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The Productivity Commission has launched its review of regional airfares with the aim of bringing prices down.
The federal government has released the terms of reference for the review, which was flagged by Transport Minister Catherine King earlier this year and will examine the key factors driving high costs on regional routes.
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According to Minister King and Treasurer Jim Chalmers, the review is about “reliable air services at reasonable prices” for regional Australia, and will look at “competition, pricing practices and whether profits along the supply chain are fair”.
“We know that safe, affordable and reliable air services are vital for regional and remote communities, not just for travel, but for access to healthcare, education and jobs,” the ministers wrote in a joint statement.
“More accessible regional airfares can help drive local economies, support tourism and boost productivity in regional Australia.
“The Aviation White Paper found the average ticket price per kilometre was 52 per cent higher for flights involving regional airports than for flights between two capital cities.
“Despite overall growth in passenger numbers, the number of regional routes fell from 458 to 291 between 1989 and 2021 and the number of remote routes fell from 264 to 163 in the same period. Many routes are now serviced by only one airline.”
As part of the terms of reference, Treasurer Chalmers noted concerns raised in the white paper development process about “cost, frequency and reliability of regional air services”.
“Australia’s aviation network serves a very large geographic area, and regional airports carry around 40 per cent of all domestic passengers,” he wrote.
“Given the smaller markets served, regional air routes generally have fewer airlines servicing them and less competition than routes between major cities. State and territory governments have in place a variety of arrangements to support intra-state aviation in their jurisdictions.
“Recognising the importance of air services to regional development, more accessible regional airfares could help unlock economic activity and productivity in regional Australia.
“This includes improving the provision of goods and services for regional Australia, increasing demand for tourism, improving Closing the Gap outcomes and supporting regional migration.”
Speaking to Australian Aviation earlier this year, Rob Walker, chief executive of the Regional Aviation Association of Australia (RAAA), said the solution to high regional airfares will likely involve a “combination of things”, and that regional carriers often operate on razor-thin margins.
“When you’re a larger airline, you have a network that you can actually amortise your cost base over. For some regional operators, it might be one or two routes that they have with smaller aircraft that are obviously not as cost efficient as running a large narrow-body jet, or something like that,” he said.
“It’s actually unpacking what is in that regional airfare, because the staff costs for the airline are one thing, but closely followed behind by the cost of fuel, cost of airport landing charges, the cost of some of the other kindred and allies, ground support, regulatory burdens, et cetera. So, the profit margins are super, super thin.
“It’s about starting that conversation, and trying to make sure that all the contributing factors to an airfare are well understood. If there’s a chance to do it better, cheaper, quicker, or ameliorate those in some way, that’s the area to look at.”
The Productivity Commission will undertake a public consultation process as part of its review, with a final report expected in around 18 months.
