A report on price gouging has found that Qantas’s decision to “aggressively” raise fares in 2022 may have caused Australia’s inflation rate to rise, and calls on the removal of “unnecessary” competition restrictions in the country’s aviation sector.
The inquiry into pricing practices across the Australian economy, chaired by economist Allan Fels and commissioned by the Australian Council of Trade Unions, calls out the national carrier for its decision to simultaneously trim frequencies and raise prices.
Fels, who formerly headed the Australian Competition and Consumer Commission (ACCC), writes: “The duopoly in the aviation sector in Australia is dominated by Qantas and there is price gouging by Qantas.”
The report found that in May 2022, Qantas cut capacity by about 10% on its domestic network, then by a further five percentage points in July-August and by 10 percentage points in October.
It points out that Qantas’s assessment that the schedule cuts would have “minimal” impact on its customers was “not credible”, noting that the combination of reduced capacity and surging demand led to a spike in fares.
“Qantas’ ability to reduce supply while increasing prices and suffering no material loss of market share, may have affected [Consumer Price Index] in December 2022, and therefore may have impacted the [Australian] Reserve Bank’s inflation expectations and rate increases,” writes Fels, noting that a quarter of the inflation in the three months to December 2022 “was mainly due to Qantas aggressively raising airfares”.
The report also criticises Canberra’s controversial decision in 2023 to block Qatar Airways from significantly expanding its international services to Australia.
Fels says that by blocking Qatar’s expansion – which could have led to a reduction in international airfares – the government is “clearly” acting in Qantas’ interests; the Australian flag carrier had been vocal in its objection to its Doha-based rival’s capacity expansion.
Fels is calling on the government to consider eliminating “unnecessary restrictions” on domestic and international aviation “which are harmful to the interests of consumers”.
The report, released on 6 February, adds to Qantas’s woes as it battles a reputational decline. The airline is facing a lawsuit from the ACCC, which alleges the carrier sold seats on thousands of flights between May and July 2022 that never took off.
Qantas has responded to Fels’s inquiry, pointing out that its airfares have “dropped significantly” since the December 2022 peak cited in the report.
“The temporary spike in fares post-Covid reflected reductions in capacity to improve operational resilience following the challenging restart of the industry once borders opened.
”These reductions coincided with a period of high demand and the imbalance pushed up fares across all airlines,” states Qantas, adding that a rise in fuel prices also drove up ticket costs.
It also rebuts Fels’s point about a lack of competition, calling Australia “one of the most liberalised aviation markets in the world”.
“While the domestic market is concentrated, it is still highly competitive. Australia [also] has Open Skies Agreements with key markets… and consumers can choose from over 50 airlines that offer international services from Australia,” it says.
