How airlines leave passengers exposed

It seems bizarre that, in spite of the introduction of excellent consumer law reforms in the past decade by governments of both colours, there was nothing in place last week specifically to deal with the collapse of Air Australia.

Both the former Howard Liberal government and the current Labor administration had the Ansett disaster in their rearvision mirrors but couldn’t guarantee protection of retail travel buyers from the collapse of a minnow in the air transport business, which reportedly stranded up to 4000 people when Air Australia stopped flying on Friday.

People are protected if they buy travel packs (but not airfares only) from travel agents through the industry’s voluntary and highly successful Travel Compensation Fund (TCF).

There are also market mechanisms that protect consumers if they buy a product that with a credit card that is not delivered by a supplier.

Through either of those circumstances, many who paid for tickets with Air Australia that haven’t been used will get their money back. But that’s cold comfort for hundreds of people who have had to finance their own way home after being stranded in Air Australia’s overseas destinations, Bali, Phuket and Hawaii.

But it is bitterly ironic that the Australian government, which regards travellers as cash cows and slugs them with the biggest departure tax outside Europe – our $47 goodbye exceeded only by the UK’s recent, outrageous $125 Air Passenger Duty for long-haul travellers from Australia, and Germany’s new $55 “eco-tax”  for long-haul travellers – had not even contemplated even the most basic consumer protection against an airline collapse.

The government’s 2009 Aviation White Paper dealt extensively with consumer protection, but only in terms of outlawing bad behaviour, in particular lying about pricing. As a result of more than five years’ work, the 2010 Competition and Consumer Act, which replaced the Trade Practices Act, makes it illegal for airlines to fudge the price of fares or for car hire companies to avoid declaring add-ons they previously used to hide components that effectively doubled a rental charge.

A decade ago, virtually all travel consumers were protected by the TCF, as the vast majority used travel agents; until then, the only risk was using a dodgy agent that wasn’t a member of the scheme.

But now the airline industry – low-cost carriers like Air Australia, in particular – encourage consumers to deal direct with them via the internet because it massively reduces their costs. Only a minority of travellers these days buy simple point-to-point travel through an agent.

I have no doubt the Australian travel agent industry will get a psychological boost from the Air Australia case: travellers may need reminding that only agents can protect them under some circumstances if an airline goes belly-up.

The fact that this airline has faced constant white-anting since it transformed its former charter model to begin regular passenger transport (RPT) last year is of no consequences to punters who have lost their money.

About three months ago, a travel insurer pre-emptively announced that it would not provide consumer cover for Air Australia passengers, a self-fulfilling confidence killer that began affecting sales.

Up until last week, the company’s charter arm was tendering for a fiercely contested, large mining contract and Air Australia principal Michael James is thought to have had several corporate enemies as a result of more than a decade in the charter business.

The bottom line, however, is that he ran out of money in a failure which will poison the water for independent airlines for years to come and make it virtually impossible for them to gain public trust. What we’ve got now – Qantas, Virgin and a struggling Tiger – is probably the best we can hope for before 2020.

It’s not as if it couldn’t have been anticipated: the airline industry is the most competitive on earth and has the slenderest margins and the Australian landscape is littered with wreckage, from Compass Mark I in 1991, to Compass Mark II three years later, Ansett in 2001, the near-collapse of Impulse in the same year before it was sold to Qantas and a litany of failures among the regional airlines since then.

But don’t look to the airline industry to put together a voluntary guarantee like the TCF. There is little that unites the industry under the Board of Australian Airline Representatives (BARA), but unless BARA acts to put together a consumer insurance plan, it may be years before we get a universal scheme and one imposed by government would inevitably be more expensive than a voluntary TCF-style exercise.

Have you been affected by the Air Australia collapse? Were you put off by rumours about the company? If you got burned, will you still take a trip you planned with Air Australia? Do you think this means the end of independent airlines in Australia?