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A new report from Australia's competition watchdog has revealed the full extent of domestic airfare price hikes since the collapse of Rex Airlines in July, with travellers paying 13 per cent more on average for flights on major city routes.
It is a figure that understates the real increase for passengers seeking discount fares on specific routes that used to be serviced by Rex, where in some cases the price has doubled or almost tripled.
In April last year the Australian Competition and Consumer Commission (ACCC) reported the Virgin and Qantas serviced 94 per cent of all domestic passengers, noting a minimal impact from contenders Rex and Bonza to apply pressure on price, service and reliability.
But now with Rex and Bonza both grounded, Qantas, its subsidiary Jetstar and Virgin now account for approximately 98 per cent of all domestic air travel, while total capacity across major city routes fell by 6 per cent between July and September.
"The recent spike in airfares corresponds with a less competitive domestic airline sector after Rex’s exit from 11 of the 23 services between metropolitan cities," says ACCC Commissioner Anna Brakey.
"While we also typically see a seasonal peak in air travel in September due to major sporting events and school holidays, there were additional pricing pressures this year.
"Passengers were no longer able to access the lower fares that Rex offered, and airline seating capacity decreased following Rex’s exit. This in turn has contributed to higher airfares."
Brakey says the exit of Rex as a third competing airline group on services between metropolitan cities "may have significant longer-term impacts on the domestic aviation sector".
"The domestic airline industry has become even further concentrated, and it may be some time before a new airline emerges to compete on popular services between metropolitan cities, with normal barriers to entry and growth exacerbated by aircraft fleet supply chain issues and pilot and engineer shortages," she says.
"With less competition, there is less choice for consumers and less incentive for airlines to offer cheaper airfares and more reliable services."
The 13 per cent average increase belies a more significant lift in prices for specific routes, with the ACCC's Domestic Airline Competition report highlighting a significant impact on ‘best discount economy’ tickets between July and October for metropolitan routes that Rex no longer services.
This includes an increase of up to 95 per cent for Adelaide to Melbourne at $296, a 70 per cent increase for Melbourne to the Gold Coast at $432, and a 54 per cent rise for Canberra to Melbourne at $298.
For some routes the price hike was worse still, with Canberra-Gold Coast discount fares up 171 per cent to $490, Brisbane-Hamilton Island fares up 122 per cent to $871, and Cairns-Sydney up 43 per cent at $380.
Despite jet fuel prices falling by 41 per cent in the 12 months to September 2024, domestic airfares have remained at similar levels for the same period. While the average revenue per passenger was higher in nominal terms (+2.6 per cent), there was no change in real terms (-0.2 per cent).
In contrast, Flight Centre’s FCM Travel and Corporate Traveller showed that the average cost of an international economy airfare departing from Australia decreased on average by 5-10 per cent from July-September 2023 to July-September 2024.
The ACCC also points to a "very strong year' financially for Qantas and Virgin in FY24, in contrast to Bonza and Rex, with Qantas recording underlying earnings of $2.28 billion while Virgin reported $519 million for the same metric.
"In August 2024, the Australian Government announced its reforms to the aviation sector in its Aviation White Paper. Some of these initiatives aim to create better competitive conditions for the domestic market, including through reforms to the Sydney Demand Management Scheme," the report authors add.
"Others will enhance the rigour to which airlines are held to account with respect to consumer outcomes, such as through the Aviation Industry Ombuds Scheme."
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