Beyond the big busy Australian domestic trunk routes, there is a bustling world of regional flying. But it is a tough market to fly in and frequently controversial. As a recent report highlights, it is also a diverse space facilitating flights from the major cities to the tiniest towns.
Australia’s competition czar, the Australian Competition and Consumer Commission (ACCC), recently released a report examining the state of regional flying in Australia. Aside from providing a handy survey of this interesting corner of the airline industry, the ACCC tackles a few bugbears for regional flyers – the high cost of airlines and lack of competition on most routes.
What exactly is a regional air route? Australia’s Bureau of Infrastructure, Transport and Regional Economics (BITRE) defines a regional air route as one that involves any passenger travel to and/or from a non-metropolitan area, including travel between non-metropolitan areas to metropolitan areas as well as services linking non-metropolitan areas with other non-metropolitan areas.
What constitutes a metropolitan area? BITRE relies on Australian Standard Geographical Classification (ASGC) Remoteness Classification bands that lists the five key capital cities – Sydney, Melbourne, Brisbane, Perth, and Adelaide – as metropolitan areas and renders the remainder of the country either regional or remote.
It does lead to some aberrations. Most people would consider the Gold Coast a metropolitan area, part of the broader Gold Coast – Brisbane – Sunshine Coast conurbation. However, normally highly trafficked airline routes like Sydney – Gold Coast and Melbourne – Gold Coast are classed as regional.
The Qantas Group has the biggest share of Australia’s regional airline market
The ACCC says the Qantas Group, Regional Express (Rex), and Virgin Australia carried 1.3 million passengers across 134 regional routes in June 2021. This contrasted with the 1.8 million passengers carried in June 2019.
In June, the Qantas Group (which includes Jetstar) carried the largest share of passengers on regional routes, flying 937,000 (or 72%) passengers on 107 routes. Many of those routes are similar to the Gold Coast flights – routes out of larger capital cities to quite sizeable cities falling under the regional umbrella – Hobart, Townsville, Canberra. Darwin, and Cairns, for example.
Rex and Virgin Australia mop up most of the remaining passengers. The ACCC says both have reduced their regional networks while the Qantas Group expanded. Virgin Australia has significantly scaled back its network following the airline’s collapse and subsequent restructuring in 2020. Top of the route cull list at Virgin Australia were the few smaller regional centers the airline flew to.
Cutting these skinny routes may not have much impacted Virgin Australia’s overall passenger numbers, but they significantly reduced the airline’s regional footprint.
Rex is an altogether different proposition. It mostly flies to genuine regional and remote communities using small turboprops. The airline flies to a lot of destinations, but the low passenger numbers on most of these routes mean Rex only grabs a small overall market share when measured in passenger numbers.
ACCC says there are reasons why regional airfares are often high
Two of the issues that continually draw ire from regional passengers are the cost of airfares and lack of competition. The ACCC report tackles a few myths about both. The consumer watchdog says high airfares are primarily due to low economies of scale. It also adds passengers are often better off with only one airline flying on low-volume routes.
There have been numerous talkfests about the cost of regional flying in Australia – all without much in the way of results. But the ACCC says there are many fixed costs associated with flying regardless of passenger numbers. They make the obvious point that there are generally lower passenger volumes on smaller aircraft flying low-frequency routes. This results in higher-per-passenger costs than for bigger planes on busier routes.
The high cost of airfares isn’t a problem on regional routes flown by, say Jetstar A320s. Instead, it becomes a problem in true regional areas. Out in Central Queensland, the cost of QantasLink and Rex flights to Brisbane is a longstanding point of contention. Many point out it can be cheaper to fly from Sydney to Bali than Balcardine to Brisbane.
The ACCC says four reasons contribute to frequently higher airfares on regional routes. Firstly, smaller markets resulting in fixed costs getting spread over fewer passengers. Secondly, the absence of completion can mean an airline has less incentive to offer lower fares. Thirdly, operational costs such as fuel and labor can be more expensive in regional areas, owing to limited labor and facilities. Finally, low average loads often mean a lot of empty seats. Airlines will try to offset this by charging the passengers who do fly more.
Governments recognize this, particularly on actual regional and remote flying. To that end, there are 17 regulated routes around Australia, many involving multiple stops. State Governments effectively underwrite the cost of these flights, so towns retain air connectivity.
Airlines also recognize the sensitivity of the issue. Qantas, Rex, and Virgin Australia all offer a certain number of subsidized airfares in selected regional routes, primarily in Queensland, Western Australia, and the Northern Territory.
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Sometimes, a lack of competition is a good thing
The ACCC noted in June 2021, only 46% of regional routes between a larger city and a regional center had more than one airline flying them. For routes linking regional centers (i.e. Rockhampton – Mackay), the figure drops to 4%.
Qantas has moved aggressively into the regional space over the last 18 months, much to Rex’s chagrin. But these figures reveal there’s lots of room for airlines who prefer sole operator status.
Generally, passengers prefer competition. The theory is frequencies improve, service steps up, and airfares go down. And that’s often true. But on the skinnier routes, this can be unsustainable. This is Rex’s argument in their ongoing dispute with Qantas. Rex frequently vacates a route after Qantas moves onto it.
From the ACCC perspective, it can be better for passengers to pay slightly more for an airline service to their town if that service is sustainable and ongoing.
“For some routes where there are relatively few annual passengers, it can be significantly more efficient for a single airline to provide the service because any splitting of the market will exacerbate the lack of economies of scale on these routes,” the ACCC argues.
“As a result, a single airline may be able to offer consumers a more sustainable service and more attractive airfares than if there were multiple airlines.”
Do you agree with the ACCC argument about the higher cost of airfares in regional areas and ideas about competition, or the lack of it? Post a comment and let us know.