Australian Domestic Airlines Nearing Full Recovery


Australia’s domestic airline industry is approaching full recovery, according to statistics released by the Australian Competition and Consumer Commission in its June report on airline competition in Australia. Releasing its report on June 8, 2022, the independent competition and consumer authority focused on data gained from April 2022, part of a larger review of Australia’s domestic airline competition. The data reveals a post-pandemic recovery amounting to nearly 90% of pre-COVID levels, as well as increased airline and airfare competition.

The highlights of the report, as defined by the ACCC, include evidence of increased consumer confidence despite new COVID variants, as well as consumer benefits of increased airline competition, concerns about increasing fuel costs and their impact on passengers, and an evaluation of Australia’s domestic market share. The report concludes with lessons Australia can gain from analyzing Canada’s domestic airline competition.

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Increasing Passenger Levels

Increased passenger levels began earlier this year, following eased travel restrictions in several Australian states, most notably Queensland and Western Australia. The open borders culminated in April’s 4.5 million passenger peak during the Easter holiday period, reflecting 89% of pre-pandemic levels. Of this 89%, Qantas (including Jetstar) reported a flight capacity of 110%, with the first airports to reach and surpass their 2019 passenger numbers being holiday hot-spots Gold Coast airport and Sunshine Coast airports respectively.

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In terms of route popularity and growth, it was the Gold Coast that proved to have the highest recovery rates, with some routes far exceeding pre-pandemic numbers. The three most popular routes – all destined for the Gold Coast – included the Canberra route, peaking at 193% of pre-pandemic levels, Melbourne at 126%, and Adelaide at 125%. As for the usual ‘Golden Triangle’ – routes between Sydney, Melbourne and Brisbane – increases were noted also, with Melbourne-Sydney reaching an 82% recovery with 563,000 passengers, Brisbane-Sydney at 81% with 322,000 passengers, and Brisbane-Melbourne increasing the fastest at 89% with a passenger total of 272,000.

While the data shows a strong consumer drive for holidays on the back of eased restrictions, the report noted additional factors for increased travel, such as increased competition. Expansion of regional airline Rex, which has challenged both Qantas Group (including Jetstar) and Virgin, has resulted in lower airfares, with the report stating that “growing numbers of Australians are benefitting from direct competition between all 3 of the main airline groups,” with both Qantas and Virgin having lowered their prices to match or undercut Rex airfares in previous months.

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ACCC ‘Reviewing’ Airline Competition

Despite concerns that airfares may have “bottomed out” thanks to increasing oil prices, there is an ever-increasing voice from both industry and consumers that Qantas’ actions have been domestically detrimental. The three main factors behind this negative perception of the Australian flag-carrier revolve around poor customer service, alleged ‘anti-competitive conduct’, and its proposal to purchase all remaining shares of Alliance Airlines.

Reinforcing this perception, the report makes specific mention of all three of the above-mentioned factors, with the ACCC noting that it is reviewing each of the issues.

On the matter of poor customer service, the report stated: “The ACCC is looking into these issues, including whether Qantas’ conduct may raise concerns under the Australian Consumer Law.” The issues, mentioned in this opinion piece, include long call hold times and a credit policy where passengers could only use credits for flights of equal or greater value than their original bookings. Addressing this concern, the report states: “The practical effect… is that customers who seek to book using a flight credit issued for flights booked on or after 1 October 2021 are made to use a different flight booking portal and, in some cases, are not shown cheaper fares that may be available when booking using other payment methods on Qantas’ website.”

Qantas’ customer service has since sunk to new lows, with travel website Traveller recently adding that “the rants are currently well outweighing the raves… with complaints to Traveller about Qantas overwhelmingly dominating our inbox,” adding that it was “close to having to declare a pause on Qantas-related missives.” Issues, such as lost baggage, have been attributed to a third-party contractor after Qantas outsourced about 2000 workers despite the billions of dollars in government support over the years. Recently, Qantas lost an appeal against the Australian Federal Court’s decision that the sacking of those workers was illegal, further staining the airline’s reputation.

Regarding Qantas’ alleged ‘anti-competitive’ behavior, the report noted: “In concluding our investigation, we noted that a range of factors impacted the competitive dynamics in the market at the time, particularly the COVID-19 movement restrictions and border closures,” adding that “COVID-19 related measures have now been relaxed and this will simplify evaluating the impact of any future capacity increases or pricing practices by airlines in response to new competition. The ACCC will continue to pay close attention to any behaviour that may be anti-competitive.” The investigation commenced after Rex complained Qantas had added capacity to routes that were both historically low in passenger count and operated by Rex, with its CEO, the Hon John Sharp AM saying: “This behaviour is all the more unconscionable after receiving over $2 billion in federal bailouts over the past 2 years.”

Qantas also faces additional scrutiny after it recently proposed to purchase shares of Australian airline Alliance Airlines. Already owning 19.9% of shares, Qantas plans to acquire all remaining shares, raising concerns of the impact on domestic airline competition. Alliance Airlines already leases aircraft and supplies parts to Virgin, as well as operating remote fly-in fly-out services to mining communities in regional Australia. On this matter, the report stated: “We are assessing the proposed acquisition to determine whether it has the effect or likely effect of substantially lessening competition.”

Australians May Have “Missed Out”

The ACCC report concluded with the comment that “Australian consumers may have missed out on cheaper travel and additional routes because fewer airlines have entered the Australian market.” In its assessment of domestic aviation, comparing Australia and Canada with both economic and geographic similarities, the ACCC found that Canada’s low-cost carriers (LCC) have been a primary driver in domestic growth. This growth was attributed to both new and expanding airlines, delivering “providing both affordable travel and competition.”

Speculating that Qantas’ subsidiary Jetstar exploited the LCC gap in Australia over the past ten years, the report said that “any prospective LCCs would have known that they would need to compete directly with a profitable, well-established rival with strong financial backing of a large airline group, potentially deterring new entry.” It’s Canada’s example which gives confidence that new-comer Bonza can establish a footing in Australia to further add competition and growth in what the ACCC sees as a “concentrated” airline industry.

The report expressed its confidence in Bonza, stating that: “Canada’s experience suggests that Australia’s domestic market may be large enough to support more competition than the traditional duopoly of the Qantas Group and Virgin, such as that offered by Rex and Bonza.”

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