In a report released today, the Australian Competition and Consumer Commission (ACCC) has warned airlines not to hold back additional capacity to keep fares high. The warning, aimed mainly at Qantas, Virgin Australia, and Jetstar, comes as the cheapest available fares reached a 15-year high in September.

The ACCC's December Airline Competition In Australia report shows that airline capacity is not keeping pace with demand, and because of that, average airfares are higher than they have been in years. With strong demand, reduced capacity, and sustained high fuel prices, airfares are now higher than pre-pandemic levels. The report says that average revenue per passenger, an indication of average airfares across all fare types, was 27% higher in October 2022 than in October 2019.

Discount fares have gone AWOL

With airlines operating at high passenger load factors and forward bookings heading skyward, there is no incentive for them to discount fares. The ACCC found that when discount fares were released, they quickly sold out, and the prices were not overly attractive.

Its index of discount economy fares across Australia's top 70 domestic routes in November shows fares more than double what they were in April 2022 when they hit an 11-year low. In September, the same index hit a 15-year high, going from one extreme to the other in just five months.

Virgin Australia Being 737
Photo: Virgin Australia

ACCC Commissioner Anna Brakey said that historic highs and lows for discount airfares in the same year illustrate how changeable the market has been in the post-pandemic recovery. The ACCC's bark went along these lines from the commissioner:

"We accept that the airlines are still experiencing some pandemic-related resource challenges, but the ACCC will be monitoring them closely to ensure they return capacity to the market in a timely manner to start easing pressure on airfares. We would be concerned if airlines withheld capacity to keep airfares high."

As a government regulator, the ACCC cops plenty of flack from the public whenever high prices align with high company profits, with most of their attention centered on the price of (car) petrol. After years of losses, no one begrudges airlines like Qantas, Virgin Australia, or Rex for returning to profit, but the size of the profit is raising the pressure on the ACCC, particularly in the case of Qantas.

Big profits are raising eyebrows

Over the last two months, the Qantas Group, which includes Jetstar, has upgraded its July-December profit forecasts, with the market leader now predicting a six-month underlying profit of AU$1.35 to AU$1.45 billion ($905-$972 million). The ACCC points out that this is "close to the company's record for a full year of operation."

Qantas is about to make more in 6 months than it usually does in a year
Photo: Getty Images

International fares are similarly inflated but are mainly affected by a lack of competition on key routes. In September 2019, 58 airlines were operating to and from Australia, compared to 44 in September this year. As border restrictions have largely disappeared, overseas airlines are returning, and this added capacity will likely push prices down in 2023.

Rex is carving out a niche

REX Boeing 737-800 Sydney
Photo: Rex.

The lack of price competition has seen domestic market shares stay relatively stable throughout 2022. As the largest airline in the country, Qantas is the market leader with 38%, and with Jetstar holding 23.1%, the Qantas Group dominates the market with a 61.1% share.

That share is significant to Qantas, and its CEO Alan Joyce, with a so-called line in the sand of 60% set as the minimum for the group. According to the ACCC, Virgin Australia flew 33.6% of all passengers while new entrant Rex accounted for 5.3%, a very credible effort given it only has seven Boeing 737s in its fleet.

Are competition regulators in other countries focusing on airfares? Please let us know in the comments.

Source: ACCC