The Australian domestic airline industry has been thrown into turmoil following the collapse of Regional Express (Rex) and its withdrawal from capital city routes, leading to a staggering 13% surge in airfares. The void left by Rex’s demise has allowed Qantas and Virgin Australia to tighten their grip on the market, now controlling a combined 98% share as the nation’s airline duopoly.
Rex’s Downfall Sparks Airfare Hikes
The Australian Competition and Consumer Commission (ACCC) revealed in its latest domestic airline monitoring report that average airfares on major city routes jumped by 13.3% in the September quarter following Rex’s suspension of jet operations between metropolitan cities across 11 routes. The budget carrier’s attempt to challenge Qantas and Virgin on lucrative capital city routes ultimately led to its demise, with the company entering administration earlier this year.
Travelers on routes previously serviced by Rex bore the brunt of the price hikes, with the average cheapest economy tickets skyrocketing on several key routes:
- Adelaide to Melbourne fares soared by 95% to $296
- Melbourne to Gold Coast prices jumped 70% to $432
- Canberra to Melbourne tickets climbed 54% to $298
Reduced Capacity Fuels Price Surge
Compounding the impact of Rex’s exit, the number of seats available on capital city routes fell by 6% despite stable passenger numbers, indicating flights are fuller and pricier as a result. The ACCC commissioner, Anna Brakey, attributed the dramatic 13% spike in airfares to “a less competitive domestic airline sector” in the wake of Rex’s collapse and Bonza’s earlier failure.
“Passengers were no longer able to access the lower fares that Rex offered, and airline seating capacity decreased following Rex’s exit. This in turn has contributed to higher airfares,” Brakey explained.
The watchdog noted that earlier this year, nearly half of all passengers flew on routes serviced by either three or four airline groups. However, by November, no domestic route is serviced by more than two major airline groups – Qantas and Virgin Australia – which now cater to 98% of domestic passengers.
Barriers to New Entrants
Brakey cautioned that given the industry’s increased concentration, “it may be some time before a new airline emerges to compete on popular services between metropolitan cities.” She cited normal barriers to entry and growth, exacerbated by aircraft fleet supply chain issues and shortages of pilots and engineers.
Qantas Confident in Slot Dominance
Despite government proposals to reform slot allocation at Sydney Airport to boost competition, Qantas expressed confidence to a senate committee that the changes would not threaten its dominant position. CEO of Qantas Domestic, Markus Svensson, denied the airline engaged in slot hoarding to block rivals, stating, “We do not apply for slots without having intention to operate them.”
Consumers Pay the Price
As the dust settles on the reshaped domestic airline landscape, Australian travelers are left bearing the burden of higher airfares and fewer choices. With Qantas and Virgin facing little resistance in their duopoly reign, consumers can only hope for the emergence of new competitors to disrupt the status quo and bring some relief to their wallets. Until then, the sky-high cost of domestic air travel looks set to continue, leaving many Australians grounded in frustration.
