Regional airfares largely reflect operating costs: Australian Productivity Commission

Australia's Productivity Commission released (11-Nov-2026) an interim report on the determinants of regional airfares, finding they largely reflect the cost of serving small populations - although fares, profits and opportunities for competition vary widely across routes. The report proposes better-targeted government support to maintain connectivity, help patients travel for healthcare and fund critical airport infrastructure. Key highlights include:

• There is no single regional aviation market. Regional aviation serves diverse communities with different travel needs, levels of demand and degrees of reliance on air services. These differences shape airfares, service levels and the impacts on people, businesses and local economies;
  • Many regional and remote routes have limited demand with half carrying less than 15,000 passengers p/a, operating 10 flights or fewer each week and having 35% or more empty seats per flight;
  • Communities can be disproportionately affected by high airfares if they are reliant on air services, have minimal access to alternative transport options and have limited capacity to pay;
• High regional airfares largely reflect the costs of providing services;
  • Regional and remote airfares were 11% higher per passenger and 13% higher per kilometre in 2023 to 2025 than on major city routes - but on some routes including short regional and short remote routes, the fare per kilometre was more than double;
  • Operating costs make up approximately 91% of the fare, on average, while profit margins average about 9%, broadly comparable to major city routes. However, profit margins are much higher on some routes and average more than 20% on mining routes;
• The viability of short regional and short remote routes is likely to come under increasing pressure;
  • These routes operate with smaller aircraft and spread fixed costs across relatively fewer passengers;
  • Many of these routes earn a profit margin of less than 5%, making them vulnerable to increases in costs or reduced demand;
• Competition in regional aviation is limited, with over 90% of passengers flying with either Qantas Group or Virgin Australia;
  • Many regional and remote routes are too small to sustain more than one airline. On higher-volume routes, additional competition could deliver benefits for consumers. However, prospective entrants face barriers to competing with incumbents, such as economies of scale, network advantages and corporate loyalty;
  • Government support for airlines may help sustain services in the short term, but it can discourage new entry and protect inefficient operations. The focus should instead be on community connectivity;
• As regional airfares largely reflect the costs of providing services, higher fares do not necessarily indicate a policy problem in need of correction. The case for support instead depends on the consequences of those fares for regional and remote communities and their ability to access services, economic opportunities and personal connection:
  • People in regional and remote communities often must travel for healthcare services. Governments should ensure the patient assisted travel schemes provide timely and adequate support;
  • Air services may not be available on some regional and remote routes without government support. Government support should prioritise routes that are necessary for connectivity, such as for remote areas and islands;
  • Airport infrastructure is funded on a project-by-project basis and funding arrangements do not prioritise regional system needs. Funding should be prioritised to airports that are critical for community connectivity and important public functions. [more - original PR]