Airlines cancel flights to drive profits, report finds

Airlines have been accused of grounding flights to protect profits and slots at airports.

Airlines have been accused of grounding flights to protect profits and slots at airports.

Airlines are cancelling flights to increase their profits, an expert says, and he says the rules around flight cancellations need to change.

Slot Misuse and its Impact, a report by former Qantas economist and Airline Intelligence and Research founder Dr Tony Webber, found that Australia’s commercial airlines cancelled flights — usually claimed as operational or weather-related — to ensure profits remain high and their allocated slots at an airport were protected for future use.

Currently, airlines must use 80 per cent of their take-off and landing slots at airports each year or risk losing them to competitors.

The policy was created to allow airlines with a history of using a particular ‘slot’ to keep hold of it, and to stop airlines from cancelling too many unprofitable services.

Webber said in the report that the ’80/20 rule’ also allows customers to “continue to align a take-off time with a particular carrier”.

Dean Long, CEO of the Australian Travel Industry Association (ATIA) – the organisation that commissioned the report – said that the current airline requirements on cancellations aren’t fit for purpose.

“A 95/5 rule would be more appropriate to encourage airlines to operate to schedule,” he said.

Overhauling the rules

Webber points out that under the current rule, where an airline has a flight in a weekly time slot, it is permitted to cancel that around 10 times per year, while still retaining the right to use that slot.

“The modelling does confirm, however, that during the colder, seasonally off-peak months we are more inclined to see a higher rate of cancellation,” he said.

“The 80/20 rule enables the airline to increase the cancellation rates for every week in these months and still maintain the slots for the following year.”

These cancellations incur costs for travel agents, passengers, airports and the economy, while airlines can reduce costs at other’s expense.

pictured is someone at the airport to represent travel insurance

Travellers can be severely affected when flights are cancelled. Photo: Getty

Long said in the year to October 2023, and assuming a 5 per cent passenger drop because of cancellations, $405 million in overnight tourism expenditure will be lost.

“This number blows out to over $1.6 billion if 20 per cent of passengers choose not to fly. The ripple effect of this is immense, severely damaging the overall tourism industry.”

“In light of these findings, the ATIA calls for immediate action and reforms in the aviation sector to address these issues, ensuring the sustainability and growth of Australia’s travel and tourism industry.”

Cancelled flights

The report tracks the cancellation rates for individual airlines, and found Qantas, Virgin, Jetstar had Rex returned to pre-COVID-19 levels.

Jetstar was the most likely to cancel a flight with 5.8 per cent of flights cancelled in 2023, above the industry average of 3.9 per cent.

Webber said when airlines cancel a service, there are several potential costs borne by the passenger.

If the passenger decides not to travel as a result of the flight cancellation and has already arrived at the airport, then the passenger faces the out-of-pocket costs “associated with travel between home and the airport, and between a hotel and the airport,” he said.

“The passenger also faces the opportunity cost, or the cost of time, associated with this travel.”

While flight cancellations peaked during the pandemic, airlines have yet to resolve the issues of cancelled flights.

According to the ACCC, if a replacement service isn’t provided to a customer in a reasonable time, the airline must give them the choice between a different replacement service or a refund.

One major issue for consumers during the pandemic was airlines offering flight credits instead of refunds, and it was discovered Qantas, Jetstar and Virgin saw hundreds of millions of dollars in flight credits expire.

Qantas denies cancelling flights to drive a profit or to protect their allotted slots at airports.

Virgin Australia pointed to its submission to the federal government’s Aviation Green Paper in response to questions from The New Daily.

Topics: Qantas
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