ACCC: Domestic Airline Competition at a Critical Juncture, Highlights Qantas/Jetstar and Virgin Duopoly

The Australian Competition and Consumer Commission (ACCC) has released a report highlighting the lack of effective competition in Australia’s domestic airline industry. This has led to higher airfares and poorer service for consumers. The report notes that the expansion of Rex and the entry of Bonza have created an opportunity for increased competition, but these airlines need to grow significantlyairlines to compete with Qantas Group and Virgin Australia. The ACCC Chair, Gina Cass-Gottlieb, emphasized the need for reforming the legislative scheme that allocates take-off and landing slots at Sydney Airport to promote competition. The report also suggests that declining levels of customer service in the airline sector warrant the government considering new regulatory incentives for airlines to invest in their customer service. Key Points:

1. Market Concentration: Over the last two decades, more than 90% of domestic passengers flew with Qantas Group or Virgin Australia. This high concentration has led to less incentive for these airlines to offer attractive airfares, develop more direct routes, operate more reliable services, and invest in systems to provide high levels of customer service.
2. Impact of New Entrants: The expansion of Rex and the entry of Bonza have been positive for competition, but their market share remains small. The ACCC will continue to monitor for anti-competitive behaviour and unfair business practices in the airline industry.
3. Need for Reforms: The report calls for reforms to promote competition, including changes to the legislative scheme that allocates take-off and landing slots at Sydney Airport. It also suggests the need for a truly independent and external dispute resolution ombudsman for the airline sector.
4. Post-Pandemic Recovery: More than a year after the end of state border closures, passenger and capacity numbers remain below pre-pandemic levels. The easing of demand is reflected in cheaper airfares in 2023, although they remain above pre-pandemic levels.
5. Customer Service Concerns: The industry cancelled 3.9% of all domestic flights in April 2023, which was higher than in January, and above the long-term average of 2.1%. Nearly one-third of all domestic flights arrived more than 15 minutes late, compared to the long-term average of 18.5%. Jetstar performed significantly worse than the rest of the industry, cancelling 8.1% of flights in April.