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Qantas will cut some domestic services if the industry is deregulated; no other country allows foreign carriers to work within domestic system.



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PETER CAVE: Australia’s two big airlines, Qantas and Ansett, are flying high today on profit results which show that while many carriers are struggling, ours are soaring. Ansett profit is up by 48 per cent, while Qantas has declared a profit of $223 million, reflecting a particularly strong performance on domestic routes. But while announcing the good financial news, Qantas is warning that it will cut some domestic services if foreign international carriers are allowed to operate within Australia. A Productivity Commission recommendation suggesting just that is now before the government. Well, to discuss the Qantas profit and the threat to domestic services, we are joined now by the airline’s managing director, James Strong, and speaking to him, Marius Benson.

 

MARIUS BENSON:  James Strong, you would obviously be happy with your profit result.

 

JAMES STRONG:  Yes, I think it was a good result, particularly in difficult trading circumstances and showed great consistency in our performance in recent years.

 

MARIUS BENSON:  The domestic performance of Qantas has been singled out as one particular reason for the strong result.

 

JAMES STRONG: It has been a good contributor in the last few years but we also had an improvement in our international operations in the last half-year.

 

MARIUS BENSON: Under the circumstances, is it fair for you to be warning that, if domestic routes are open to international carriers, Qantas might have to consider withdrawing some domestic services?

 

JAMES STRONG: Well, I think what is involved here is pointing out that there is very uneven distribution of profitability around Australia in airline operations, as there is in many other industries, and that if you force severe rationalisation, then obviously that means that companies who have to get a return on the funds invested have to take steps to adjust their operations.

 

MARIUS BENSON: There is a recommendation before the government now to open some domestic routes to international carriers, but that doesn’t have support in the government, particularly, seemingly. Are you confident you will win that battle?

 

JAMES STRONG: I think a good way to measure this is to recognise that there is no other country in the world that allows what is known as ‘cabotage’, that is for foreign carriers just to come in and do a little bit of picking off on routes within the domestic system. And the reason for it is that generally it is seen as not bringing much benefit because you get very limited entry and it can undermine having a viable industry within that country …. is it the case in the United States, for example.

 

MARIUS BENSON: You obviously see the logic of your arguments, but what about the point of view of, say, a passenger sitting at the moment in an economy seat from Brisbane to Melbourne. The return fare there is $1,000. A lot of people believe a lot of these domestic fares are simply too high, that introducing international carriers might or might not be the way, but somehow those fares should be reduced.

 

JAMES STRONG: Well, that is … I think we all believe that most things we pay for are too expensive, but often that is a very unscientific belief. The fact is that airfares in Australia, in terms of the domestic industry, are very competitive and they are quite comparable to airfares in other countries overseas. One thing that always confuses people is that obviously airfares in shorter haul domestic flights will always cost more than long haul international flights because it is like comparing a taxi to a bus, so to speak.

 

MARIUS BENSON: And can you just say what the outlook for fares is?

 

JAMES STRONG: Well, I think we have shown …. recently in that Qantas indicated it would not increase domestic fares. I think that is a very practical demonstration. In terms of international fares, as I mentioned, they are the lowest they have been for a long time and that is just caused by market forces due to the liberalisation in recent years, which is a fact of life and something that nobody is suggesting should be turned back.

 

MARIUS BENSON: James Strong, thank you very much.

 

JAMES STRONG: Thank you, Marius.