How to Improve Competition in Australian Aviation

The Australian aviation industry, dominated by a duopoly of Qantas and Virgin Australia, has faced intense scrutiny over the years. The Australian Competition and Consumer Commission (ACCC) has been at the forefront of addressing various concerns, including high airfares, limited competition, and inadequate customer service.

In this article, we explore the challenges and potential solutions to foster competition in the Australian aviation industry. From understanding the implications of a duopoly to discussing regulatory reforms and strategic approaches, we'll delve into the intricacies of the aviation market in Australia.

Understanding the Aviation Duopoly

A duopoly in the aviation sector can lead to reduced competition, higher prices, and potentially less incentive for innovation. In Australia, this duopoly is exemplified by the dominance of Qantas and Virgin Australia. Over the last two decades, these two airline groups transported more than 90% of domestic passengers, a clear indication of their market power.

This duopoly, however, has been a subject of concern for both industry stakeholders and the ACCC. The limited competition has resulted in higher airfares and poorer service for consumers, prompting a need for regulatory and strategic intervention.

Slot Allocation Reform

One of the primary reforms proposed to enhance competition in the Australian aviation industry relates to the allocation of slots at major airports. The current system often leads to slot hoarding, limiting the ability of new entrants to gain a foothold.

Reform Proposal 1: Implement measures to prevent slot hoarding at major airports.

Reform Proposal 2: Reserve specific slots for new entrants or regional carriers.

The industry may enter a more competitive period by reforming the legislative scheme that allocates take-off and landing slots, particularly at Sydney Airport.

Promoting New Entrants

Encouraging new entrants to the aviation market is another crucial step towards breaking the duopoly. This step could involve offering tax breaks or incentives for new airlines or those that want to expand operations in Australia. Additionally, reducing bureaucratic red tape for licensing and certifications could facilitate quicker market entry for new players.

Strategy 1: Offer tax breaks or incentives for new airlines.

Strategy 2: Reduce bureaucratic red tape for licensing and certifications.

The expansion of Rex and the entry of Bonza are seen as positive developments for the Australian aviation industry. However, for these airlines to compete meaningfully with Qantas Group and Virgin Australia, they would need to grow significantly.

Reviewing Foreign Ownership Restrictions

Foreign ownership rules in the aviation industry often act as a barrier for international airlines or investors looking to start operations in Australia. Relaxing these rules could encourage such players to invest in smaller, local carriers, helping them to become more formidable competitors.

Regulatory Reform: Relax foreign ownership rules to encourage international airlines or investors to start operations in Australia.

However, such a move must balance national interests and security considerations.

Ensuring Fair Access to Infrastructure

Access to essential aviation infrastructure like terminals, maintenance facilities, and refuelling facilities can be a significant roadblock for new or smaller airlines. Dominant players often control these resources, making it difficult for other airlines to operate effectively.

Regulatory Measure: Mandate shared access to essential aviation infrastructure.

By enforcing shared access to such infrastructure, regulators can lower the operational costs for new entrants, thereby promoting competition.

Investigating Anti-competitive Practices

The ACCC is vital in keeping the aviation industry fair and competitive. By strengthening competition laws and vigilantly investigating and penalising anti-competitive behaviour, the ACCC can ensure a level playing field for all airlines.

Regulatory Action: Strengthen competition laws and ensure rigorous investigation and penalisation of anti-competitive behaviour.

The ACCC's ongoing vigilance in monitoring airlines' conduct and taking action, where necessary, is essential to maintaining competition in the industry.

Supporting Regional Airlines

Regional airlines provide essential links between smaller cities and can be nurtured to grow into larger competitors. Government subsidies, grants, or incentives can support these airlines, helping them to thrive and compete in the market.

Support Strategy: Provide government subsidies, grants, or incentives to support regional airlines.

By supporting regional airlines, regulators can help diversify the aviation sector and reduce the power of the duopoly.

Encouraging Alliances with International Carriers

Forming alliances with larger international airlines can provide Australian regional carriers or potential new entrants with the operational and financial backing they need to expand and compete more effectively.

Strategic Alliance: Allow Australian regional carriers or potential new entrants to form alliances with larger international airlines.

Such alliances can help new entrants overcome some of the barriers to entry and compete on a more level playing field with the dominant players.

Revisiting Pricing Structures

Pricing structures in the aviation industry often favour the dominant players, who leverage hidden fees to their advantage. Introducing regulations that require airlines to disclose all fees upfront can prevent this practice and promote fair competition.

Regulatory Reform: Introduce regulations that require airlines to disclose all fees upfront.

Transparency in pricing can help consumers make informed decisions and encourage airlines to compete based on service quality rather than hidden fees.

Developing Secondary Airports

Investing in secondary airports and creating incentives for airlines to operate there can decentralise the industry's focus from major hubs. This can allow more airlines to compete effectively, thereby reducing the dominance of major players.

Infrastructure Development: Invest in secondary airports and create incentives for airlines to operate there.

Developing secondary airports can also boost regional economies and give travellers more choices and convenient options.

Supporting Low-Cost Carriers (LCCs)

Low-cost carriers (LCCs) can introduce significant price competition in the market. Regions can challenge the duopoly's pricing strategies by creating an environment conducive to their operations.

Support Strategy: Create a conducive environment for the operation of low-cost carriers.

LCCs often operate on thin margins, and support from the government or regulatory bodies can help them thrive and compete effectively with major airlines.

Consumer Advocacy

Supporting and promoting consumer advocacy groups that raise awareness about competition's benefits can pressure policymakers to implement change. These groups can help consumers understand their rights and make informed choices.

Consumer Advocacy: Support and promote consumer advocacy groups to raise awareness about the benefits of competition.

Consumer advocacy can play a crucial role in shaping the industry by demanding transparency, fairness, and accountability from airlines.

Frequent Market Reviews

Regular reviews of the aviation market by an independent body can help monitor the duopoly's power and assess the effectiveness of implemented measures.

Market Review: Conduct regular reviews of the aviation market by an independent body.

These reviews can provide insights into the current state of the market and suggest necessary changes or reforms to enhance competition.

Educating the Market

Public campaigns on the benefits of increased competition can shape consumer choice and generate support for new entrants. Educating the market about the potential advantages of a more competitive aviation sector can help break down resistance to change and encourage a more competitive landscape.

Market Education: Conduct public campaigns on the benefits of increased competition.

While diversifying the Australian aviation sector and reducing the duopoly's power will require a multi-faceted approach, the right mix of regulatory reform, incentives, and support for new entrants can create a more competitive and consumer-friendly environment.

The Australian aviation industry is at a pivotal juncture. The decisions made now will shape the industry's future and determine whether it remains a duopoly or becomes a vibrant, competitive market that serves the needs of all Australians.