6 December, 2022

ACCC concerned airlines could withhold capacity to keep airfares high

By Alexandra Coulton

Aussie airlines are forecasting a profitable financial year and domestic travellers are footing the bill, according to the ACCC’s latest airline competition report.

Domestic airfares were 27 per cent higher in October 2022 compared with the same period in 2019, and the extra revenue has led Australia’s three airline groups to forecast a profitable financial year after three years of significant losses, the Australian Competition and Consumer Commission (ACCC) has revealed.

Airfares have risen due to strong demand for post-COVID travel, and limited supply caused by airlines having to scale back their schedules in response to high jet fuel costs and operational challenges, according to ACCC commissioner Anna Brakey.

Index of average fare revenue per passenger – January 2019 to October 2022 (ACCC)

Of the different fare types, discounted economy fares have increased the most, despite fewer flights but strong demand providing little incentive for airlines to offer special fares to fill planes.

An index of the discounted economy fares across Australia’s top 70 domestic routes in November 2022 was more than double what it was in April 2022, when it hit an 11-year low. In September this year, the same index of the cheapest available fares reached a 15-year high.

“Historic lows and highs for discount airfares in the same year illustrate how changeable this market has been as the industry recovers from the pandemic,” Brakey said.

“We accept that the airlines are still experiencing some pandemic-related resource challenges, but the ACCC will be monitoring them closely to ensure they return capacity to the market in a timely manner to start easing pressure on airfares.”

“We would be concerned if airlines withheld capacity to keep airfares high.

“In the current climate of high airfares, competition is more important than ever in helping to constrain prices, and giving consumers more choice.”

Qantas, Virgin Australia and Rex all expect to be profitable in the current financial year ending June 2023.

The Qantas Group expects an underlying profit before tax of between $1.35 billion and $1.45 billion for the six months to the end of 2022, which is close to the company’s record for a full year of operation.

The report also showed a spike in flight cancellations and delays in winter this year as airlines dealt with high rates of staff illness, workforce shortages and supply chain disruptions.

While staff absences have declined, the industry continues to deal with workforce shortages and supply chain issues.

Domestic cancellations and delays – July 2022 and October 2022 (ACCC)

Brakey said airlines have told the ACCC they are keeping additional crew and aircraft on standby to help minimise delays over the summer holidays.

Jetstar, Qantas, Rex and Virgin Australia collectively cancelled 2.9 per cent of their domestic flights in October 2022, down from 6.4 per cent in July and closer to the long-term average of 2.1 per cent.

Nearly 31 per cent of all flights were delayed in October, compared with the long-term average of about 18 per cent. Qantas and Rex cancelled the lowest proportion of flights in October, and Qantas had the best on-time performance of the airlines.

On 19 June 2020, the ACCC was directed by the former Treasurer to monitor the prices, costs and profits of Australia’s domestic airline industry and provide quarterly reports to inform Government policy over a three-year period.

Image source: iStock/BeyondImages

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