Australian air fares halved when three carriers fly a route

From The Guardian

Ticket prices are halved when three airlines fly a route compared with a monopoly situation and fares fall further as more rivals are added, according to new findings designed to inform Australia’s competition and merger laws.

The assistant competition minister, Andrew Leigh, will tell a Melbourne audience on Tuesday there are worrying signs that competition intensity has weakened over recent decades, with evidence of increased market concentration and profit markups in several industries.

The airline industry, led by Qantas, is among those sectors where subdued competition leads to elevated prices for customers with limited flight options, according to an advance copy of Leigh’s speech.

“For example, for a resident of Darwin, it is often cheaper to fly from Darwin to Singapore than it is to fly from Darwin to Sydney – even though the international flight is longer than the domestic one,” Leigh will tell the Chifley Research Centre event.

The government’s newly formed competition taskforce has found that when one airline services a route, air fares average 39.6c per kilometre. The price is more than halved to 19.2c when three competitors fly a route.

With four or five competitors, the price drops further, according to analysis of the top 200 routes by passenger traffic.

Qantas has previously cited high jet fuel prices and disruptions to supply chains for high air fares, while noting ticket prices were moderating.

The speech comes amid renewed political scrutiny of tightly held industries that could be leading to higher-than-necessary prices for consumers during a cost-of-living crisis.

The government announced last week that supermarkets will be targeted in a price investigation by the competition watchdog.

Australia’s food retailing sector is dominated by Coles and Woolworths, which over many years acquired dozens of competitors, including McIlwraiths, Bi-Lo and Flemings, and pushed out rivals such as Selfridges and Franklins to become the dominant players.

Competition works. Good governments would make sure there was lots of it, instead of bowing down to monopolists.