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Australians May Soon Fly Deregulated Skies

THE government of Australia is about to shake up the nation's airline industry.

The new prime minister, Paul Keating, is working on a restructuring plan aimed at increasing competition.

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Although the new plan may not be presented until the end of February, industry analysts say it might involve treating the Australian and New Zealand skies as a single market. At the same time, there is speculation that Qantas, the Australian-government-owned international carrier, will be allowed to fly domestically. And there is even talk of a merger among privately held Air New Zealand, Qantas, and Australian Airlines, the government-owned domestic airline.

The basic thrust of any changes appears to be to increase competition to help spur tourism, one of the mainstays of the Australian economy. "They are looking at what is best for tourism versus the individual airlines. They are looking towards the election [in 1993], let's face it," says Richard Green, director of aviation services at Deloitte Ross Tohmatsu, an accounting firm.

The government restructuring is coming on the eve of its own plans to totally privatize Australian Airlines and to sell 49 percent of Qantas. Bids for the two airlines were originally due on Feb. 14. But because of uncertainty about regulatory and other conditions in the airline industry the bidding has now been postponed until the end of March.

At least four foreign airlines have expressed an interest in buying up to 35 percent of Qantas. (Foreign ownership is set at 35 percent; the rest of the shares will be sold to the public.) Among the potential bidders are Air New Zealand, Northwest Airlines, Singapore Airlines, and Japan Airlines. "A lot will depend on how the government will liberalize regulation. For example, Qantas looks a lot more attractive if it could provide domestic services," says Choonho Hui, an airline analyst and vice presiden t at Merrill Lynch Asia Pacific in Singapore.

Qantas says it would like the right to buy Australian Airlines. "The attraction for us is as a domestic market for inbound passengers," says Ken Boys, spokesman for Qantas. The airline is one of the few international carriers without a domestic feeder system. Qantas estimates it has about 20,000 empty seats a week, mainly on international flights within Australia. However, Qantas does not have the right airplanes to provide a full domestic service. "Buying Australian is cheaper than buying new equipment and recruiting new staff and pilots," Mr. Hui says.

THE recession has complicated the government's task of selling its airlines. Qantas operations, for example, lost $158 million (Australian; US $118.6 million) in 1991. This followed a loss of A$119.7 million in 1990. The airline last year shed 3,500 jobs.

Qantas is also under pressure from three US carriers which fly to Australia. For those airlines, the Australia run is about 2 percent of their total operations. For Qantas, the transpacific route is 30 percent of its network. Qantas makes most of its money on its flights to Japan. Thus, Qantas officials were angry last year when Northwest Airlines was given the rights to a US-Japan-Australia route. Qantas says less than 10 percent of Northwest's passengers on the Japan-Australia leg are Americans. "Our m ain criticism is that Australia got nothing in return," Mr. Boys says.

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One of the catalysts for the government restructuring is the December bankruptcy of Compass Airlines, which heavily discounted seats to most of the major cities. Australian and Ansett Australia, a privately owned carrier, matched Compass's fares. These prices opened the market to thousands of Australians.

Even if Compass is not resurrected, most analysts do not think air fares will skyrocket. "I don't think we'll return to the cost-plus [pricing system] that we've seen in the domestic market over the last few decades, but there will be genuine attempts to make flying more accessible domestically," says Boys of Qantas. Some small airlines plan to offer shuttle service between high-traffic cities.

If the Australian and New Zealand governments agree to allow each other's airlines to freely cross the Tasman Sea, it could be a boon to Ansett Airlines, which has a subsidiary that provides service in New Zealand. Ansett would probably link up with another international carrier to ensure its share of domestic passengers. Japan's All Nippon Airways already owns 20 percent of Ansett. It might want to buy more.

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