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26 September 2010

Spring day in Victoria

I had been looking forward to the cycling taking centre stage, with the arrival of some of this sport's top names arriving in Melbourne for the UCI World Championships taking place next weekend in Geelong (70km drive from Melbourne). In case you haven't heard though, the cycling has been up-staged - by Australian Rules Football! The AFL Grand Final was played yesterday, but finished in a DRAW! The rules of the game do not allow extra time, or a golden goal - and therefore next weekend Melbourne will first and foremost host the replay of the AFL Grand Final - and the cycling will unfortunately play second fiddle. (Aside - AFL is Melbourne's ultimate sporting extravaganza, and nothing in Melbourne can up-stage the AFL Grand Final, attended by a capacity MCG crowd (100,000 spectators in the stadium), and at least three live sites in the city one for each team's supporters and one that is non-partisan.) The head of World Road Cycling Championships, is reported to have "felt sick" once the status of the match became apparent.

However after yesterday's surprise draw, a quick morning bike ride (60km to Mordialloc along Beach Road), today we made our way to Buninyong, just outside Ballarat, for the holding of the Sun World Cycling Classic 2010. It was the first really warm day in Victoria after the winter, and the field had some of the top names in cycling (including Phil Liggett commentating) preparing for the UCI World Champs next week. We watched the riders complete seven laps, before the sprint to the finish line. The winner was Italian Filippo Pozzato, Cancellara finishing fourth.

19 September 2010

Sailing Zardos

I try and sail every Saturday afternoon - what does this involve?

I am a member at the Royal Brighton Yacht Club, in the southern Melbourne suburbs. It is located on the coast of Port Phillip Bay, and that is also where we sail our races. I am part of a group / team of five crew who sail regularly: Alfredo, Alan, Chris and our skipper Barry are the other team members. Barry also owns Zardos, an S80 class boat. We can sail it with 3, 4 or 5 crew - 4 probably being the best configuration.

Most of our races are pursuits which involve a handicap start i.e. the fastest boats start last - these have the highest time penalty. This means that line honours typically also determine the overall placing in a race. The exception is boats which fly extras (spinaker), which are given a further time penalty, as a percentage of their overall race elapsed time - these are computed after the race, and may change the final line honour placings. Our current handicap for Saturday afternoon racing is 15 minutes - the highest that its ever been i.e. in the eyes of those that determined the handicaps, we are sailing better now than ever before. The results for the winter season are published on the RBYC web site - these include the entrants each week and their handicaps, the results of the race, and the season standings.

We are currently lying in fourth place, but only one behind the third placed boat - that will make next week's last race of the season quite exciting. There are two other S80 class boats at our club, namely San Rafael and Hot Shot - so these are the ones we like to compare ourselves against!

As I'm mostly on the boat without a camera, pictures of our sailing are in short supply, but I'll try and get a couple more to post on my flickr page.

15 September 2010

The logic of airline regulation

A part of my job, I look at regulatory issues quite a bit from a financial services standpoint, and understand that regulators, mandated by governments, need to keep certain "free market" businesses in check in the interests of the customer in the longer term. (See discussion of the new Basel Accord changes on soon).

Recentely, however, I was struck by the logic behind the regulation of another industry - the international airlines. Long gone are the days (in most countries) where the country's flag carrying airline had the local business to itself and was actively protected from competition on routes to and from its home country - the industry has seen deregulation, resulting in fares which make flying the cheapest form on travel in most cases. However international routes are still the subject of regulation by regulators of each of the countries which the route aims to connect. Whilst safety is the overriding concern behind the licensing of airlines, customer conevience (frequency of routes, availability) and price are purported to be the prime reasons behind the regulatory approvals of routes and the airlines who want to fly them. "Purported", because from the recent events I have to conclude that the customer convenience cannot be the only factor driving the regualtor decisions.

Example 1:
Eighteen months ago, a second Australia registered carrier (Virgin, flying as V Australia) started flying the route between Australia and the US. Regulatory approval was obtained for both Virgin, and Delta, the second US carrier wanting to operate the route - this was in the interests of the passenger, as it would provide more competition to the two incument airlines, Qantas and United. A year later Virgin and Delta applied for permission to "legally collude", or, as it's euphemistically put, cooperate on the route. The regulator in Australia approved the collusion, whereas the regulator in the US denied this. This is the first inconsistency, since the interests of the customer should be the same, so why are the regulators providing inconsistent decisions? Perhaps there is a national interest issue as well, and the Australian regulator was trying to protect Australia's second airline from further US competition? Anyway: strike one against Virgin.

Example 2:
Trans-Tasman route is predominantly operated by Qantas, Air New Zealand and Virgin. Emirates also extends some of its flights to Australia to fly onto New Zealand, however its role on this route is secondary. Virgin and Air New Zealand applied to collude on the route, and this was denied by the Australian regulator: strike two against Virgin.

Example 3:
Virgin started flying to Johannesburg in South Africa in March of this year. These flights originated in Melbourne, but were nontheless competition to Qantas, whose flights to Johannesburg originate in Sydney, and South Africa's carrier which flies from Perth. Interestingly Qantas and SA legally collude on these routes and sell seats on each others' aircraft, so from a fare point of view, Qantas offer flights from Sydney and Perth. Virgin had some impact on the route pricing, since they launched fares which were lower than the incumbents, however it is interesting to note that fares to Johannesburg are still at least 30% dearer than those to Los Angeles (comparable distance flown, MEL-JNB: $1480, MEL-LAX: $1149), now there is probably an economy of scale which contributes somewhat to this differential, but interesting stat nonetheless. More interesting though is that earlier this year when the Qantas / SA collusion came up for review, the Australian regualor ruled to renew it for a further period: strike three against Virgin, but also, in my view to the detriment of lower fares on the route, and therefore the customer. Eventhough Qantas, in its representation in lobbying for the extension of the collusion with SA, referred to Virgin as the new formidable competitor on the route, it was but a few months later that Virgin announced its withdrawal from the route citing profitability issues. In fact it must have been their load factors which were abysmal, with fares 30% higher than other similar routes, it should have been profitable.

Now the regulatory deicisions cited in the first two examples caused some ire in the Virgin group, causing Branson to "bleat" that its unfair! (No sympathy from me on that front). However taking the third example into the mix as well, one has to wonder when looking at these from the other perspective:
Example 1 - ruling in favour of Qantas
Example 2 - ruling in favour of Qantas
Example 3 - ruling in favour of Qantas - Excuse me for being a bit sceptical and at least suspecting that there might be a slight possibility of conspiracy in favour of one of Australia's national icons - but where does that leave the customer!?

In the interests of transparency, I have to declare that: 1) my interest in the airline idustry is purely as a layman, and I don't have any professional interest or expertise in evaluating them, or their regulation; 2) I have a reputation of supporting the underdog in sport and business, and typically do not like fat and happy incumbent businesses; 3) I fly between Melbourne and Johannesburg at least twice a year, and enjoyed the extra competition, and the direct nature of Virgin's route while it lasted, and was filthy when they decided to withdraw it!

09 September 2010

And we finally have .... a new government!

Parliament House CanberraWell not quite, but at least there is some finality on who is responsible for forming Australia's next government.

The pre-occupation of some, we are led to believe, over the last two weeks has been how to resolve a 'dead-heat' result delivered by Australia's voters, with each of the major 'party groupings' having the same number of seats in the lower house. The final say was left to three independents from regional / rural areas of Australia, who normally would have absolutely no influence on the politics of the day - a change, which will hopefully add a bit of spice to an otherwise very bland political landscape.

In my view, the results show that there was very little policy distinction to differentiate the two major parties, and voters probably had an equal dislike for both of the leaders in terms of personalities, or prime minister material potenital. However the ALP (Labor Party) got the luck of the draw with the one distinction that there was - the NBN (for the non-Australian readers, this is the National Broadband Network).

The ALP has a very ambitious and costly ($43bn) plan to roll out a new fibre network to 93% of the population. The Liberal / National coalition on the other hand has a modest $6bn plan which leverages the existing infrastructure, supplemented by some new infrastucture and mobile technology. The distinction is 100gbit vs 12gbit base speeds, and, with the Liberal option, the country areas will most probably have to continue to rely on mobile i.e. second best - again. With the decision on who will govern left with three regional / rural MPs, its no surprise to me that they went with the party that promised new infrastructure in their areas. Oh, yes and there were additional top-up sweeteners, once the "dead-heat" became apparent.

The question is whether new, ground-breaking infrastructure deployment is best left to the private sector, or whether it should involve government. There is a question around economies of scale, where business will never, on its own, invest if it cannot guarantee sufficient demand to get a reasonable return on its investment. Moreover the return should materialise in a foreseeable period. Consequently, if left to business alone, most countries would probably not have the rail infrastructure that they have today, and similarly country Australia would probably not get broadband except via satelite (on a clear day) or mobile, slower technology.

It is true though that there is an element of "build it and they will come". A new railroad makes establishment of new settlements feasible, and I suspect broadband in country areas will facillitate new uses, which may yet obviate the cross-subsidisation of the new infrasstructure by metropolitan area tax payers. As no one likes paying taxes, this is controversial, but may at least lead to a a lasting legacy for the future.

PS: Having just returned from a break outside of a metropolitan area, I witnessed first hand why infrastructure left to the private sector alone is unsatisfactory. In terms of mobile telephony, city dwellers like me have a choice of three or four suppliers, in the country they have one - Telstra; and I wonder if they would have that if Telstra were not once a wholy-owned government entity.

08 September 2010

Blog revamp!

After an absence of almost two years, I am planning to revive my blog! There are things that cannot be said in a tweet or that don't belong on facebook, and at the moment this blog is the best place for me to have a say!

I am sticking with the name for now, since I still live in Melbourne, although it will probably not be that meaningful for some.