High operating costs push up regional airfares, report says

“Many regional communities are frustrated by the high cost of flights. Previous government inquiries have looked at the issue, but until now we haven’t had the data or the evidence to understand what really sets the prices,” said commissioner Catherine de Fontenay.

“For the first time, we’ve been given access to confidential cost and revenue data from the airlines. We now have a much better idea of what it costs to provide air services in the regions and the factors driving the high fares experienced by many communities.”

According to commissioner Martin Stokie, on average, operating costs for regional routes make up about 91 per cent of the fare, while profit margins are about 9 per cent – comparable to major city services.

However, costs and profit margins “vary widely between routes”, with the sustainability of some shorter remote and regional routes threatened by profit margins below 5 per cent, while mining route profits are often “significantly higher than average”.

“The data shows that the main reason regional flights are more expensive is because they cost more to operate,” said Stokie.

“Half of regional and remote routes operate 10 or fewer flights per week and more than a third of their seats are empty.

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“When operators have to spread the costs of running flights across a small number of passengers, they’re often choosing between charging higher fares or running them at a loss.”

The report has been welcomed by industry, with the chair of Airlines for Australia and New Zealand, Professor Graeme Samuel, saying its findings “provide important evidence to inform a more balanced discussion about regional airfares and the sustainability of regional aviation”.

“Airlines understand that the cost of flying can be a significant burden for regional Australians, particularly those who have little choice but to travel by air to access healthcare, education, employment, business opportunities or to stay connected with family and friends,” he said.

“These are important journeys, and we recognise the impact that higher fares can have on household budgets.

“However, it is equally important to understand the economics behind these services. Airlines cannot operate regional routes on goodwill alone. They must be financially sustainable if communities are to retain reliable and ongoing air connections.”

According to Samuel, the commission found half of all regional and remote routes carry fewer than 15,000 passengers a year.

“On many of these routes, airlines are operating smaller aircraft, with fewer passengers to share the substantial fixed costs of providing a service. Some routes simply cannot support more than one operator, and many operate on margins of less than 5 per cent,” he said.

“These are fundamentally different market conditions to those experienced on major city routes. The economic realities of serving regional routes are very different to high-volume metropolitan services.

“The commission’s findings also demonstrate that regional tourism routes, which have stronger passenger demand, generally achieve fares comparable to or lower than major city routes.

“That is further evidence of the relationship between passenger volumes, operating costs and the prices travellers pay.”

Rob Walker, CEO of the Regional Aviation Association of Australia, said the report “confirms what regional operators have long said: regional airfares largely reflect the cost of delivering services, not excessive profits”.

“The interim report is clear that higher fares on many routes do not, in themselves, point to a market failure in need of correction,” he said.

“The evidence is now on the public record: regional airlines are not overcharging; they are absorbing high and rising costs on margins that are already thin. Without action, the commission’s own warning about route withdrawals will become reality for more communities.”

According to Walker, costs like fuel, airport charges and security and regulatory compliance are eating into regional carriers’ bottom lines.

“Fuel is the first of the largest cost drivers the commission identifies. On short regional and short remote routes, fuel costs per revenue passenger-kilometre are more than three times those on major city routes,” he said.

“Airport charges are now the second largest cost. Airport charges sit directly behind fuel among the commission’s largest cost drivers, ahead of crew and aircraft maintenance.

“The commission’s report also highlights that regulatory compliance and security screening costs are being driven up by regulation, not just by airport operators.

“For operators already running near break-even, these pressures are the difference between keeping a service and withdrawing it.”

The commissioners recommended that governments “use transparent criteria and target those who would otherwise be unable to afford necessary travel” if they are to prop up regional air routes.

“Government assistance should focus on keeping communities connected, rather than supporting particular airlines,” said commissioner de Fontenay.

Additionally, said commissioner Stokie, governments should “take a system-wide approach to regional airport funding, prioritising the infrastructure that communities need to maintain connections and essential services”.

“Too often governments consider support for airports on a case-by-case basis – which risks giving too much funding to some airports and not enough to others,” he said.

Submissions and registrations for public hearings are now open, with the final report to be handed down in April 2027.