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Issue #1928      August 17, 2020

Airline woes

A case study in capitalist irrationality

The announcement by the newly anointed Virgin Australia owner of its intention to sack 3,000 workers, on top of the recent 6,000 Qantas layoffs, is just the latest sorry chapter in a sector plagued by capitalist irrationality.

Recall that, only six years ago, Qantas and Virgin Australia were locked in a fight over market share. Compelled by the dictates of competition, both companies added ever more aircraft to the market in an effort to drive the other out of business. The resulting surplus of seats drove down ticket prices, in turn shrinking the overall profits accruing to the owners in whose name these strategies were initially pursued. Both companies reported financial losses in 2014. Qantas sacked 5,000 workers in response.

So much for the magic of market efficiency!

Qantas boss Alan Joyce tried to convince his friends in the Abbott-Hockey government to provide a bailout. This after similar lobbying convinced the Howard government to deny Ansett public aid prior to its collapse in 2001, thereby securing above-competitive profits for Qantas in the domestic market (Qantas used the same capacity flooding strategy against that competitor).

Virgin founder Richard Branson responded that, were Qantas to be given a bailout, “business people worldwide should think twice about investing in Australia for fear of such intervention in their sectors.” Government advice deemed that Qantas’ financial situation was in any case overstated and ruled out a bailout. Qantas survived.

In a delicious illustration of the contradiction between the ideology of anti-state intervention and the realities of capitalist self-interest, the COVID-19 disruption spurred Branson to ask our government for a bailout. In an open letter to the “Virgin family,” Branson argued this was needed because, were Virgin Australia to disappear, “Qantas would effectively have a monopoly of the Australian skies.” The concern for consumer welfare is touching.

Yet again, the competing interests of aviation capitalists (and bondholders) are playing out, including through the state, while the livelihoods of thousands of workers and travellers hang in the balance. Who wins is less important than the fact that such conflicts, and all the wasted resources and energy these involve, occur and recur at all.

The rather ominously named US private equity outfit, Bain Capital, is now in the process of securing control of Virgin Australia. Such outfits do not have a promising track record when it comes to sustaining long-term investments in vital national sectors. They are overwhelmingly driven by short-term profits, as evidenced by the latest mass layoff plan.

So, after a lot of paper shuffling, we are likely to be back in the same position a few years down the track, with some shock plunging the aviation sector into yet another crisis, prompting more layoffs, and more fights over bailouts.

It is high time to admit that the privatisation of air traffic in Australia was a mistake. The tendency for Qantas to be in a monopoly position should be acknowledged, and rather than countenancing endless bailout requests, it should be finally re-nationalised with public oversight and accountability.

If more choice is desired, Virgin Australia could also be nationalised and rebranded – perhaps, ironically, as Ansett 2.0. Among other things, this would halt the flow of exploitative royalties which currently accrue to Branson.

Crucially, public sector aviation workers could be maintained on their full incomes but temporarily moved to other lines of urgent government work during periods of severe instability, while continuing to pay taxes that fund public services. Instead they are joining the dole queues: an indictment of our economic system.

Next article – CPA Statement – On the passing of former CPV General Secretary Le Kha Phieu

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