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Sir Reginald Ansett Memorial Lecture

Sydney, 17 September 2003

THE SIR REGINALD ANSETT MEMORIAL LECTUREWEDNESDAY 17 SEPTEMBER 2003GEOFF DIXON, CEO QANTAS

FIRST OF ALL, LET ME SAY WHAT AN HONOUR IT IS TO BE HERE THIS EVENING IN THIS MAGNIFICENT BUILDING TO CELEBRATE THE MEMORY OF A MAN I GREATLY ADMIRED. IT HAS BEEN MY PRIVILEGE TO BE A PART OF AUSTRALIAN AVIATION FOR MANY YEARS. SINCE MY EARLY DAYS WITH THE THEN AUSTRALIAN AIRLINES, I HAVE ALWAYS FELT PROUD TO BE ASSOCIATED WITH AN AUSTRALIAN INDUSTRY WHICH IS SO HIGHLY RESPECTED WORLDWIDE. THE INDUSTRY IS FACING MANY CHALLENGES AND, AT QANTAS, MY TEAM AND I ARE DEEPLY AWARE OF OUR TEMPORARY CUSTODIANSHIP OF AN AUSTRALIAN ICON, AND OUR RESPONSIBILITY TO NURTURE IT FOR FUTURE GENERATIONS.

I CONGRATULATE THE ORGANISERS OF THIS CONFERENCE FOR THEIR FOCUS ON AVIATION SAFETY. EVER SINCE THE WRIGHT BROTHERS' FIRST BUMPY RIDE, EXACTLY ONE HUNDRED YEARS AGO, EXPERTS HAVE SOUGHT TO IMPROVE LEVELS OF SAFETY IN AVIATION. IT IS A SAD FACT OF LIFE THAT, IN MODERN TIMES, WE HAVE TO BROADEN THE NOTION OF SAFETY TO ENCOMPASS THE CONCEPT OF SECURITY AS WELL.

TONIGHT IS A SPECIAL OCCASION, A RARE OPPORTUNITY FOR REFLECTION. IT IS TWO YEARS SINCE THE TRAGIC EVENTS OF SEPTEMBER 11 AND THE COLLAPSE OF ANSETT. AND HERE IN OUR NATIONAL CAPITAL, IT MAKES SENSE TO THINK ABOUT BROADER ISSUES CONFRONTING AVIATION. TO CONSIDER WHERE WE HAVE COME FROM, AND MORE IMPORTANTLY, WHERE WE WANT TO GO. BECAUSE IT SEEMS TO ME THAT WE ARE AT SOMETHING OF A CROSSROADS IN AVIATION POLICY IN THIS COUNTRY.

INDUSTRY POLICY

OVER THE PAST TWENTY YEARS, POLICY MAKERS IN AUSTRALIA HAVE TRIED TO DESIGN OPERATING ENVIRONMENTS THAT MADE SENSE FOR OUR INCREASINGLY OPEN AND GLOBALLY COMPETITIVE ECONOMY. THIS IS UNDOUBTEDLY A DIFFICULT AND COMPLEX PROCESS. THE WORLD DOES NOT NECESSARILY TURN TO OUR STANDARDS, OR REFORM AT OUR PACE, AND THE MORE THE AUSTRALIAN ECONOMY MESHES WITH THE GLOBAL ECONOMY, THE MORE DIFFICULT IT BECOMES TO DESIGN AN OPTIMAL NATIONAL SYSTEM.

CENTRAL TO THE EFFORTS OF POLICY MAKERS HAS BEEN THE DESIRE TO PROMOTE ROBUSTLY COMPETITIVE INDUSTRY STRUCTURES. THE FACT IS THAT THE POLICY AND REGULATORY ENVIRONMENT IS A SET OF SIGNALS TO BUSINESS, AND BUSINESS RESPONDS ACCORDINGLY.

WHILE, IN ANY MARKET, PRODUCERS AND SERVICE PROVIDERS HAVE AN ABILITY TO CONTROL THEIR OWN OPERATIONS, THEY CANNOT NECESSARILY CONTROL THEIR DESTINIES. COMPETITION WILL TAKE PLACE WITHIN WHATEVER PARAMETERS, AND ACCORDING TO WHATEVER INCENTIVES AND PENALTIES, GOVERNMENTS DEVISE. THIS IS WHY THE TASK OF CONSTRUCTING AN INDUSTRY POLICY IS SO IMPORTANT AND WHY IT MUST BE MANAGED SO CAREFULLY.

ONE OF THE EASIEST THINGS IN THE WORLD IS TO PRONOUNCE ONESELF IN FAVOUR OF COMPETITION. PURE COMPETITION, FULL COMPETITION, OR JUST PLAIN COMPETITION. IT IS ALL TOO EASY TO CONFIDENTLY DECLARE THAT THE MORE COMPETITORS YOU HAVE, THE HEALTHIER ANY GIVEN INDUSTRY WILL BE. THIS EQUATION IS A SIMPLE ONE, AND HAS THE APPEAL OF ANY CLICHÉ.

ONE CONCEPTUAL ERROR THAT OFTEN ARISES IS THE IDEA THAT SOMEHOW ONLY ONE OUTCOME WILL EFFECTIVELY DELIVER COMPETITION. THAT OUTCOME IS EXEMPLIFIED BY MANY, MANY, COMPETITORS COMPETING FIERCELY ON PRICE. OF COURSE, THIS IS A FACILE VIEW, AS THERE IS A HOST OF OTHER DIFFERENTIATING FACTORS INHERENT IN COMPETITION.

SUSTAINABILITY

BUT A MORE SOPHISTICATED CONCEPT HAS EMERGED IN BUSINESS CIRCLES IN RECENT YEARS, A CONCEPT BORROWED FROM THE ENVIRONMENTAL MOVEMENT. THAT CONCEPT IS SUSTAINABILITY. IT IS A CONCEPT THAT APPLIES EQUALLY AT THE ENTERPRISE AND INDUSTRY LEVELS.

FOR MODERN ECONOMIES TO FLOURISH, THEY NEED MORE THAN COMPETITION, THEY NEED SUSTAINABLE COMPETITION - COMPETITION WHICH IS STRONG AND VIGOROUS, BUT WHICH IS CAPABLE OF FOSTERING AN INDUSTRY WHICH CAN GROW AND RESPOND EFFECTIVELY TO CHANGE OVER TIME. IT IS A LESSON WE LEARNED WHEN WE SAW LEGITIMATE FARMING PRACTICES DESTROYING THE VERY EARTH AND WATER RESOURCES THAT SUSTAINED AGRICULTURAL INDUSTRIES. IT IS A LESSON LEARNED BY MANY LARGE COMPANIES THAT FOCUSED TO THEIR DETRIMENT - AND SOMETIMES DESTRUCTION - PURELY ON SHORT TERM BOTTOM LINE RESULTS.

AND NOW IT IS A LESSON THAT MUST BE INTERNALISED BY POLICY MAKERS AND REGULATORS - AND DARE I SAY IT, MANY IN THE TOURISM SECTOR - WHEN THEY THINK ABOUT AVIATION.

SUSTAINABLE COMPETITION, BY WHICH I MEAN COMPETITION THAT PERMITS PROFITS TO BE MADE WHILE KEEPING CONTINUOUS PRESSURE ON LEVELS OF FARES AND SERVICE, IS SURELY PREFERABLE TO REPEATED PRICE WARS AND IRRATIONAL DISCOUNTING THAT RESULTS IN LOSSES AND, IN EXTREME CASES, CORPORATE COLLAPSES WITH ASSOCIATED ECONOMIC AND SOCIAL COSTS. THIS SHOULD BE SO WHETHER YOU ARE A CONSUMER, TOURISM OPERATOR, EXPORTER, SUPPLIER TO THE INDUSTRY, OR AVIATION EMPLOYEE.

AND SUSTAINABLE COMPETITION IS WHAT WE NEED, NOT ONLY TO AVOID AN INDUSTRY LURCHING FROM CRISIS TO CRISIS, BUT ALSO TO MAXIMISE AVIATION AS A LONG-TERM TOOL OF BUSINESS, LEISURE AND TOURISM IN THIS COUNTRY. SO IT IS VITAL THAT THE OPERATING ENVIRONMENT IS DESIGNED AND UPDATED WITH THIS IN MIND. I WILL COME BACK TO THIS ISSUE OF A SUSTAINABLE INDUSTRY POLICY IN A MOMENT.

POLICY ANTECEDENTS

FIRST, I WANT TO INVITE YOU TO THINK ABOUT AUSTRALIAN AVIATION IN ITS HISTORICAL CONTEXT, AND OF COURSE, THERE IS NO BETTER EXAMPLE OF A BUSINESS PERSON RESPONDING VIGOROUSLY TO HIS COMPETITIVE ENVIRONMENT THAN SIR REGINALD ANSETT HIMSELF. HE MADE A VAST CONTRIBUTION TO THIS NATION. HE WAS A FIERCE COMPETITOR, WORKING WITHIN WHATEVER RULES HE ENCOUNTERED - AND THEY CHANGED A LOT THROUGH HIS CAREER - TO ACHIEVE SUCCESS.

ACCORDING TO ONE STORY, IT WAS A REGULATORY DISPUTE THAT BROUGHT SIR REGINALD INTO THE AVIATION BUSINESS IN THE FIRST PLACE. HE WAS TRYING TO RUN A BUS COMPANY IN RURAL VICTORIA BUT THE STATE GOVERNMENT, IN THE FORM OF ITS ATTORNEY-GENERAL, ROBERT MENZIES, PASSED LEGISLATION TO STOP ROAD SERVICES COMPETING WITH THE GOVERNMENT-OWNED RAILWAY. APPARENTLY YOUNG REG, IN 1935, HAD A HEATED ARGUMENT WITH A PUBLIC SERVANT OVER THE BAN. HE STORMED OUT SHOUTING, "I'LL GO OVER YOUR HEAD." AND, QUITE LITERALLY, HE DID.

THERE WAS NO BAN ON AIRCRAFT COMPETING WITH RAILWAYS SO HE BOUGHT A SIX PASSENGER FOKKER UNIVERSAL AND STARTED HIS FIRST AIRLINE. FOR THE NEXT SEVENTEEN YEARS, HE SURVIVED IN A VERY TOUGH, RELATIVELY UNREGULATED AVIATION MARKET, MUCH OF THE TIME COMPETING AGAINST LARGER RIVALS.

BUT REG ALSO KEPT HIS BUSES GOING. WHEN THE GOVERNMENT AGAIN TRIED TO STOP HIM USING BUSES TO COMPETE WITH TRAINS, HE TOOK OUT A FRUIT VENDOR'S LICENCE. IF YOU WANTED TO GET FROM HAMILTON TO MELBOURNE YOU COULD BUY AN ORANGE FOR TWO POUNDS TEN SHILLINGS - OH, AND REG WOULD THROW IN A FREE BUS RIDE TO MELBOURNE. IT WAS AN ACT OF CHEEK, AND IMAGINATION, OF SOMEONE USING THE RULES TO THEIR ADVANTAGE.

WHEN MOST PEOPLE THINK OF AVIATION IN REGINALD ANSETT'S TIME, THEY THINK OF A COSY DUOPOLY WITH NO REAL COMPETITION. THEY THINK OF THE TWO AIRLINES POLICY, ESTABLISHED BY THE GOVERNMENT OF SIR ROBERT MENZIES. WHEN THAT POLICY CAME INTO FORCE IN 1952, THE TWO AIRLINES DESIGNATED TO FLOURISH WERE TAA AND ANA. IT WAS CERTAINLY NOT IMAGINED THAT SMALL REGIONAL AIRLINES WOULD DISAPPEAR, BUT IT WAS EXPECTED THAT THEY WOULD BE CONFINED TO THE MARGINS.

ANSETT BARELY SURVIVED ATTEMPTS BY THE THEN LABOR GOVERNMENT TO REGULATE IT OUT OF EXISTENCE. BUT THEN ANA UNEXPECTEDLY COLLAPSED. EVEN WITH ITS PRIVILEGED POSITION IT COULD NOT WITHSTAND THE COMPETITION FROM TAA ON ONE SIDE AND THE SMALL AIRLINES ON THE OTHER. IT WAS REG ANSETT WHO MOUNTED AN EXTRAORDINARY, AND SUCCESSFUL, TAKE-OVER OF THE MUCH LARGER AIRLINE. HE WENT ON TO USE HIS UNEXPECTED POSITION IN THE DUOPOLY TO GO ON A BUYING SPREE, TAKING CONTROL OF OTHER SMALL AIRLINES AROUND AUSTRALIA. THE REGULATORY ENVIRONMENT SANCTIONED TWO AIRLINES AND SURE ENOUGH, REG ANSETT MADE THAT THE REALITY. MANY OTHERS HAD THEIR CHANCES BUT IT WAS HE WHO SUCCEEDED BECAUSE HE WAS THE TOUGHEST COMPETITOR. HE UNDERSTOOD THE IMPLICATIONS OF THE REGULATORY ENVIRONMENT AND HE USED THE RULES TO HIS ADVANTAGE.

BY THE EARLY 1980S, SIR PETER ABELES WAS RUNNING ANSETT. SIR PETER WAS ANOTHER BUSINESS GENIUS. WHEN SIR PETER FIRST TOOK OVER ANSETT, HE LISTENED AS THE SENIOR STAFF EXPLAINED THAT THE BUSINESS ENVIRONMENT WAS DESIGNED SO THAT EACH AIRLINE HAD ABOUT 50% OF PASSENGERS. SIR PETER'S RESPONSE WAS, "WELL IF I AM GOING TO HAVE HALF, I WANT THE ONES IN BLUE SUITS." HE WANTED TO ATTRACT ALL THE BUSINESS PEOPLE AND THE COMPETITIVE EDGE HAD TO BE DELIVERED THROUGH BETTER SERVICE.

SO WHILE TAA BOUGHT THE LARGE AIRBUS, ANSETT BOUGHT SMALLER BOEINGS AND SOLD THE MESSAGE OF MORE FREQUENT FLIGHTS. THEN ANSETT INTRODUCED A SANDWICH, DESIGNED BY MARGARET FULTON. YOU MAY BE INTERESTED TO LEARN THAT IT WAS SERVED IN A BOX - AND WAS A GREAT SUCCESS. THE GOLDEN WING CLUB STARTED UP. ANSETT MADE A SUBSTANTIAL PROFIT, WHILE TAA, IN MAY 1983, REPORTED ITS FIRST LOSS IN THIRTY ONE YEARS.

WITH DEREGULATION IN THE EARLY 1990S, THE STRUCTURE OF THE INDUSTRY AND THE NATURE OF COMPETITION CHANGED PROFOUNDLY. THE KEY POLICY GOAL OF THE TIME WAS TO SWITCH THE BASIS OF COMPETITION FROM SERVICE TO PRICE. ONE OF THE MEANS TO THAT END WAS THE FACILITATION OF NEW ENTRANTS INTO THE MARKET. NEW ENTRANTS DID APPEAR AND FARES DID DROP - TO UNSUSTAINABLE LEVELS - AND WE SAW THE COLLAPSE OF COMPASS MARK I AND THEN MARK II. RESTRICTIONS ON EQUITY INVESTMENTS BETWEEN AUSTRALIAN DOMESTIC AND INTERNATIONAL OPERATORS WERE REMOVED, WHICH ALLOWED AUSTRALIAN AIRLINES - THE FORMER TAA - AND QANTAS TO MERGE. THE MERGED ENTITY WAS SUBSEQUENTLY PRIVATISED, ENDING GOVERNMENT OWNERSHIP IN AUSTRALIAN CARRIERS.

SUBSEQUENTLY, THE GOVERNMENT INTRODUCED A POLICY ALLOWING FOREIGN-OWNED AIRLINES TO SET UP OPERATIONS IN THE AUSTRALIAN DOMESTIC MARKET. ONCE AGAIN, WE WITNESSED UNSUSTAINABLE FARE LEVELS WHICH ULTIMATELY LED TO THE DEMISE OF BOTH IMPULSE AND ANSETT.

WHILE THIS WAS OCCURRING IN THE DOMESTIC MARKET, QANTAS' INTERNATIONAL OPERATIONS WERE BEING PUT UNDER NEW PRESSURE BY A POLICY AIMED AT GIVING FOREIGN CARRIERS INCREASINGLY LIBERAL ACCESS TO AUSTRALIA'S MARKETS. THIS CULMINATED WITH THE GOVERNMENT'S ANNOUNCEMENT THREE YEAR AGO OF AN OPEN SKIES POLICY.

BEFORE GOING ON, I WANT TO ACKNOWLEDGE THAT THE VIGOROUS PURSUIT OF COMPETITION BY SUCCESSIVE GOVERNMENTS HAS BEEN GOOD FOR QANTAS - IT HAS MADE US MORE EFFICIENT AND ENABLED US TO COMPETE MORE VIGOROUSLY, LEADING US TO BE MORE SUCCESSFUL THAN MOST OF OUR OVERSEAS PEERS. HOWEVER, IF WE ARE TO CONTINUE THIS SUCCESS, THERE MUST BE AN ACKNOWLEDGMENT IN POLICY CIRCLES AND THE WIDER COMMUNITY THAT THERE IS NO "LEVEL PLAYING FIELD" IN AVIATION. MANY MANY GOVERNMENTS DO NOT BELIEVE IN THE COMPETITION ETHOS RIGHTLY FOLLOWED IN AUSTRALIA.

CURRENT CLIMATE

AUSTRALIA NOW HAS ONE OF THE MOST OPEN REGIMES, DOMESTICALLY AND INTERNATIONALLY, IN TERMS OF COMPETITION, INVESTMENT AND MARKET ACCESS. BY CONTRAST, THE US LIMITS FOREIGN INVESTMENT IN ITS AIRLINES AND ACCESS TO ITS DOMESTIC MARKET. IT ALLOWS FAILING AIRLINES TO LIMP ALONG IN CHAPTER 11 BANKRUPTCY. IN MANY REGIONS, GOVERNMENT OWNERSHIP AND SUPPORT REMAIN A BIG FACTOR. SOME CARRIERS ARE SUBJECTED TO RIGOROUS SCRUTINY BY NATIONAL COMPETITION REGULATORS, WHILE OTHERS HAVE NO SUCH RESTRICTIONS TO HEED. SOME COUNTRIES CONTINUE TO PROTECT ACCESS TO MARKETS WHILE OTHERS PURSUE OPEN SKIES - A TERM WHICH ITSELF HAS DIFFERENT MEANINGS TO DIFFERENT PEOPLE.

MEANWHILE A NEW AVIATION BUSINESS MODEL HAS GATHERED FORCE. THE LOW COST, POINT-TO-POINT, AIRLINES ARE THRIVING, INCLUDING IN THE AUSTRALIAN DOMESTIC MARKET. I TALKED EARLIER ABOUT UNDERSTANDING THE REGULATORY ENVIRONMENT AND USING THE RULES TO YOUR ADVANTAGE. THIS IS EXACTLY WHAT THESE NEW ENTRANTS ARE DOING - USING IMPROVED MARKET ACCESS OPPORTUNITIES TO CHERRY-PICK THE MOST PROFITABLE ROUTES, WHILE AVOIDING THE "LEGACY" COST DISADVANTAGES THAT ESTABLISHED AIRLINES MUST BEAR, AND THE NETWORK BENEFITS THEY PROVIDE TO NATIONS AND COMMUNITIES OVERALL.

BECAUSE CARRIERS THAT CONFORM TO THIS NEW BUSINESS MODEL ARE ABLE TO PERFORM PROFITABLY AT FARE LEVELS WHICH TRADITIONAL NETWORK CARRIERS FIND UNSUSTAINABLE, THE LATTER FACE INCREASED PRESSURE TO REVIEW PRODUCT OFFERINGS, AND ACHIEVE GREATER EFFICIENCY.

OF COURSE THIS DOES NOT MEAN THAT THE FULL SERVICE MODEL IS NO LONGER NEEDED. CONSUMERS NEED BOTH HIGH VALUE NETWORK AND NO FRILLS POINT-TO-POINT SERVICES FOR DIFFERENT TRIPS AND DIFFERENT PURPOSES. WHAT WE ARE SEEING IS A SHIFT IN COMPETITION, WITH SUPPLY BY EACH MODEL UNDERGOING A PERIOD OF ADJUSTMENT TOWARDS A NEW INDUSTRY EQUILIBRIUM AND MARKET STRUCTURE.

WHILE POLICY FRAMEWORKS AROUND THE WORLD ARE FAR FROM CONSISTENT, THEY HAVE NONETHELESS SERVED TO CREATE A COMMON GLOBAL INDUSTRY SITUATION: TOO MANY AIRLINES OPERATING TOO MUCH CAPACITY AND TOO MANY OBSTRUCTIONS TO RATIONALISATION.

THE INDUSTRY WAS ALREADY WELL ON THE ROAD TO FINANCIAL DISASTER WHEN ON SEPTEMBER 11 2001, THE FIRST OF A TWO YEAR SEQUENCE OF EXTERNAL SHOCKS HIT, WITH DEVASTATING CONSEQUENCES. AIRLINES COLLECTIVELY LOST US$25 BILLION IN 2001 AND 2002, AND BY THE END OF THIS YEAR THE INDUSTRY WILL HAVE SHED 400,000 JOBS IN THE PROCESS. SOME AIRLINES COLLAPSED DUE TO THESE SETBACKS. MANY DID NOT, AS A RESULT OF GOVERNMENT BAIL-OUTS, WITH WELL OVER $40 BILLION IN ASSISTANCE BEING GIVEN TO AIRLINES AT LAST COUNT. QANTAS IS ONE OF THE FEW THAT HAVE SURVIVED OF THEIR OWN ACCORD.

QANTAS IS EMERGING SLOWLY FROM TWO YEARS OF CRISIS. OUR RESULTS FOR THE PAST FINANCIAL YEAR REFLECT THE STRESSES WE HAVE FACED. AFTER RECOVERING FROM THE HORROR OF SEPTEMBER 11, THE MARKET REBOUNDED STRONGLY TO PRODUCE A RECORD FIRST HALF IN 2002/03. THEN, DUE TO THE WAR IN IRAQ AND THE SARS PANDEMIC, SOME MONTHS IN THE SECOND HALF OF THE YEAR SAW INBOUND ARRIVALS DROP 20%, WITH FALLS OF UP TO 45% ON SOME ASIAN ROUTES. WE BARELY ADDED TO OUR GOOD FIRST HALF RESULT AND IN FACT WENT BACKWARDS ON INTERNATIONAL OPERATIONS, RECORDING A LOSS OF $54.5 MILLION IN THE SECOND HALF.

ELEMENTS OF A SUSTAINABLE AVIATION POLICY

SO, IF WE ACCEPT THAT POLICY AND REGULATION DRIVES THE NATURE OF COMPETITION AND THE SHAPE OF THE INDUSTRY, AND THAT GLOBALLY THE INDUSTRY IS IN POOR FINANCIAL SHAPE, WHERE DO WE GO FROM HERE? HOW DO WE USE THE POLICY AND REGULATORY ENVIRONMENT TO DELIVER ATTRACTIVE FARES AND LOTS OF CHOICE TO CONSUMERS WHILE ENSURING THAT THE INDUSTRY IS STRONG, SUSTAINABLE AND INTERNATIONALLY COMPETITIVE - CAPABLE OF CONTRIBUTING TO AUSTRALIA'S TRADE, TOURISM, AND ECONOMIC AND SOCIAL WELLBEING?

THESE ARE KEY OBJECTIVES OF AN INDUSTRY POLICY, BUT I WOULD ADD SOME OTHER INGREDIENTS TO THIS MIX. IT MUST LOOK TO THE STRUCTURAL OUTCOMES, INCLUDING PARTICIPATION IN THE INDUSTRY - THAT IS, WHICH PLAYERS, IN WHICH MARKETS AND ON WHAT TERMS. IT MUST ALSO DETERMINE WHETHER ANY SAFEGUARDS MIGHT BE NECESSARY IN THE LIBERALISATION PROCESS. FINALLY, IT MUST BE BOTH CONSISTENT AND TRANSPARENT.

CONSOLIDATION

THE FIRST THING I WOULD SAY IS THAT A SUSTAINABLE INDUSTRY POLICY MUST PERMIT AIRLINES TO CONSOLIDATE. THERE ARE SIMPLY TOO MANY AIRLINES OPERATING TODAY TO MAKE PROFITS IN AN INDUSTRY WHERE MARGINS ARE INCREASINGLY THIN. WHILE SOME GOVERNMENTS SEE THE ANSWER IN USING TAXPAYERS' MONEY TO KEEP THEIR AIRLINES AFLOAT, FOR OTHERS THIS IS NOT A SUSTAINABLE PROPOSITION - NOR DOES IT MAKE FOR AN EFFICIENT INDUSTRY. FOR GOVERNMENTS THAT RECOGNISE THIS REALITY, THEY MUST BE PREPARED TO ACCEPT THE COROLLARY - IF THEY WANT A VIABLE LOCAL INDUSTRY THEY MUST ALLOW THEIR AIRLINES THE OPPORTUNITY TO CONSOLIDATE.

I TALKED EARLIER ABOUT THE SHIFT IN COMPETITION BETWEEN NETWORK CARRIERS AND LOW COST POINT-TO-POINT AIRLINES. THE FORMER MUST FACE THE DIFFICULT CHALLENGE OF ADJUSTING TO A MUCH SMALLER AGGREGATE SHARE OF THE MARKET, AND ONE OF THE PRIMARY MEANS OF ACHIEVING THIS IS THROUGH CONSOLIDATION.

IN A COUNTRY LIKE AUSTRALIA, THIS MEANS THAT COMPETITION REGULATORS MUST NOT BE THE SOLE ARBITERS OF INDUSTRY POLICY. AS YOU ARE AWARE, QANTAS AND AIR NEW ZEALAND ARE SEEKING REGULATORY APPROVAL TO FORM A STRATEGIC ALLIANCE IN THE FIRM BELIEF THAT IT WILL CONTRIBUTE TO A STRONGER, MORE SUSTAINABLE INDUSTRY IN THIS REGION. WHILE BOTH GOVERNMENTS HAVE EXPRESSED SUPPORT FOR THE PROPOSAL, IT HAS BEEN FORMALLY REJECTED BY THE ACCC. THE FINAL DECISION OF THE NZCC IS EXPECTED LATER THIS MONTH.

WE ARE DISAPPOINTED IN THE DECISION OF THE ACCC, WHICH WE BELIEVE TOOK A VERY NARROW, AND SHORT TERM, SNAPSHOT OF COMPETITION AND CONSUMER ISSUES WITHOUT DUE REGARD FOR THE MEDIUM AND LONGER TERM STRUCTURAL CHALLENGES FACING THE INDUSTRY. IT ALSO FAILED TO TAKE INTO ACCOUNT THE RAPIDLY CHANGING OPERATING ENVIRONMENT IN THE REGION.

WE ARE CURRENTLY CONSIDERING OUR OPTIONS FOR THE FUTURE OF THE ALLIANCE, INCLUDING THE POSSIBILITY OF AN APPEAL. REGARDLESS OF THE COURSE WE CHOOSE TO TAKE FROM THIS POINT, THIS RECENT EXPERIENCE HAS REINFORCED OUR FIRM BELIEF THAT CONSUMER INTEREST, WHILE VITALLY IMPORTANT, SHOULD NOT BE THE SOLE DETERMINANT OF THE NATIONAL INTEREST. IF WE ARE GOING TO ACHIEVE LONG-TERM SUSTAINABILITY IN THIS COUNTRY, COMPETITION AND COMPETITION POLICY MUST COMPLEMENT INDUSTRY POLICY - NOT OVERRIDE IT.

FOREIGN OWNERSHIP

THIS BRINGS ME TO MY SECOND POINT. ONE OF THE REASONS WE HAVE SEEN SO LITTLE CONSOLIDATION TO DATE IS THE REQUIREMENT, UNDER BILATERAL AIR SERVICES TREATIES, TO DESIGNATE AIRLINES ON THE BASIS OF NATIONAL OWNERSHIP. THIS HAS NOT ONLY PREVENTED MERGER ACTIVITY, BUT ALSO LIMITED AIRLINES' ACCESS TO CAPITAL. ATTITUDES ARE CHANGING, HOWEVER, THERE IS A DEFINITE MOVE GLOBALLY TOWARD RELAXING THIS REQUIREMENT.

QANTAS IS NOT JUST HAMPERED BY THE BILATERAL FRAMEWORK: IT IS ALSO BEING PREVENTED FROM REACHING ITS FULL POTENTIAL BY THE FOREIGN OWNERSHIP LIMITS IMPOSED BY THE QANTAS SALE ACT. WHILE THESE LIMITS WERE SET DOWN FOR GOOD REASONS 10 YEARS AGO, WE CANNOT IGNORE THE FACT THAT GLOBALISATION HAS GATHERED PACE. THE WORLD IS MOVING ON. TODAY, LIMITS ON OUR ABILITY TO ACCESS MORE FOREIGN EQUITY CAPITAL SERVE TO INFLATE OUR COST OF CAPITAL RELATIVE TO ALL OF OUR MAINSTREAM COMPETITORS.

I HAVE JUST RETURNED FROM A SERIES OF MEETINGS WITH FOREIGN INSTITUTIONAL INVESTORS AND MANAGERS REPRESENTING MAJOR GLOBAL FUNDS IN ASIA, THE US, AND THE UK. EVERYWHERE I WENT, THE STORY WAS THE SAME. QANTAS WAS RATED AS ONE OF THE MOST ATTRACTIVE AIRLINE STOCKS IN THE WORLD BY FUND MANAGERS WHO ARE ABLE TO PLACE TENS OF MILLIONS OF DOLLARS AS STABLE, LONG-TERM INVESTORS. HOWEVER, THEY WERE DISCOURAGED FROM DOING SO BY THE LIMITED OPPORTUNITIES AVAILABLE IF THEY ARE TO REMAIN BELOW THE FOREIGN OWNERSHIP LIMIT IMPOSED BY THE QANTAS SALE ACT, AND BY THE RISK THAT THEY MAY BE FORCED TO DIVEST.

THE BOARD AND SENIOR MANAGEMENT OF QANTAS KNOW THAT THIS IS A SENSITIVE ISSUE. WE RECOGNISE QANTAS' IMPORTANCE TO AUSTRALIA - AND AUSTRALIANS - AND SHARE THE STRONG SENSE OF PRIDE IN THE AIRLINE AS A LIVING NATIONAL ICON. BUT WE ALSO KNOW THAT PRIDE ALONE WILL NOT GUARANTEE THE AIRLINE'S FUTURE. WE MUST UPDATE THAT SENSE OF PRIDE TO ENCOMPASS GREATER UNDERSTANDING OF QANTAS AND THE CONTEXT IN WHICH WE OPERATE - AND THE REQUIREMENTS FOR SUCCESS IN A HARSH, AND RAPIDLY CHANGING, INTERNATIONAL ENVIRONMENT.

THIS IS WHY WE WANT TO WORK WITH THE GOVERNMENT TO FIND A MEANS OF PRESERVING THE INTEGRITY AND IDENTITY OF QANTAS AS A GREAT AUSTRALIAN COMPANY, WHILE FREEING IT TO TAKE ADVANTAGE OF OPPORTUNITIES TO ATTRACT FOREIGN EQUITY CAPITAL IN AN INCREASINGLY GLOBALISING WORLD. WE INVITE THE GOVERNMENT TO HELP US ACHIEVE THAT GOAL KNOWING THAT A QANTAS THAT IS STRONGER FINANCIALLY WILL BE BETTER PLACED TO COMPETE, INVEST, GROW, OFFER MORE SECURE EMPLOYMENT, BOOST EXPORTS, AND BE EVEN MORE EFFECTIVE AMBASSADORS FOR AUSTRALIA.

MARKET ACCESS

WHILE LIBERALISATION OF MARKET ACCESS IS UNDERSTANDABLY A KEY INGREDIENT IN AVIATION POLICY, YOU COULD ARGUE THAT IT HAS BEEN GIVEN UNDUE PROMINENCE IN AUSTRALIA TO THE EXCLUSION OF OTHER EQUALLY IMPORTANT FACTORS. AT THE SAME TIME, SOME ASPECTS OF THE LIBERALISATION PROCESS HAVE BEEN OVERLOOKED.

BEFORE AGREEING TO OPEN OUR MARKETS TO FOREIGN COMPETITORS, IT IS VITAL IN THE NATIONAL INTEREST THAT, THROUGH A SEQUENCED APPROACH, WE SECURE EFFECTIVE ACCESS TO OUR KEY OVERSEAS MARKETS. UNLESS WE DO THIS, AUSTRALIAN CARRIERS WILL NOT HAVE EQUALITY OF OPPORTUNITY FROM OPEN SKIES OR ANY OTHER FORM OF MARKET LIBERALISATION.

QANTAS IS NOT AFRAID OF COMPETITION - IN FACT WE WANT TO COMPETE AT THE HIGHEST LEVEL - AND AS I SAID EARLIER, IT HAS BEEN A MAJOR PART OF OUR SUCCESS. BUT WHILE LIBERALISATION OF MARKET ACCESS IS A CONTINUING DRIVER OF COMPETITION, IT MUST BE RECOGNISED THAT THE PLAYING FIELD IN THESE MARKETS IS FAR FROM LEVEL, FOR MANY REASONS, INCLUDING GOVERNMENT SUPPORT TO CARRIERS. LIBERALISATION FOR ITS OWN SAKE IS FRAUGHT WITH DANGERS THAT OUTWEIGH POTENTIAL OPPORTUNITIES. FOR THIS REASON, QANTAS ADVOCATES A CAREFUL AND MEASURED APPROACH TO THE TIMING AND SEQUENCING OF LIBERALISATION.

CONCLUSION

LET ME CONCLUDE. AS A NATION, WE ALWAYS FACE CHOICES AND DECISIONS. I THINK IF WE TAKE A SIMPLISTIC APPROACH TO COMPETITION THE RESULT WILL BE, QUITE QUICKLY, LOW AIRFARES, LOW STANDARDS AND MORE CORPORATE COLLAPSES OR WITHDRAWALS FROM ROUTES. BUT A MORE CONSIDERED APPROACH TO COMPETITION WILL SEE STRONG COMPANIES IN GLOBAL RELATIONSHIPS DELIVERING LOW FARES BUT ALSO RELIABLE, HIGH-QUALITY SERVICE. POLICY MAKERS AND REGULATORS MUST NOT SEE THEIR DECISIONS IN ISOLATION AND MUST, WE BELIEVE, FOCUS ON THE LARGER CONTEXT AND CONSEQUENCES OF THEIR DECISIONS. IT IS ALL TOO EASY TO FOCUS ON ONE ASPECT OF THE COMPETITION EQUATION AND IGNORE THE OTHERS. WE HAVE GOT TO TAKE A MORE HOLISTIC VIEW OF THE POLICY CHALLENGE.

REG ANSETT SHOWED US LONG AGO THAT COMPETITION COULD BE FIERCE WITHIN ANY REGULATORY ENVIRONMENT. WHAT CHANGES ARE THE ELEMENTS OF THE BUSINESS THAT BECOME THE FOCUS OF COMPETITION. AND THESE IN TURN DETERMINE THE STRUCTURE OF THE INDUSTRY.

WHATEVER REGIME IS IN PLACE, QANTAS WILL FIGHT AS VIGOROUSLY AS WE MUST. WE WILL DO WHATEVER WE HAVE TO DO IN ORDER TO SUCCEED, BOTH NOW AND OVER THE LONGER TERM. MY TASK AND THAT OF MY TEAM IS TO ENSURE THAT, AS A COMPANY, QANTAS DOES NOT WITHER OR DEGENERATE; THAT QANTAS DOES NOT BECOME ANOTHER FOSSIL UNDER GLASS; BUT RATHER DEVELOPS AS A DYNAMIC, PROSPEROUS, EVER-MODERN, AUSTRALIAN COMPANY. LIKE SIR REGINALD ANSETT, AND SIR PETER ABELES, WE WILL PLAY BY THE RULES, WHATEVER THEY ARE, AND WE WILL PLAY HARD.

THANK YOU.

Issued by Qantas Corporate Communication (2963)
Email: qantasmedia@qantas.com.au