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Aviation History
1963
1963 - 1794.PDF
FLIGHT International, 10 October 1965 Organized Competition 60S HOW AUSTRALIA'S TWO-AIRLINE SYSTEM FOSTERS PROFITABILITY WELL over three years have passed since the Civil Aviation Licensing Act received the Royal Assent, yet the prob lem of achieving a satisfactory relationship between cor porations and independents, and thereby ensuring the stability and continuity vital to the future prosperity of British air transport, remains elusive. Perhaps "elusive" is the wrong word, for the 1960 legislation never really tried to grasp the nettle by recognizing that some sort of traffic-sharing scheme between corporations and inde pendents was a necessary and obvious corollary to allowing the latter to compete. With such a scheme and the necessary route awards, the indepen dents would have been able to attain that stability which would have attracted new capital and made investment in such types as Tridents or VClOs (which the Government helps to pay for) a feasible pro position. The Australian two-airline policy, in which TAA and Ansett-ANA operate in competition with fleets that are closely regulated as to capacity, has been outstandingly successful. Both the State and private airlines are consistently profit-making, which shows that it can be done. Two reasons stand out immediately to explain the extremely good health of Australian domestic air transport. First, the two- airline system prevents multiple competition and excess capacity. Secondly, a stable political environment is created that gives full scope to vigorous and aggressive private enterprise; the 1961 Civil Aviation Agreement Act extended the two-airline policy not just to the next Australian general election, but as far ahead as 1977. To quote an Ansett Transport Industries report: "The year has shown how little understood by the public is the significance of this legislation to the civil aviation industry and to this company in particular. It gives the company an Australia-wide aviation fran chise of about 50 per cent of the industry revenue, which totals approximately £36m per annum. This franchise is for another 15 years and its value cannot be calculated. Nowhere else in the world is there such an arrangement which ensures civil aviation economic stability for such a period. Operating within this situation, and with efficient management controlling costs, reasonable profits are assured for this same period." To European operators such a prospect must seem mouth watering ^it would be even more so to their airliner manufacturers. Yet the success of the two-airline policy has not been achieved by reliance on such abstractions as "material diversion" but by a close and highly professional control of the capacity offered and the equipment purchased by each carrier—a degree of control that must sometimes, especially when new equipment is being evaluated, give Ansett-ANA and TAA the feeling that they have too little room for manoeuvre, and which (as when TAA was refused per mission to order Caravelles in 1958) must sometimes seem very frustrating. Where else in the world has a government refused its State airline permission to order jets at a time when its major private-enterprise competitor wanted turboprops ? Where else in the world does the responsible Minister, far from merely rubber- stamping the State airline's forward fleet-planning, however opti- TABLE I: DETERMINATION NO 7 (JULY l-DECEMBER 31, 1962) COMPETITIVE ROUTES A«ual craffic carried [millions of ton-miles) •torn 1.7.61 to 31.12.61: TAA Ansett-ANA Total Traffic variation factor estimated traffic, 1962 Revenue weight factor factored estimate Final total avenue load factor (Per cent) Opacity required 50 Der cent to each Mixed-configuration Passengers 25.412331 22.260086 47.672412 1.025 48.864 1.00 48.864 Freight 3.494769 3.452063 6.946832 1.04 7.225 0.80 5.780 57.096 65 87.840 43.920 aircraft Mail 0.731892 0.781932 1.513824 1.08 1.635 1.50 2.452 All-cargo aircraft Freight 1.656089 3.142544 4.798633 1.04 4.991 1.00 4.991 Mail 0.125760 0.087410 0.213170 1.08 0.230 1.875 0.431 5.422 60 9.037 4.518 mistic this might seem, set it a profit target prior to the commence ment of each financial year—and gives in a public document* de tailed estimates showing the capacity to which the airline and its private-enterprise competitor are entitled? These Determinations, as they are called, fix the capacity-entitlement of Ansett-ANA and TAA for six-monthly periods in accordance with the Airlines Equipment Act of 1958; Table 1 shows details of supporting calcu lations for Determination No 7, covering the period July 1-Decem ber 31, 1962, over the Australian mainland routes; capacity for New Guinea and Papua services is calculated separately. In accordance with the two-airline policy, Ansett-ANA and TAA keep under review not only their capacity, frequencies and stopping- places, but proposed fare and freight-rate variations and the in dustry passenger and freight load factors necessary to permit profitable operation on specified groups of competitive routes. Any matter on which the airlines cannot agree is referred to a rationalization committee; and if agreement still cannot be reached, the matter is decided by the co-ordinator. Under the 1961 Agree ment Act an airline dissatisfied with a decision of the co-ordina- tor's may refer the matter to the arbitrator, Mr Justice Spicer, Chief Judge of the Commonwealth Industrial Court since 1956. In 1960 the co-ordinator decided that Ansett and TAA must achieve a passenger load factor of 68 per cent over the group of competitive routes known as the "specified" routes to ensure profit ability and stability for the industry and due regard for the public interest. Both operators have continued to provide capacity based on a 68 per cent load factor, reducing costs when traffic declined by making capacity adjustments appropriate to the traffic offering. As Senator Shane Paltridge, Australia's Minister of Civil Aviation, said in his 1961-62 report: "I believe that the results which both the Commission (i.e., TAA) and the Company (i.e., Ansett-ANA) declare for 1961-62 are due in no small measure to the decision requiring the achievement of a 68 per cent load factor in respect of operations over the 'specified' routes." The point is well worth making that the two-airline system appears to have all the advantages of a pool agreement without dulling in any way the keen edge of competition: there is co-opera tion between the two airlines, as instanced by the Cross-Charter Agreement of 1960, whereby TAA leased three Viscount 720s to Ansett-ANA and the latter leased two DC-6Bs to TAA; there is consultation on timetables and on providing the public a more convenient spread of schedules; and there is close control of re- equipment to provide a brake on over-expansion. All these advan tages have been cited by advocates of pooling to justify such agree ments, yet the two-airline system offers all this and competition too. And there is nothing secretive about it. To enable the Commonwealth, under the two-airline system, to achieve a return on its investment in air transport comparable (after taking into account certain cost-variables) with that enjoyed by Ansett shareholders, the 1958 Airlines Equipment Act was amen ded to require TAA to present estimates and for the Minister to fix a profit target for each financial year. The 1962-63 target for TAA, with which the airline agreed, was a profit sufficient to provide a 6 per cent dividend on capital, and, as Table 2 shows, both TAA and Ansett have been consistently profit-making since the two- airline system came into being—and indeed for several years before that. The Ansett figures are for the whole Ansett Transport Indus tries group, and embrace road passenger and freight operations, * Department of Civil Aviation Report 1961-62. TABLE 2; ANSETT AND TAA FINANCIAL RESULTS Year Ended June 30 1956-57 1957-58 1958-59 1959-60 1960-61 1961-62 1962-63 Capital (£A x 1,000) Ansett 1,920 1,995 3,007 4,891 6,565 6,565 NA TAA 4,370 4,870 5,870 6,370 6,837 7.500 7,500 Profit (£A) Ansett 246,460 419,360 501.521 775,129 1,000,528 1,066,256 NA TAA 308,829 282.702 253,911 352,938 383,444 463,333 NA Dividend (per cent) Ansett ) TAA 10 10 10 10 10 10 5 5 5 5 Sir 5 NA 6 I
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