Yahoo Finance Qantas and Virgin given little incentive to cheapen air fares, watchdog warns
Australian aviation is at a “critical juncture”, with policy shortcomings allowing for a duopoly marked by higher air fares and poorer service, the consumer watchdog warns, as it loses extra resources to scrutinise the sector.
Qantas Group – including budget carrier Jetstar – and Virgin Australia have carried 90% of domestic passengers over the past two decades, and as many as 94% in April this year, according to the Australian Competition and Consumer Commission’s quarterly domestic aviation monitoring report released on Monday, the final edition of the three-year task.
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Average revenue per passenger – while down from last December’s record air fare peak – remains just above pre-pandemic figures even when adjusted for inflation, but the number of passengers and seats flown by airlines hovers just under 2019 levels.
ACCC chair Gina Cass-Gottlieb noted the high market concentration in Australian aviation is rivalled only by natural monopolies such as electricity grids and rail networks.
Related: Why Australians are paying 50% more for air fares than pre-pandemic even as jet fuel costs drop
“Without a real threat of losing passengers to other airlines, the Qantas and Virgin Australia airline groups have had less incentive to offer attractive airfares, develop more direct routes, operate more reliable services, and invest in systems to provide high levels of customer service,” Cass-Gottlieb said.
Cass-Gottlieb’s comments echo the alarm sounded by her predecessor, Rod Sims, and Australian Airports Association chief James Goodwin in the Guardian last week about the need for an ongoing investigation of the aviation industry, with the latter declaring Australians “are paying too much for airline tickets” as carriers are slow to pass on the almost halving of the cost of jetfuel and labour-force savings to consumers.
Smaller airlines hampered by slot hoarding
While regional carrier Rex’s expansion to run larger jets between capital cities, and the entrance of budget airline Bonza, have been positive developments in recent years, Cass-Gottlieb said a range of legislative barriers are preventing these smaller operators from providing “meaningful competition”.
Chief among the barriers flagged by Cass-Gottlieb is the allocation of slots specifically at Sydney airport, where legislation caps the number of take-offs and landings.
A chorus of voices – including Sims, Rex, Bonza and a 2021 government review – have claimed the current system benefits larger and existing operators, as they can schedule more flights than they intend to run and selectively cancel them to still meet the “use it or lose it” rule to retain the slot and prevent competitors from introducing a rival service, dubbed slot hoarding.
Cass-Gottlieb noted cancellations were increasing across the country, but that performance on routes in and out of Sydney “continues to be especially poor” – something critics of the system point to as evidence of slot hoarding. In April, 9.2% of flights between Sydney and Melbourne were cancelled, 8.8% between Sydney and Canberra, and 5.7% between Sydney and Brisbane.
Related: ACCC’s airline monitoring program to conclude despite growing claims of fare overcharging
While slots on the fringes of the airport’s curfew are more attainable, there are claims existing airlines are particularly hoarding peak time slots.
“Access to peak time slots at Sydney airport is critical for new and expanding airlines seeking to build an intercity network. Without legislative reform to the airport’s demand management scheme there will not be any material improvement in domestic airline competition in Australia in the foreseeable future,” Cass-Gottlieb said, urging adoption of recommendations from the government-commissioned Harris report from 2021.
The soaring rates of cancellation also bolster the case for an aviation-specific ombudsman to help passengers, Cass-Gottlieb said, noting that airlines had little incentive to invest in customer service. “There is a clear need for a truly independent and external dispute resolution ombuds scheme, which has the power to make binding decisions,” Cass-Gottlieb said.
An ombudsman has already been floated in submissions to the government’s aviation white-paper process, alongside other ideas including that airlines be forced to pay cash compensation to passengers for delays.
Beginning in June 2020, the Morrison government directed the ACCC to monitor the domestic industry for anti-competitive behaviour at a time of crisis, following Virgin Australia entering administration and the loss of budget carrier Tiger, as well as broader disruptions from pandemic border closures.
Related: Australian airline passengers could soon receive compensation for delays and cancellations
As the three-year term of the monitoring direction entered its final year, the reports released by the watchdog evolved to comment on international operations and examine more pressing consumer issues, including putting airlines on notice over concerns of price-gouging.
Airlines were compelled to hand over detailed operating data they otherwise would not share, which has allowed insights into revenue-per-passenger figures and a more behind-the-scenes look at an industry where big players such as Qantas are posting record multibillion-dollar profits as air fares remain stubbornly high.
While acknowledging the cost of the ACCC’s monitoring task – which has included extra resources – Cass-Gottlieb suggested the Albanese government’s decision to let the monitoring task lapse was a blow to improving competition.
Cass-Gottlieb said that while the ACCC would still have the same powers for aviation as it does to police all industries, it would need to have reason to believe a contravention of law had occurred to compel airlines to provide certain information.
