Wed, 24 Aug 2016 - 14:05
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Lower airfares, more Aussies travelling: airline deregulation in the 90s brought big benefits.

If you visit any Australian capital city airport on a weekend, it is amazing how busy it is. Australians regard flying off to another city for the weekend as quite routine. Yet thirty years ago leisure travel was much less frequent – mainly because air travel was much more expensive.

It is easy to forget how much the aviation sector has been transformed in that time. In 1990 there were two government owned airlines, Qantas which flew international routes and Australian Airlines (known as TAA until 1986) which flew domestic routes, and one large privately owned airline, Ansett. The market was heavily regulated and government officials decided which airlines were permitted to operate – and even what type of aircraft they could own. The policy for many years was a domestic duopoly – TAA and Ansett – and only carrier allowed to fly internationally, Qantas.

Since that time the airline industry has been fundamentally transformed, through several major changes. Qantas and TAA were merged, and subsequently privatised; by the time the Keating Government left office in 1996 Qantas was entirely privately owned.
The airline industry was deregulated, so that new airlines were permitted to operate in Australia provided they met safety standards and other requirements. Since that time a number of airlines have started up – Compass Mark I, Compass Mark II, Virgin Australia, Tiger and so on.

Unsurprisingly, this amount of change in the regulatory settings produced a lot of disruption. Compass failed soon after entering the market; and in 2001 Ansett collapsed, after more than sixty years as a stalwart of Australian aviation, throwing thousands out of work and disrupting the travel plans of tens of thousands of Australians.

Another change which had a big, but less immediately obvious, impact was that the Commonwealth Government ceased to own and operate airports. Instead, Australia’s big airports are now owned and operated privately (strictly, under long term leases).
What has been the result of these changes for Australians wanting to travel by air?

The answer is clear: these changes have delivered major benefits. Airfares are very much cheaper than before deregulation. The Australian Government’s Bureau of Infrastructure, Transport and Regional Economics maintains an index of the ‘best discount fare’ on key routes across Australia. In August 2016, this index stood at less than half its level in 1992 in real terms.

In turn, the drop in prices has seen very sharp increases in the number of Australians travelling. In 1990 there were 14.6 million domestic trips taken by airline passengers in Australia. By 2015 it was 57.1 million – almost a fourfold increase in twenty five years.

The airline industry is a telling case study of the consumer benefits which come from reducing government involvement in an industry. Today, government sets and enforces key regulatory parameters such as safety, security, flight paths, operating hours and so on.

Otherwise, however, the airlines make their own decisions: which aircraft to operate, which routes to operate, what fares to charge and so on. The result has been that private capital, not taxpayers’ money, has been at risk in making these decisions; through the operation of competitive forces prices have come down markedly while service levels have improved; and most importantly, many more Australians are able to visit friends and relatives, travel for business or pleasure, or for medical treatment or for many other purposes.