Qantas reduce flight capacity; RBA hikes rates

The report, led by former Australian Competition and Consumer Commission (ACCC) chair Allan Fels, suggests that Qantas’ decision to reduce domestic flight capacity and increase airfares in 2022 may have influenced the Reserve Bank to raise interest rates. The Australian Council of Trade Unions (ACTU) has released an inquiry report accusing Qantas of price gouging and contributing to inflation.

According to the report, Qantas made capacity cuts in response to high fuel prices related to Russia’s invasion of Ukraine, leading to a reduction of 10% in domestic capacity in May 2022. The airline further cut capacity by 5% in July and August, with another planned cut of 10% in October. The report claims that these decisions, combined with the surge in travel demand following the reopening of internal and international borders, may have contributed to inflation.

Fels points out that Qantas’ ability to reduce supply while increasing prices without losing market share may have impacted the Consumer Price Index (CPI) in December 2022, influencing the Reserve Bank’s inflation expectations and rate increases. The report suggests that Qantas’ fare increases possibly accounted for up to 25% of the increase in the ‘holiday travel and accommodation’ contribution to inflation during the December quarter.

The inquiry also highlights the increase in rates of cancellations and flight disruptions by Qantas and Virgin throughout 2022, citing challenges in returning to pre-COVID operations due to staff shortages, COVID waves, and high demand. The report concludes with criticism of the government’s decision to reject Qatar Airways’ proposal to increase flights to Australia, suggesting it may have contributed to keeping international airfares higher.

In response, Qantas mentioned that the temporary spike in fares post-COVID reflected reductions in capacity to improve operational resilience and coincided with a period of high demand. The airline also noted the increase in fuel prices, contributing to higher fares across all airlines. Virgin has not yet commented on the report.

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