The Productivity Commission has begun its review of regional airfares with the aim of lowering prices.
The Federal Government has announced the terms of reference for the review, which was flagged by Transport Minister Catherine King earlier this year and will examine the key factors driving high costs on regional routes.
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According to Minister King and Treasurer Jim Chalmers, the review is about “reliable air services at reasonable prices” for regional Australia, and will look at “competition, pricing practices and whether profits along the supply chain are fair”.
“We know that safe, affordable and reliable air services are vital for regional and remote communities, not just for travel, but for accessing healthcare, education and employment,” the ministers wrote in a joint statement.
“More affordable regional airfares can help boost local economies, support tourism and boost productivity in regional Australia.
“The Aviation White Paper found that the average ticket price per kilometer was 52 per cent higher for flights involving regional airports than for flights between two capital cities.
“Despite overall growth in passenger numbers, the number of regional routes fell from 458 to 291 between 1989 and 2021 and the number of remote routes fell from 264 to 163 in the same period. Many routes are now served by a single airline.”
As part of the terms of reference, Treasurer Chalmers highlighted concerns raised in the White Paper development process on “the cost, frequency and reliability of regional air services”.
“Australia’s aviation network covers a very large geographical area with regional airports carrying around 40 per cent of all domestic passengers,” he wrote.
“Given the smaller markets served, regional air routes generally have fewer airlines serving them and less competition than routes between major cities. State and territory governments have implemented a variety of agreements to support intrastate aviation in their jurisdictions.
“Recognising the importance of air services to regional development, more affordable regional airfares could help unlock economic activity and productivity in regional Australia.
“This includes improving the provision of goods and services to regional Australia, increasing tourism demand, improving Closing the Gap outcomes and supporting regional migration.”
Speaking to Australian Aviation earlier this year, Rob Walker, chief executive of the Regional Aviation Association of Australia (RAAA), said the solution to high regional airfares will likely involve a “combination of things”, and that regional airlines often operate on very tight margins.
“When you’re a larger airline, you have a network that you can really amortize your cost base over. For some regional operators, it might be one or two routes that they have with smaller aircraft that are obviously not as profitable as operating a large narrow-body aircraft, or something like that,” he said.
“It’s really about breaking down what’s in that regional airfare, because airline staff costs are one thing, but closely followed by the cost of fuel, the cost of airport landing charges, the cost of some of the other relatives and allies, ground support, regulatory burdens, etcetera. So the profit margins are super, super thin.
“It’s about starting that conversation and trying to make sure that all the factors that contribute to an airfare are well understood. If there is an opportunity to do it better, cheaper, faster or improve them in some way, that is the area to consider.”
The Productivity Commission will undertake a public consultation process as part of its review, with a final report expected in around 18 months.
