ACCC seeks airport reforms to end Qantas-Virgin duopoly

The consumer watchdog says the pandemic downturn in air travel is an opportunity to encourage more competition in Australian skies

By David Flynn, January 15 2021
ACCC seeks airport reforms to end Qantas-Virgin duopoly

Could COVID-19 provide an opportunity to reshape competition among domestic airlines and make it easier for challengers to take on the established duopoly of Qantas and Virgin Australia?

That's the hope of the Australian Competition and Consumer Commission, which is lobbying for changes in how airports assign take-off and landing slots.

In its submission to a Senate inquiry into the future of Australia's aviation sector, ACCC Chair Rod Sims noted that "access to slots at Sydney Airport is a key barrier to entry and expansion in Australian air passenger services markets."

Airport curfews and physical limitations on runway movements mean that a number of Australian airport are "slot-constrained", which makes those slots a precious asset for airlines.

And under the current rules, slots allocated to an airline remain with them indefinitely.

'Slot hoarding' stymies competition

However, the consumer watchdog said the "hoarding of airport slots" reduces rivalry between airlines which would otherwise "encourage cheaper airfares, more favourable terms and conditions, better quality inflight services, more frequent services and a broader network reach."

The ACCC flagged concerns over airlines scheduling flights "for the purpose of retaining a slot but with no real intention of operating the flight, and likely cancelling the flight close to its schedule departure time... to prevent a competitor from accessing those slots."

Sydney Airport was singled out in the ACCC's submission as an example of a heavily slot-constrained airport, especially during peak early morning and late afternoon periods of a weekday.

But with domestic flying on the once-crowded Sydney-Melbourne-Brisbane 'triangle' now at an all-time low due to ongoing border closures, and international flights pared to almost zero, the ACCC  suggests this is the best time to rethink slot management.

It has suggested temporarily reallocating unused international slots for domestic use, to create a short-term "pandemic recovery pool" of slots, while airlines would be fined for not using allocated slots as an incentive for them to return slots they don't really need.

Slots under the microscope

Seperate to the Senate inquiry, in November 2020 the Federal Government released a "Sydney Airport demand-management discussion paper" to examine if changes are needed to both the slot scheme and the airport's current cap of 80 take-offs and landings every hour.

The fresh focus on airport slots comes as Regional Express prepares to challenge Qantas and Virgin on the east coast triangle from March 1, with fares starting at $79 for economy and $299 in business class.

 

Although Rex's startup fleet is a mere six Boeing 737 jets – all of which were formerly leased to Virgin Australia – the airline hopes to build up its network to cover "all the other capital cities and major cities in Australia."

"By the end of 2022... Rex’s ambition is to be a sizeable domestic airline operator with a fleet of 30 or maybe 40, maybe even more narrow-bodied single-aisle aircraft operating on the domestic network around Australia," Rex Deputy Chairman John Sharp says.

That expansion would of course rely on the availability of many more slots, not only at its Sydney hub but at other domestic airports.

However, Qantas Group CEO Alan Joyce believes there's simply no room in Australia's skies for a third major airline, with either Virgin or Rex set for a fall.

"My personal view is that this market has never sustained three airline groups and it probably won’t into the future," he said at this week's Reuters Next online forum.

"You can be guaranteed that Qantas will be one of them – it’s who else is going to be in the market place post this, and into the future is going to be interesting."

Read more: Can Rex win the business class battle against Qantas, Virgin?

David

David Flynn is the Editor-in-Chief of Executive Traveller and a bit of a travel tragic with a weakness for good coffee, shopping and lychee martinis.

Qantas - Qantas Frequent Flyer

14 Oct 2012

Total posts 25

The ACCC needs to get a dose of reality and stop "hoping"...  Rod Simms is living in a fantasy land...  it's not going to happen. 

Virgin Australia - Velocity Rewards

24 Jan 2018

Total posts 527

Dear Mr Simms, can I share with you some confidential information: we live on this dirty great big island nation with a land mass of 7.6 millions SqKms and population of only 25 million.  

I believe its what you economists (not desk-jockeys, 'economists') would call it a 'small market' covering a big footprint

Contrast these facts with the UK, a small island nation with a land mass of less than 240,000 Sqkms, but a population of over 68 million people and a very highly developed rail network (even before HS2).  That's what's known as a large market on a small footprint.

You see Roddy, you've never operated an airline, nor worked in/for one, have you.  Please tread very carefully, that's all I ask. Investigate by all means, but tread . . . very . . . carefully.  

Virgin Australia - Velocity Rewards

15 Aug 2018

Total posts 9

Never a truer word said,good sir!

Qantas - Qantas Frequent Flyer

22 Nov 2019

Total posts 74

Get stuck in Rodney, Alan needs a prod up the jacksy and Silk Air is chomping at the bit to get a slice of the golden traingle 

20 Oct 2015

Total posts 224

What? Silk Air? Mate, NO international airline is allowed to do domestic flights, it would take a lot more than just this Govt review to change that rule, and if international airlines were permitted to fly on the golden triangle it would be the death knell for Australian airlines, because the likes of Silk Air which will of course soon be Singapore Airlines have lower labour costs and have also received Government payments to keep them going, so the market would be over-crowded, fares would drop and there could almost be that 'race to the bottom', and in the end we would end up with Qantas and Virgin and Rex all dramatically weakend. No thanks, let's just let the Aussie airlines play this one out. Still more than enough competition between Qantas, Virgin, Rex and Jetstar for the limited number of flyers we have.

Qantas - Qantas Frequent Flyer

22 Nov 2019

Total posts 74

The times, they are a changing rapidly sir. 

You think fares would drop... how is that bad?

Bad for qantas with highest costs.

Qantas - Qantas Frequent Flyer

04 Mar 2014

Total posts 205

Should really be a use it or loose it arrangement

Don't think Rex will be rushing to operate anything but triangle flights, which is where almost all profits are domestically

Qantas - Qantas Frequent Flyer

11 Oct 2014

Total posts 685

It really doesn't matter whether Rex will be rushing into anything. From my point of view, here are some relevant (and often forgotten or ignored) points that should be considered:

  • ASIC is 20 years behind reality, but should be applauded for at least waking up.
  • Aviation in Australia is vastly different today, compared to 20 years ago ie: circa 2000. In so many ways.
  • Who would have imagined SYD-MEL-SYD being the world's 2nd busiest route, pre-COVID and 20 years ago? Certainly not ASIC and very probably, not most people on this site either.
  • ASIC's feeble attempt to 'get with it' seems to ignore the concept of Western Sydney Airport. Perhaps that may have some bearing on who serves the airport, when, how and why. A long term policy might even look at the allocation of local domestic flights and gate demand, between both airports.
  • It also seems to totally ignore the Qantas Sale Act, which allows ANY foreign operator to establish a domestic only airline - which belies the arguments of some above (including Alan Joyce) that the policy is not only aimed at the QF / JQ / Virgin / Rex local oligopoly. Er, at least @vegolactoovoglutenfree is paying attention. 
  • Silk Air could easily walk in and establish a local domestic carrier (hello Tiger Airways - see, its already been done). It doesn't need to necessarily attain profitability just by relying on local domestic travel. Ever heard of 'price leadership' and catering for all the international passengers that it could bring into Australia. Nothing to stop them creating an interline agreement with their Singaporean head office. In SQ's last exercise, it would have  had to be a cheaper option that taking an equity stake in an Australian carrier. Duh.
  • The problem is not just Sydney-centric. It exists at most capital city airports within Australia and at some regionals too. Think of recent examples such as Compass 1 and 2, OzJet etc. Rex's new operation will only highlight this - should it grow at it's projected level over the next 3-4 years.
  • Think about the gate availability at airports like Tullamarine, Perth, Canberra, Brisbane, Hobart etc. Even little Darwin becomes 'special.' Turning poetic, "let me count the ways QF has had a spat with an airport". Extra points for PER, DRW, CBR, SYD etc ..
  • Imagine if VA was to start serving Wagga Wagga. Would their gates be squeezed in-between Rex and Qantas or would it be located at the Wagga Railway Station?
  • People assume incorrectly that Australia is a 'small' aviation market. Despite the fact that we fly more than any other population on the face of the earth. We may not be in the same league as LHR, ATL, DXB or Istanbul / Peking. But SYD does rate in the world's top 25 airports. It also qualifies as a competitor in passenger throughput to some globally significant airports.
  • It also doesn't escape scrutiny that there seems to be no true aviation policy. If there were, we wouldn't have local councils running regional airports - and paying fantastical fares for ordinary services. Surely, an airport / aviation policy for regional towns / cities should be encouraging growth in individual states? Compare the South Australian network of REX to that of Qantas (ie. the Australian airline that can't seem to service ADL let alone anywhere else in South Australia.

Oh, and while you're about looking at responsibilities ASIC .. perhaps a comprehensive, user-friendly Aviation Passenger Charter wouldn't go astray? Er, just like the ones in the UK and Europe which insist on airlines like British Airways refunding cancelled flights within seven (7) days. Or guaranteeing some basic Passenger Rights. You know, like the ones we don't have here in Australia.

agree with much of above, but airlines can't afford to refund anyone ever.

Qantas - Qantas Frequent Flyer

22 Nov 2019

Total posts 74

Alan would choke on his morning glass of Bolly if us Aussie passengers had any charter rights in Australia :) 

20 Jun 2020

Total posts 33

This is what happens when QF doesn't bribe regulators with chairman's lounge memberships

Qantas - Qantas Frequent Flyer

28 Oct 2011

Total posts 461

Why did you not mention VA and the memberships to The Lounge  offered to the very same people?

20 Jun 2020

Total posts 33

Last time I checked the club is no longer in operation

Qantas - Qantas Frequent Flyer

04 Nov 2017

Total posts 308

Silk Air won't be existing for much longer as they are being absorbed into SQ mainline.

Going by SQ's past track record, SQ having a "4th" go at the Australian market, if at all, won't be easy. 

With SQ's track record through their losses in the Australian domestic market through their past stakes in the Air New Zealand group (including Ansett), wholly owning Tiger Airways Australia and their ill-fated stake in Virgin Australia, people would think SQ would have learnt by now. 

Qantas - Qantas Frequent Flyer

11 Oct 2014

Total posts 685

Silk Air was only used as an example, DanV. To illustrate the point, you could use any foreign carrier you wish.

I  do tend to agree with your sentiments regarding SQ's abysmal record in trying to 'shake up' the Australian market - but I'm happy for them to fail as many times as they wish.

last time I looked QF only 51% Australian, VA runs by yanks & Rex run by Singaporeans.

16 Jan 2021

Total posts 1

So how do you want to level the playing field. Restrict all carriers to from offering a level of service greater than ... say, Jet Star?

From my experience, booking with Qantas and/or Virgin takes all the guess work out of it. If you want to compete with them ... provide a better experience.

Qantas - Qantas Frequent Flyer

11 Oct 2014

Total posts 685

I'm not the regulator, TMann - that is the ACCC's job. Irrespective, there are some fundamental, basic tenets in my original post  that are the building blocks of basic competition within the industry. 

It is a lot easier to regulate an oligopoly than it is to regulate a monopoly or a duopoly.

There's also a bit of a tired old argument that Australia can barely support two separate carriers. That's a bit of a misnomer, since every time a third (or more) competitor arises, one of the two dominant players buys or absorbs the third challenger. Think about the fates of Kendall, Hazelton, Butler, Compass (1 and 2), Tiger etc. They all ended up in the same position. Hmm, perhaps we should look at the regulatory environment? But .. let's start with some basic, easier ones:

In this group, you could include Gate Allocation - should a 'use it or lose it' policy exist? Another point - where a new entrant appears, should an automatic allocation of gates (based on comparative  percentages) exist? Since airline slots aren't a saleable item at Australian airports, the answer tends to sway to a natural yes.

And, as mentioned up thread - some basic passenger protection policies wouldn't go astray. No other industry gets to keep its customers revenue when a service or product is not provided. Why should airlines be any different? If you're an airline and you want 100% filled capacity, you have a whole raft of tricks to achieve or maximise revenue management. At worst case, you could reintroduce 'Mystery fares' or sub-load 'last-minute fares'. Easy .. isn't it?


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