According to the national airport organization, Qantas and Virgin now account for 95% of Australia’s domestic aviation industry. This domination dwarfs other sectors such as banking and supermarkets and has allowed the airlines to jack up profit margins.
According to a statement made by the Australian Airports Association (AAA) in response to a parliamentary inquiry, the continued duopoly of Qantas Group and Virgin Australia in the domestic aviation sector has allowed airfares to rise above pre-pandemic levels even when adjusting for inflation. Qantas Group is an airline conglomerate that includes the low-cost carrier Jetstar.
The Australian Airports Association (AAA) said that the cost of flying within Australia grew by 22.6% between 2019 and 2022 and that the cost rose by 19.3% between the first quarters of 2020 and 2023.
Despite a general decline in the cost of jet fuel, airlines have been increasing the prices of their tickets. After the invasion of Ukraine in June 2022, when airlines cited the high cost of fuel to justify record ticket rates, prices increased to a high of $259 per barrel. Since then, however, they have fallen to a low of US$137 per barrel in May, which is a decrease from that peak.
The Australian Automobile Association (AAA) stated that despite falling prices for aircraft fuel and an increase in airport fees of only 3% between 2019 and 2022, domestic airfares in Australia remained relatively costly.
The two largest airlines in the world have little motivation to improve their on-time performances because there is no significant rivalry between them. As a result, cancellation and delay rates have increased, as reported by the AAA.
According to the AAA, on-time performance in the domestic market for the month of April 2023 was 71.8%, which is “well below the long-term industry average” of 81.5%.It caused alarm regarding Qantas and Virgin’s market share, although the most concern was directed toward Qantas’ dominance, which is currently 66% of the domestic aviation industry. This was especially the case following the pandemic when Virgin went into receivership and reappeared with new owners.
An examination of Qantas’ domestic earnings before interest and taxes (EBIT), which provides an indicator of profit margins, reveals an increase from 12% in 2016–17 to the 18% projected in the most recent financial year. This represents a significant jump. Over the course of those six years, this amounted to an increase in profit margins of around fifty per cent.
According to the Australian Airports Association (AAA), normal profit margins for domestic airlines in Australia are between 8% and 10%. It was pointed out how the profit margin of Woolworths, a company that itself has been accused of increasing its margins through the cost of living issue, has climbed from 5.6% to 5.9% during the previous three years. Woolworths is a firm that has itself been alleged to have expanded its margins through the cost of living crisis.
According to the AAA, Qantas and Virgin’s combined market share of 95% is much higher than that of other industries. The top two companies in the mortgage lending market are Commonwealth Bank and Westpac, and they control 47.3% of the market between them. However, the big four banks control 75.2% of the market between them.
According to the AAA submission, Coles and Woolworths hold 64% of the market share for food and grocery, while Telstra and Optus control 81% of the market for telecoms. Both companies are based in Australia.
According to James Goodwin, the chief executive of the Australian Airports Association, the power held by Qantas and Virgin has resulted in higher air tickets being charged to Australian customers.
“When any market is dominated so much by one or two players, it really changes how a market operates,” he added. “There are no winners when any market is dominated by one or two players.”
According to Goodwin, the situation in Australia is getting closer to the point when “new competitors are too scared to enter the market.”
“The two major players decide where they fly and when they fly, and regulators can become reluctant to act because we are so reliant on them to allow Australians to fly.” [citation needed] “We are so reliant on them to allow Australians to fly.”
His remarks came on the heels of an announcement made on Thursday by Bonza, a startup airline that began operations in January, that it would be eliminating five of its 27 routes due to low demand.
Goodwin made a request to the government of Albanese to give instructions to the Australian Competition and Consumer Commission (ACCC) to keep monitoring the competition among airlines. This monitoring was initiated by the Coalition at the beginning of the epidemic. Goodwin made this request.
The directive was terminated in June, and in its final report, the ACCC lambasted policy flaws that it claimed were preventing true competition in the aviation industry. Most notably, the ACCC criticized the allocation of slots at Sydney Airport, where the number of take-offs and landings is subject to a statutory limit.
Both Bonza and Rex have voiced their dissatisfaction with the fact that they are unable to obtain peak time slots, which would enable them to expand their services to Sydney.
According to a representative for Qantas, Australia has “one of most open as well as competitive aviation markets in the world,” and the country now has four jet carriers competing in its domestic market for the first time ever.
In recent months, the airline has reportedly seen improvements in both its rate of punctuality and its rate of mishandled baggage, according to a spokeswoman.
