Date of this Version
Australia's domestic airline markets became deregulated on November 1, 1990. A sole new entrant, Compass Airlines, first flew passengers a month later. A little over one year later, Compass was grounded by its creditors, on December 19, 1991. Compass management (and much of public opinion) blamed the Government, and the Government (and the incumbent airlines) blamed Compass management, for the opportunities lost. But all parties probably now agree that there have been important lessons leamed for the benefit of the new era of airline competition that is now beginning.
This paper first considers events which occurred preceding deregulation which had major impact on the competitiveness of Compass Airlines. It subsequently outlines the vigorous price competition of 1991 and the increase in service quality that was fostered by the more competitve environment.After considering the theory of the optimal competitive strategy, the paper then examines the demise of Compass Airlines in terms of management's failure to single-mindedly pursue its optimal strategy. It concludes that despite the allegedly inappropriate actions and inactions of the Government, its agencies, and the rival airlines, Compass failed because it failed to define and pursue without distraction a clearly-articulated competitive strategy. In particular, Compass pursued suboptimal pricing strategies.