THE FUTURE OF THE FLYING KANGAROO
Dissenting Report by Senators Xenophon and
Madigan
1.1
The bills at the centre of this inquiry aim to address serious issues
within Australia’s aviation sector, and in particular with our national flag
carrier Qantas.
1.2
Australians need to think seriously about what has happened recently in
the aviation industry, but more importantly, what they want to see happen in an
industry in which Australia’s deep involvement reaches back at least as far as
the Wright Brothers. The Qantas Group, with its extensive domestic and
international operations, together with its 30,000 employees, plays a key role
in Australia’s national economy and identity. The 29 October 2011 grounding of
Qantas illustrates just how important Qantas is, and the flow-on effects that
any disruption to Qantas operations can have.
1.3
The Majority Report fails to grasp the significance of the underlying
problems for Australian aviation and employment. We are very concerned that the
Committee, by not supporting the bills or offering alternative means of
addressing these pressing issues, has not dealt with the problems in this area
and has wasted the opportunity to take action.
1.4
Since the passage of the Qantas Sale Act in 1992, there have been
many changes in the way Qantas operates, and those changes have accelerated in
recent years under current management. There is no doubt that the aviation
industry globally operates in a tough commercial environment. Qantas remains an
iconic brand, but that status appears to have come under pressure as a direct
result of the actions and strategies of current management.
1.5
The creation of Jetstar and the emphasis of the low cost carrier model
has seen Jetstar’s rapid rate of growth outstripping its parent. Expansion via
an Asian base was promoted as the saviour of Qantas by CEO Mr Joyce at the
November hearings, but as recently as last week, it seems those plans have been
shelved.[1]
Increased off-shoring, the use of cheap labour on domestic flights,
labyrinthine leasing arrangements and dark predictions about Qantas
International (emanating from Qantas management itself) have all cast shadows
over our national carrier.
1.6
There are serious concerns that the Qantas Sale Act does not
prevent Qantas from selling off Jetstar, for instance to a private equity
company. This could then lead to a situation where the original parent company
is under direct competitive threat from its former subsidiary. The irony of a
sold-off subsidiary airline (Jetstar), originally nurtured by its parent
(Qantas), cannibalising Qantas market share and jobs is self-evident. The fact
that there are current Qantas management who supported the failed and
potentially disastrous private equity takeover deal of Qantas in 2007
is a potential concern.
1.7
A recent article in the Sydney Morning Herald criticised Qantas’
Asian expansion, stating that:
... [I]t was a plan that was never going to fly. For it was
first and foremost a threat – and a hollow one at that – to [Qantas’] own
workforce rather than a legitimate blueprint to turn around the company’s
fortunes.
If there was any strategy involved in the plan, it was purely
as part of an ideological battle over trade unionism in general and Fair Work
Australia in particular, which culminated in management shutting down
operations for almost three days last November.
The article continues:
But the Asian
option addressed none of those factors, and Joyce now presides over an
organisation where industrial relations could best be described as toxic while
his customers, disillusioned and jaded, have begun walking across the terminal
to rival Virgin Australia.
...
It would be unfair to label the abandoned Asian plan as
half-baked for it never reached that stage. There was no oven, no cake tin and
certainly no ingredients.[2]
1.8
The recent dismissal of 150 catering staff in Adelaide gives credence to
the criticisms of the way Qantas management deals with their employees. Reports
in The Australian indicate that staff were not told of their
redundancies before the media was informed,[3]
which would seem to demonstrate an apparent lack of regard for the employees.
1.9
The grounding of Qantas by the unilateral action of Mr Joyce on
29 October 2011 starkly exposed how important Qantas is to the nation’s economy
and international reputation. All Australians must question whether the power
to create such an impact on our national interest should rest with the CEO
(with ratification from the Qantas Board), who could see no other acceptable
courses of action. The fact that Qantas operations are governed in part by the Qantas
Sale Act provides a mechanism for the clear link between Qantas operations
and the national interest to be reframed.
1.10
These bills are not an attempt to limit Qantas’ ability
to operate, but are one mechanism to ensure that, on one hand, our national
interest is protected for the future, while on the other, Australian
international airlines behave appropriately in the Australian labour market.
1.11
We acknowledge that there have been specific concerns raised in relation
to the structure of the bills. However, we believe that they have either
largely been addressed through the proposed amendments or, with stakeholder
cooperation, could easily be addressed with expanded definitions or through
subordinate legislation. Unfortunately, those amendments have not been the
subject of any sufficient examination. The Committee has failed to acknowledge
the impact of Australian airlines seeking to move more and more of their
maintenance and operations offshore, and operating overseas-based crew members
under comparatively poor working conditions on what are in effect domestic
flights.
1.12
We are concerned that time constraints only allowed the Committee to
offer a limited opportunity for submitters to consider the amendments to these
bills and to provide further information to the Committee. That opportunity was
only matter of days and, for those members of the public who relied on the
Committee website to alert them, less than a week. As such, we consider the
evidence relating to the proposed amendments, as discussed in the report, is
not comprehensive, and the effect of these amendments has not been fully
explored.
Air Navigation and Civil Aviation (Aircraft Crew) Bill 2011
1.13
The Air Navigation and Civil Aviation (Aircraft Crew) Bill 2011
aims to ensure that overseas-based crew flying domestic legs on Australian
airlines are not employed under less favourable pay and conditions than if they
were employed under Australian domestic contracts. In response to specific
concerns raised during the inquiry, Senator Xenophon has circulated amendments
to the bill, which instead amends the Fair Work Act 2009 to remove any
ambiguity and ensure that these crews come under its jurisdiction.
1.14
We are concerned that the Committee has not made a strong statement
about the employment practices of Jetstar as exposed in the previous Inquiry on
flight standards and training and during this Inquiry. Despite evidence raised
in the 6 February 2012 hearing, the Committee’s report makes no mention of the
fact that Jetstar has been under investigation by the Fair Work Ombudsman in
relation to the employment of cadet pilots and foreign-based cabin crew. The
report also fails to mention that, as a result of these investigations, Jetstar
has since capped the number of domestic routes its overseas-based crew can fly
and has provided additional remuneration for some of those overseas-based cabin
crew employed by Jetstar over the last two and a half years on those domestic
operations, vindicating some of the concerns that are reflected in the bill.[4]
1.15
We are very concerned that the Fair Work Ombudsman sees this issue as
serious enough to merit investigation, but the Committee does not propose a
specific legislative remedy to address this problem, given that the evidence of
the Department of Education, Employment and Workplace Relations (DEEWR) was
quite equivocal about how the Fair Work Act 2009 may (or may not) apply
to these non-Australian overseas-based cabin crew.[5]
1.16
Evidence provided by two Jetstar employees (appearing in a personal
capacity), Mr Michael Kelly and Ms Monique Neeteson-Lemkes, gave specific
examples of the problems caused by overseas-based crew operating under
different standards to Australian-based crew.
Mr Kelly: My average days are anywhere between 12 and
14 hours, but I have extended up to 21.
Senator XENOPHON: Is that with a dispensation?
Mr Kelly: We do not fall under a union, so there is
just pressure. We have to bring the aircraft home. The cabin crew just have to
bring the aircraft home.
Senator XENOPHON: And for the Thai based flight crew?
Mr Kelly: I think they can go up to 24 hours.
Ms Neeteson-Lemkes: Twenty-four hours is correct.[6]
1.17
From both a safety and an industrial relations standpoint, this is
unacceptable. It also indicates that some airlines are able to take advantage
of non-unionised workforces, which has the effect of circumventing Australian
pay and conditions.
1.18
In its supplementary submission to the Committee, AIPA also raised
concerns about possible immigration issues relating to overseas-based crew
operating on domestic legs of internationally-tagged flights.[7]
Senator Xenophon has since asked questions in the Senate of Minister Ludwig, in
his capacity as Minister representing the Minister for Immigration and
Citizenship in the Senate, in relation to this issue. We are concerned that
there may be a loophole in the Migration Act that allows Australian
airlines to use overseas-based crew on what should more properly be considered
domestic flights. Because the flights are notionally continuation sectors of
flights that originate overseas, crew members are granted access to Australia
under Crew Travel Authorities. The special purpose visas to which these Crew
Travel Authorities relate do not carry the same restrictions in relation to
disadvantaging Australian workers as, for example, 457 visas. Furthermore, we
find the silence of the Committee on these matters even more surprising, given
that the circumstances that this bill seeks to address seem similar to those
that led to the introduction of the Migration Legislation Amendment (Worker
Protection) Act 2008.
1.19
In response to Senator Xenophon’s questions in the Senate, Minister
Ludwig stated:
[T]hese special purpose visa crew arrangements are only
suitable for international airlines bringing crew into Australia, but they are
not intended for international crew to operate in a purely domestic sector in
Australia.[8]
1.20
It is extremely concerning that the definition of domestic and
international flights for the purposes of granting visas seems to be dependent
on flight numbers. These numbers are allocated to flights by
the airlines themselves. There appear to be no regulations that require
airlines to designate certain flights as domestic or international. This lack
of regulation could allow airlines to use this ambiguity to designate flights
in a certain way. It would seem reasonable that these designations should be in
line with cabotage rules: for example, international airlines are not able to
pick up and drop off domestic passengers between domestic destinations,
although they are allowed to extend international flights to domestic
destinations if they are dropping off international passengers. Logically, it
would follow that any flight following these rules should be designated as
international, and as soon as a domestic passenger boards the plane to fly to a
domestic destination, the flight should be designated as domestic.
1.21
It is vital that the Parliament introduces legislation to determine how
flights should be designated, or that this is determined by CASA. It is not
appropriate for this designation to be left to the whim of the airlines. This
legislation needs to apply across all relevant Acts, including the Fair Work
Act and the Migration Act. It would be naive to believe that this
lack of consistency is not causing Australian job losses through the use of
foreign-sourced labour.
1.22
Mr Joyce also indicated that the enforcement of the amended Air
Navigation and Civil Aviation (Aircraft Crew) Bill 2011 would force the
Qantas Group to end some of its international services. He said:
If the amendments are passed and the international crews will be treated as
Australians in terms of wages and conditions on domestic legs of international
flights, we will not longer be able to viably operate those international
services.[9]
1.23
Given that cabin crew costs have been estimated at less than 10 percent
of aircraft operating costs,[10]
it is hard to see how increasing the pay and conditions for domestic legs would
blow these costs out of proportion. The failure of Qantas to provide further
information to the Committee strengthens the case that Mr Joyce’s comments lack
credibility. It would have been appropriate for the Committee to discuss this
further in the report.
1.24
In the absence of hard facts to support Mr Joyce’s alarmist claims, the
only reasonable conclusion to be drawn is that Mr Joyce is scaremongering. It
beggars belief that that the viability of these international services to and
from Darwin and Cairns is dependent on the cost structure of the domestic
flights to those cities, for which there is no apparent shortage of demand.
Recommendation 1
1.25
That the government introduce legislation relating to the definition of
domestic and international flights, and that this legislation is enforced as
part of a whole-of-government approach, with particular reference to the Fair
Work Act 2009 and the Migration Act 1958.
Recommendation 2
1.26
In the event that the Air Navigation and Civil Aviation (Aircraft
Crew) Bill 2011 is not passed, the relevant government authorities examine
the application of the Fair Work Act 2009 and the Migration Act 1958
in relation to work carried out by overseas-based employees on Australian
airlines, with particular reference to domestic legs of flights tagged as
international flights, and make the necessary legislative changes to ensure
these employees are operating under appropriate conditions.
1.27
The amended Air Navigation and Civil Aviation (Aircraft Crew) Bill
2011 also now includes a requirement for holders of Australian Air
Operators Certificates to have fatigue-management systems in place.
1.28
While we note the criticism about ambiguity in terminology directed at
the proposed legislation, it should be recorded that the terminology was
directly sourced from the ICAO documents that form the foundation of aviation
fatigue management. In particular, ICAO provides the following definition from
their newly released Doc 9966 ‘Fatigue Risk Management Systems: Manual for
Regulators’ 2011 Edition:
A Fatigue Risk Management System (FRMS) is defined as:
A data‐driven
means of continuously monitoring and managing fatigue‐related safety risks, based upon
scientific principles and knowledge as well as operational experience that aims
to ensure relevant personnel are performing at adequate levels of alertness.[11]
1.29
If there are genuine departmental concerns about ambiguity, these ought
to be passed on to ICAO.
1.30
We would like to note the contributions from Mr Michael Kelly and
Ms Monique Neeteson-Lemkes, Jetstar flight attendants who appeared before the
Committee’s 4 November hearing in their personal capacities. Once again, the serious
repercussions of cabin crew fatigue were discussed. It appears that there are
still
a number of outstanding issues to be dealt with, which were originally raised
in the Committee’s previous inquiry into aviation safety.
1.31
In relation to fatigue risk management, we note Mr Buchanan’s assertion,
made during the hearing held on 4 November 2011, that:
Any of the constraints that apply under the air operator's
certificate around human factors or fatigue risk management apply to crew
irrespective of where they are employed and where they are based.[12]
1.32
However, there are no requirements on AOCs in relation to fatigue risk
management for cabin crew, and the requirements regarding human factors relate
to training.[13]
Therefore, there are presently no 'constraints' under the AOC for Jetstar to
apply to crew in relation to fatigue management, regardless of where the crew
are based. We would go further and note that the evidence available to the
Committee suggests that, of the human factors principles outlined in the CASA
advisory material on Safety Management Systems, that it is unclear to what
extent such principles have been fully implemented and put into practice by
Jetstar. These principles include:
-
adopt a holistic and integrated approach;
-
put the people at the centre of the system;
-
account for human variability;
-
ensure transparency of organisational processes
and actions;
-
take account of social and organisational
influences;
-
involve staff and respect and value their input;
-
encourage timely, relevant and clear two-way
communication; and
-
ensure fairness of treatment (e.g. the 'just
culture' concept).[14]
1.33
The Committee has noted that CASA is currently working on formulating
guidelines for fatigue management. We would like to make several observations.
First, the ICAO guidance is about process rather than prescription. It
requires that there be provided a prescriptive alternative to FRMS as a form of
safety net, but leaves the formulation of the prescription to individual
states. It is this formulation of the prescription that is testing all
aviation regulators, including the FAA and EASA, and we expect CASA to be no
different. Second, although Senator Xenophon based the FRMS implementation
dates in the bill on the CASA evidence, we are now concerned that the timeline
proposed by CASA is particularly ambitious. There is therefore a high risk
that managing fatigue in cabin crew will be constantly deferred. The fact that
the Regulatory Reform project, originally scheduled for completion in 18
months, is now in its sixteenth year is not a reassuring sign for the
legislative protection of cabin crew. Finally, the Fatigue
Management for Aviation Industry Personnel page of the CASA website has been
labelled "being updated and are unavailable" for many months and
possibly more than a year. It would be helpful to see some information
released to the public as a matter of urgency.
1.34
We are disappointed that the Committee was unable to appropriately
consider and form a view on the amendments to this bill. It would have been
very helpful to have these amendments appropriately scrutinised, and to allow a
longer period for feedback. The Committee has acknowledged the issues this bill
is trying to address, but has not offered an alternative approach to address
these important issues in its recommendations.
Qantas Sale Amendment (Still Call Australia Home) Bill 2011
1.35
The Committee also raises the issue of the application of the Qantas
Sale Act, and discusses the "conflicting claims regarding the purpose
of the QSA."[15]
However, the Committee does not acknowledge the need to address these conflicts
or offer
any recommendations to do so. Importantly, we are not persuaded that the Qantas
assertions about the purpose of the Qantas Sale Act are correct (in
effect, that the Act is no longer relevant and that its principal purpose was
only to facilitate the sale of Qantas).[16]
We also believe that the Committee’s reporting of only the Qantas view
in detail to the exclusion of dissenting opinions is inappropriate, as it gives
a false impression that the Committee approves of that view. These fundamental
conflicts must be resolved so that the Act can be appropriately applied. This
ambiguity could, in the long term, allow Qantas to take action that would
otherwise be considered to be against the intention and spirit of the Act.
Qantas’ view is based on the presumption that the Qantas Sale Act was
never intended to apply to subsidiaries. That has not been established in law.
1.36
The principal aim of the Qantas Sale Amendment (Still Call Australia
Home) Bill 2011 is to require Qantas to continue the bulk of its heavy
maintenance, training and operations management in Australia. The proposed
amendments narrow the focus of the bill to ensure it applies only to Qantas,
and Australian international airlines in which Qantas has a controlling share.
These amendments also address any issues of extra-territorial application of
Australian law. We are concerned that the full impact of these amendments on
the bill has not been adequately considered by the Committee.
1.37
On 6 March 2012, The Australian reported that Qantas expects a 60
percent drop in labour demand over the next five years. This is the equivalent
of 870 jobs.[17]
Qantas has stated that this drop is the result of new maintenance systems and
aircraft that require less work, in addition to the fact maintenance on the
A380 will not be occurring in Australia. Qantas also states that it has still
to make a decision about where maintenance for the 787s will be carried out,
although it is unlikely to be
in Australia:
Mr Joyce: We have always been clear. It will not be
economic for us to do the A380 or the 787 maintenance in Australia, because it
takes a long time for that to occur for them. There are very low levels of
maintenance needed on those aircraft.[18]
1.38
These circumstances, if combined with the ability to offshore even more
work, would mean a massive reduction in heavy maintenance in Australia. Qantas
has already begun the process of dismantling part of that heavy maintenance
capability.[19]
1.39
It is also important to note the issue of critical mass for maintenance
planning, where it is estimated that between 12 and 14 older technology planes
and as many as 20 new technology planes are needed to make heavy maintenance
economically viable. If Qantas moves other maintenance offshore and phases out
their 747s, their maintenance activities in Australia could become totally
unviable once the 767 fleet has gone and as the 747 numbers reduce. This could
provide Qantas with the trigger to move everything other than line maintenance
offshore, resulting in heavy job losses.
1.40
The Committee notes Qantas’ comments in their submission that they are
the only airline to do any heavy maintenance in Australia.[20]
However, statements provided by Virgin Australia during the 24 November hearing
state that it conducts approximately 83 percent of its maintenance in
Australia, including heavy maintenance.[21]
Qantas itself also acknowledged in answer to a Question on Notice[22]
that Cobham is another airline that conducts all of its heavy maintenance in
Australia. While we acknowledge that the Committee has noted in its report that
other airlines undertake heavy maintenance in Australia, it would have been
useful for the Committee to note that it was provided with factually incorrect
information by Qantas, and that Qantas did not formally seek to correct this.
1.41
We acknowledge the concerns raised by submitters about the structure of
this bill. However, the question remains: what do we want for the future of
this iconic airline, and for the 30,000 Australians it still employs? It seems
incongruous for the Government to say that, on one hand, they want to retain
the Qantas Sale Act 1992 in its current form, while on the other
hand they ignore the intent of the legislation.
1.42
We note the concerns raised by the Department of Infrastructure and
Transport regarding the difficulties in changing the articles of association as
a result of the bill’s changes to the Qantas Sale Act.[23]
While the prospective application of this legislation would be easily achieved,
the structure of the Qantas Sale Act in regards to the company’s
constitution and any future amendments is problematic and needs to be
addressed.
1.43
We also note the Department of Infrastructure and Transport’s concerns
that the requirement to have the majority of 'flight operations' in Australia
could effectively require airlines to become primarily domestic operators.[24]
This concern has since been addressed through an alteration in the proposed
amendments to the bill, which were circulated in the Senate prior to the
Committee’s report. It would have been appropriate for the Committee to take
this into account.
Recommendation 3
1.44
That the Government conduct an urgent and independent review into the
operations of the Qantas Sale Act 1992 in order to determine whether the Act as
it stands is still achieving its original aims, and whether it should be
strengthened.
Grounding the Qantas Fleet
1.45
The Committee also raised the matter of the Qantas lockdown and
subsequent grounding. We agree with the Committee’s comments about the
seriousness of these actions, but we believe the Committee’s recommendation
should go further.
1.46
We agree that airlines should have a reasonable basis for safety
concerns when making the decision to ground planes. For this very reason, it is
vital that airlines are able to ground immediately and without notice.
1.47
Instead, it would be more practical to allow airlines to immediately
ground
a fleet, but then require them to prove to CASA and/or the Australian Transport
Safety Bureau (ATSB), within a certain timeframe, that they had reasonable
proof that this grounding was necessary for safety reasons. If they are unable
to prove this, a series of penalties should apply. The airline would then have
to apply to CASA in the usual way before the fleet was allowed to resume
operations.
1.48
This approach would not endanger the public, and would also go some way
towards preventing airlines from grounding a fleet for other reasons, such as
an industrial dispute, where those concerns did not present a genuine safety
issue.
1.49
We believe it is disingenuous in the extreme for Qantas to suggest that
its pilots, who take their responsibilities very seriously, would be so
distracted by the news of the lockout as to cause a safety incident.
Recommendation 4
1.50
That the Government develop regulations that would require AOC holders,
notwithstanding any other existing reporting requirements, within two weeks
after grounding a fleet, to provide information to CASA and/or the ATSB that
proves the AOC holder had reasonable proof that the grounding of the fleet was
necessary for safety reasons. The regulations should include penalties for AOC
holders who are not able to provide reasonable proof.
Financial Reporting
1.51
It is also important to expand on the issue of profitability in relation
to Jetstar Asia. During the 6 February hearing, Senator Xenophon referred to an
article by Scott Rochford in the Sydney Morning Herald, which suggested
that Jetstar Asia’s profits relied on revenue earned from aircraft it was
leasing to Jetstar Australia.[25]
Senator Xenophon also raised an interview between Qantas Head of Corporate
Communications Olivia Wirth and ABC’s Matt Peacock, in which Ms Wirth stated
that Jetstar Pacific was 'very close to break even.'[26]
1.52
In the 6 February hearing, Mr Buchanan disagreed that Jetstar Asia was
reliant on the leasing arrangements for profit, and that Jetstar Pacific’s
performance was "normal for a start-up operation."[27]
1.53
A discussion about the leasing arrangements between Qantas and
Jetconnect in the same hearing also led to confusion, with Mr Joyce initially
incorrectly attributing fuel costs to a figure in Jetconnect’s account.[28]
He later corrected this, explaining that the wet lease arrangement between
Qantas and Jetconnect in the following way:
Mr Joyce: The Qantas group purchases aircraft and
allocates them to Jetconnect business, and the Jetconnect business operates
those aircraft and charges them back.[29]
1.54
It appears that there is a significant lack of clarity in the way
leasing arrangements are reported for the purposes of financial reports. Mr
Joyce also stated:
Mr Joyce: Yes. But this is all put back into Qantas's
mainline books. We do consolidate them back in. We are not saying that
Jetconnect is making $11 million as a stand-alone entity that is completely
different from Qantas. It is allocated back into the Qantas resource, because
it is part of the Qantas network.[30]
1.55
Effectively, it appears that Qantas purchased aircraft and leased them
to itself, therefore allocating both the cost of the lease and the profit of
providing the lease to itself as well.
1.56
These apparently convoluted and labyrinthine commercial arrangements may
well demonstrate how an airline could, hypothetically, use a similar
arrangement to move profits and losses between its entities. It would be
appropriate for ASIC or a similar regulatory body to examine whether the
provisions relating to reporting the profits and losses from such arrangements
are adequately transparent and accountable.
Recommendation 5
1.57
That the Government require ASIC or another relevant regulatory body to
examine the requirements relating to financial reporting of aircraft lease
arrangements, and whether such arrangements provide an appropriate level of
transparency and accountability.
1.58
We also note the questions Senator Xenophon raised during the 4 November
hearing in relation to accounting standards. We believe that there needs to be
stricter standards into how profits and losses are attributed within the Qantas
Group, especially in relation to Accounting Standard AASB8, which applies to
other parts of Qantas operations. This is particularly concerning when figures
which have not been publicly released are used to make a specific case about
one part of the Qantas Group. In fact, the job losses announced by Qantas last
year appear to hinge on such assertions. The reported losses of Qantas
International are not subject, in themselves, to the same standard as other
parts of Qantas operations, such as Freight and the Frequent Flyer program. We
refer to the exchange below:
Senator XENOPHON: But is it not the case that, when
you assert that Qantas international has lost $216 million in the last year,
there is no accounting standard that applies to it in terms of the AASB8 that
applies to the actual divisions listed in the Qantas annual report?
Mr Joyce: As I said, it is part of our internal
process. Our auditors do look at that and the auditors have confirmed that they
are accurate representations of the losses that Qantas international incurs.
The auditors have reviewed it.
Senator XENOPHON: But it is not subject to the
accounting standard?
Mr Joyce: It is not subject to the accounting
standard, but it is subject to an audit review and the audit review has taken
place in the organisation and the auditors are comfortable with that
performance.
Senator XENOPHON: Because it is not the subject of an
accounting standard, which you have acknowledged, isn't the way you allocate
costs and revenue to Qantas international a subject of considerable judgment by
you?
Mr Joyce: No, it is not. The way we allocate costs and
manage each individual business is through standard terminology and mechanisms
that a lot of airlines around the world use. It is standard practice. We do
have a whole series of systems within the group to use and a whole accountancy
of how individual segments and individual routes perform. We base it on the
user pays model. We base it on the model that has a whole series of contracts
between segments. As we would with any other airline around the world, those
are contracted and negotiated between segments at the reference end—what each
segment uses and then we charge the segments for what actually takes place. It
is a very comprehensive, detailed process that has been there for years. We are
absolutely comfortable—our accountants there, the management there, the
previous management there—that the $200 million represents a true and accurate
picture of what Qantas international is losing.[31]
1.59
However, the fact that the Accounting Standard does not specifically
apply to Qantas International does cause concern over the assertions made by
Qantas as to the extent of Qantas International’s losses, given that these were
the basis for Qantas moving its centre of gravity to Asia (although those plans
have recently been abandoned).
The Cannibalisation of Qantas by Jetstar
1.60
In the 6 February hearing, the exponential growth of Jetstar was raised.
On 4 December 2005, in an interview with Alan Kohler on Inside Business,
former Jetstar CEO Geoff Dixon stated that he did not think Jetstar would ever
be more than
20 percent of the size of Qantas.[32]
Currently, Jetstar has 86 aircraft compared to Qantas’ 198, which means that
Jetstar is now approximately 43 percent of the size of Qantas. Given that
Jetstar plans to increase its fleet to 131 aircraft by 2014, this could see
Jetstar grow to over 60 percent of the size of Qantas. The obvious concern is
that Qantas’ subsidiary will cannibalise its parent, and that Qantas will
eventually exist only as a shell. The question needs to be asked whether the
subsidiary becoming bigger than the parent is a true reflection of the
international business environment, or more the result of avoiding the intent
of the Qantas Sale Act.
1.61
Jetstar’s rate of growth is also concerning from a different
angle. In July last year, the Sydney Morning Herald reported that
Jetstar was planning to increase its fleet in the Asia-Pacific to over 400 by
2020.[33]
This would require a compound annual growth rate of approximately 40 percent.
In contrast, the International Air Transport Association (IATA) estimates a
CAGR of 5.9 percent for international passengers and 5.7 percent for domestic.[34]
Given these figures, it seems unrealistic to say at the least that Jetstar
would be able to achieve the intended growth, without needing to find
substantial amounts of capital from its Australian operation and from other
investments. It is highly unlikely that Jetstar Australia’s operation could
ever fund that expansion.
1.62
We acknowledge the Committee’s work on these issues. However, we are
concerned that this is the second recent inquiry into aviation matters, and
that both of these inquiries have highlighted serious issues within the
industry. We believe that the Committee has failed to adequately address issues
of ongoing concern, and by not offering alternatives to the bills before the
inquiry, the Committee is in effect turning
a blind eye to the practices and commercial strategies that are currently
occurring.
1.63
We also acknowledge the work done by the Australian Greens on these
issues, and support their additional comments to the Committee’s report.
Recommendation 6
1.64
That the Government commission an urgent, comprehensive review of the
Australian aviation industry, to be conducted by an independent person or party
with relevant experience, with particular reference to safety and competition
issues, as well as the long term viability of the industry.
Recommendation 7
1.65
That the bills be passed with proposed amendments.
Senator Nick
Xenophon
Independent
Senator for South Australia
Senator
John Madigan
DLP,
Victoria
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