Do regional flights price gouge passengers? Senate committee’s final report says no


June 11, 2019 11:18:25

A national inquiry has rejected claims that airlines are price gouging travellers on regional routes.

Key points:

  • A Senate committee report found airport fees only make up a small portion of airfares
  • It raised concerns about the burden increased security screening would place on regional airports
  • It also suggested international airlines be allowed to fly domestic routes through Darwin Airport on a trial basis

In its final report, a Senate committee that spent more than 18 months investigating air services in regional Australia put the world-topping fares down to genuine market forces and economies of scale.

That is despite numerous reports from travellers like Hamish Griffin who found it would cost $4,800 for his family to fly 800 kilometres from Cloncurry to Townsville and back, or John Pyper who said he was quoted $1,300 each way to fly from Central Australia to Sydney.

“Based on the evidence before it, the committee could not form the view that there was ‘price gouging’ or other market manipulation taking place by airlines operating in regional areas,” the Senate committee report stated.

“While the committee notes that such a finding may frustrate residents who consider that regional airfares are unnecessarily excessive, the extensive evidence put before the committee in this inquiry does not allow such a conclusion to be reached.

“It appears to the committee that economies of scale are one of the primary factors — if not the primary factor — driving higher regional airfares.”

Its major recommendation geared at lowering these prices was for airlines to consult with local councils, tourism operators and other stakeholders to better understand possible unmet demand and better tailor services to the needs of local communities.

Trial lift of aviation cabotage suggested at Darwin

The committee also suggested giving international airlines the go-ahead to fly domestic routes through Darwin Airport — the nation’s closest international airport to Asia — saying lifting aviation cabotage could lower ticket prices for remote commuters.

Aviation cabotage refers to the transport of goods or passengers from two points in one country by a transport operator from another country — which is currently banned in most countries.

While the committee said it would not support removing cabotage restrictions more broadly, it said the Government could trial the idea in a location where suitable infrastructure already exists and where government underwriting costs would not be required.

“The proximity of Darwin to Asian markets and the fact that Darwin Airport already receives international arrivals may make this location suitable for cabotage trials,” it said.

Northern Territory economic groups have long argued that lifting the restriction in Australia’s Top End would increase competition and drop prices for commuters currently forced to fork out for some of the most expensive routes in the country.

In turn, they said it could increase tourism and create business opportunities.

“For example, Mr Benjamin Quilliam of Alice Springs saw the lifting of cabotage to be of benefit to Central Australia, particularly if international airlines could fly to Alice Springs, then on to Uluru or another Australian capital,” the report noted.

“Mr Quilliam argued that such a measure would increase tourist numbers to central Australia, while introducing competition to the market which could drive down fares for local residents.”

However, Australia’s major domestic carriers are likely to stand in firm opposition to the idea, with its biggest carrier Qantas claiming it would “destabilise the local aviation market” and would be detrimental to the nation’s workforce and economic interests.

“You’ll see people cherrypicking certain routes, so you damage the route network and the economics of Australia’s competitive aviation sector with foreign carriers,” a Qantas spokesperson told the inquiry.

“As we also said in our submission, it eliminates significant numbers of Australian jobs, particularly in the regions, as well as the long-term investment in the market.

“It forfeits Australia’s strategic assets and erodes our negotiating position, if there were ever a future single market in Asia. It also dismantles our regulatory and safety regimes.”

Given Qantas has grounded its entire fleet over a union issue in the past, Northern Territory Chief Minister Michael Gunner has previously indicated any move to restrict cabotage should be made with caution.

“I think Qantas have shown they’re very prepared to play hardball, and we’ve got to be extremely careful we don’t lose Qantas seats into and out of the Territory,” he said.

“The pricing’s an issue, we’ve got to keep fighting Qantas on the pricing and get that pricing down, but Qantas is also the best friend to the Territory as well when we look at the number of seats.”

Airport charges only ‘very small component’ of fare

The committee also found that — despite the outcry from airlines — airport charges make up only a small portion of airfares.

However, it also conceded that when combined with higher operational costs in regional and remote areas, it could be that airport charges become a more significant contributor to the overall airfare.

The issue has been hotly debated by airlines and airports in the Northern Territory, with last year Qantas allegedly refusing to pay airport charges at Alice Springs and Darwin.

In September last year, Northern Territory Airports claimed Qantas owed it $1.6m for three years worth of unpaid charges at Alice Springs and was “seriously contemplating legal action”.

In response, Qantas had claimed the two Territory airports were the most expensive in the country, and called for better regulation to stop airports “charging whatever they want”.

However, the recent Senate committee report cited evidence from Northern Territory Airports acting chief executive Tom Ganley, who said airport charges were only a “very small component of the cost of regional airfares”.

The company also pointed out that airlines “took all the risks associated with demand” and highlighted that a $70m terminal expansion at Darwin Airport had doubled capacity but there had been virtually no passenger growth for the last five years.

It also said that if demand dropped, airlines could always deploy their planes elsewhere, whereas airports risked ending up with stranded assets.

However, Qantas told the inquiry that airport charges and security costs make up 17 per cent of its operational costs.

“When combined with other operational costs — such as fuel, staffing and maintenance — Qantas argued that airport charges had a direct and significant impact on the commercial viability of its services,” the report stated.

The committee also raised concerns about the cost of increased security screening on regional airports.

Senator Rex Patrick — who added his own comments to the end of his committee’s report — said the equipment would cost regional airport operators between $530,000 and $760,000 annually for equipment, maintenance and screening staff costs — which would likely be passed onto travellers through increased ticket costs.

But given national security was a Federal Government issue, it said it should be stumping up the funds to cover these costs.

He also said it was strange that the Federal Government had allocated $50.1m for security screening equipment at regional airports, when these extra security measures were not yet legally required.

“That means that the Department of Home Affairs is seeking to and will likely spend taxpayer’s money on airport security equipment for which there is no legal requirement (and may not be if the regulation is disallowed),” he said.

Senator Patrick also added comments about the issue of pilot shortages, which he said was due to the Civil Aviation Safety Authority suffocating the industry with regulation.

He urged the Australian Government to initiate a “major rewrite” of these rules, in a bid to reverse this trend.

CASA declined to comment.

Northern Territory Airports, Qantas and the Home Affairs Department have been contacted for comment.











First posted

June 11, 2019 10:53:40

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