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30 January, 2024

REPORT: Airfares drop by half when three carriers compete on single route

An aerial view of Kingsford Smith Airport in Sydney.

A new report via Australia’s competition taskforce has revealed that airfares drastically drop in price when two or more carriers are competing on a route.

In a speech set to be delivered today, reportedly seen by The Australian, Andrew Leigh, the assistant minister for competition, says competition is a key factor that can help deliver cheaper flights to Australians.

“When one airline services a route, airfares average 39.6c per kilometre. With two competing airlines, the average fare drops to 28.2c. With three competitors, (it falls) to 19.2c,” the speech reads.

In other words, the price per kilometre is halved when three competitors fly a route compared with the situation when there is only a single monopoly airline.

“With four or five competitors, the price drops further still. They find these results for all routes and the top 200 routes by passenger traffic.

“Initial results further indicate that the mere threat of competition in the aviation sector has, on average, helped to lower prices.”

The revelations fly in the face of transport and infrastructure minster Catherine King’s decision last year to block Qatar Airways bid for over 20 new flights each week into and out of Australian Airports.

Instead, Leigh will call for more competition.

“Aviation competition has been fundamental to connecting Australian cities to one another, and connecting our country to the world,” Leigh’s speech reads.

“Still, many Australians suffer from a lack of competition.

“For example, for a resident of Darwin, it is often cheaper to fly from Darwin to Singapore than it is to fly from Darwin to Sydney – even though the international flight is longer than the domestic one.”

In August 2023, the Australian treasurer, Jim Chalmers, announced a “rolling two-year competition review” which is advised by a panel of experts and chaired by Kerry Schott.

The team has (and continues to) review competition policy settings, such as the ACCC’s request for stronger powers to stop anti-competitive measures.

(Featured Image: An aerial view of Kingsford Smith Airport in Sydney – iStock)

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Andrew Leigh Catherine King Jim Chalmers