Qantas isn’t to blame for interest rate rises and Fels’ link in gouging report is puzzling, say experts

A key claim in the ACTU’s price gouging report prepared by Professor Allan Fels has been shot down by experts who say Qantas can’t be blamed for interest rate rises.

Professor Allan Fels during an address to the National Press Club in Canberra on Wednesday.

A scathing claim made by Professor Allan Fels that high Qantas airfares led to the Reserve Bank increasing interest rates last year has been discredited by the Bureau of Statistics and an economics expert.

The claim was contained in a report on price gouging and unfair pricing practices, prepared for the ACTU by the former chair of the Australian Competition and Consumer Commission.

Qantas came in for special attention in the report; Prof Fels said the airline was price gouging customers by keeping a tight rein on capacity to ensure fares stayed high.

He then suggested airfares charged by Qantas were “large enough to produce a sizeable increase in the holiday travel and accommodation contribution to inflation, possibly up to 25 per cent of the increase that quarter as it appeared in the Bureau of Statistics CPI measure”.

“Qantas’ ability to reduce supply while increasing prices and suffering no material loss of market share may have affected CPI in December 2022, and therefore may have impacted the Reserve Bank’s inflation expectations and rate increases,” Prof Fels’ report said.

The Australian Bureau of Statistics’ CPI team said holiday travel and accommodation did contribute 25 per cent to the overall CPI movement of 1.9 per cent in the December 2022.

But the figure was based on all aspects of domestic and international holiday travel, including accommodation, package tours, train and bus fares, holiday vehicle hire as well as airfares.

“In the December quarter, 70 per cent of the contribution of holiday travel and accommodation came from domestic holiday travel and the remaining 30 per cent from international holiday travel,” an ABS spokesman said.

“The ABS sample includes airfares of all the major domestic and international carriers operating in Australia.”

ABS data used in a report on price gouging referred to all holiday travel costs, and not only Qantas and Virgin airfares.

University of New South Wales professor of economics Richard Holden said the suggestion Qantas was to blame for interest rate hikes was “puzzling at best”.

He said when setting interest rates, the Reserve Bank looked at the “trimmed mean inflation” and not the headline figure.

“If Qantas was the category that had the largest increase in terms of contribution to CPI, the trimmed mean is the middle 70 per cent of prices so it would not be accounted for in trimmed mean inflation,” Prof Holden said.

“On top of that, the RBA tries to look through supply shocks so the idea that Qantas has scaled back their capacity (to elevate fares), the RBA would take the view that ‘that’s a supply shock, it’s temporary and we try to look through those things and not take them into account’.”

He said he respected Prof Fels but found it difficult to understand how he would have reached the conclusions made in the report.

“It’s the kind of error which would be so uncharacteristic of Allan Fels; one wonders how heavily edited the report was and which was the final version that he saw,” Prof Holden said.

Qantas declined to comment directly on the claim the airline’s fares led to interest rate rises but insisted it was not price gouging.

“The temporary spike in fares post-Covid reflected reductions in capacity to improve operational resilience following the challenging restart of the industry once borders opened,” a Qantas spokesman said.

“These reductions coincided with a period of high demand and the imbalance pushed up fares across all airlines. At the same time, fuel prices increased by more than 60 per cent, driving fares higher again.”

Prof Fels’ report recommended the federal government remove barriers to competition in the aviation industry in order to put downward pressure on fares.