Saturday, February 16, 2008

Open Skies between the US and Australia: There is no one I don't hate right now

There is a great line in that brilliant show the West Wing where the ever cranky Toby Ziegler (played by Richard Schiff) turns and says "there's no one I don't hate right now". This is exactly how I feel after hearing about the the new Open Skies agreement between the US and Australia. In theory I should be cheering this agreement. I have complained again and again about the gouging that goes on in the pricing of the Pacific Route (Australia to the west cost US). Up until the open skies agreement only two airlines could fly this route - Qantas and United. Qantas sat on almost seventy percent of the capacity giving them an almost monopoly. They priced accordingly, earning more than 40% in revenue per passenger kilometre than on the Kangaroo route (Australia to the UK). The last time I tried to book a US flight Qantas wanted to charge me more than A$15,o00 for business class. Sure I was booking with just over 2 weeks notice but that is the out and out definition of monopolistic price gouging.

I should be cheering because Open Skies is supposed mean more airlines, more competition and therefore lower prices. But this Open Skies agreement is nothing but window dressing and will do almost nothing to change competition - especially in Business class. The deal is limited to Australian and US carriers. On the Australian side this means the only carriers that can be added are V Australia (Virgin Blue's not yet launched low cost long haul off shoot) and maybe Jetstar (Qantas' own low cost carrier). On the US side it might bring American back to the route but really who cares. As the Sydney Morning Herald points out in its analysis, V Australia are only looking at 10 services a week. Qantas already fly 51 while United only do 14. Therefore only 15% more capacity is being added and effectively all of it in leisure classes. No downward pressure at all on Business Class prices.

The only way to bring true competition to the route and bring down prices is to allow Singapore Airlines, Emirates and Canadian to have access to the route. This would provide a meaningful increase in capacity in all classes of product. The previous conservative/centre right Australian Government and Transport Minister Warren Truss exposed himself as a complete idiot and the only centre right government minister in history to argue that increased competition in a duopoly/monopoly would not be a benefit to consumers when he said
"The economic modelling work [on the Pacific Route] that we have done suggests that the benefits of an airline such as Singapore entering that route would be very, very small to the Australian tourism industry,"
The new centre left Australian Government has gone one better in the stupidity stakes. New transport minister Anthony Albanese is quoted in the SMH article as saying the following
"... he had "no intention" of allowing the two new carriers on the route [Singapore and Canadian], making V Australia the only new carrier expected to enter. "We're serious about liberalising trade, but we're also serious about protecting Australian jobs," he said." (my emphasis)
I had to read this paragraph twice to make sure that I wasn't seeing things. Somehow it is now critical to the overheated Australian employment market for Qantas to be able to gouge its customers and charge 40% more that it should or needs to. Australia is in its sixteenth year of growth and has less that 4% unemployment. Everyone everywhere in the travel industry is struggling to find anybody to meet the huge demand for talent and people. Australian regional carrier Rex has had cut routes because it cannot find enough pilots to actually fly the routes it wants to support. Yet somehow the whole boom would fall apart if Qantas was forced to charge normal prices and face standard and reasonable competition. Baloney.

So Open Skies are here, Qantas is happy, Virgin Blue is happy and the government gets to shout "see how brilliant we are" but somehow I still have to pay exactly the same rip off fares to go the US.

There is no one that I don't hate right now.

UPDATE - you will love this. In Travel Today there is a lead article with commentary from Singapore Airlines heavily criticising the Open Skies deal. Right below it is a story from QantasLink (Qantas' regional airline) complaining that they are going to follow Rex's lead in cutting services due to a "higher than normal pilot attrition rate" (ie NO STAFF). This (presumably unintentionally) completely undermines the comments by the Transport Minister Albanese that there is any job threat at all.


Anonymous said...

Add me to your unhappiness list.

Your analysis is right on. We need more competition to make the US-Australia route good for ALL Australian businesses, not just one.

As the US is a large market, you just have to travel there -- and restricting the route just artificially increases the prices.

Anonymous said...

You can always fly to the US with a variety of Asian airlines, it justs adds about 10 hours to the trip :)

OR fly Economy lol