Foreign ownership of Qantas

QF Ownership. Does anyone know why the government would not just drop the 49% foreign ownership requirement, other than for patriotic reasons? Is it a national security issue?

Not really a national security issue in my view. The reason the government has left it in place for so long is the fear that if foreign owner took control of the airline, they may drop the vital, unprofitable regional routes and may also carve the airline up and sell assets. It may also be bad for jobs with further offshoring of maintanaces facilities etc.

I think they will raise it but there may be conditions put on any foreign owners re operational changes. The question is whether they will get rid of it all together or just raise it so foreign investors can own a majority of the airline

To what extent is the state and businesses subsidising regional Australia?

Or is regional Australia self-sufficient, where net income is supporting the nation's coffers?

I'm asking these questions in the context of spending on the NBN, spending on healthcare and social services and, as Nick suggested the maintenance of air links.

Presumably if regional areas are economic power houses, airlines would bend over backwards to serve regional towns and cities, without government intervention?

There are no national security issues. Many nations don't have flag carriers and any issues are just imaginary. The only issue is childish nationalism. 

As for regional routes - whether it is Australian owned or foreigned own, this makes no difference. Presumably an Australian owned private company would only run a route that is financially viable, and dump routes that are not viable, just as a foreign owned private company would. The same holds for jobs and offshoring. Do we really think Alan Joyce would deliberately keep jobs in Australia if it could be done cheaper overseas? Would he maintain a regional route that is unprofitable? (More importantly, should he? Of course not. That's how companies go bankrupt / get nationalised.)

The role governments can play, if it is deemed to be important, is to subsidise unviable regional routes by way of a reverse auction. 

spinoza, please do explain what reverse auction entails.

I find the most laughable reason being that Qantas flies distressed Australians home. It is not only moronic but quite scary given that the politicians who say these things actually have the power to affect our lives...

Wikipedia's explanation: "A reverse auction is a type of auction in which the roles of buyer and seller are reversed. In an ordinary auction (also known as a forward auction), buyers compete to obtain a good or service by offering increasingly higher prices. In a reverse auction, the sellers compete to obtain business from the buyer and prices will typically decrease as the sellers undercut each other."

This is exactly how Transport for London has revolutionised the bus route tendering process. People always think, if something is not profitable, there is no market based solution. Rubbish.

For example, if Sydney to Dubbo is not profitable but deemed crucial for the national interest, the government will ask for tenders from airlines to bid the amount of sudsidy they require per flight. The government can set the ticket price and minimum standard of quality. The winner is obligated to operate that route for say 5 years. Whichever airline bids the lowest subsidy wins, and they can have a monopoly on that route. Consumers are protected, and airlines have to be competitive - market forces have created the most economically efficient outcome.

That is precisely what the New South Wales Government is doing with bus contracts in Sydney. Generally speaking, I am in favour of the reverse auction based on the condition that the routes being contracted as such are neither profitable nor cancellable.

This is a good system for regional air links that cannot be severed but which are unprofitable to operate. A better example would be Sydney to Moree, recently subject to the Brindabella collapse crisis. The next-nearest airport is in Tamworth, some three hours away by road.

I probably wouldn't use Dubbo as my example, given that Sydney to Dubbo is actually being upgauged to a Q400.

That said, it doesn't work so well for strong routes with heavy ridership, because it encourages competition by cost-cutting rather than competition by product improvement; on top of that, it generates monopoly routes. So while it's a great idea for Moree, it's a terrible idea for Melbourne.

Companies who go in with a lower subsidy request, do so to get in at the expense of short term profits. They expect to make losses on the contract so as to gain something favourable in the long term. What can be dangled to them to make the reverse auction system work?

Presumably if there is nothing else to gain and there is no prospect that the tendered route will ever be profitable then you will have poor tender outcomes?

However isn't the premise of regional airlinks such that these regions are fed into the major trunk routes from hubs. Would that still be possible if you had one airline operating trunk and another regional routes? Can the state force them to interline?

This also works on the assumption that you have many players in the field. The high value of investment required to run airlines make this even less plausible.

The system that the NSW Government is applying for bus region contracts works something like this: the government sets the service standards and specifications in some document and then sources bids from bus operators.

Then, the operators do their cost predictions based on their own operational statistics and come up with a price tag to submit to the government as their bid.

The government then selects a winner (I believe but am not certain that this winner is the lowest bidder) and that winner is paid by the government to operate the contracted services, subject to service standard minutiae.

So, assuming the service is delivered properly, the operator is paid the agreed amount by the government while all revenue goes to the government. The operational profit/loss is handled by the government; to retain "profitability" of the contract, the operator just has to make sure they meet the requirements without their costs going over their "budget" paid out by the government.

It works for buses.

TfL started doing this in 2005 and was criticised from groups who said it would lead to a massive drop in standards. That did not materialise, partly because there were performance bonuses for being on time, for cleanliness, etc.

TRB, not sure why you think they would just bid low enough to make a loss. What you described is what some companies do in some circumstances. In this scenario, everything was 5 year terms, and generally costs are relatively stable within 5 years, and so you just add a margin to your costs. So whoever had the lowest margin and lowest costs would always win the contract. 

Spinoza reverse auction or possitive action.

There's no reason why they shouldn't given it's still a private company trying to make a profit whether its Australian owned or not. All the hype is just the Labour Party keeping the unions on side.

I think Qantas is a good example to bear in mind whenever we get tempted to get on our moral high horse and lament the opaque business practices in Asia.

I kept thinking of that film Strictly Ballroom as I'm typing this out. LOL!

What's so opaque about business practices in Asia? Everybody knows what's happening under the table...