Qantas capacity may be cut
By LEONIE WOOD, SOPHIE DOUEZ and STATHI PAXINOS
Friday 23 November 2001
The Federal Government is believed to be ready to ask Qantas to cut capacity on some key air routes to boost the market share of smaller rivals, Ansett and Virgin Blue.
The radical move follows complaints to the government by Ansett's administrators and Melbourne businessmen Solomon Lew and Lindsay Fox - who bid $1.1 billion for Ansett - that the industry is being stifled by Qantas' 91 per cent stranglehold.
It also coincides with a move by the Australian Competition and Consumer Commission to widen its extensive investigations into alleged anti-competitive behaviour by airlines. Alarmed by a surge in complaints from Qantas rivals, the ACCC is planning guidelines that would define abuses of market power.
But Qantas chief executive Geoff Dixon yesterday blasted any moves to interfere with his business, saying that artificially creating more competition amounted to misguided policy.
Speaking at a business lunch in Brisbane, Mr Dixon said Qantas expected to end up with 65 to 70 per cent of the market once the industry settled down. But he warned that sustainable growth would occur only if it were market-driven, and argued that Australia could support only two intercapital airlines.
Mr Dixon said Qantas was being viewed as "a monster that must be sedated" or like a "magic pudding, that no matter how much you bite out of this company there'll always be something left".
After talks in Canberra yesterday, the Fox-Lew group appears to have won support from the Federal Government for various non-cash assistance in buying Ansett, although it withdrew a request for tax breaks.
The two-hour meeting, which included the heads of the Department of Transport, Ken Matthews, and the Department of Employment, Workplace Relations and Small Business, Dr Peter Shergold, resolved issues such as the transfer of airline operating certificates.
As well, the government has agreed to resolve legislative hurdles that prohibit owners of airlines from owning airports. Mr Fox's companies own Essendon and Avalon airports.
A request for relief in depreciating airline assets is believed to have been held over as the government considers a similar submission from Qantas.
Still, the Fox-Lew group, also known as Tesna, remains concerned that unless Qantas' power is curbed, Ansett Mark II's financial viability is jeopardised.
Deputy Prime Minister and Transport Minister John Anderson said two issues that "go to the heart of the competitive environment" were unresolved and that Fox-Lew "believe very strongly that they have to have an environment in which they're given a fair chance to grow and expand".
"When it comes to competition on the trunk routes, I can only say that you've got people who are very confident that they can make it provide the competition needed. I think that ought to be taken forward, but ... the final issues do have to be resolved by the marketplace."
The last two issues are believed to include some kind of commitment from the government that it would rein in Qantas' dominance and encourage it to cut its market share to a government goal of about 65 per cent.
Mr Anderson noted that while the Trade Practices Act was under review, aviation players wanted "an appropriate environment" in the interim. Talks next week are expected to settle the concerns.
Before the meeting, Mr Anderson indicated he believed the Fox-Lew plan should succeed.
"Let's be frank about this. The creditors looking at this would recognise there's one strong bid in the marketplace that gives them a chance of some return," he said.
"They'd be mad to knock it back, I would have thought."
Meanwhile, Virgin Blue downplayed talk that it would join Lang Corporation to bid for Ansett. Virgin Blue head of commercial activities David Huttner said the airline was still in talks with Lang Corp, but Lang was only one of several possible partners.
Virgin Blue welcomed the ACCC's move to clamp down on anti-competitive practices in the aviation industry.
Qantas is already under investigation by the ACCC for alleged capacity dumping, the strategy of flooding airline routes with extra seats. Virgin Blue has complained of capacity dumping on the Brisbane-Adelaide and Brisbane-Mt Isa routes.
The ACCC's guidelines would be formulated around the future structure of the industry once Ansett is resurrected.