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Monday, 10 September 2012
Page: 9915


Mr BALDWIN (Paterson) (12:21): I rise today to speak on the Aviation Legislation Amendment (Liability and Insurance) Bill 2012. Despite the government's rhetoric we often hear regarding the opposition's negativity, the opposition will continue to hold this government to account. We will not seek to obstruct legislation when it is in the national interest, and we will propose alternatives when it is not in the national interest.

This is a bill that the coalition supports, despite having many reservations regarding the government's stewardship of the aviation sector more generally. This bill has common-sense provisions that have received wide support from the industry, for we recognise that there are some shortcomings in the current legislation that need to be rectified—some of which were highlighted in the ACQ Pty Ltd v Cook case. These shortcomings emanated from the Garuda incident in Indonesia and the Qantas flight QF72 incident near Learmouth. These incidents showed that there were gaps in relation to the compensation and assistance that airlines were obligated to provide to victims and their families.

The Aviation Legislation Amendment (Liability and Insurance) Bill 2012 therefore makes a number of amendments to the Civil Aviation Carriers (Liability and Insurance) Act 1959 and the Damage by Aircraft Act 1999. These bills form the basis for the government regulation of liability and insurance for domestic airlines. In general terms, aviation insurance can be split into three subcategories: insurance for the hull of the aircraft; liability of the carrier for passengers, crew and cargo; and liability caused to third parties. In Australia, carriers' liability for passengers and damage to third parties are regulated through legislation as opposed to hull insurance, which is not. However, many aircraft lease arrangements do require carriers to maintain insurance against all of these risks.

The bill amends the framework for liability of airlines in the event of an incident in a number of ways. Firstly, and most significantly, the bill amends the Civil Aviation Carriers (Liability and Insurance) Act 1959 to increase the cap on carriers' liabilities for domestic flights from $500,000 per passenger to $725,000 per passenger. At the same time, this bill will increase the mandatory insurance level for carriers to $725,000 per passenger.

In Australia no operator is allowed to carry passengers for hire or reward without this insurance cover. This means that any person operating either a charter flight or a scheduled transport flight that is carried out for reward or profit must have this insurance in place. The liability cap has been in place for some time. But it is interesting to note that the liability cap has not increased since 1994. The proposed increases roughly reflect the rise in inflation since the last increase, in 1994.

Carriers insurance itself has been mandatory for domestic flights since 1995, after the Monarch Airlines crash in Young, which killed all seven passengers and crew on board. Compensation and liability are not only issues of national concern. Efforts to clarify and improve consumer protections were included in the provisions of the 1999 Convention for the Unification of Certain Rules for International Carriage by Air, which is better known as the Montreal Convention. The convention amended the liabilities to be paid to families for death or injury when travelling by plane. It superseded the 1929 Warsaw Convention.

In May 2009 the government released a discussion paper on carriers liability insurance and it was subject to industry consultation. On 16 December 2009 the government released the aviation white paper, which stated the government's intention to increase the cap on liability for domestic passenger travel from $500,000 to $725,000 per passenger and increase the associated compulsory insurance level per passenger by the same amount. The Aviation Legislation Amendment (Liability and Insurance) Bill 2012 implements this commitment. The bill's proposed increase in the cap and mandatory insurance level will see the insurance costs for airlines rise. The regulatory impact statement accompanying the bill found that insurance costs represent approximately two to three per cent of total costs for smaller operators and significantly less for larger operators. The regulatory impact statement also found that for smaller aircraft operators the majority of the insurance premium costs relate to insuring the aircraft hull rather than the risk liability. For example, when insuring a Cessna 172, a three-seater plane, up to 70 per cent of the total premium may relate to insuring the aircraft hull. The regulatory impact statement suggests that the increase in the level of mandatory passenger insurance would have the following impact on total insurance premiums—covering hull, passengers and liability—for the following aircraft. For example, for a Cessna 172—three passengers: an increase of around 9.5 per cent, or less than $500 per year. For a Dash 8—36 passengers: an increase of around 13 per cent, which is around $4,200 per year. For a Boeing 737—115 passengers: an increase of around 16 per cent, or around $11,000 per aircraft per year.

On our side of the House, unlike the government, we are very reluctant to load additional costs and imposts on aviation and other businesses in our economy, particularly where they are unreasonable and punitive. We believe that the less pressure companies face from government in terms of what it puts on their bottom lines, the more companies can reinvest in their businesses and create employment and grow our economy. This is why we have opposed the carbon tax, which will cost the industry dearly by increasing fuel excise for aviation fuels. It is a tax that Alan Joyce, the CEO of Qantas, told a Senate committee will cost Qantas $115 million in this financial year. Virgin Australia has said it will cost them $45 million this financial year. For their passengers this will mean higher ticket prices than before. Qantas has said this will be equivalent to $6.80 on a flight from Sydney to Perth. Virgin Australia has said that it will average out at around $3 per ticket across their spectrum. Rex Airlines anticipates that the carbon tax, in conjunction with other government measures, will increase its costs by $6 million a year.

Like so many anomalies that resulted from the carbon tax legislation, it will only apply on those flying between cities within Australia. So taking a holiday at home will be subject to a carbon tax, but taking a holiday in Bali or Phuket will not be impacted. How crazy is that? At a time when our tourism sector is doing it so tough, this Gillard Labor government has made it more expensive for Australians to holiday at home, which is clearly going to have an impact on leisure travellers, particularly when you take into account our already high dollar.

The regulatory impact statement indicates that this increase will be very small, estimating that the cost of the insurance component per ticket would increase by about 0.465 per cent for major airlines and around 2.8 per cent for smaller carriers. This would increase the ticket price of a $200 flight provided by a major airline by about 13c or one provided by a smaller airline by around 63c per ticket. With the industry having been heavily consulted by the government and given an opportunity to comment on the reforms through the discussion paper process, and there having been no increase in the cap for carriers liability for some time, I do not think that these imposts are unreasonable given the potential benefit to the passenger. However, as I have said, many of this government's aviation policies have been unreasonable and a burden to both passengers and carriers alike.

Deputy Speaker, you may remember what I referred to in this House before as the 'triple whammy' the aviation sector was hit with on 1 July this year. After the carbon tax, the second of these imposts will be the cost of the new fees to cover the cost of airport security measures. Alarmingly, in this case no cost impact assessment was carried out by the government to determine how much this regulation change would cost regional airports, airlines or the communities they serve. There have been reports that, in addition to the capital cost of the security upgrades, some airports will now see maintenance bills increase by $1 million per annum. If this is not enough, they are also facing the loss of the $6 million en route subsidy scheme.

Brindabella's CEO, Jeff Boyd, has said that all of these imposts will amount to an increase in the cost of an airline ticket because companies have already introduced all of the environmental cost saving measures they possibly can and new, more fuel-efficient aircraft are not currently available. So we are loading up the industry with costs imposts yet, particularly for small carriers, more efficient aircraft are not available. This triple whammy will therefore simply have the effect of reducing regional aviation's competitiveness against the automobile in a very pricepoint-sensitive market.

Not content with that anomaly, they thought it would be a great idea to punish the tourism and aviation sectors by making it more expensive for overseas travellers to take a holiday in Australia. The 2012 budget saw the passenger movement charge, or the PMC, increase from $47 to $55. They then wanted to increase it annually by linking it to the CPI. This was the final straw for the tourism industry, which is why the coalition opposed it. The indexation alone would have cost the tourism industry $156.6 million over the forward estimates.

Indeed, we opposed the CPI indexation because we listened to the aviation and tourism industries. It was the powerful arguments and the campaign put together by the tourism peak bodies, led by John Lee of the Transport and Tourism Forum and Jayson Westbury of the Australian Federation of Travel Agents, which included full-page advertisements in national newspapers, that left us in no doubt that we were right in preventing this indexation. This record of tax imposts on the aviation and tourism sectors is why the coalition is so carefully considering the aspects of the bill that are expected to see increases in insurance premiums flow through to passengers through a very small increase in ticket prices.

This legislation also takes us further towards aligning Australian law with the Convention for the Unification of Certain Rules for International Carriage by Air, better known as the Montreal convention, as I said before. It also amends the Civil Aviation (Carriers' Liability) Act 1959 to exclude compensation for purely mental injuries arising on domestic flights, in accordance with the benchmark set by this convention, which was signed on 28 May 1999. This will harmonise liabilities for Australian domestic carriers with those of Australian international carriers which have, in accordance with the 1999 Montreal convention, been limited to liability for bodily injury only.

In addition, the bill amends the Damage by Aircraft Act 1999 to exclude claims for compensation for mental injuries where the claimant has not suffered additional damage to their person or property. This will exclude accident witnesses who have not suffered additional damage to person or property. In effect, the amendment will limit claims to those with a relatively direct link to the air crash who have suffered loss of life, bodily injury and/or property damage.

Finally, the bill amends the Damage by Aircraft Act 1999 to allow for compensation payments to be reduced in circumstances where the victim was partially responsible for the damage. This amendment addresses a shortcoming in the current legislation which was identified in ACQ Pty Ltd v Cook [2008] NSWCA 161, which held that a partial defence of contributory negligence is unavailable under the Damage by Aircraft Act 1999. In Cook's case, a wire cable conducting 22,000 volts was dislodged from one of its support poles when the pole was struck by an AT400 air tractor which was conducting aerial spraying of a cotton field close by. The claimant, Mr Cook, and a colleague were sent by Northpower to assess the situation. Mr Cook was seriously injured after he received an electric shock from the wire cable. Mr Cook brought the proceedings against ACQ Pty Ltd, the owner of the air tractor, who argued that Mr Cook's injury was not as a direct result of the accident and that Mr Cook had partially contributed to his injury. The High Court found that this partial defence was unavailable under the Damage by Aircraft Act 1999.

Under the amendments contained in the bill, in order to demonstrate that the victim was partially negligent and contributed to the loss, the airline must show that the claimant did not act in accordance with the common-law reasonable-person standard to avoid or prevent loss or damage they suffered. The bill also inserts an express provision that enables defendants to seek contribution from other parties who may have contributed to the damage suffered by the claimant.

The aviation sector is a major part of the lifeblood of our economy, perhaps more so than in any other country, not only transporting Australians to visit their friends, families and relatives across our continent and overseas but also ensuring that our mines and related businesses have workers that are sourced from elsewhere. The government often uses the mining boom to argue that the airline industry is in robust health. However, with the coalition recognising that the mining boom may well have peaked and the Minister for Resources and Energy and Minister for Tourism even stating on ABC radio that it is over, it is clear that other challenges facing the aviation industry will come to the fore.

The airline industry is a challenging one at the best of times. Our national carrier, Qantas, recently announced a $245 million annual loss—the first since it was privatised in 1994. In order to meet the challenges of an increasingly competitive global market, both Virgin and Qantas have announced alliance partnerships with overseas carriers. These are developments that we welcome, where travellers have a greater choice of Australian destinations to fly to and where the ACCC deems that competition has not been impeded.

The airline industry is different to most other service industries in that one airline cannot buy an airline from another country without immediately jeopardising the service or the air traffic rights that the airline it is purchasing operates. That is the anomaly in an industry that has made the most of globalisation where possible but is still being dominated by national carriers or at least alliances of national carriers.

It is also different in that it spectacularly fails to make profits, with most analysts believing that the industry as a whole has made a cumulative loss since its inception. The US losses amount to around $60 billion since the industry was deregulated in 1978. In recent times, this has been exacerbated by increased fuel costs. However, in the Asia-Pacific, at least carriers are expected to record a profit of $2 billion this year compared to a forecast of $2.3 billion.

A major factor for this is the increasing number of middle-class Asians who are seeking to travel overseas, many for the first time. The coalition is excited by the future opportunities that our Asian neighbours can generate for the Australian aviation and tourism industries.

Due to the phenomenal growth in China, India and Indonesia, a high proportion of the population is now moving from poverty into the middle class. Increasing wealth increases the desire to travel. The coalition is determined to pursue a strategy that seeks to take advantage of these opportunities by ensuring that Australia becomes Asia's recreation and vocational playground.

However, this will not happen by accident. We need a policy framework that increases the incentives to invest in tourism and increases aviation capacity while removing the government's policies which hinder generation of profits. Unlike other aviation measures the government has recently introduced, this bill is a common-sense measure that has received wide industry support and will be supported by the coalition.