ACCC: Domestic airfares reducing slightly but international airfares remain high

Australian Consumer and Competition Commission (ACCC) reported (05-Jun-2023) the following highlights from its 12th and final report on the domestic airline industry for Jun-2023:

• More than a year since the end of the final COVID-19 state border restrictions, the domestic airline industry has not yet managed to recover to pre-pandemic levels of passengers and capacity. Stagnation can be explained by both demand and supply factors. The pent up demand for leisure travel that characterised much of 2022 is beginning to ease. Increasing cost of living pressures have also led to consumers becoming more price sensitive;
• The price of discount airfares decreased by 14% in real terms between Feb-2023 and May-2023. Average revenue per passenger, which represents average prices across all fare types, also declined in 2023. Both of these measures remain above pre-pandemic levels. A reduction in the price of jet fuel by almost half since its peak in Jun-2022 has also led to declining airfares;
• Rates of flight cancellations and delays have worsened and remain poor compared to long term industry averages. The industry cancelled 3.9% of flights in Apr-2023, compared with the long term average of 2.1%. Jetstar Airways continued to perform significantly worse than the rest of the industry, cancelling 8.1% of flights in Apr-2023, more than double the rate of the other airlines;
• Only 71.8% of flights arrived on time in Apr-2023, well below the industry long term average of 81.5%;
• A lack of effective competition over the last decade has resulted in "underwhelming" outcomes for consumers in terms of airfares, reliability of services and customer service;
• The expansion of Rex Airlines and the entry of Bonza in recent years have created the opportunity for the industry to enter a more competitive period. However, both would need to expand significantly to become more meaningful competitors to the Qantas Group and Virgin Australia. In Apr-2023, Qantas Group and Virgin Australia accounted for 94% of all domestic passengers;
• The industry is facing challenges due to shortages in qualified and experienced Australian pilots and engineers, as well as the supply chain issues that have persisted from 2022;
• Airlines have reported that air traffic control staff absences have impacted reliability, particularly at Sydney Kingsford Smith Airport;
• International air travel continues to recover but is lagging behind the domestic recovery and airfares remain high;
• While domestic airfares have reduced slightly from their peak in late 2022, international airfares remain high. In late May-2023 the average return economy international airfare from Australia was AUD1827 (USD1205) compared with AUD1213 (USD800) in 2019, an increase of 51%. Qantas has also reported that demand for international travel remains strong, leading to a mismatch between demand and supply. This imbalance is putting upward pressure on international airfares;
• The three largest routes in Australia, connecting Brisbane, Melbourne and Sydney, are continuing to lag in passenger volume recovery compared to other routes connecting larger cities. The Melbourne-Sydney route continues to be the worst performing of the three;
• The launch of new routes by Bonza has recently broadened the choice of domestic routes for domestic passengers. There were 176 routes in operation in Australia in Apr-2023, up from 154 in Jan-2023. This compares to 160 routes in Apr-2019;
• Airlines have been providing a declining level of customer service.

ACCC Chair Gina Cass-Gottlieb stated: "Without a real threat of losing passengers to other airlines, the Qantas and Virgin Australia airline groups have had less incentive to offer attractive airfares, develop more direct routes, operate more reliable services, and invest in systems to provide high levels of customer service". Ms Cass-Gottlieb said Rex's expansion onto major intercity routes and Bonza's launch have been "positive developments for competition", but their share of the market is small and there are barriers to growth. She added: "While our airline monitoring direction is ending, we'll continue to watch for anti-competitive behaviour and unfair business practices in the airline industry. If we see evidence of this occurring, we will use our full range of enforcement powers to achieve compliance with the law". [more - original PR]