The Real Compass

The bold Australian experiment

When the two-airline policy was abolished in late 1990, Bryan Grey — formerly of Ansett, Air Niugini, and East-West Airlines — moved quickly. Compass Airlines (sometimes referred to retrospectively as "Compass Mk I") launched on 1 December 1990 with three leased Airbus A300s, a fares structure that meaningfully undercut Ansett and Australian Airlines, and a clear intent to break the long-standing duopoly that had defined Australian aviation.

It worked, briefly and spectacularly. Compass loaded planes the incumbents couldn't match, took market share quickly, and proved that low-fare operations could work on Australia's domestic trunk routes.

But the incumbents responded, fleet decisions and capital structure took their toll, and Compass entered administration in December 1991 — barely a year after launch. Several factors contributed:

• Ruthless competition and fare-discounting from both of the established incumbents, who matched Compass's fares aggressively despite the cost to their own operations.
• No air freight operation — Compass did not take advantage of the cargo capacity of its widebody fleet, foregoing a significant revenue stream that more established carriers used to subsidise passenger operations.
• Terminal access — at most airports Compass operated from, terminal space was shared with the then Australian Airlines (now part of Qantas), whose management ensured Compass was not allowed to compete on a level playing field.
• The unpaid air navigation charges — the final blow was legal action by the Federal Government over unpaid air navigation charges, with liens asserted over Compass aircraft immediately prior to Christmas 1991. Lessors paid the debt to the government under protest to clear the liens, then repossessed their aircraft, bringing the operation to a halt.

Compass management argued that the operation was just becoming viable, and that trading through the lucrative Christmas period would have allowed the airline to service the debt to the government. The legality of the government's actions was not finally settled — in the government's favour — until 1999, in the High Court of Australia.

The second iteration

A second airline, Southern Cross Airlines, started operations in 1992 under different ownership and management. It adopted the Compass name (giving rise to the retrospective "Compass Mk II" designation), apparently believing the brand carried significant residual public goodwill. The decision proved to be a significant commercial miscalculation.

Suppliers, conscious of what had happened the first time, demanded payment up front and outright purchase of equipment rather than leasing. The two major carriers again applied competitive pressure through discounting, and their existing terminal leases were used to their best corporate advantage. Facilities for Compass Mk II passengers were often spartan — in Adelaide, for example, an old maintenance hangar served as the Compass terminal. Operating an MD-82 and MD-83 fleet, Compass Mk II was constrained by cash flow from the start, and failed in March 1993.

The chairman of Southern Cross was later convicted of corporate fraud over the collapse, and received a ten-year jail sentence.

What Compass meant

Compass's commercial life was short, but its impact wasn't. It broke the duopoly mindset that had constrained Australian aviation for decades. It established that a low-fare, full-service alternative was viable in principle, even if Compass itself didn't survive long enough to prove it sustainable.

After the failure of Compass Mk II, it was nearly a further ten years before any new entrant appeared on the Australian domestic scene — the arrival of Virgin Blue as a start-up in 2000, and the expansion of regional carrier Impulse into trunk routes, with its subsequent absorption into Qantas and metamorphosis into Jetstar by 2004. The path Compass cleared made all of that possible in ways that simply wouldn't have happened without Compass first.

That's why we honour the name.