Airline competition reforms must be ‘more aggressive’: former ACCC chief

The government’s latest plan to reform Australia’s aviation industry does not go far enough in allowing more competition between airlines, the former head of the competition watchdog has warned.

Rod Sims, the former chair of the Australian Competition and Consumer Commission (ACCC), said while the recent release of the federal government’s Aviation White Paper set out much needed, long-term policies up to 2050, the report did not recommend any measures to ensure more than two major airlines could comfortably survive in the Australian domestic market.

“It’s disappointing that the Aviation White Paper seemed to presume that it’s a two-player market, rather than having more ambition,” he told Central News.

“I would’ve liked a more aggressive stance to how we get competition in [the Australian market].”

The industry has had a turbulent six months as two of the country’s major low-cost carriers – Bonza and Rex Airlines – exited the capital-city market, as they struggled to compete with the duopoly between Qantas and Virgin Australia.

Sims, who headed the ACCC between 2011 and 2022, instead pointed to a recent Treasury Department report on airline competition, which found consumers paid an average of 39.6 cents per kilometre on domestic routes operated by one air carrier, compared with 19.2 cents per kilometre on routes operated by three carriers.

He believes that report, combined with a clearer intention “to say that more competition is an objective” in the White Paper, would have provided a much more concrete path towards cheaper airfares and more capacity for Australian travellers.

“History tells you when [the market has] had a new player coming in, prices have come down,” he added.

“Even the threat of competition can lower airfares.”

Former chief executive of Tourism Australia Andrew McEvoy holds similar views on competition. He cited the difference an extra carrier made when Virgin began flying the Brisbane to Adelaide route two decades ago.

“At the time there were only two flights a day, [and] Qantas had them both. It then went from two flights a day to eight – four from Virgin and four from Qantas – and prices dropped markedly,” he said.

“Competition is a consumer’s best friend.”

The ACCC’s most recent domestic airline competition report warned the collapse of Rex and Bonza meant “consumers face higher airfares and reduced choice for domestic travel” – despite the two airlines providing limited capacity overall – and that they would “continue to closely monitor” airfares for metropolitan routes.

This gap in the market is already beginning to impact airfares. New data from the Bureau of Infrastructure and Transport Research Economics (BITRE) shows the cheapest available domestic airfares have increased by 12.5 per cent since July, when Rex stopped flying capital-city routes. Meanwhile, restricted economy airfares have jumped by 12.3 per cent in the same period.

Rex was forced to withdraw from the metropolitan routes after the airline was placed into voluntary administration. Their services across regional Australia remain active, but flights between Brisbane, Sydney and Melbourne are now left without an alternative to the Qantas Group – which includes Qantas and Jetstar – and Virgin.

The logic is abundantly clear … if somebody wants to object to that, then they need to provide the evidence as to why logic does not apply in this case.

Sims is adamant the airfare increases are directly linked to the airline’s departure.

“When the third [carrier] disappeared, you’d expect prices to go up … I think it’s reasonable to presume cause and effect,” he said.

“The logic is abundantly clear … if somebody wants to object to that, then they need to provide the evidence as to why logic does not apply in this case.”

Bonza, which flew jets between previously unconnected regional centres and certain capital cities, collapsed in late April after all flights were suspended and its aircraft were seized.

McEvoy and Sims both concede that the management of airport slots has also affected competition. The ACCC previously accused Qantas and Virgin of ‘slot hoarding’ at Sydney Airport, where more flights are booked by the airlines than they were intending to operate to prevent competition from other airlines. Both airlines have denied the allegations.

The Aviation White Paper recommended continuing the tender process to appoint a new, independent slot manager at Sydney Airport, which would ensure better slot management and compliance. A Qantas spokesperson said in a statement they supported reforms to the slot system, while Virgin Australia declined to comment specifically about the changes.

McEvoy believes because Sydney Airport is “constrained”, the slot manager must rigorously manage in-demand slots during peak times.

“The time slots between 6am and 9am, and between 4.30pm and 8pm, [are] the ones that people really want to travel on and need to be managed the most,” he added.

Moving forward, Sims said the government and the wider aviation industry needed to think carefully about the market’s future.

“I think we need a mindset change to see if we can put the welcome mat out for a third player, rather than just assuming, as the White Paper does, that it’s a two-player market,” he said.

And there have been glimpses of another competitor on the horizon. Despite still being in development, Koala Airlines has emerged as a low-cost carrier with grand plans for innovation.

Speaking to the ABC’s Four Corners, founding chief executive Bill Astling would not reveal when Koala would launch, but said he was confident the airline could be the one that breaks up the Qantas-Virgin duopoly.

Sims also wants the federal government to consider relaxing Australia’s cabotage rules (that protect Australian firms) and allowing more international carriers to operate selected domestic routes. He acknowledged it could be “unfair competition, since the planes are flying [into Australia] anyway”, but added it is “worth examining”.

“[Relaxing the rules] might lead some of those players to think they could do more domestically,” he said.

“If we’re short of competition and we’ve got high airfares, that’s something that could help. Others [with closer knowledge] need to decide whether it’s a good idea or not, but I just wouldn’t rule it out.”

McEvoy believes the aviation sector would benefit from better regulation, which would “give carriers the opportunity [to compete] and for governments to even set prices”.

Regulated air services currently operate in a number of regional Queensland communities. McEvoy is also a proponent of more ‘open-skies agreements’.  Currently, Australia has seven of these treaties, which allow for unlimited commercial air services between two or more countries without prior approval.

A spokesperson for federal transport minister Catherine King said in a statement that the Australian Government will “continue to consider cabotage requests on a case-by-case basis” and will pursue additional open-skies agreements “where it is in Australia’s interests and can be agreed bilaterally”.

In the current climate, Sims is confident there has never been a more important time to sustain competition in the aviation sector.

“Aviation is fundamental to Australia, simply because our population centres are so far apart,” he added, “and trying to get as competitive a market as possible should be a strong objective.”

Main image by Andrew Thomas/Wikimedia.