Coalition Senators' Dissenting Report
As a nation we are increasingly reliant on efficient, inexpensive and
convenient aviation services. This is hardly surprising when you consider that
our population is spread over such a vast land mass.
Aviation is a dynamic industry that has faced many challenges over the
past decades since the introduction of the QSA in 1992. In Australia the market
is highly competitive and presently capacity is saturated which has resulted in
lower yields and affected the profitability of our carriers.
From a passenger’s perspective, the competitive tension between Qantas
and Virgin Australia has resulted in a high quality product being delivered at
a lower price with increased destinations and often with more convenient
Both Virgin Australia and Qantas are clearly excellent Australian
airlines which contribute significantly to the economy, regional communities
and tourism and have both shown a willingness to assist Australians in times of
Airlines also operate in an environment of increasing higher fuel costs,
a relatively high Australian dollar compared to previous decades and
significant capital expenditure requirements in an effort to operate the most
modern and fuel efficient aircraft fleets.
Additionally, the carbon tax has added significantly to the costs of
operating Australian domestic airlines. In the 2013-14 financial year the
carbon tax drove up operating expenses at Qantas by $106 million and $48
million at Virgin Australia. It also cost Regional Express (Rex) $2.4 million.
The cumulative effect of all of these factors has led to an environment
where both Australia’s major domestic carriers have announced first half
losses; Qantas of $252 million and Virgin Australia of $84 million.
Matters for consideration
Submissions from the various unions which represent Qantas’ workers were
concerned about the number of job losses announced by Qantas and the potential
for further job losses in the future.
It should be noted that Qantas has confirmed that the 5,000 job losses
announced earlier this year were, in the company’s view, required irrespective
of any decision taken by the Government to assist the airline.
Additionally, in the public hearings Alan Joyce, Chief Executive Officer
of Qantas, confirmed that Qantas has made no decisions on further staffing
reductions should amendments to the Qantas Sale Act 1992 be implemented. Alan
Joyce noted in the public hearings that it is an inability to compete on a
level playing field which may lead to a further reduction in staffing levels
within the Qantas Group.
It has been argued that changes to the Qantas Sale Act 1992 would lead
to a massive offshoring of Qantas’ workforce. It is the case that should Part 3
of the Qantas Sale Act 1992 be repealed as is proposed, Qantas will be given
greater flexibility in its business structure. It will be governed by the same
regulatory framework that applies to Virgin Australia, Rex and other Australian
carriers. However, this does not inevitably mean that Qantas’ workforce will
significantly shift offshore.
Aviation in Australia is highly regulated with various pieces of
legislation affecting the operations of Australian airlines. The Air Navigation
Act 1920, Australia’s bilateral air services agreements with other countries, immigration
laws, the Corporations Act 2001, the Foreign Acquisitions and Takeovers Act
1975 and aviation safety regulations place certain restrictions on the
operation of airlines. For example, the Air Navigation Act 1920 requires that
international Australian airlines are majority Australian owned and the
designation criteria determined by the Government and connected to our
international air services agreements require that:
At least two-thirds of Board members are Australian citizens;
The Chairperson is an Australian citizen;
The airline’s operational base must be in Australia;
The airlines head office must be in Australia; and;
The airline is substantially owned and effectively controlled by
The Government has confirmed that it has no intention to change the
current designation criteria.
Additionally, it should be noted that the practical realities of
operating an airline in Australia will mean that a significant proportion of
Qantas’ workforce will always have to be based in Australia. When asked whether
majority foreign ownership would result in significant offshoring of jobs, Mr
Ian Thomas, Managing Consultant, CAPA Consulting, stated:
I do not think so, to be honest. At the moment, some 90 per
cent of Qantas’s jobs are in Australia. That is out of necessity because this
is where a large part of their operations are.
Perhaps the best proof of the proportion of employees which would be
required to be in Australia is to assess Virgin Australia’s workforce of which
95 per cent is based in Australia. Similarly, Rex employs a large number of
Australians, particularly in regional areas, despite the fact that it is
majority foreign owned.
It was repeatedly alleged in submissions and during the public hearings
that should amendments to the Qantas Sale Act 1992 be considered, the safety of
Australian airlines may be compromised. Coalition Senators reject this
Qantas has also resoundingly rejected this contention and provided
evidence to the Committee in response to specific incidents that were raised in
Safety is undoubtedly a core responsibility for all airlines and
Australian airlines have a proud reputation for safety, irrespective of the
location at which maintenance work is undertaken.
Additionally, the Civil Aviation Safety Authority, Australia’s aviation
safety regulator, has responsibility for ensuring that maintenance work is
undertaken to the high standard required in our safety regulations.
Options for consideration
At the outset, it is important to acknowledge that both Qantas and
Virgin Australia are private companies. Their Chief Executive Officers and
their management are directly responsible to their Board who are ultimately
responsible to their shareholders. The strategic decisions and direction of private
companies are a matter for those companies and not for the Parliament, the
Government or this Committee to determine.
Additionally, when considering any form of assistance for one Australian
airline which is operating in a highly competitive market with other Australian
carriers, the potential consequences of any action need to be carefully
considered to avoid further market distortion.
As noted by Mr Ian Thomas, Managing Consultant, CAPA Consulting, in the
In considering the future of Qantas, there are legitimate
questions as to whether commercial forces should be allowed to prevail – in
other words, whether it should be left to management to resolve internal issues
or indeed whether there is a role for government in the process. The issues of
balancing government support and potential market distortions in a
pro-competitive environment are extremely difficult and fraught with risk.
Coalition Senators can appreciate the challenging circumstances facing
Qantas and acknowledge the difficult decisions that the Board and management
have taken to reduce staff levels and cut costs.
After considering the above factors, Coalition Senators believe that the
most appropriate form of assistance for Qantas is to repeal Part 3 of the
Qantas Sale Act 1992 as is proposed in the Qantas Sale Amendment Bill 2014.
This will harmonise the regulatory framework that all Australian airlines
operate in and allow Qantas to compete on an even footing.
As noted by Alan Joyce in his testimony to the Committee:
If we really want a fair and level playing field we need to
have the same ability for Qantas [when compared to Virgin Australia] to have
flexibility into the future. Otherwise, that distortion will cause even more
job losses in Qantas, because it will not be able to compete.
To provide a debt guarantee or other form of assistance to Qantas would
provide Qantas with a competitive advantage when compared to other Australian
airlines. Indeed, both Virgin Australia and Rex have already stated that should
this form of assistance be offered to Qantas, they would expect the same offer
to ensure that the market is not distorted in Qantas’ favour.
That the Qantas Sale Amendment Bill 2014 be passed.
Senator Bill Heffernan Senator
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