Senate regional air services inquiry to examine price gouging

Senate regional air services inquiry to examine price gouging


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Queensland Nationals Senator Barry O’Sullivan.

Queensland Nationals Senator Barry O’Sullivan.

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Queensland Nationals Senator Barry O’Sullivan wants to know it costs $1800 to fly Brisbane to Cloncurry but only $78 the other way to Melbourne.

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WHY does it cost $1800 to fly two hours north of Brisbane to Cloncurry in regional Queensland but only $78 to fly two hours south from Brisbane to Melbourne?

That’s what hard hitting Queensland Nationals Senator Barry O’Sullivan wants to know and he has a theory.

“It’s (price) gouging,” he told Fairfax Media this week; referring to the perceived unethical or exploitive practice of spiking the price of goods, services or commodities beyond a reasonable point of what’s considered fair.

But to drill down into that theory with data and details to see if consumers are being ripped off, the Senate Rural and Regional Affairs and Transport References Committee, that’s co-chaired by Senator O’Sullivan, is conducting an inquiry into the operation, regulation and funding of air route service delivery to rural, regional and remote communities.

It was established late last year and has already received more than 160 public submissions including from agricultural groups.

One by AgForce Queensland said they were seeking affordable, efficient, safe and accessible air services in regional, rural and remote Australia which in turn would stimulate economic growth and improve farm enterprises resilience and viability along with the health and social well-being of these communities.

AgForce said it was seeking recommendations from the inquiry, including a comparison of the difference in various charging principles and cost models adopted by regional airports and the level of taxes and fees charged by capital and regional airports across Australia.

The farm group also wants recognition that regional air services are an essential factor to the economic and social prosperity of regional Australia.

“Geographic isolation, market size and distance are inequalities that indicate that normal commercial operation practices will not deliver viable business results,” the AgForce submission said.

Virgin Australia’s inquiry submission said it was aware that some regional communities hold a perception that airlines are seeking to earn “unreasonable returns” in setting airfares on regional routes and/or that airfares on such routes are cross-subsidising pricing on trunk routes.

“As many of the regional routes we serve do not deliver acceptable commercial returns at current levels of pricing, this perception is inaccurate,” the submission said.

“If Virgin Australia, as a private commercial enterprise, cannot operate services in such markets on a profitable basis over an extended period of time, this is likely to see the supply of flights reduced, with corresponding implications for the relevant regional communities.

“This highlights that the continued supply of air services is inextricably linked with airfare pricing, and airfare pricing should not be examined in isolation.”

Public hearings for the Committee’s inquiry will kick-off at Broome in WA on April 4 followed by Alice Springs in the next day and then Darwin the day after that.

On April 10, the Committee will travel to Longreach in Queensland then the following day in Winton before moving on to Cloncurry on April 12.

The cost of air travel on taxpayers for Senators to reach those destinations may well help to inform the Committee’s final report which is currently due on September 20 this year.

The inquiry’s terms of reference include looking at; the social and economic impacts of air route supply and airfare pricing; how airlines determine fare pricing; and competition within rural and regional routes.

Impact of spike in regional flight cancellations

A submission by Charleville based Western Meat Exporters - Australia's largest export goat processor and Queensland's only export sheep processor and the largest employer in south-west Queensland – raised concerns about a spike in disruption and cancellation of QantasLink flights.

It said Qantas had delivered reliable daily services between Charleville and Brisbane return for over 30 years - but for the past 18 months had cancelled flights to and from Charleville “on a very regular basis with no reason provided”.

It also said sometimes residents were offered an alternative by QantasLink to travel by bus to Roma and fly from Roma to Brisbane and vice versa - but an anticipated hour and half flight can ultimately turn into a six to eight hour trip, with no refund for flight provided.

“We rely very heavily on external stakeholders such as suppliers, maintenance personnel etc to assist us in keeping our plant and equipment operating effectively and efficiently and to its full potential where possible,” Western Meat Exporters said.

“However, these flight issues are affecting our business as there have been many occasions where our visitors and/or suppliers of equipment have been unable to return to Brisbane or their city work base as scheduled due to QantasLink cancelling flights usually with very short notice.

“It is imperative to Western Meat Exporters operations that we are able to offer our external stakeholders the choice of a reliable daily flight service in order to meet our commitments to clients, suppliers, staff and the community.

“This current situation with QantasLink flights is not acceptable and creating dire consequences for our overall community.

“How are we successfully going to attract people to come and work in regional areas if we have a very poor and extremely unreliable service from QantasLink?

“It is our view that Charleville and its surrounding areas will struggle initially to gain enough confidence in QantasLink again, should the situation be eventually resolved, to increase the number of people using QantasLink service and be able to fully utilise the QantasLink 400's if this constant unreliable service continues.”

Western Meat Exporters said there was an issue between QantasLink and the local Council with Charleville Airport not having security at present and the QantasLink 400 not able to land due to Department of Transport guidelines.

But the submission said it understood QantasLink had a contract to service Charleville with daily flights.

“Why has Qantas sold off most of their QantasLink 300 when they still had an obligation to service Charleville and other regional areas under their current contract?” it said.

“Our local member Ann Leahy has also advised that the Department of Transport is allowing QantasLink 400's to land without security in the short term at Charleville while this situation is being rectified.

“However, QantasLink are still not flying the 400 aircraft to Charleville when there are issues with the 300 Aircraft.

“Small communities such as Charleville already struggle to entice people to come and work in our areas.

“Losing these services will indeed make our community sustainability situation even more dire.”

The Qantas submission said airline operations in regional Australia were “complex” with passenger recovery complicated by remoteness and adverse weather conditions.

It said despite those challenges, QantasLink and its associated airlines operated over 213,000 flights in the financial year 2017 of which 84.6pc operated on time but close to 6000 were cancelled, compared to 2500 for Qantas.

The submission also said airports like Charleville were only equipped for Q200 or Q300 aircraft meaning QantasLink can’t send its larger Q400 or Boeing 717 to recover disrupted passengers.

“This means fewer aircraft are available to substitute operations, leading to longer recovery times,” it said.

“During October and November 2017, QantasLink had a spike in delays and cancellations in key regional markets due to a mix of engineering requirements and crew availability issues.

“This saw cancellation rates reaching 3.5pc in October and 2.9pc in November.

“To improve reliability, adjustments were made to the domestic and regional schedules including consolidating flights during non-peak times to free up aircraft and deploying larger aircraft on key routes to maintain capacity.”

The submission said those changes resulted in cancellation rates dropping to 1.5pc in December.

It also said in WA, 48 airlines had been acquired or become bankrupt since 1960, “revealing the challenge in providing sustainable airs services”.

“Vast distances, high input costs, small populations and irregular demand patterns place great pressure on the commercial viability of air services,” Qantas said.

“The group is aware of the perception in communities that the price of airfares is higher in regional Australia than metropolitan centres.

“While searching for flights during some peak periods – or at very short notice when availability has been exhausted – could result in the customer being offered higher fares.

“(Bureau of Infrastructure, Transport and Regional Economics) data on domestic airfares nonetheless confirms that, in real terms, all fare categories are now lower than they were in 2003.

“Discount Economy by 38.5pc, Restricted Economy Class by 19.1pc and Business Class by 4.9pc.”

Virgin said from an economic perspective, the operation of services on regional routes was “more challenging” than on routes between capital cities, principally due to difficulties in achieving economies of scale in regional markets.

“As with all routes we serve, the sustainability of our regional services relies heavily on our ability to match the capacity we deploy with the demand for our flights, as well as the effective management of costs,” it said.

“In general terms, it is not commercially viable for an airline to indefinitely maintain a service on a route for which revenues earned are insufficient to offset the corresponding costs.

“While airfares are influenced by a complex range of interrelated factors, airlines operating on a rational commercial basis will price their services in order to cover their costs and, if possible, earn a reasonable return on invested capital.

“If costs are outweighed by revenue on a particular route for an extended period, an airline will inevitably look to withdraw its services and redeploy aircraft to higher-yielding routes.”

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The story Senate regional air services inquiry to examine price gouging first appeared on Farm Online.

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