Editor’s note: This is an edited transcript of an interview between the ABC Radio National’s Patricia Karvelas and Former ACCC Chair, Rod Sims, on August 1, 2024.
Patricia Karvelas: Next time you book a domestic flight, it's likely you'll have fewer options to choose from after Australia's third biggest airline, Rex flagged it will roll back its offerings. With a company in administration, others are pointing the finger at Qantas, accusing the company of anti-competitive behavior, something it has long denied. The federal government has defended its efforts to increase competition in the airline industry. Rod Sims is the former chair of the Australian competition regulator, the ACCC, and a Professor of Public Policy at the ANU, and our guest. Rod Sims, welcome.
Rod Sims: Good morning, PK.
Karvelas: Rex tried to shake up the Australian airline market by flying between Brisbane and Sydney and Melbourne. I think people living in those cities were pretty happy about that. Do you think they should continue to have a role doing that?
Sims: I think that the failure of Rex is obviously due to many things, but it's essentially a public policy failure. We certainly can have more than two airlines on these capital city routes, certainly on the Melbourne-Sydney route. But public policy is simply stopping that happening. And I don't know why, because if we had more airlines, if we had -- all evidence shows that when you have three airlines flying a route, the prices are much lower. It's just unquestionable that that's the case. So why the government doesn't change the policy levers to bring that about, I really do not understand.
Karvelas: Well, the government believes, and I've had many private conversations that actually you can only really sustain two airlines for that part of the market, the capital cities. Do you disagree?
Sims: Totally. I think that's just nonsense. Obviously, Qantas will say that because it's in their self-interest to do so. But all evidence from around the world is when you get routes which have this amount of traffic on them, you can sustain three players.
The problem, and this is the biggest public policy failure, is our slot allocation system. To fly the capital city routes, obviously the Sydney-Melbourne route, but the others as well, you have to get the scarce slots at Sydney Airport. Now, and I think this is unbelievable, but let me just lay it out. The government outsources the management of the slots at Sydney Airport to a company that's majority owned by Qantas and Virgin. I mean, it is just unbelievable. So, when Rex or indeed Bonza, who also wanted extra slots at Sydney Airport. When they want those key slots that they must have to be viable, they have to go and essentially ask for them from Qantas and Virgin. And of course, they've also got to put their business plans before them. So, the government sets this system up for failure. It sets this system up for a duopoly and therefore sets the system up for higher airline prices than Australians should be paying.
Karvelas: The Federal Transport Minister Catherine King says Australia is a small market and this is an industry with high costs. They've also talked about the internal issues at Rex. Some of that is absolutely true, right? They got lots of money during the pandemic. They also have had their internal issues on the board. Are they not responsible for their own problems?
Sims: You can always assess responsibility in various ways. The point I make is that it's necessary -- we won't get the competition until we reform the slots. If we reform the slots, we will get the competition. Now, quite what that meant for Rex, I don't know. What I do know is that Rex, and I have to say Bonza as well, were constantly tapping on my door complaining about the fact that they could not get the slots they needed. Now, should they have anticipated that the system was so rigged against them that they were doomed to fail? Well, you can argue they should. But let's identify the real public policy issue here. It is that you cannot have Qantas and Virgin controlling slots at Sydney Airport. That cements the duopoly and cements higher prices for Australians. We have to fix that. You can't say this is a natural duopoly when you've got this situation occurring.
Karvelas: The federal government says it's getting on with this legislation that will stop this slot hoarding. Do you give them credit for that? Are they doing that already?
Sims: I don't give them credit for it, frankly. They've had the report from Peter Harris, the ex-chair of the Productivity Commission for around about three years, admittedly so did the Coalition government. There's been no response to the Harris report. I mean, no response. Why is that would have actually, I think, fixed this problem? So, when you sit on a report for three years, well, in this government's case, two years, and it's not just sitting on that report. You've got a system where Qantas and Virgin control the management of slots at Sydney Airport. I mean, you just cannot let that continue. You should stop it immediately. And I don't think they've done that.
Karvelas: The Treasurer says their priority is essentially intervening in the regional space because they don't want the airline to fail for the regions. Is that good enough?
Sims: Look, we need Rex flying to the regions. There's no doubt about that. If you're in a regional town, many of those regional routes are natural monopolies. That is, you can really only have one airline coming in and out of them. Traditionally, in many of those routes, not all of them, but in many of them, that's been Rex. And those cities, those country towns need that service. So, I certainly agree that from an Australian perspective, the highest priority is getting the regional routes restored. But I don't think far behind is the idea that we need real competition. And we need to see whether it can happen. My point and my frustration is we're actually stopping it happening. To talk about whether it can or can't happen, when you're actually doing, the government is doing something to stop it happen, is really what is making me, yes, a little bit angry.
This is an edited transcript of an interview between the ABC Radio National’s Patricia Karvelas and Former ACCC Chair, Rod Sims, on August 1, 2024.