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More carriers on a route can halve airfares, says minister

written by Jake Nelson | January 30, 2024

Planes from Virgin, Bonza and Rex lined up at Melbourne Airport. (Image: Melbourne Airport)

Increasing competition on major routes can dramatically slash airfares, according to data from the federal government’s competition taskforce.

In a speech before the Chifley Research Institute on Tuesday, Dr Andrew Leigh, the Assistant Minister for Competition, pointed to figures from the taskforce showing that airfares average 39.6 cents per kilometre on routes with only one carrier, 28.2 cents on routes with two carriers, and 19.2 cents with three.

“In other words, the price per kilometre is halved when three competitors fly a route compared with the situation when there is only a single monopoly airline. With four or five competitors, the price drops further still,” he said.

“Aviation competition has been fundamental to connecting Australian cities to one another, and connecting our country to the world. Still, many Australians suffer from a lack of competition.

“For example, for a resident of Darwin, it is often cheaper to fly from Darwin to Singapore than it is to fly from Darwin to Sydney – even though the international flight is longer than the domestic one.”

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The government is undertaking a review of the sector ahead of the release of its Aviation White Paper next year, which will set policy direction towards 2050.

Speaking to ABC Radio in Canberra, Dr Leigh said it will be important to make sure “the monopoly airlines don’t lock up slots”.

“We actually had a vibrant, competitive airline industry before the Second World War. But in the decades after the war, the duopoly prevailed and that meant that most Australians just couldn’t afford to fly,” he said.

“It was only when we’ve gotten more airline competition that airline travel has come within the reach of the average middle Australian household.”

Dr Leigh also criticised the high cancellation rate on Sydney–Canberra flights, saying the government has “put a lot of pressure on the carriers to do a better job”.

“I often joke to people that when you buy a Sydney-Canberra ticket, you’re buying an option to fly in the event that the carrier decides there’s enough other people that want to fly that route. And that’s not good enough for the flying public,” he said.

“Prices are too high and that’s why we’ve gotten the Competition Taskforce to look carefully at aviation alongside the other work that it’s doing. And that’ll feed into the Aviation White Paper that [Transport Minister] Catherine King is shepherding through.”

Dr Leigh is the latest in a number of government ministers to publicly call out the aviation industry, with Minister King last year saying Australians were losing their patience with poor on-time performance by both Qantas and Virgin.

“Given these very disappointing results, it is no wonder that so many Australians remain fed up with our major airlines,” she said.

“Like all Australians, the government wants an aviation sector that supports our nation’s way of life and this means services need to be reliable, competitive and affordable.”

The Australian Airports Association has also been critical of the duopoly, with CEO James Goodwin telling the House Standing Committee on Economics in August that Qantas and Jetstar together have a 66 per cent share of the domestic market, with Virgin at 29 per cent.

This has led to the market acting in a “very coordinated” way, he said, making it difficult for new competitors such as Rex and Bonza to gain a foothold and harming consumers in the process.

“It becomes very cosy and comfortable, to put it that way, that there is no need to necessarily do really anything against the law because it is just so comfortable,” he said.

“It also means that regulators and governments generally might also find it increasingly difficult to try and intervene as well because the market becomes so reliant on the dominant players.

“Customers and the passengers at the moment are victims of this duopoly. What we see are those high airfares that people are just needing to pay.”

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