Articles

The Way We Think About Competition Isn’t Helping Us.

Listening to the debate on the potential acquisition of a majority shareholding in Tiger Airways by Virgin Australia and the ACCC mulling over the matter, has signalled once again the point in the cycle of competition in the domestic airline industry of inevitable consolidation.

We seem in this country to continually fail to recognise that the population is one third of the size of the United Kingdom. We learned nothing from Compass – One and Two – nor the demise of Ansett. We have also failed to learn the fundamental lessons of global competition.

If we stay with the airline analogy, the United States went from six major domestic airlines prior to de-regulation in 1978 to three. And all three of those surviving airlines have filed for bankruptcy at least once since 2000. In a country with a population of over 380 million people.

The universal truth is this – nobody in any geography in the world wants to pay one red cent more for anything than the cheapest price they can possibly get the product or service for. And in some cases that will mean free because there will always be some idiot who will be able to rationalise free as a loss leader promotion.

The theory of competition is that it should bring diversity, differentiation, increased service and low cost as competitors strive to win your custom. The reality is that unrestrained competition commoditises everything as price subjugates all other considerations. Including sustainability. If the joy of travel is totally eradicated and airline travel eroded to the level of a bad bus trip in the sky, the service is eliminated and the price is so conditional that it causes un-necessary stress, what is the point if the operator goes belly up anyway? Nobody wins except the lawyers and the bankers who pick over the remains of the carcass.

In Australian retail with a population size that cannot in any way, shape or form be described as a volume market, compounded with massive distribution issues, unrestrained competitive forces which deteriorate into cheapest price eradicate whole sections of the supply chain and create huge long term impacts on the domestic economy.

Competition should always be viewed in context. That context must take into consideration the short and long-term impacts, not only to the specific category but also to the economy as a whole.

Every area of Australian retail is over-competed not, as many media commentators would have you believe, under-competed. Relative to the population size and the dynamics of the domestic economy, Australia is well serviced if not well served. And with the online dynamic, we as consumers have access to just about everything we could possibly need or want at globally competitive prices.

What we need to start thinking about and lobbying for is a regulatory and legislative environment that fosters healthy domestic competition and stimulates globally competitive, globally differentiated exports in a way that sustains long-term growth. That is diametrically opposed to what is the current way of thinking.