Deregulation of Australia's domestic airlines has delivered substantial benefits in terms of air fares and service for passengers, according to an Australian Competition and Consumer Commission survey of developments since the dismantling of the two-airline policy in October 1990.

"Fares are lower, there is a bigger array of ticket options, the frequency of flights has improved, especially on the main routes, seating capacity has expanded and the airlines now fly to more destinations," Acting ACCC Chairman, Mr Allan Asher said today. "The report concludes that the airlines are now far more responsive to the varying demands of passengers.

"However, the biggest gains for consumers were achieved in the periods of intense competition when there was a third airline operating in the market. The report tracks the impact of the Compass airlines on fares, flight arrangements and market shares."

The ACCC report, a five-year summary of the results of its air fares monitoring program, is wary about more recent trends in the domestic industry. It notes that the two remaining airlines, Qantas and Ansett, have identical pricing structures (for full and discount fares) and thus the services they provide have become their prime method of competing for market share. It also observes that, in the absence of a third operator, there has been a recent upward trend in average air fares and substantial increases in economy fares.

"Because of these developments, the ACCC believes it should continue to monitor price movements in the domestic airline industry."

The report examines the period between the September quarters of 1990 and 1995 and finds:

  • Average air fares have fallen, in nominal terms, 8.7 per cent since deregulation.
  • In real terms they have fallen 10.8 per cent;
  • The reduction in average fares was greatest during the period when Compass I was operating, with a 31.6 per cent cut in nominal terms.

When Compass II was operating, the reduction was 21 per cent below the level before deregulation; The price falls have expanded the demand for air travel:

  • far more people have chosen to fly (or fly more often) in the years since deregulation. The number of passengers on the major domestic routes has grown by 57 per cent in the five year period.
  • The total was 8.9 million in 1990-91;
  • it was close to 14 million in 1994-95.

The biggest single addition to passenger numbers was during the operation of Compass I.

  • The rate of expansion has been steadier since;
  • The pricing benefit of deregulation have not been distributed evenly.
  • Average air fares have fallen 11.1 per cent on long distance routes but they have risen 3.1 per cent on short distance routes.
  • The reductions are concentrated on routes where the airlines need to offer more discount fares in order to fill seats;

Depending on the route, economy fares have increased between 15 and 35 cent since deregulation. However, a much smaller proportion of passengers are now paying a full economy fare. Before deregulation about 50 per cent of passengers paid the full economy fare. Because of discounts, less than 20 per cent are now paying the full fare.

  • This change in traffic mix in the major reason average fares have fallen since deregulation despite the increase in full fares;
  •  The airlines have been offering a wider range of discounts to a greater number of consumers.
  • The discounts have been bigger too. The deepest discount before deregulation was generally about 50 per cent off the economy fare. Discounts in excess of 60 per cent are now regularly offered;
  •  The two airlines possess substantial market power but their published account indicate their profitability has not been excessive since deregulation.

"The reports concludes that deregulation has removed the shield of protection for the two main airlines and forced them to compete for market share, respond to the demands of consumers and improve the efficiency of their operations in order to ensure their long term economic viability. It cites the introduction of frequent flyer schemes, the upgrading of terminal facilities and the advent of sophisticated yield management systems as other changes spurred by deregulation."