I have long contended that Australian prosperity will come through Indonesia and vice versa. I was glad to see that QANTAS is buying a twenty percent stake in Indonesia's AdamAir . Though it may be prompted in part by Singapore's unruly airline regulation schemes, it is recognition that Indonesia's market is not only growing, but that Australian business has confidence in its economy and legal systems. Indonesia has come a long way since the corruption of the Suharto regime.

Market economies tend to max out GDP per capita as it consumes the entire population into the economic effort. Indonesia has a population of approximately 220 Billion. It is highly likely, if Indonesia continues on the path of a free-market democracy, that in fifty years time it will rival Japan for GDP and economic activity. This will place it somewhere between seven and ten times the size of the Australian economy.

One of the benefits is that we will have a multi-trillion dollar economy right on our northern doorstep to trade with. There is the added advantage of not only regional interests in economic, political and martial stability, but also in both nations prospering. If Australia is going to pursue bi-lateral trade agreements, it should create a genuine free trade agreement with Indonesia.

Not managed trade, but free trade.

Currently Australia and Indonesia are largely complementary economies, and a free trade agreement without any barrier to trade would help both nations on the path to increasing prosperity.

There are other benefits to Indonesia prosperity. A wealthy Indonesia with its political stability predicated on trading and democracy will seek regional stability in its foreign affairs. A far cry from the sabre-rattling, nationalist and arbitrary policies of Sukarno and Suharto.

Indonesia will most likely pass us in defence capability, but if it is a democratic nation that we have strong economic ties this is not a cause for concern. Especially if both our large economies are entwined. Stability will be demanded between the two nations by business leaders and consumers.

Canada and New Zealand also have benefits of being in a benign region. Canada spends approximately 1.2% GDP on its military. This is barely enough to cover salary inflation for its service men and women. Canada's vulnerabilities are protected by the American military behemoth, why should Canada over-fund?

New Zealand is in a similar situation. Australia has a regionally dominant military which covers both Australia's and New Zealand's vulnerabilities. Why should New Zealand maintain an air force with long range strike aircraft when Australia has the capability to cover that possibility.

It will be the same with a prosperous Indonesia for Australia. All our geographic vulnerabilities involve the air-sea gap between us and Indonesia. As the Suharto era Indonesia military retire, or are kicked out, a new generation of Indonesians will rise through the ranks. Rationality will replace dictatorship corruption and involvement in civil affairs. Strong defence ties between Australia and Indonesia will ensure the South Pacific is an area of political, economic and martial stability.

Singapore Airlines was stopped by the Federal Government from flying between Sydney and Los Angeles - to rub salt in the wound - they were told it was in their interests to merge with QANTAS. I am not sure why politicians should be making that call. Air Canada was granted permission (?) last month by the federal government to begin operating between Sydney and Los Angeles, as well as Sydney and Toronto. So why not Singapore Airlines?

I am consistent customer of Trans-Pacific flight. We have settled on QANTAS for reasons of quality of service. We used to fly United Airlines, but too many cancelled flights and poor service incidents rubbed us the wrong way. But we only have two choices, having a third, or fourth, or more would be ideal in my opinion. Bring the competition on.

This airwise forum has an interesting thread on the ins-and-outs of international travel including oddities such as 4th/5th and 6th freedom rights. The plot thickens somewhat as United Airlines is a partner of Singapore Airlines in certain routes. From the airwise forum;

As far as I am aware, there is a recently concluded Open Skies Agreement between Singapore and the US which covers access between their two respective countries, but does that cover access from a third party country? I would not be so sure. It would depend greatly, I would think, on whether the perceived service is a straight out operation (ie: a separate flight originating in SYD/BNE/MEL) or whether it is a 'continuation' service ie: SIN-(SYD/BNE/MEL)-LAX.

Further, the bilaterals between Australia and the USA are a negotiated treaty, under the auspices of Bermuda 2, if I am not mistaken. In the past, when additional or replacement carriers have sought to access the route, the respective Governments have had the right to nominate the preferred operator. ie: if UA were to go "belly up" it would be the US Government who would nominate another US carrier to replace them on the route. Similarly, should the Australian Government wish to allow access (as it did a few years ago) it would nominate the carrier - and in this case, it was Ansett who were nominated to the route just before their untimely demise.

Depending which publication the figures come from, QANTAS earns between ten and twenty percent of its yearly profit from the Australia-US route. So there is incentive on their part to lobby the government to stop any competition on a major revenue source of theirs.

You would think the government would have learnt from the protectionist scam that was the Australian Wheat Board and its fallout. When you create protected economies like this you are setting people up to fail. Charles Harpur understood this in the 1850s, I don't understand why the government cannot fathom that today.

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.

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