By protecting Qantas, the government backs corporations over consumers

The Albanese government’s decision to protect Qantas by blocking Qatar Airways from running extra flights from Europe to Australia, which would lower airfares significantly for Australians and tourists wanting to visit, appears to prioritise the profits of a private company over cost to consumers.

While many national airlines receive protection from their governments, at a time when most Australians are struggling to pay their bills, government intervention to protect a company that made a $2.5 billion, record profit to July does not appear to be in the interests of the people it is supposed to represent.

Qantas chief executive Alan Joyce announces record profits earlier this month.Credit: Dion Georgopoulos

Embattled Qantas CEO Alan Joyce claimed during a grilling from senators on Monday that giving greater access to Qatar would distort the market. In fact, the government’s decision distorts the market in favour of his company.

The government’s decision needs to be examined publicly by an independent body such as the Australian Competition and Consumer Commission, possibly assisted by the International Airlines Services Commission.

International airfares are 50 per cent higher than they were pre-COVID. A key reason is the shortage of capacity, enabling airlines to take advantage of restored demand to raise prices sharply.

Additional Qatar flights would have an immediate and tangible effect in reducing airfares between Australia and Europe, the Middle East and Africa while also providing more choice for businesses seeking competitive international air freight into these regions.

Qatar is in the unique position in the context of a constrained global supply of wide-body aircraft, to be able to quickly make available four additional services per day to Australia. This would deliver much needed and immediate benefit to the tourism industry and cost-of-living relief to the Australian travelling public.

Qantas Airways and its partners, notably Emirates, already dominate the Australia-Europe/Middle East market with a 43 per cent market share.

Qantas benefits disproportionately from lack of competition. It can continue to deliver international super profits by flying less and charging more. In the first half of financial year 2022-23, despite flying at 42 per cent less capacity than it did pre-COVID, it collected only 3 per cent less revenue. If capacity is only allowed to return slowly relative to pre-COVID, high international airfares are expected to continue.

The Qatar bilateral expansion would add up to 1 million seats per year. Based on an industry average of around 50 per cent of seats being sold to overseas visitors into Australia, this would generate hundreds of millions of dollars in incremental visitor economic activity per year and more seats and lower fares for Australian customers travelling overseas.

Our country would also benefit from international visitors then taking domestic journeys once on our shores, which supports domestic airlines, tourism and related-industry job growth.

Industry experts don’t expect Australian international capacity to return to 100 per cent of pre-COVID levels until the second half of 2025. In restricting capacity, the Qatar decision will enable prices to be higher than they should be for some years ahead. It entrenches the extra impost on consumers for the benefit of a private company and its shareholders.

Aside from the government’s decision to block Qatar Airways coming amid the highest inflation in decades, it is even more on the nose for having been made when we remember Qantas received $2.7 billion in federal government assistance during the pandemic, as well as $900 million in Jobkeeper payments; money it has no intention to return to the taxpayer.

Meanwhile, Qantas sits on $500 million worth of flight credits for pandemic cancellations, money it no doubt uses for interest and investments as Australians struggle to find a way to use and get value from those credits.

Alan Joyce has faced hostile questioning at a Senate inquiry.Credit: John Shakespeare

As a former chairman of the ACCC, I have witnessed all kinds of anticompetitive behaviour by monopolies, duopolies and more, but this decision sits high in the pantheon of uncompetitive outcomes brought about by the Australian government.

So how is this defensible? The government’s first argument seems to be that the Qatar decision affects Qantas profits into the future and its ability to survive. But having made $2.5 billion dollars in the past year, Qantas is very profitable. Qantas itself has made it clear its profit outlook into the years ahead also remains strong – with or without the Qatar decision.

Moreover, putting Qantas’ profit first is a dubious public policy principle.

Government intervention should be about giving consumers the best possible deal, not the reverse.

The second line of defence is that it is in the national interest to have a national airline like Qantas survive (even if it is now privately owned). There is some public support for this, but the extent of protection claimed to be needed for Qantas’ survival comes at a high cost which must be balanced against other interests.

In 1995, Australia adopted a National Competition Policy. A key principle was that no-anticompetitive decisions should be made by governments unless transparently shown to be in the public interest. The application of the principle has slowly faded over time.

However, the process of protecting Qantas, a brilliant lobbyist, has been highly non-transparent. There seems to have been no consultation about a decision having such large price effects.

We need much more transparency about such decisions.

As to the domestic market, there are also concerns. As the ACCC has recently said, “other than natural monopolies, the domestic airline industry is one of the most concentrated industries in Australia”.

It could do with a dose of additional competition especially by the greater provision of slots at Sydney airport to new and expanding domestic airlines.

As the intergenerational report has indicated, Australia needs a productivity lift over the next 40 years. Competition policy is crucial for this. The Qatar decision illustrates the need for a serious national competition policy with strong mechanisms to prevent governments from making blatantly anticompetitive decisions such as the Qatar one.

The federal government’s priority, indeed its responsibility, should be to customers. That is the entire point of competition policy. All Australians should be concerned about the government’s decision.

Professor Allan Fels is former chair of the Australian Competition and Consumer Commission.

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