According to information in the most recent annual reports, Qantas's costs (defined on a cents-per-available-seat kilometre basis) are 14 per cent higher than Singapore’s; 25 per cent higher than Air New Zealand’s; and 49 per cent higher than Emirates. (These figures haven’t been adjusted for differences in average sector lengths.) At the back of the plane, where price is the only thing that matters, a cost advantage is critical. Qantas simply cannot profitably compete for this growing segment of passengers. Strong growth motivations The second reason why Qantas can’t compete with these airlines is that the government-owned airlines are motivated to grow the number of seats they operate at two to four times the rate at which Qantas is motivated to grow its seats. What is behind this stronger motivation? The return that government-owned airlines see when making their seat decisions is the return they get from the airline and from the tourists they bring into Singapore, Dubai, and Auckland. The return that Qantas sees is just the return it gets from the airline.

(Air New Zealand, to be fair, is less likely to be influenced by the return from tourists than is Singapore Airlines, and both are less concerned about tourism numbers than Emirates.) Over the most recent financial year, Qantas earned around $10 per passenger; Singapore Airlines $60; Emirates $47; and Air New Zealand $39. The economies of Dubai, Singapore and Auckland, however, stand to gain around $200 per day for each Aussie tourist that they bring into the country. And if those Aussies stay on average 19 nights they stand to gain around $4000 per tourist. Government-owned airlines see a potential return of around $4050 when contemplating increasing the seats they fly while Qantas sees just $10. Nationalisation of Qantas International

What does Qantas need to do to compete against these airlines? If the Australian government is not willing or able to provide support, they should split out the international business and sell it to the government. Under government ownership, the new international business will "internalise" the considerable benefits associated with inbound tourism. They will significantly increase the number of seats added to the market and the number of ports to which they fly, including ports that they gave up on under private ownership, such as Rome, Paris, Zurich and Mumbai. To protect domestic tourism, the new airline would quarantine a certain number of seats for travel by foreign residents to Australia, setting average airfares at much lower levels for foreigners. This is not a new strategy – it happens now. For example, a one-way flight booked on October 13, at 9.17pm on BA flight 7372 for travel from London Heathrow to Sydney on October 30 costs an adult economy passenger booking from the UK 724 pounds or $1149. Conversely, an adult economy passenger booking at the same time from Australia on exactly the same flight has to pay $1428.

The new Qantas International would not contemplate a start-up business in Asia. Engineering, pilots, cabin crew and ground handling jobs in Australia would be saved. The major source of antagonism in the current conflict between Qantas and the unions is the large-scale shift of jobs offshore – this wouldn’t be an issue under nationalisation. Teaming up with Tourism Australia The new Qantas International would team up with Tourism Australia to market Australia to the rest of the world rather than adopting strategies that are not as in sync as they are under private ownership. Tourism Australia could help the new Qantas in shaping strategies to direct more capacity to routes where the inbound tourism benefits are currently greatest, and to those routes where there is greatest promise for strong tourism growth. They could also help in ensuring that the benefits are shared equally around Australia, with more of the growth in capacity allocated to regions where tourism is a bigger share of regional income and job creation, such as Cairns.

Other Australian carriers Of course, Qantas is not the only Australian-domiciled carrier that flies international Australian services. These carriers will need to be supported so that they are not unfairly impacted. It’s not unusual for privately-owned carriers to compete alongside government-owned carriers. The Air-Asia brand does precisely this in Indonesia, Malaysia and Thailand, while Jetstar Asia does the same in Singapore. Loading A plan to nationalise Qantas is a little pie in the sky, and the government's modus operandi in recent times is to sell not buy assets, but Qantas International’s problems run so deep that all options should be on the table. Let’s consider them all.

Tony Webber was Qantas Group general manager microeconomics and then chief economist between 2004 and April 2011. He is now managing director of Webber Quantitative Consulting, and contributed this article to BusinessDay.