Is the Tiger Airways crisis all about air fares being too cheap to support safe air travel, or is it really about something else?
There is a case for blaming contemporary business management practices for much of the trouble in which many airlines find themselves around the world, whether low cost, legacy, or full service, or whatever popular definition is chosen to describe them.
Tiger has, by definition, been atrociously badly managed.
Its air operator certificate was issued on the basis that it would meet all of the obligations to safety management and Australian regulations it pledged to uphold.
The responsibility of Tiger management is to protect that licence to fly, without which it has nothing.
Any management that fails to meet those requirements despite months of engagement by CASA, the regulator, is unfit to be in control of an airline, the safety of the passengers that use its services, or trusted with the investment made by its owners.
There is no wriggle room in this. Tiger lost the confidence of the regulator, which after very long and unsuccessful effort to bring the airline into compliance with the rules and standards that applied to the operations of all main line domestic carriers, declared that it was too unsafe to be allowed to continue flying.
Tiger’s management still doesn’t get it, at least in terms of public utterances by its president and CEO, Tony Davis. It is unsafe, and non-compliant, and has been grounded in the interests of public safety.
Davis needs to explain why Tiger has found it so hard to obey the rules. He should be called to account by Tiger’s employees and shareholders as to why the situation has been allowed to deteriorate to such an extent that the reputation of Tiger and its brand value in this country has been destroyed.
But poor safety outcomes are not necessarily a characteristic of low cost or low fare airlines. The largest low cost carriers in the world, Southwest in the US, and Ryanair and easyJet in Europe have not experienced a hull loss or passenger fatalities. The airlines most under pressure in terms of safety compliance in the US and Europe respectively are American Airlines and Air France.
It is true that the existence and rise of low cost carriers has put pressure on legacy carriers. But competition and innovation always puts established interests under pressure in any industry. In the case of airlines what doesn’t change with the business model spectrum from low cost to high cost is the regulatory obligation to safety rules, and in the case of maintenance in particular, the same debate arises when the low cost and high cost legacy carriers both turn to off-shore arrangements which may frustrate national safety regulators from directly administering compliance with the standards in terms of the work done.
Carriers like Qantas are particularly vulnerable to this pressure, because unlike Virgin Australia for example, it keeps its aircraft longer, and the older a jet becomes the more costly the statutory obligation to airframe maintenance. Virgin Australia shifts that risk to leasing companies, and while the differing merits of owning and leasing are complex, younger fleets use less fuel and require less upkeep before they are traded for newer and sometimes even cheaper replacements.
Absurdly cheap fares will on their own send any airline broke. While Tiger, Jetstar and even Virgin Australia and Qantas indulge in sucker bait super cheapies of limited availability, their accounts reveal that on average they are collecting much higher fares from their passengers than the headline stunt fares suggest.
Which brings us back to the problem of modern business school management practices, which have, in general terms, no respect for technical experience and skills, and at times, no respect for truth in marketing either.
They are, like the investment funds that are the major shareholders in most airlines, short term in outlook. The focus is on quarterly outlooks, or year-to-date sales and yields, and short term share price forecasts, not the grand longer term designs that used to inform the strategies of Qantas and Singapore Airlines, but continue to drive the ambitions of Emirates, Hainan, and Cathay Pacific, and, when he isn’t headline grabbing, the low cost anti-christ Michael O’Leary at Ryanair, who is cunning rather than insane.
This is why railing against low fares misses the point. Business class on Qantas between Sydney and Melbourne is currently available for at least $150 less than the standard full economy fare on Ansett or Qantas in 1999, pre GST and all the subsequent fees, levies and taxes.
It is lower (rather than ridiculous) fares that has driven the extraordinary expansion of air travel world wide. If that growth was slashed by returning to a regulated high fare environment it would be reasonable to guess that pilot jobs might fall to a fraction of present levels, the airlines and dependent industries would collapse, and some pensions or retirement funds would be toast, as is already the case in US legacy carriers.
What is needed to make air travel even safer than it is isn’t higher fares, but managements that comply with the safety rules and continue to invest in excellence in flight and maintenance standards.