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The Guardian - AU
The Guardian - AU
National
Elias Visontay Transport and urban affairs reporter

ACCC keeping ‘vigilant’ watch on Qantas and Virgin airfares after Rex retreat

Qantas and Virgin planes parked on the tarmac
The ACCC says that Rex’s exit from major city routes, after Bonza’s collapse and Rex entered administration, means lower air fares could now end. Photograph: Bloomberg/Getty Images

The competition watchdog has told Qantas and Virgin it will keep a “vigilant” eye on their air fares, as it warns the dominant carriers could capitalise on the axing of Rex’s competing inter-city flights by increasing ticket prices on high demand routes.

The Australian Competition and Consumer Commission (ACCC) issued a bleak assessment of airline competition when releasing its latest quarterly domestic aviation monitoring report – a government-ordered exercise – on Thursday, its first since the liquidation of budget carrier Bonza in July and Rex’s entry into voluntary administration.

In the report, the ACCC warned that Rex’s exit from major city routes, so soon after Bonza’s collapse earlier in the year, means that lower air fares that Australians had enjoyed as a result of increased competition challenging the Qantas and Virgin duopoly – which includes the former’s budget carrier Jetstar – could now end.

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“The ACCC cautions that consumers may miss out on the benefits of a more competitive domestic airline market if Rex is unable to re-commence its services between metropolitan cities,” the ACCC said.

While Rex’s regional services remain in operation as a new buyer is sought, few in the industry expect a resumption of the airline’s Boeing 737 services between major cities, including the lucrative Sydney-Melbourne-Brisbane golden triangle.

“While Bonza and Rex provided relatively limited jet capacity on these metropolitan competing routes, the exit of both airlines on these routes may mean that consumers face higher air fares and reduced choice for domestic travel,” the watchdog added.

The ACCC report noted airline competition had been at record highs before turmoil engulfed Bonza and Rex’s jet operations. For the first time in Australian history, there had been four airline groups competing on a single route – between Melbourne and the Gold Coast from November 2023 until Bonza’s flights ceased in April.

Even after Bonza’s collapse, in June routes serviced by three airline groups represented 50% of domestic passengers.

“Compared to their 2019 levels, air fares on routes with increased competition have been lower than the broader domestic network in every month since February 2023, indicating that increased competition has resulted in lower air fares for consumers,” the ACCC said.

By July, after Bonza’s collapse and Rex’s axing of jet services, no domestic route has more than two competing airline groups, the ACCC said.

The watchdog also found that on the routes between major cities where Rex launched services to rival Qantas Group and Virgin, the airlines competing on the contested routes generated less revenue from the average passenger compared with 2019 figures as well as air fares in the broader network of routes unaffected by new entrants.

The ACCC said the lower air fares passenger revenues were directly driven by Rex’s decision to expand and directly compete with the Qantas and Virgin duopoly on major city routes from 2021.

Anna Brakey, ACCC commissioner, said air fares fell by about 25% across when Rex stepped up its competition.

“With the suspension of Rex’s services between metropolitan cities, we are closely monitoring air fares and remain vigilant to any increases in prices on routes that Rex is no longer flying on.”

Brakey told Guardian Australia that more competition not only leads to lower air fares, but pressures rival airlines into better on time performances and cancelling fewer flights.

Brakey pointed to departmental cancellation data released on Wednesday showing that in July, Qantas cancelled 10.7% of flights on the Melbourne-Sydney route. Meanwhile, when Rex flew the service, in some months it cancelled no flights at all.

Brakey said that improving access to Sydney Airport for those wanting to expand – a hurdle long flagged by airport bosses, airlines and industry experts – “may have assisted Rex” in further competing between major cities.

The ACCC has previously alleged that Qantas and Virgin strategically schedule flights – thereby occupying a take off or landing slot, before cancelling it – purely to retain a slot and prevent competitors launching rival services from Sydney Airport, where a curfew and hourly cap mean slots are scarce.

Critics point to the cancellation rate on the Sydney-Melbourne route – as high as one in 10 flights – as proof of so-called “slot hoarding” by Qantas and Virgin, but the two companies have repeatedly denied they misuse slots.

Recommendations from a 2021 review to boost competition at Sydney were not implemented by the Morrison government, nor by the Albanese government to date.

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