by Qantas’ decision to reduce its domestic flight capacity and increase air fares in 2022 may have fueled inflation and led to the Reserve Bank raising interest rates, a union inquiry into price gouging has found.
Former Australian Competition and Consumer Commission (ACCC) chairman Allan Fels, who led an inquiry commissioned by the Australian Council of Trade Unions, was alarmed at the impact the lack of competition in aviation was having on consumers.
“Qantas dominates the Australian aviation sector duopoly and Qantas has a price increase,” he said.
Fels found that in 2022, when Australia’s reopened internal and international borders spurred a surge in travel demand, airlines were responding to high fuel prices linked to Russia’s invasion of Ukraine and made decisions that went through the economy.
In May 2022, Qantas reduced its domestic capacity by 10%, noting an announcement to the ASX in June that the airline was “adjusting its domestic capacity levels for much of FY23 to help with sustained high fuel prices recover”.
The airline cut capacity by an additional 5% in July and August, Fels said, followed by another planned cut of 10% in October.
“Qantas said at the time ‘the impact on customers is expected to be minimal from these schedule changes, and capacity will be taken mainly from high frequency routes’,” Fels said.
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In 2022, the ACCC warned airlines were deliberately delaying their return to full service capacity so they could “keep airfares high”. Government data from the time the cheapest return domestic airfares were available were at levels not recorded since March 2004.
In December 2022, the average return air fare between Sydney and Melbourne on budget carriers was $500. Australians facing high airfares turned to trains and overnight coaches as cheaper interstate travel options, with the services sold out.
Qantas would go on to post a record profit of $2.47bn for 2022-23.
On Wednesday, the Fels report found that airline cuts in supply could have an inflationary impact at a time when Australians are increasingly interested in domestic travel.
“The ability of Qantas to reduce supply and raise prices and suffer no material loss of market share, in December 2022 with CPI (inflation), may therefore have an impact on inflation expectations and Reserve Bank rate hikes,” said Fels.
“Qantas fare increases over the three months to December 2022 were large enough to significantly increase the ‘holiday travel and accommodation’ contribution to inflation,” Fels said
Fels found that Qantas fare increases could account for up to 25% of that category’s rise in the December quarter as reflected in the ABS CPI measure. That quarter, the ABS identified the leisure and culture category, which includes domestic and international travel, as the group that contributed the most to inflation.
“A quarter of it [that category’s] Inflation that month was mainly due to an aggressive increase in Qantas air fares although Virgin may also have contributed,” Fels said.
At the beginning of 2022, interest rates were 0.1%. In May 2022, the Reserve Bank raised the rate by 0.25%, setting a run that it will raise to 3.85% by May 2023.
In a statement, Qantas said “The temporary spike in post-Covid fares reflected reductions in the ability to improve operational resilience following the industry’s challenging restart when borders opened”.
“These reductions have coincided with a period of high demand and the imbalance has caused fares to rise across all airlines. At the same time, fuel prices increased by more than 60 percent, driving fares higher again,” Qantas said.
Virgin has been contacted for comment.
Fels also noted that during 2022, flight cancellation and disruption rates hit record highs, with airlines struggling to return to pre-Covid operations due in part to staff shortages that have left the industry with during the pandemic, Covid waves and strong demand.
In 2017-19, Qantas’ cancellation rate was 2%, increasing to 4.4% in 2022-23, Fels said, noting a similar increase in Virgin cancellations.
“Qantas service delivery returning from the shutdown pandemic was so derided that the term ‘Joyced’ (a reference to then CEO Alan Joyce) became commonly used in Australia to ‘describe the extreme inconvenience at airport due to canceled flights or lost luggage’. ,” Fels said.
Fels also noted how the Albanian government’s controversial decision to reject pressure on Qatar Airways to nearly double its flights to Australia kept higher international airfares.
“It was clearly acting in the interest of Qantas,” Fels said of the government.
