Why Governments Monopolise Regional Routes

Airline 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.

Matt Graham

The editor of Australian Frequent Flyer, Matt's passion for travel has taken him to over 70 countries… with the help of frequent flyer points, of course!
Matt's favourite destinations (so far) are Germany, Brazil & Kazakhstan. His interests include economics, aviation & foreign languages, and he has a soft spot for good food and red wine.

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