OK, let’s talk about Qantas

Local media attention this week has been dominated by the Australia-based airline Qantas, where a string of bad news stories – most notably the allegation that it had continued selling tickets for flights after they had been cancelled – have forced its long-serving CEO Alan Joyce to bring forward the date of his retirement by a couple of months. The Albanese government has also been caught up in the mess, having rejected an application for additional landing rights by Qatar Airways, apparently to protect Qantas’s business interests.

Two points seem worth making here. The first is in relation to privatisation, and to the argument frequently heard that Qantas’s predatory behavior stems from its sale by the government in the 1990s.

This is at best a half-truth. The primary problem with Qantas is that it doesn’t behave like an ordinary private business; it behaves like a government monopoly. Its ownership may have changed, but its culture has not. Or rather, to the extent that it has, it has gotten worse: the pursuit of profit has been grafted on to its pre-existing disdain for its customers.

Politicians and bureaucrats clearly still think of Qantas at some level as “Australia’s” airline, and see part of their job as defending its interests. And as a nominally private business, Qantas can quite probably lobby more effectively than it could when it was government-owned. This is one of the pitfalls of privatisation: the way government works means that policy can sometimes be more effectively hijacked from outside than from inside.

Another pitfall, and one often remarked on, is that many of the privatisations of that era were designed more to raise money than to improve competitiveness. It would have been better for consumers if monopolies had been first been broken up or anti-competitive practices had been outlawed, but that would have reduced the sale price. (Telstra is an even more obvious example of this problem.)

Nonetheless, the fundamental problem isn’t too much privatisation, but not enough. The relationship between Qantas and government needs to be made more distant, not closer.

The second point is about business regulation. The corporate regulator, the Australian Competition and Consumer Commission (ACCC), is pursuing Qantas for “false, misleading or deceptive conduct,” and is seeking fines of the order of $250 million. While that’s a large number, it amounts to only about 1% 10% of Qantas’s annual profit, so its deterrent value even at the corporate level must be questionable.

More to the point, it locates the deterrence at the wrong place. Knowingly selling tickets for non-existent flights – if that indeed is what Qantas did; like any defendant it is entitled to the presumption of innocence – is not just a regulatory breach: it is fraud. The relevant section of the Crimes Act in Victoria, for example, provides for a penalty of up to ten years imprisonment for “a person who by any deception dishonestly obtains for himself or another any financial advantage” (there are similar provisions in other states).

My view, which I’ve expressed here before, is that Australia (like most western countries) has gone the wrong way on business regulation, with matters largely taken out of the hands of the ordinary criminal law and given to special rules and agencies that are mostly limited to financial penalties. And even those, although they can be substantial, do not fall personally on the responsible individuals. They are paid by the company, so the burden falls on the shareholders – who, by the same regulatory schemes, have been mostly shut out from influence on the company’s decisions.

The Qantas shenanigans would be a good opportunity to try a different strategy. Put proper resources into the hands of police investigators, prosecute alleged wrongdoing as the ordinary but serious crime that it is, and if perpetrators are convicted, send them to jail.

Convictions might not be easy to obtain. But it wouldn’t be necessary to obtain very many; while a regulatory scheme depends on trying to directly prevent or detect breaches of the rules, the criminal law depends on deterrence. If senior corporate executives know that they are risking a long prison sentence (even if the risk is not terribly high), it will greatly change their incentives.

Of course it won’t happen. Our justice system is based on the idea that, barring truly exceptional cases, only certain sorts of people go to jail, and Qantas executives are not those sorts of people. But try selling a non-existent product as a door-to-door scam defrauding little old ladies out of their money and see what happens to you.

Instead, the ACCC will continue to play whack-a-mole with dodgy corporate conduct, miscreants who get caught will pay their fines with other people’s money, and the consumers will lose out all along the line.