Departures board at airport
A federal task force says the local air travel sector is very sensitive to competition. Image by Russell Freeman/AAP PHOTOS
  • politics

Competition and rivalry found to force lower airfares

Poppy Johnston January 30, 2024

Airline passengers typically pay half the amount for a ticket serviced by three carriers than if the route is flown by just one.

A federal task force has revealed a sector sensitive to competition, with research suggesting the mere threat of rivalry can be enough to lower airfares. 

When serviced by a monopoly carrier, airfares average 39.6 cents per kilometre – a number that drops to 28.2 cents with a competitor and 19.2 cents when three providers compete on the same route. 

Prices per kilometre keep dropping as more competitors are added.

Presenting the early findings of the Competition Taskforce, set up last year, Assistant Minister for Competition Andrew Leigh said they demonstrated that significant downward pressure could be exerted on fares.

Dr Leigh said a lack of competition in the aviation industry was particularly problematic in a country so heavily reliant on flying to connect cities and reach other parts of the world.

Assistant Minister for Competition Andrew Leigh
 “Australia’s aviation history shows the value of competition,” Andrew Leigh said. Image by Lukas Coch/AAP PHOTOS 

“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 although the international flight is longer than the domestic one,” he told an audience at Melbourne’s Chifley Research Centre.

He said the research added to relatively limited evidence base linking competitive pressures and prices in the industry. 

The aviation sector came under fierce scrutiny last year following the government’s decision to block Qatar Airways from additional flights in Australia, with accusations the call was made to protect Qantas from a competitor. 

Opposition transport spokeswoman Bridget McKenzie said the analysis released on Tuesday confirmed what the coalition had been saying since the Qatar Airways flight application had been rejected.

“Where Qantas or Virgin is the sole operator on a route, the cost of airfares doubles,” she told AAP.

“We want to see lower airfares and a safe and reliable aviation industry – where planes take off and land on time and your bag arrives at your destination.”  

The federal government has issued a review of the aviation sector – including its competitiveness – with a white paper expected mid-year to guide long-term policies.

The Australian Competition and Consumer Commission has also resumed monitoring the sector after the government agreed to reinstate its expiring powers.

Chair Gina Cass-Gottlieb said more choice and competition kept downward pressure on airfares based on the watchdog’s assessments so far. 

“These are questions we are going to be investigating further now that we have the continued role of monitoring airline services,” she told AAP.

Dr Leigh also unveiled new findings on mergers, coinciding with the ACCC’s crackdown on corporate marriages that lead to too much market concentration. 

The analysis found mergers were extremely concentrated among larger firms and roughly two-thirds happen without the consumer watchdog’s knowledge.

About 1000-1500 mergers were taking place each year compared with the 330 the ACCC considered annually under the voluntary notification system. 

The consumer watchdog has been pushing for mandatory notification and approval, with some firms thought to be pushing the boundaries of the voluntary set-up and offering up incomplete, incorrect and late information.