Airline competition halves ticket prices, government taskforce says

The findings by the competition taskforce throw further question marks over Labor’s decision last year to reject Qatar’s bid to provide additional flights.

Even the threat of competition is enough to bring air travel prices down, research by the competition taskforce has revealed. Picture: Getty Images

Airfares are halved when travellers have the option of three carriers rather than one, research by the competition taskforce has revealed, throwing further question marks over Labor’s decision last year to reject Qatar’s bid to provide additional flights.

Industry Minister Catherine King in July rejected Qatar Airways’ request to increase capacity in Australia as against the “nat­ional interest”.

In a speech seen by The Australian and to be delivered in Melbourne on Tuesday morning, Assistant Minister for Competition Andrew Leigh says airline competition plays a key role in delivering cheaper flights for Australians.

“When one airline services a route, airfares average 39.6c per kilometre. With two competing airlines, the average fare drops to 28.2c. With three competitors, (it falls) to 19.2c,” Dr Leigh states.

“In other words, the price per kilometre is halved when three competitors fly a route compared with the situation when there is only a single monopoly airline. With four or five competitors, the price drops further still. They find these results for all routes and the top 200 routes by passenger traffic,” he will say in his speech.

“Initial results further indicate that the mere threat of competition in the aviation sector has, on average, helped to lower prices.”

Dr Leigh’s speech says the value of competition for air travellers is evident through the country’s history.

“Aviation competition has been fundamental to connecting Australian cities to one another, and connecting our country to the world. Still, many Australians suffer from a lack of competition. For example, 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 though the international flight is longer than the domestic one.”

Jim Chalmers in August announced a rolling, two-year competition review, advised by a hand-picked panel of experts, chaired by Kerry Schott and which includes Productivity Commission chair Danielle Wood and former ACCC chair Rod Sims.

The taskforce is undertaking a review of competition policy settings, including the ACCC’s request for more powers to stop anti-competitive mergers, and that firms above a certain size would have to gain formal approval from the watchdog before pursuing any deals.

Dr Leigh will say there are “worrying signs the intensity of competition has weakened over recent decades”, as he presents other research that shows that the voluntary notification scheme has led to a large majority of mergers flying under the regulatory radar.

Originally published as Airline competition halves ticket prices, government taskforce says