of the AFR today (subscription required) there are renewed calls by foreign carriers for a liberalisation of Australia's 'air service agreements' (ASAs) particularly on the lucrative trans-Pacific routes. Over the years I have followed the same issue on the Australia-Japan link.

The call by Singapore Airlines (and other Qantas competitors) is for 'open skies', the air-travel market equivalent of free competition. Currently ASAs in Australia are split 50:50 with the foreign carrier in a destination country with the remaining 50% going to the local carrier, Qantas.

These ASAs are often restrictive in terms of total capacity enabling Qantas (and the foreign carrier) to extract rents from air travellers. On a route such as the Australian-Japan route, where most of the traffic is bound for Australia, the high prices charged could be considered equivalent to a strategic export tax that enables Australia to derive extra benefits from inbound travellers. Indeed this has been the historical argument used by Qantas to justify such restricted capacities - Qantas is restricting capacity to generate increased Australian net national advantage. This is equivalent to often abused 'optimal tariff' or 'optimal export taxes' beloved by interventionist leftists and, to be fair, by a long history of conservative Federal Governments. Sometimes the argument is sneakily dressed up into a claim we are pursuing a value-based rather than 'bums-on-seats' tourism policy - we get fewer tourist arrivals but they are wealthier and spend more. On occasion, to my undying embarrassment, I admit to having endorsed these questionable claims myself. But now, though more wrinkled, I am wiser.

The reason I question them is that while rents are generated by restrictive ASAs they are necessarily split 50:50 with foreign carriers. In addition, our local travellers who do travel overseas face higher fares and lose consumer surplus as a consequence - these are losses that need to be deducted from gains claimed to accrue to Australia via the increased rents to Qantas. The cost of an Australian journey to the US these days is very expensive - I am paying over $3200 for a flight to Chicago in early January. In addition like all monopolists, part of the rents to Qantas leak into or create x-inefficiencies in terms of poor servicing and over-staffing. The service is fairly ordinary on Qantas - you have just about got to beg the hostesses to interrupt their chats for a gin-and-tonic late into a flight. Finally, while rents are gained from restrictive air service agreements in aviation there are downstream losses to other sections of the tourism industry suchy as hotels and restaurants. In simple terms they get less business since fewer travellers come here.

My guess is that the net gains to Australia from restrictive air service agreements are small or even negative. For this reason I am happy to endorse the call of the foreign air carriers in their support for open skies. Australia would gain from more competition or else would lose so little it isn't worthwhile pursuing.

9 comments:

Anonymous said...

I agree. Australia should allow more competition. I’ve been based in Tokyo for about 5 years and a significant barrier for Japanese traveling to Australia is the ETA system. Most Japanese view it as a little rapacious. Vietnam and China do not require visas for Japanese so why does Australia? In addition to the ETA system, the cost of tickets from Tokyo to Australia are far higher than any other country except Latin American countries. I can travel to New York for about $500~$600AU, to London-Paris-Rome $450~$700 etc but to Australia $1000+.

The Japanese generally have a very positive view of Australia and even though the ETA costs around $20 it is a significant stumbling block for tourism from Japan.

When I bought tickets to Australia just last week out of all the airlines and possible routes to Australia from Tokyo, the only seats available were with Qantas. Of course they were the most expensive too. Qantas tickets are usually the last to sell. Most Japanese would use JAL or ANA or another Asian airline before Qantas without any thought because they perceive, incorrectly, that they will be forced to speak English. Of course this is not the case, Qantas does have Japanese speaking flight Attendants but this fact remains generally unknown.

The Australian skies desperately need competition to reduce the costs. The fact that you paid $3200 for a seat is outrageous (unless it’s business class?) when I make the same trip from Tokyo for about $650.

Anonymous said...

I'm Kortny,
from Singapore,
and I'm 17 y.o

Hi, Girl and Boy
I've studied English sinse this Winter .
It's very difficult for Me! Really hard!
I would like like to meet boys and practisice My English with them.

Thank You

Yobbo said...

Hi Kortny!

I'll be your friend! Got any pics?

P.S. Qantas is shit.

Ali Baba said...

Harrys! This is bad, your blog becoming a chat site for teens hooking up with old men! See last posts -- I outraged, and think of my young dauter. Please stop this.

hc said...

Dear Chidori, I think the Japanese Government are complicit in the restrictive ASA's with Australia which create the high fares. I am not sure why as it disadvantages Japanese.

Ali Baba, Yobbo has found a friend - I cannot take his happiness away from him.

I agree with his assessment of Qantas. His posts on this subject are legendary.

conrad said...

Actually, Qantas isn't that bad. Their service is aweful and the food almost at US standards for bad, but at least their planes are reliable. You should try Chinese airlines -- some of them are now so bad they pay part of your ticket back depending on how late it is (or at least they say they will -- of course they are not going to without a fight)

I find Australia expensive too -- does anyone know how much extra all this regulation would add to a ticket to Asia ?

Also, it isn't the case that Qantas has enough bilingual speakers for all flights. I've been flights to HK where clearly not enough people spoke Cantonese (and been on a Lufthansa flight where I think no-one did), so their might be some justification in the worry about speaking English.

Yobbo said...

Comparing a "full-service" international carrier like Qantas to a cut-price domestic Chinese airline is ridiculous.

Comparing Qantas to its actual asian competitors like SIA, Cathay, JAL Malaysia and Thai Airways is no contest at all. Qantas is the worst on every measure, and no cheaper either.

On the American route they are better than United, but then United is about 30% cheaper. And the other airlines are regulated out of that market.

Qantas has no redeeming features whatsoever. Anyone who says otherwise is obviously blinded by their patriotic love for the Kangaroo tail decal, because that is the only thing Qantas has going for it.

Ali Baba you need to find yourself a sense of humour or you'll neck yourself within a year. And besides, I'm not that old.

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Anonymous said...

I cannot express my dissatisfaction with Qantas enough. Hate Hate HATE!!! I pray for the open skies agreement to come quick and as I make my way home to Oz I will be sure to give their planes the finger as I travel with the competition through LA. HA!