Higher Airfares, Worse Customer Service After Decades of Qantas-Virgin ‘Duopoly’

A line of Qantas aircraft sits at Kingsford Smith Airport in Sydney, Australia, on Oct. 31, 2021. James D. Morgan/Getty Images

Australia’s competition watchdog declared that the domestic airline industry sits at a “critical juncture,” with the lack of competition costing Aussies with more expensive airfares and declining customer service quality.

In the last two decades, over 90 percent of domestic passengers flew with either Qantas or Virgin Australia.

“Domestic aviation is one of the most concentrated industries in Australia, barring only natural monopolies such as electricity grids and rail networks,” Australian Competition and Consumer Commission (ACCC) Chair Gina Cass-Gottlieb said.

“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.”

According to its final report on airline competition in Australia, the ACCC found that only 72 percent of flights arrived on time, and four percent were cancelled in the month of April. This is below the long-term industry average of 81.5 percent and 2.1 percent, respectively.

Jetstar reported the worst performance, with cancellation rates of more than double of other airlines at 8.1 percent and only 60 percent of flights arriving on time.

The ACCC said a solution to force airlines to provide compensation entitlements for delayed or cancelled flights had merit and will look to consult further with the government on this suggestion.

It also called on the government to introduce an independent dispute resolution ombuds scheme to improve the industry’s declining level of customer service.

Cass-Gottlieb said an ombuds scheme with the power to make “binding decisions” would incentivise airlines to improve customer service.

A general view of the Virgin Australia Terminal at Perth Airport in Perth, Australia, on Jan. 8, 2021. Matt Jelonek/Getty Images

Barricades to Competition in Australian Airlines

The report said that the best legislative reform to promote competition would be to reform the allocation of take-off and landing slots at Sydney Airport to give greater access to smaller airlines.

“Access to peak time slots at Sydney Airport is critical for new and expanding airlines seeking to build an intercity network,” Cass-Gottlieb said.

“Without legislative reform to the airport’s demand management scheme, there will not be any material improvement in domestic airline competition in Australia in the foreseeable future.”

Rob Nicholls, associate professor of regulation and governance at the University of New South Wales, explained why the limited access to gates at Sydney and Melbourne airports has contributed to the lack of competitors in the industry.

“In order to be able to compete effectively, a new entrant needs to be able to have access to gates at both airports. The problem from a competition perspective is that each of those airports is best served by continuing to offer gates to the two incumbents, Qantas and Virgin,” he told The Epoch Times.

“It becomes a vicious circle, access of gates limits number of flights, limited numbers of flights mean less choice for air travellers.

“Attempts to get around these issues by using secondary airports in each city have been unsuccessful.”

Numerous airlines in the past have tried to operate in the domestic industry only to fail. These include Compass, Ansett, OzJet, and Tigerair, which was hit hard by COVID-19 and bought by Virgin in 2020.

Will the New Competition Last?

The expansion of Rex Airlines and the entry of Bonza signalled an opportunity to create more competition. However, ACCC noted that both airlines would need to “grow significantly” to compete with the two giants effectively.

“After two decades of what has essentially been a duopoly between the Qantas Group and Virgin Australia, there is now an opportunity for the industry to enter a more competitive era,” the report said.

Nicholls said Rex and Bonza would need a “significant increase” in access to more airport gate capacity to compete effectively.

He also noted that Bonza did not operate the Sydney-Melbourne route, one of the world’s most busiest air routes, which significantly hampered its ability to compete.

The report also highlighted that the smaller airlines are being impacted by the shortage of pilots and supply chain delays.

Rex has already suspended the Adelaide-Mildura route in May, reduced nine services in other regional routes across the eastern states, and announced its exit from the Adelaide-Whyalla route.

But Rex also announced the launch of its Adelaide-Sydney route, which is currently only operated by Qantas, Jetstar, and Virgin Australia.

The benefits to customers in the entry of a single new competitor like Rex were illustrated in numerous routes, including Sydney-Melbourne, where combined industry revenue per passenger fell by about 25 percent.

But the ACCC warned that the competition provided by Rex and Bonza was “far from assured.”

“New airlines in the past and around the world have often struggled in response to aggressive competition from the incumbent airlines,” it said.

“In this regard, the ACCC will continue to watch how the incumbent airlines respond to Rex and Bonza and will investigate if there are concerns that the behaviour contravenes competition law.”