By Shane Wright and Millie Muroi
Qantas Airways has blamed British band Coldplay’s sell-out Australian tour for a surge in airfares after the competition watchdog revealed prices on some routes more than doubled in the months after Rex Airlines’ collapse and the demise of budget carrier Bonza.
The Australian Competition and Consumer Commission on Tuesday warned prices might not come down until there was a new third airline able to challenge Qantas and Virgin Australia, which now have an effective duopoly over the nation’s most important routes.
Airfares have soared since Rex went into administration. Credit: Kate Geraghty
In a report into the domestic airline industry, the commission said airfares on major routes had jumped since Rex went into administration in July.
One of the largest price increases was on the Adelaide to Melbourne route, up 95 per cent to $296 one-way for discounted economy fares between July and September. Prices on the Canberra to Gold Coast route soared 171 per cent to $490 one-way over the same period, while Cairns to Sydney lifted 43 per cent to $380 one-way.
“The increase coincides with less competition after Rex’s exit from many of these routes, an increase in seasonal demand during September and fuller flights,” the commission said.
Qantas, which also owns Jetstar, and Virgin carried 98 per cent of domestic passengers, and since Rex and Bonza’s withdrawal from major markets, there were no longer any routes in the country serviced by more than two major airlines, the ACCC said.
But Qantas Domestic chief executive Markus Svensson criticised the report, saying it showed a “snapshot of the lowest fares available” to buy on a particular day that failed to factor in events, such as Coldplay’s concerts in Melbourne, which might affect demand and fares.
Demand was significantly higher for flights bought to travel to Melbourne on October 31, for example, Svensson argued, which meant tickets were more expensive than usual.
“The average fare increase on these routes between July and October was significantly lower,” he said.
Coldplay performed the second of its four Melbourne shows on October 31.
Svensson said average airfares across the industry this year had increased “broadly in line with inflation”.
The commission found revenue per passenger, adjusted for inflation, climbed by 13.3 per cent across the industry between July and September. Inflation rose by just 0.2 per cent in the quarter.
Jet fuel prices, which make up between 15 and 25 per cent of an airline’s total operating costs, plunged 41 per cent over the same period.
A Virgin spokesperson said the change in fares from July to September was largely driven by higher demand in September due to football finals and school holidays.
A chart from the report shows the sharp decline in competition after Rex went into administration.Credit: ACCC
“September was one of our busiest schedules this year, with more than 11,500 flights operated across the Virgin Australia network,” the spokesperson said.
While domestic airfares are going up, international flights – with much more competition – are coming down.
Flight Centre figures showed the cost of an international economy airfare departing Australia fell on average by 5 to 10 per cent from the July to September period last year to the same time this year.
The ACCC warned that without a third airline, passengers might be stuck with higher airfares and planes that were closer to full capacity.
“It may be some time before a new airline emerges as a serious third competitor, which is likely to result in higher airfares and reduced choice of consumers,” it said.
In August, the Australian Treasury published a report that found increased competition led to lower airfares, with an additional airline on a route reducing airfares by 5 to 10 per cent, and prices falling further with every additional airline after that.
Consumers pay about 40 cents per km when a monopoly carrier services a route, but this falls to 28 cents when two airlines are present and 19 cents for three airlines.
Transport Minister Catherine King noted the government had directed the ACCC to monitor airfares and had provided $80 million to help Rex keep running its regional routes during its voluntary administration.
“We’re boosting competition through our reforms in the aviation white paper, which include slot reforms at Sydney airport, which are before the parliament now. We’re improving consumer rights with a new charter of customer rights and [the industry] ombuds scheme,” she said.
Accommodation Australia, which represents hotel and motel providers, said it was clear that reduced airline competition and higher airfares were hurting the tourism sector.
“People are increasingly looking for value when they holiday, and in contrast to the increase in airfares, the average cost of a capital city hotel room in September was $233 – four dollars cheaper than last year,” its chief executive, James Goodwin, said.
Coalition transport spokeswoman Bridget McKenzie said Australia seemed to have the most concentrated airline market in the world, with both Rex and Bonza going under on the government’s watch.
“Confirmation by the ACCC that domestic airfares have soared by up to 95 per cent on some major city routes since the collapse of Rex Airlines is disastrous for Australian travellers in the midst of a cost-of-living crisis,” she said.
The government has recently proposed laws to crack down on airport slot hoarding, including penalties for airlines that deliberately cancel services to maintain limited slots at terminals.
Svensson told a Senate inquiry into the issue that the crackdown had “some good things”, helping to drive transparency for customers, but denied the airline was doing the wrong thing, maintaining it was not physically possible to operate every single flight.
“Things are unpredictable in this industry,” he said. “We do not apply for slots without having the intention to operate them.”
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