Powers that would force Qantas to sell its discount airline Jetstar have been thrust into national debate as the Albanese government faces pressure to boost aviation competition.
On Monday, opposition transport spokesperson Bridget McKenzie published an op-ed in the Australian Financial Review accusing the federal government of failing on high airfares and appearing to back divestiture powers.
Labor ministers quickly called the policy ‘crazy’ and soon Nationals leader David Littleproud was pouring cold water on the op-ed, arguing Mackenzie had been misrepresented by the AFR.
But former ACCC boss Rod Sims said there should be a national debate about divestiture powers as one tool to boost competition across the broader economy, not just the aviation sector.
“We need to discuss changes to our competition laws in general, and in that context the divestiture issue could be something that’s looked at,” he told TND.
Sims said a recent Treasury review was “pointing out problems” with competition in the industry, finding local flyers are paying higher prices under the market dominance of Qantas and Virgin.
“When you get more competitors on a route, then that lowers prices,” he said.
“When Qantas and Jetstar are on the same route, that allows Qantas to increase its prices.”
‘Disappointing’ approach to competition
The federal government has come under growing pressure to address aviation competition before the next federal election, particularly as public trust in the national carrier craters.
High airfares have begun to ease recently, but consumer anger at airlines is still palpable after years of price rises and poor service.
An aviation white paper published by Transport Minister Catherine King in August has also drawn criticism over its treatment of competition issues in the wake of both Bonza and Rex collapsing.
King said the Australian market was “difficult” for more than two airlines and framed the government’s policy around the importance of competition within the Qantas/Virgin duopoly.
Sims said that position had been reflected in the white paper as well and was “disappointing”.
“It seemed to me to lack ambition,” Sims said.
“The Sydney, Melbourne route is one of the busiest in the world, and we have got quite large capital cities people fly around.
“We’ve had a lot of attempts that haven’t worked, but I think look into why they haven’t worked, work out what we can do, and try to be ambitious for more competition.
“There’s just no doubt that if we had more competition on those routes, we’d have lower airfares.”
Divestiture powers
Divestiture powers that allow government to force Qantas to divest Jetstar are one lever the government could explore to lift competition in the aviation space, but doing so would be tricky.
Aside from the swift opposition for such an idea that was expressed by Qantas on Monday, Central Queensland University Professor Doug Drury said it’s not clear whether divestiture would work.
He said there are questions about who would buy Jetstar, with the Bonza and Rex collapses likely to stymie interest from investors.
An independent Jetstar could also be thrown into financial stress if Qantas and Virgin used their muscle to run it out of key air routes.
“Having a duopoly here in Australia that controls 92 per cent is a system that favours the airlines and not the travelling consumer,” Drury said.
“[But] breaking up Qantas and Jetstar would not change much.”
Former ACCC boss Allan Fels has previously argued divestiture powers could be triggered when a company breaches competition law, as one of the available remedies courts could consider.
Sims said that would be the right model if the policy was pursued, but that such powers shouldn’t be confined to one sector like aviation.
“It’s a really difficult issue and needs to be discussed in a broader way,” Sims said.
“I can see the logic in aviation, but I’d be reluctant to have something just deal with one sector.”