Aviation reform could have saved Ansett
Dick Smith is a media, multi-millionaire entrepreneur and a former chairman of the Civil Aviation and Safety Authority but the mainstream media appear to have shut down on him so he paid $19,305 to have this article published in the Fin Review last week.
Instead of enthusiastically adopting reform, the managements of Ansett and Qantas chose to raise fares and slug the public. They had a complete lack of understanding about the need for reform. I had meetings with the most senior managers of the airlines and explained that if the highly unionised, very expensive air traffic control and regulatory systems Australia has had in place since the 1940s remained, they simply would not have a business in the future.
No one could grasp this.
In 1989 Prime Minister Bob Hawke asked me to chair the Civil Aviation Authority which controlled both the air traffic control system and safety regulation. The pilots' dispute had managed to achieve reforms and efficiencies in staffing and scheduling of flights, and the totally Canberra based monopolistic bureaucracy of air traffic control and safety services were next.
Bob Hawke said, "We realise there are huge inefficiencies. It will be your job to fix them and you will have government support."
During the next two years we managed to bring in substantial reforms with over $100 million per annum saved, and even though I had strong support from the then minister, Bob Collins, I was amazed to find that the major beneficiaries - Qantas and Ansett - were either completely neutral or negative about the reforms.
They simply appeared to have no understanding of the need to reduce unnecessary costs when it came to running a business.
You would think they would be ringing me as CASA chairman complaining that costs were too high. They never did. When I phoned to tell them how I wanted to save them money, the most senior managers would come and take notes, sound suitably horrified at the obvious waste, then go off and do nothing.
Their philosophy wasn't "How can we reduce costs?" It was always "How can we reduce competition?"
A major reform process was set up to start early in the 90s and when I finished my term as chairman I naively thought that these would go ahead. I was wrong. The reforms, which were just as important as the waterfront reforms, were stopped and the high costs remained.
When I was appointed chairman of the Civil Aviation Safety Authority in December 1997, the old CAA had been split into two organisations - Airservices Australia (the air traffic control service provider) and CASA (the safety regulator.) I set to work to continue the reform program with the strong support of Mark Vaile, the Minister for Transport at the time.
This time I failed spectacularly. Virtually every bit of reform we moved towards was stymied one way or another. I expected the unions to resist as there is a grossly inefficient system in aviation, where air traffic control and fire fighting services are run as a monopoly from Canberra.
For example, the current fire fighting service charge for a single BAe 146 aircraft to land at Karratha, WA, is $531.58. The charge for the same aircraft to land at Queenstown in New Zealand, where the fire fighting service is open to competition and locally run, is $18.50.
A Qantas Dash-8 landing at Coffs Harbour is charged $105.98 plus an additional expensive fuel tax for the control tower alone, but this tower does not meet any safety need and should not exist under CASA regulations.
Why did I fail this time? Extraordinarily, the main reason was once again the complete lack of understanding by airline management of Qantas and Ansett of the need for reform. They had ingrained in them the laziness of decades of a regulated environment - where costs went up, they just raised fares to cover them.
When they were deregulated they acted as if they were still a regulated and cosy duopoly. When Compass challenged them, they crushed the competition without a moment's thought of getting their own costs down to competitive levels. In a similar vein, when Ansett found that it could not compete with Virgin Blue, rather than lower costs it simply offered Richard Branson an alleged $250 million for the airline.
The present government has a policy of introducing local ownership and competition for air traffic control and fire fighting systems. But the regulations allowing this, which were to be completed by June 2000, have disappeared into the office of the Transport Minister, John Anderson. Why would he want to push this difficult reform when there is no support from the airlines?
By using world's best practice air traffic control systems, I believe we could save between $100 million and $200 million a year. If competition were allowed and fire fighting services were run by local airport owners - normally the local council - savings of more than $20 million per year could be achieved.
The CASA budget has doubled from $50 million to $100 million in recent years, paid not by taxpayers but by an extra fuel tax on airlines. More extraordinary is the fact that towers at airports like Bankstown, which have no airline services at all, are now subsidised by an additional tax on jet fuel which is paid by Qantas and Ansett. Every time a private aircraft lands at a general aviation airport such as Bankstown, about 30% of the landing fee is subsidised by the airlines! The total annual subsidy per annum from Qantas and Ansett would be over $8 million.
We could save up to $200 million a year, the great bulk of which would appear on the bottom lines of the airlines. But their managements are so incompetent they haven't even noticed the cost increases, let alone object to them.
My success in life has only been achieved because I have normally been able to surround myself with people who share my vision, goals and strategies. When it came to aviation reform, those who were to benefit the most simply had no grasp of the need for reform.
Now I am out of the industry, I have been visited in the past year by senior management from Qantas and Ansett to talk about cost reductions through regulatory reform. After the meetings they go away allegedly inspired. But nothing changes. Absolutely nothing.
I think all they have wanted to do is to go back to the old days of a comfortable two-airline policy. Now, we only have one major airline and I believe if the Qantas management continues down the same path of not focusing on costs, this airline will follow the same fate as Ansett - as additional lean and mean carriers arrive from overseas and pick off the profitable low cost routes just as Richard Branson has done.
Many blame the Kiwis for the problems with Ansett, but it should be noted that Gary Toomey was until 12 months ago, the Chief Financial Officer and Deputy Chief Executive of Qantas and he learned his aviation management skills with that airline.
Recently, the Government announced that if Air New Zealand failed to pay the $400 million of entitlements, a ticket levy of about $10 would be placed on the airlines to cover the cost. My calculations show that Qantas could pay up to $360 million of this levy. It is telling that rather than object to this impost, the comment from the Chief Executive of Qantas, Mr Geoff Dixon was "I believe the Australian Government and New Zealand Government has done an outstanding job in trying to save Ansett." No doubt Mr Dixon believes Qantas will be well recompensed for this political support, even if passengers suffer with higher fares.
I am criticised by aviation journalists because I concentrate on the need for aviation regulatory reform for our airlines to be viable. However if Australian airline management do not push for reform to reduce costs, surely this is indicative of their chance of future success in a competitive global environment.
Air Traffic Control charges paid by a Boeing 767 at Australian and New Zealand Airports:
Why I have paid $19,305 to run this article
By Dick Smith
As Chairman of CASA in October 1998 I was instrumental in the introduction of major airspace reform. This was called the Class G demonstration. It was as important as waterfront reform - and as hard. I was attacked mercilessly by the press for this, particularly by Fairfax journalists and the ABC 7.30 Report.
The campaign against the reforms was successful and I was forced to resign. In those days I received the most extraordinary amount of press coverage, albeit it was critical and much of it was dishonest and inaccurate.
Since the Ansett collapse I have worked ceaselessly to draw the attention of the media to the link between the failure of aviation reform and the failure of Ansett. Amazingly, I have not received one word of coverage on this issue in the print media. I originally prepared the facing article to run as an opinion piece in the Daily Telegraph. After I thought there was an understanding to have it published, it did not appear and this important side of the whole sorry saga has not been published until now.
The fact that the journalists have sent me to Coventry on this issue is a reflection on their professionalism. This is a free country and it is important that all views are allowed to be propagated fairly.