The bombshell claim that Qantas may have contributed to interest rate rises and inflation in 2022 has come under fire by the Australian Bureau of Statistics (ABS) and UNSW economics professor Richard Holden.
The claim, which came from Allan Fels’ price gouging inquiry commissioned by the Australian Council of Trade Unions (ACTU), suggested that Qantas’ decision to drop capacity and raise its prices had a considerable impact on inflation.
Specifically, Fels suggested the airfares charged by Qantas were “large enough to produce a sizeable increase in the holiday travel and accommodation contribution to inflation, possibly up to 25 per cent of the increase that quarter as it appeared in the Bureau of Statistics CPI measure”. He went on to argue that Qantas’ ability to reduce supply while maintaining its market share could have influenced the Reserve Bank’s inflation expectations and rate increases.
However Holden disputes this claim. He argued that the 25 per cent figure arises from all aspects of domestic and international holiday travel, not just Qantas’ domestic capacity, as was suggested.
“The idea that Qantas accounted for 100 per cent of that category, as the report says, is wrong,” Holden told Travel Weekly.
Holden also disputed the claim of Qantas’ airfares being the highest contributor to the increase in the consumer price index as this doesn’t align with how the RBA determines interest rates.
“The inflation measure that the RBA look at when considering interest rates… is the so-called ‘trend mean inflation figure’ that lops off the biggest decreases in prices and the biggest increases in prices. It looks at the middle 70 per cent of price changes. It’s a measure of what economists call underlying core inflation.”
When asked why Fels, who Holden emphasised his respect for, would include such information, Holden said it was quite uncharacteristic of him and alluded to possible influence by the ACTU.
“I can see why that element of the report would serve the interest of the people who paid for the report,” Holden said.
An ABS spokesperson echoed Holden’s first point, emphasising that “70 per cent of the contribution of holiday travel and accommodation came from domestic holiday travel and the remaining 30 per cent from international holiday travel.”
Despite the lack of consensus on whether Qantas impacted rate rises and inflation, the airline’s move to reduce capacity and raise prices was criticised by Holden’s colleague Gigi Foster, another professor of economics at UNSW.
Foster described the Australian aviation industry as oligopolistic, meaning it’s dominated by a few players, and was susceptible to price gouging.
“The more competition we have, the more suppliers coming to market with products or services at whatever price, [then] the more every single supplier is kept on their toes because they know that if they charge too much the consumer is [going to] go elsewhere,” Foster told this publication. She also argued that the soaring demand for travel that arose post-COVID combined with struggles that Qantas and other airlines faced as they tried to get themselves back to pre-COVID form meant the National Carrier could keep its prices high.
“Qantas will have input prices for everything from personnel to catering company contracts and if those prices start to come down a bit, Qantas could go ahead and pass those savings on to the consumer at the retail level,” she said. “But maybe it won’t. They’re able to not pass those cost savings on as they come through the supply chain more in a less competitive market, which is exactly what you see in Australia.”
Qantas posted a record high post-tax profit of $1.74 billion for FY23, while the Australian Competition and Consumer Commission (ACCC) announced an investigation into the carrier, alleging it was selling tickets on flight that it had knowingly cancelled.
ACCC chair Gina Cass-Gottlieb said that she is seeking a $250m fine from the airline.
(Featured Image: Qantas aeroplanes at Sydney Airport – iStock.com/oversnap)