Cheaper flights exist, but Qantas wins from consumer apathy

Consumer apathy means Alan Joyce is able to seamlessly manage capacity and prices.

Qantas boss Alan Joyce has brilliantly exploited his market power to boost forecast profits by a factor of three times estimates to $1.4bn this financial year, underlining the need for more regulatory scrutiny.

It is possible to find cheaper flights than Qantas offers but consumer apathy, bred by brand and market power, means Joyce is able to seamlessly manage capacity and prices.

A quick look on Thursday at Melbourne to Sydney fares this weekend showed REX offers outbound flights 14 per cent below the cheapest Qantas fare at $466, and a massive 42 per cent discount on the return leg.

Granted these fares were for travel at 7am but they show if you are prepared to look and be flexible you can save money.

It seems people don’t — which means Joyce is able to manage capacity to overcome the fact that his fuel bill, at $5bn in 2023, will be five times that in 2019 and still report an estimated free cash flow of $952m this year against minus $987m in 2021 after positing positive $2.5bn cash flow last year.

Managing capacity is the key because if you put on too much you have to cut prices to fill the planes.

Performances like this should guarantee that come early next year, when the ACCC finally concludes its investigation into the Alliance Airline acquisition, the answer will be in the negative.

But in the meantime the clear evidence of market failure in the three-player aviation market surely demands more consumer protection intervention, to ensure Qantas responds with at least basic customer service compensating customers for cancelled flights and long wait times.

UK and European regulators have tried to hold their airlines accountable but the ACCC is still watching.

In principle, competition is meant to provide the solutions but in this market the Qantas stranglehold is just too strong.

Decisions are pending in government on ways to lower barriers to competition — like opening airport slots at the right time to help Bonza and Rex — but competition policy takes time.

BlueScope judgement day

Finally judgement day looms in the ACCC-Bluescope case with Justice Michael O’Bryan poised to hand down his decision on December 9.

The attempting price fixing case is of some note because the alleged perpetrator was Jason Ellis, who is the son of former BHP chair Jerry Ellis — and more to the point, reported at the time to Mark Vassella, who now runs the company and reported to then boss Paul O’Malley who is now chair of the CBA.

The case is a classic battle between big and small business, with BlueScope alleged to have used the threat of dumping action against imports in an attempt to induce steel distributors to follow its price schedule.

In 2020 Ellis pleaded guilty to inciting two fellow BlueScope employees to give false information and evidence to the ACCC regarding discussions he and those BlueScope employees had in meetings with some steel companies.

Bluescope rejects all allegations.

Sage strategist

After 16 years attempting to rein in supermarket giants Woolworths and Coles, Jos de Bruin will have over the reins at the Master Growers Association to former Australian Dairy Farmers boss David Inall.

A sage strategist over many years, de Bruin has been a legendary small business champion.

Fittingly, guest speakers at Friday’s annual meeting in Melbourne were ACCC boss Gina Cass-Gottlieb and Metcash boss Doug Jones.

Decarbonisation dollars

Across the decarbonising spectrum — from shutting power plants to generating soil carbon and preserving natural capital — the issue is not a lack of money but the projects to develop.

There is more money than projects and that gap has attracted many players including former BHP CFO Peter Beaven, who is working with Skipp Williamson at management consultant Partners in Performance and a range of infrastructure funds focusing on the resources sector to deliver decarbonising projects.

BHP's CFO, Peter Beaven in Melbourne. Picture: David Geraghty

In theory Beaven’s team approach a miner, talk with them about their problem, then deliver the project — and in a couple of years the mine manager switches onto renewable power and electrified autonomous vehicles and the old coal fired power station is redundant.

That is theory; the real hold-up is in planning and execution

At GreenCollar James Schultz’s team is focused on how to put a value on nature, to overcome a history which saw 7.7 million hectares of threatened species habitat destroyed in the first 17 years of this century.

The government wants to boost biodiversity by granting a certificate which would be attached to a carbon credit unit to enhance its value, but GreenCollar thinks the problem is such it demands a stand-alone credit for each hectare of habitat improved.

Accounting for Nature measures overall condition — so a koala doesn’t get more points than a bandicoot, it’s the overall condition of the land that counts.

This means soils, native vegetation, wildlife, rivers and marine environment, with the key being the trend over time.

Brookfield is keen to invest in Australia and sees Origin as a platform through which this is done.

Nationwide there is an issue in planning processes and finally project execution.

GreenCollar’s Nature Credit units aim to shift the investment from no net loss to net positive outcomes, to actively work to reverse the loss of nature rather than offsetting the destruction.

Rich Gilmore from Carbon Growth Partners is investing $2m in a Senegal waste project in which waste will be diverted from 10 sites and processed into organic compost.

This reduces methane emissions and can be used as a lower-cost, environmentally friendly alternative to chemical fertilisers.

Gilmore’s contribution in part is to help the Senegal government avoid the problem of sovereign green investments, which come with an arm’s length of conditions.

GreenCollar’s Schultz noted in a recent speech at the Carbon Market Institute that “legislating to stop something is failing to solve the real problem, which is a failure to properly value the environment and the services it provides in the first place.”

He noted that in 2021 the federal government budget for the environment was $486m, against the value of the agricultural industry in Australia at $70bn a year.

“If we are to solve the loss of nature we need to be thinking of ways to lift the value of ecosystem services on par with the value of other parts of the economy like agriculture,” he said.

“The solution can only be to properly incentivise private landholders to provide the services we need to protect and preserve environmentally significant lands – habitat, vegetation and wildlife – and to increase our natural carbon sinks.”

The environment, he said “is now being compensated for its services – by being preserved and by having carbon removed from the atmosphere.”

But “until we are prepared to put a value on the ecosystems services of carbon and biodiversity commensurate with the value of other parts of the economy such as food production and mining – the environment will always lose,” Schultz said.

“So long as our environment has less value than other parts of the economy, we are on the wrong trajectory,” he added.

Schultz argues putting a value on the problem is the start to finding a solution.

Until business realises that tearing down a forest is value destructive it will keep ripping them down.

Better for business to know the cost and to build that into the project returns.

Carbon credits are not the answer to stay in business polluting.