The Problem of Qantas

I travel across the Pacific fairly often; at least once every two years. I would make the trip more but it is very expensive. We usually reckon on it costing about $1400-$1600 USD a person, though I noticed the current ticket prices are around the $2000 mark each. In comparison a flight to London from Washington DC is $400 USD. This is why protected markets are bad, given economic choice I would fly east, not west, and Europe, rather than Australia would be getting my tourist dollars.

Peter Martin has an article on the issue, The Qantas protection racket gets set in stone :

The Treasurer had pulled off a deal that he said would ensure Qantas remained "Australian owned, Australian controlled and in Australia". ... What's not to like about a political fix designed to deliver the airline's shareholders $11 billion and to ensure that it remains one of Australia's biggest employers?

When the dust settles, I fear that there will be a lot not to like...

Indeed: for airline customers, for the Australian economy, for the Australian taxation system and for the Australian government itself the outcome looks to be about the worst possible.

The government blocked Singapore Airlines from competing on the lucrative Los Angeles to Sydney route which is a case of government protectionism. Apparently Qantas makes about 10-20% of its profit from the LAX-SYD route, so has a financial incentive to lobby the government to stop any competition. Peter Martin writes that it inflates tickets by 38%.

Gary Sauer-Thompson asks rhetorically, "How can they [Howard Government] call themselves economic liberals?" He is right, they cannot, QANTAS is a good example of protectionism and government backed price gouging overriding market liberalism and producing inferior outcomes.

The irony is that QANTAS started as an entrepreneurial venture. Two Australian Flying Corps aces, McGuinness and Fysh, returning from the first world war decided they wanted to start a business where they got to fly. The result was the Queensland and Northern Territory Air Service. It was not until immediately after World War II that QANTAS was nationalised by Ben Chifley.

QANTAS is a strong company, with a well known brand, there is no reason for the government protection of its pacific route between Australia and the United States.

cam
Permalink, The Problem of Qantas, Mar 2007, cam

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