The average net profit per petrol station in Cairns was around 38 per cent higher than the average net profit across other sites around Australia in 2015–16, according to a new petrol market study published by the ACCC today.
“The ACCC’s Cairns petrol market report confirms what motorists have suspected for a long time: they are paying too much for fuel and contributing to very high profits for retailers in the area,” ACCC Chairman Rod Sims said.
“Competition in the Cairns fuel market is weak and unfortunately it is consumers who are paying for this at the bowser. While weak competition sees higher prices for consumers, of itself this does not reflect any breach of competition or consumer laws.”
The report found since 2012–13, petrol prices in Cairns have been significantly higher than those in the five largest cities in Australia (Sydney, Melbourne, Brisbane, Adelaide and Perth).
Between 2012–13 and the first half of 2016–17, motorists in Cairns paid on average around 11 cents per litre (cpl) more for petrol than motorists in the five largest cities.
“The report found that the main reasons for the higher prices in Cairns were higher retail profit margins on petrol, higher wholesale prices, and higher retail operating costs per litre,” Mr Sims said.
“Compared with historical retail margins and profits, and those of similar sized towns, retail margins and profits in Cairns are currently very high.”
A key finding of the report is that the Cairns market lacks vigorous and effective competitors. This is in contrast to Innisfail, a much smaller town less than 100 kilometres from Cairns.
Since a United retail site with a competitive pricing strategy commenced operating in February 2016, retail petrol prices in Innisfail have generally been lower than those in Cairns.
“This is significant given that Cairns is around 20 times the size of Innisfail. Other towns in North Queensland such as Mareeba, Atherton, and Ayr have also had lower petrol prices than Cairns in recent years,” Mr Sims said.
Driving prices down in Cairns
Mr Sims said there are three steps that can be taken to promote a more competitive outcome in the Cairns petrol market: increased petrol price transparency, regular reporting on wholesale petrol prices and retail margins, and new competitively priced retailers entering the market.
While petrol prices at most retail sites in Cairns are often similar, there are times when the difference in prices can be up to 10 cpl across retail sites.
“Motorists in Cairns can use the growing number of petrol price websites and apps to help them decide when and where to buy petrol. The availability of this petrol price data may also have the effect of promoting competition between retailers,” Mr Sims said.
Petrol price data for Cairns is available from the MotorMouth app and website and the GasBuddy app. Petrol price data for Woolworths sites in Cairns is also available on the Woolworths fuel app, which commenced in 2014.
While these websites and apps provide useful price information, they are not always comprehensive or timely, particularly in regional petrol markets. One example of a fuel price information scheme which provides complete and up-to-date prices in regional markets is the New South Wales FuelCheck scheme. The introduction of a more comprehensive scheme in Queensland could provide better price transparency to Cairns motorists, and other locations around Queensland. In addition to the benefits it provides to consumers, the ACCC says transparency can put pressure on retailers with high margins and prices.
“Close scrutiny of pricing behaviour may give retailers less incentive to increase and maintain high prices,” Mr Sims said.
“If retailers in Cairns were more competitive, the ACCC would expect retail petrol prices and retail margins in the future to be in the region of 4–5 cpl lower than current levels. This would mean annual savings to motorists in aggregate in Cairns of up to $3 500 000 per year on petrol purchases.”
Brisbane fuel market profits are also very high
The Cairns report also examined retail margins and profits in Brisbane and found them to be very high. These profits were driven by relatively high fuel prices compared with other major Australian cities; in recent years, average retail petrol prices in Brisbane have been around 3-4 cpl higher than in the other large cities.
"We will be examining the high retail prices, margins and profits in Brisbane in more detail in a separate, short, dedicated ACCC report,” Mr Sims said.
“The ACCC intends to release the report on Brisbane prices in late-July.”
Notes to editors
There are around 35 retail petrol sites in Cairns. For the purposes of its study, the ACCC defined Cairns as the area in a 15 kilometre radius from the post office at 38 Sheridan Street, Cairns. A feature of the Cairns petrol market is that it has been relatively stable over the last seven years. The number of petrol retail sites in Cairns increased marginally and the volume shares of the major retail site operators did not change much.
Background
In December 2014 the Australian Government directed the ACCC to monitor the prices, costs, and profits of unleaded petroleum products in Australia for a period of three years, including undertaking regional market studies.
The ACCC collects retail petrol prices for all capital cities and over 190 regional locations across Australia and has now conducted four regional market studies, including Darwin, Launceston, and Armidale.
The ACCC will now review lessons learned from the regional market studies and assess how they may apply in other regional locations across Australia. The ACCC expects to report on this review by the end of 2017.
The report is available here: Report on the Cairns petrol market.