Why State Governments Monopolise Regional RoutesAirline monopolies are generally undesirable because carriers can exploit the lack of competition to raise prices and reduce service. But there are exceptions. On thin regional routes, state governments actually guarantee a monopoly to one airline through regulation.

The New South Wales, Queensland and Western Australian governments all regulate marginal regional routes that don’t have enough passengers to support service from two airlines. The state governments do this be granting a licence to a particular airline for a fixed period of time. When the licence is due to expire, there is a competitive tender process and the government will decide to either renew the existing licence, or hand the route over to a different airline.

Which intrastate routes are regulated?

The number of regulated intrastate routes has declined over the years. But airlines still require licences granting monopoly rights to operate various routes within NSW, QLD and WA. These are:

New South Wales
  • Sydney – Moree (currently served by QantasLink)
  • Sydney – Lord Howe Island (currently served by QantasLink)
Western Australia
  • Perth – Albany (Rex)
  • Perth – Esperance (Rex)
  • Perth – Monkey Mia – Carnarvon (Rex)
  • Perth – Laverton – Leonora (Skippers Aviation)
  • Perth – Mt Magnet – Meekatharra – Wiluna (Skippers Aviation)
  • Broome – Fitzroy Crossing – Halls Creek (Skippers Aviation)
  • Kununurra – Halls Creek – Balgo (Aviair)
  • Karratha – Broome – Newman – Paraburdoo – Learmonth (Aviair)
Queensland
  • Brisbane – Roma – Charleville (QantasLink)
  • Brisbane – Blackall/Barcaldine – Longreach (QantasLink)
  • Brisbane – Toowoomba – St George – Cunnamulla – Thargomindah (Rex)
  • Brisbane – Toowoomba – Charleville – Quilpie – Windorah – Birdsville – Bedourie – Boulia – Mount Isa (Rex – and yes, this is one route)
  • Cairns – Normanton – Mornington Island – Doomadgee – Mount Isa (Rex)
  • Townsville – Hughenden – Richmond – Julia Creek – Mount Isa (Rex)
  • Townsville – Winton – Longreach (Rex)

The routes within Queensland are also subsidised by that state’s government.

So, what makes a route small enough to require regulation? The New South Wales government used to have a threshold of 50,000 passengers per year, although in recent years it has deregulated routes with far fewer passengers, such as Sydney-Grafton and Sydney-Narrabri. Western Australia has a threshold of 100,000 passengers per year, while Queensland doesn’t specify one.

Why regulate regional routes?

The argument behind granting monopoly rights to one airline is that the route is too small to sustain competition from two carriers. As the NSW government puts it, competition is limited on low volume routes “that aren’t always robust and may need protection to provide stability and encourage market development”.

In theory, this should offer certainty to regional airlines and the communities they serve. It avoids the risk of a second airline entering a market that’s too small to sustain multiple carriers – leading to a loss of services from one or both airlines in the long run.

Over the past year, QantasLink has launched services on several Rex monopoly routes including Sydney-Orange, prompting Rex to complain to the ACCC. Yesterday, QantasLink also announced it will launch flights between Sydney and Merimbula from December 2020. Within hours of that announcement, Rex predictably threatened to withdraw from the route.

Whenever its monopoly regional routes have been threatened, Rex has repeatedly and loudly argued QantasLink was entering routes that were too small to sustain competition from a second airline. But if the state government deemed this to be the case, it would not have deregulated the route. Qantas has every right to launch competing flights on deregulated intrastate routes, provided they aren’t doing so purely as an anti-competitive attack on the incumbent airline.

Pros & cons of regional route licensing

For the regional communities these regulations are designed to protect, there are advantages and disadvantages. The upside is a more stable and reliable service, which is why Moree residents fought vigorously to retain regulation on the Sydney-Moree route after the NSW government tried to deregulate it in 2018.

But Moree residents equally understand one of the downsides to regulation when the tender is not awarded to their preferred airline. In 2013, after serving Moree for decades, QantasLink was forced to exit the Sydney-Moree route after its licence expired and was the route was awarded instead to Brindabella Airlines. The much smaller regional airline faced a barrage of complaints from residents over poor service and frequent cancellations. They would have been stuck with Brindabella Airlines for five years, had it not entered receivership later that year following safety concerns. Locals begged for QantasLink to come back; it did and QantasLink retains the licence to this day.

The other key disadvantage is the most obvious one. When airlines (or any businesses) have a monopoly, their prices are not constrained by competition. The result is often higher airfares, as Longreach residents have complained.

But operating regional routes is more expensive than flying large aircraft on trunk routes, due to the lower economies of scale. So, airfares do need to be priced a bit higher if airlines are to make money. The most marginal of regional routes would simply not be viable without regulation, so the alternative could be no service at all.

________________________

Related Articles

Recommended by the Australian Frequent Flyer

Dan Murphy's: Buy Wine, Champagne, Beer & Spirits Online Now with contactless delivery, shop online to get drinks delivered to your door or pick up in-store in 30 minutes. Lowest Liquor Price Guarantee. Biggest Range. www.danmurphys.com.au
Earn Cash from everyday purchases Get paid up to 25% in real cash from your everyday purchases from leading companies such as Virgin Australia, Booking.com, Coles, Apple, Microsoft and much more. Free to join and no catches! www.cashrewards.com.au

AFF Supporters can Login Now to remove all advertisements


Be the Frequent Flyer Expert!
Receive the latest news from
Australia's leading Frequent Flyer website since 1998.



We respect your privacy and never spam. Unsubscribe anytime.

Matt Graham
The editor of Australian Frequent Flyer, Matt's passion for travel has taken him to over 60 countries… with the help of frequent flyer points, of course!
Matt's favourite destinations (so far) are Germany, Brazil, New Zealand & Kazakhstan. His interests include economics, aviation & foreign languages, and he has a soft spot for good food and red wine.

You can contact Matt at [email protected]

2
Comments

  Subscribe  
newest oldest
Notify of
Martin Foster

Hmmm yes, deregulated monopolies are a wondrous thing! For example it allows Qantas to charge the same for a rtn Lord Howe flight of 2 hours as a rtn London flight of 25 hours? Yes, sure, monopolies are a good thing but it does depend on your viewpoint?

Geoff Fairless

……and we wonder why General Aviation can’t get a leg up! In a free market a country centre should get the service it is willing to pay for, with competition coming from driving a car or catching a train. Who was it that complained about Brindabella when they were obviously cancelling because they had no passengers; without the subsidy Qantaslink would not even have been there, or are they flying empty aroplanes around? The free market allows me to open up in competition with anyone, grocer, butcher or candlestick maker, but not in aviation. No – there are too many… Read more »