Travelers on some regional air routes are paying more than double the per kilometre charge facing those flying between the major cities, the Productivity Commission has found.
Confidential airline cost and revenue data obtained by the commission shows that those living in rural and remote areas pay, on average, a 13 per cent premium for air services compared with those travelling between metropolitan destinations.
But on some routes, particularly those involving short flights in regional and remote areas, the charge per kilometre flown can be more than double the rate applicable on inter-city routes.
The findings add weight to widespread frustration among rural and regional business and communities about the burden of costly and unreliable air services.
The Association of Mining and Exploration Companies told a Senate inquiry that the escalating cost of regional and remote air services had become a serious operational challenge for its members.
The association said the unreliability of such air services had reached the point that many members were now chartering private planes despite the much higher cost.
“While this is not a sustainable long-term solution, it is the most practical near-term approach to keep operations running,” the association said.
Regional Development Australia Kimberley said high and volatile airfares, limited and unreliable air services and high market concentration was hurting the area’s productivity and competitiveness, particularly in tourism.
“These impacts do not eliminate the need to travel; rather, they alter behaviour by suppressing travel frequency, delaying access to services, increasing financial stress onto households, and increase the cost of doing business in the Kimberley,” the organisation said.
But frustrated travelers can expect little airfare relief, with higher prices largely considered to be a feature of a system involving a small revenue base, proportionally high fixed costs and limited competition.
Productivity Commissioner Catherine de Fontenay said that high fares for regional air services were largely due to greater cost of providing them, with operating costs typically comprising 91 per cent of the airfare and the average 9 per cent profit margin broadly comparable with that on major city routes.
But the commissioner said the average figures disguised substantial differences within the regional aviation market.
“There is no single regional aviation market. The challenges facing a remote island community are very different to those facing a large regional tourism destination or a mining centre,” Commissioner de Fontenay said.
The commission found that on some short, remote air routes the profit margin can drop below 5 per cent, while on routes servicing mining sites the margin can be significantly above average.
Fellow Commissioner Martin Stokie the main reason regional flights were more expensive was they cost more to operate.
“Half of regional and remote routes operate 10 or fewer flights per week and more than a third of their seats are empty,” Commissioner Stokie said.
“When operators have to spread the costs of running flights across a small number of passengers, they’re often choosing between charging higher fares or running them at a loss.”
But limited competition is also considered a factor.
Almost three-quarters of all routes were served by a single carrier and 90 per cent of all regional and remote passengers flew with either the Qantas Group or Virgin Australia.
Airlines in including Rex and Qantas apportioned much of the blame for higher regional airfares at the charges imposed by regional airports, and the Australia Competition and Consumer Commission noted that there was little regulatory oversight of airports and their charges.
But regional airports operators, many of whom are local councils, complain about the financial burden of meeting mandatory security, safety and other regulatory requirements.
The City of Kalgoorlie Bulder told the Senate inquiry that the cost of complying with these standards had to be spread across a much smaller user base than the major airports.
It warned that recent WA government changes to its Regional Airfare Zone Cap Scheme to allow for higher prices for in-demand services would exacerbate the problems facing residents.
“This change will have significant impacts on Kalgoorlie–Boulder residents, particularly given the morning and afternoon peak periods driven by FIFO operations. It will also adversely affect residents who need to travel urgently for medical or family reasons and are therefore unable to avoid last‑minute, higher‑cost fares,” the council said.
In its interim report, the Productivity Commission recommended governments eschew subsidies and assistance to individual carriers, such as the $60 million lifeline the federal government provided to Rex airlines and instead concentrate on removing barriers to competition.
“If governments want to support regional air routes, they should use transparent criteria and target those who would otherwise be unable to afford necessary travel,” the commission said.
Commissioner de Fontenay said government assistance should focus on keeping communities connected, rather than supporting particular airlines.
The commission said governments take a system-wide approach to regional airport funding, prioritising the infrastructure that communities need to maintain connections and essential services.
“Too often governments consider support for airports on a case-by-case basis – which risks giving too much funding to some airports and not enough to others,” Commissioner Stokie said.
