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Lack of competition driving higher prices, poorer service in Australia’s domestic aviation sector

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Lack of competition driving higher prices, poorer service in Australia’s domestic aviation sector
The Australian Competition and Consumer Commission’s (ACCC) latest report on the domestic airline space outlines how a significant duopoly – rarely seen in the consumer landscape – is providing less incentive for Qantas and Virgin to offer cheaper flights and more reliable services or to add to their route maps.

While the ACCC’s analysis shows that airfares have fallen in 2023, corresponding with a significant drop in the price of jet fuel, Qantas and Virgin are still carrying more than 90 per cent of passengers, indicating little competition in the market.

“Domestic aviation is one of the most concentrated industries in Australia, barring only natural monopolies such as electricity grids and rail networks,” said ACCC chair Gina Cass-Gottlieb.

“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.”

“Rex’s expansion onto major intercity routes and Bonza’s launch have been positive developments for competition, but their share of the market is small and there are barriers to growth,” she said.

The ACCC believes changes to the legislative scheme which governs the allocation of take off and landing slots at Australia’s busiest airport, Sydney, could have a meaningful impact on the competitive landscape.

“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,” said Cass-Gottlieb.

The commission also called out “sustained declining levels of customer service” and suggested the government should consider regulatory incentives to encourage airlines to improve their customer service. In April 2023, almost one third of domestic flights landed more than 15 minutes after their scheduled arrival time, significantly above a long-term average of 18.5 per cent late arrivals.

The ACCC found data from April this year shows domestic aviation capacity had still not returned to pre-pandemic levels. In fact, it had actually declined from a peak in June 2022, with capacity in April 2023 sitting at 94 per cent of 2019 levels.

The report also notes that passenger numbers are also still below pre-pandemic levels, with Australia’s busiest route, between Melbourne and Sydney, currently operating at a passenger load that is 84 per cent of 2019 levels.

Qantas has said that it expects its domestic capacity to be slightly above pre-COVID capacity by the end of this month.

The ACCC has been monitoring the prices, costs and profits of Australia’s domestic airline industry since the sitting Coalition government directed it to do so in June 2020. This latest report is also the last the commission will produce under that directive.

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