If price caps are good enough for the gas oligopoly, they’re good enough for Qantas

Qantas is an economic menace to Australia.

The airline’s anti-competitive behaviour at airports is locking out competitors. Its price gouging is forcing up inflation and directly harming the tourism industry. Its dominant position in the domestic market condemns millions of passengers to endure substandard service and overcharging that not merely shifts wealth from households to Qantas’ profits, but adds to the business costs of every firm that uses domestic aviation. And its ability to manipulate politicians damages policymaking in Australia.

All in an industry that is naturally prone to duopoly or monopoly, regulated under the cosseted world of bilateral international air services agreements, the most protectionist multilateral trade regime on the planet, which heavily restricts the capacity of airlines in one country from competing effectively in another (and when they are allowed, like Air New Zealand under our single aviation market with NZ, they choose not to).

A foreign airline wanting to increase capacity to and from Australia is a rare thing, even after 30 years of air services liberalisation and capacity expansion by successive governments (always opposed by Qantas, which hates any airline being granted extra capacity to Australia); as we’ve seen with Qatar Airways, that airline might be denied because the governments want to look after Qantas management and shareholders.

Since the privatisation of Qantas, Australia has notionally conducted international air services policy in the national interest, not in the interests of what used to be “the national carrrier”. But for some reason, many politicians seem to think that Qantas is still a government-owned airline — a mistake the airline’s management has gleefully exploited, along with the high regard millions of Australian used to have for it. 

In fact, Qantas is a rapacious senior member of the Australian business community, devoted like many of its colleagues in the Business Council of Australia to cutting wages, making employment less secure and paying as little tax as possible.

As the Productivity Commission noted in 2015 when it looked at the Australian tourism industry, our options are limited when it comes to unilateral reform of aviation capacity. We could simply throw open Australian skies to all comers, but without negotiating agreements with other countries the benefits are likely to be limited for international aviation.

However, the government has demonstrated its willingness to regulate large oligopolists enjoying market power as a result of external circumstances and using it to inflate profits at the expense of consumers. Labor didn’t baulk at imposing a price cap on wholesale gas prices, and earlier this year extended the cap until 2025 in response to profiteering by energy companies off the back of globally high gas prices.

The cap was about “ensuring a stable and well‑functioning gas market for the benefit of Australian households, industry and manufacturers”.

Australia’s aviation markets, domestic and international, are anything but well-functioning, given the entrenched position of Qantas, the lack of capacity and overpriced fares on international routes, and the damage being inflicted on industries that rely on aviation.

But those markets are crucial to the Australian economy, just like energy markets are. With aviation prices still feeding into inflation, the case for gas industry-style price caps to address profiteering by Qantas is a strong one — indeed stronger than in gas, where international events have seen gas prices fall substantially since 2022. The lack of a functional aviation market will persist over the long term.

Nor would it require the expenditure of much political capital. Qantas is probably the most despised — certainly the most complained-about — company in the country. The gas giants at least provided their product, albeit at overly high prices: Qantas’ performance is abysmal, and it devotes substantial efforts to trying to undermine its competitors. Its management has zero credibility with the public.

The only thing lacking is the political will, and the far too cosy relationship between Labor and outgoing CEO Alan Joyce. Labor has some real explaining to do about why it won’t take any action against Qantas, let alone action to deliver a better functioning aviation market.