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Qantas Capacity May Be Cut

Fri Nov 23, 2001 9:50 am

"Melbourne Age":

Qantas capacity may be cut

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.

Kiwi dave
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RE: Qantas Capacity May Be Cut

Fri Nov 23, 2001 10:15 am

That is unfair if QF has to cut capacity, it's not their fault if their rivals are not doing to good at the moment
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RE: Qantas Capacity May Be Cut

Fri Nov 23, 2001 10:56 am

I have said before: Ansett failed because they adopted idiotic business practices (how the hell does a major airline end up with it's entire fleet of domestic widebodies grounded - twice - for serious maintenence misdemeanours?). Why should the surviving Australian airline - Qantas - be forced to adopt equally unhealthy policies? This is insanity. Virgin Blue are the second Aussie domestic carrier now. Ansett are Compass.
fly Saha Air 707s daily from Tehran's downtown Mehrabad to Mashhad, Kish Island and Ahwaz

RE: Qantas Capacity May Be Cut

Fri Nov 23, 2001 11:46 am


Ansett is compass? Did you not realise AN is about to be relauched as a direct QF competitor with a completely different business plan and new owners?

DJ will not be Australia's second airline for much longer.


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RE: Qantas Capacity May Be Cut

Fri Nov 23, 2001 12:07 pm

I've got an idea! Why don't we make a new law which only allows two airlines on trunk routes, with regulated pricing, aircraft purchasing and terminal space. We could call it....
The third airline could operate Sydney-Melbourne, but only via Canberra, and Sydney-Brisbane, via Coolangatta.
This will be fair for Ansett, Australian and East-West. I mean, Ansett, Qantas and Virgin...ooops.
Is it a deregulated market or isn't it?  Yeah sure
v jet
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RE: Qantas Capacity May Be Cut

Fri Nov 23, 2001 12:44 pm

AJ, I agree with you totally. May just as well bring back regulation which in essence this is! If an airline cant cut it and folds because of years of mis-management like Ansett well thats bad luck.
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RE: Qantas Capacity May Be Cut

Fri Nov 23, 2001 12:46 pm

I think its unfair to target Qantas as a complete maniac.
They have remained as only succesfull run airline in Australia and thats the fact.

I hope to see Ansett up there and better orginised than what they once were.

As we all know Ansett needed good investors and better managment. I do believe with Fox and Lew that Ansett will eventually be Australia's second major airline.

AN also have not ruled out international routes, so it interesting to see what happens there in the future.

To sum it up QF have been the smart one's to now and I believe that DJ will eventually merge with Ansett if the new Ansett is succesful.
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eta unknown
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RE: Qantas Capacity May Be Cut

Fri Nov 23, 2001 3:03 pm

Once Fox and Lew drain the new Ansett they'll fly it into the ground- once their pockets are money lined, of course. I can't believe so many people actually believe these two clowns are genuine and that Ansett will be this great airline again- sounds like wishful staff thinking.
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RE: Qantas Capacity May Be Cut

Fri Nov 23, 2001 3:22 pm

I wouldnt exactly call them clowns and I do have faith in them with Ansett, but it does make me wonder sometimes how they are going to run an airline with no airline experience.
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RE: Qantas Capacity May Be Cut

Fri Nov 23, 2001 3:44 pm

If Qantas are forced to cut capacity by the govt
on trunk routes, then I would imagine Dixon will
have to lay off more staff, DJ and Ansett would
have roughly have the same number of planes
by the 3rd quarter next year (30), but as I understand
it, Ansett staff will have the same pay as before with
increased productivity, if this is right DJ still will have
a 30% cost saving factor over Ansett, and then we
still have to wonder about Qantas with all those one
class B737s and where they will be placed, in all enough
to keep the group here in speculation for the next
9 months at least.

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RE: Qantas Capacity May Be Cut

Fri Nov 23, 2001 7:29 pm

Brett Godfrey of Virgin Blue was just interviewed
on the ABC 7.30 report, says without terminals
VB will be limited to 25 aircraft next year, with
terminal access would be 32 planes with 3500

The Coachman
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RE: Qantas Capacity May Be Cut

Fri Nov 23, 2001 10:21 pm


One of them (either Fox or Lew - can't remember) sat on the board of Continental Airlines for 10 years.

The Coachman
M88, 722, 732, 733, 734, 73G, 73H, 742, 743, 744, 752, 762, 763, 772, 773, 77W, 320, 332, 333, 345, 388, DH8, SF3 - want
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RE: Qantas Capacity May Be Cut

Sat Nov 24, 2001 7:13 pm

Remember Herb K. of Southwest fame had no airline experience with Southwest started flying in 1971 and look where they are today.

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