2023 has seen high consumer demand to travel as airlines continue to recover from the impact of COVID-19, leading to competition and consumer protection being front and centre.
There was no shortage of scrutiny for the aviation sector in 2023, with a raft of Government reviews, recommendations, continued regulatory action and monitoring of the industry.
Keep your seatbelts fastened as we navigate the turbulence of the last year in aviation regulation.
Aviation Green and White Papers
In February 2023, the Federal Government announced the launch of the aviation White Paper process. The process considers the Government’s policy direction for the aviation sector, taking into account the challenges likely to arise over the next three decades. As part of this process, the Government released the Aviation Green Paper in September and invited feedback from industry participants on a range of issues. This consultation process will inform the development of a White Paper, to be released in mid-2024, which will set the Government’s long-term policies and economic reforms needed to drive growth and innovation in the industry. The Green Paper flagged a number of key areas for consideration, including:
competition and concentration among airlines;
whether Australia should follow the EU and introduce specific consumer protections that go beyond those in the Australian Consumer Law, including through a Passenger Bill of Rights;
the Government’s approach to negotiating bilateral agreements for international capacity;
airport charges, including whether the Aeronautical Pricing Principles are fit-for-purpose;
slots;
the terms of reference for a Productivity Commission inquiry into the determinants of regional airfares;
reducing carbon emissions; and
improving access for consumers living with disabilities.
This review process marks a significant juncture in the industry and provides an opportunity for market participants to have their say in guiding what the sector will look like in decades to come.
Competition Taskforce
At the same time, the Treasury is looking into policies affecting competition more generally through a two year wide-sweeping review being conducted by a new taskforce. The review is the largest since the 2015 Harper Review which led to an overhaul of the nation’s competition laws. This time around, the review will explore a range of issues including the ACCC’s significant proposals to transform the current informal merger process into a mandatory regime, non-compete clauses and the challenges posed by emerging technologies.
The review will also look at competition in the aviation sector. There was initially uncertainty about whether aviation would be within the scope of the review given the overlapping processes considering the issue at the time, including senate inquires, monitoring by the ACCC and the Aviation Green/White Paper. However, the Government later confirmed that aviation was on the table. Given the review’s overarching aim to reduce the cost of living and boost productivity, the taskforce will likely focus on how airfares can be reduced for Australian consumers. This may involve considering issues flagged by other reviews during the year, such as slot allocations at Sydney Airport, and recanvassing airport charges, access regulations and the cabotage policy which were all previously considered by the Harper Review.
ACCC Airline Monitoring
The ACCC had a remit to monitor domestic airline activity between June 2020 and June 2023. The ACCC landed its final airline monitoring report in June, raising questions about whether more is needed to encourage entry and expansion of players beyond Qantas and Virgin.
The ACCC was initially denied its request to continue monitoring the domestic aviation industry beyond June 2023. However, the Government’s decision was reversed and in October, it was announced that the ACCC will re-commence its monitoring from November 2023 until December 2026. The decision to restart monitoring was made shortly after the ACCC announced it had been investigating Qantas’ flight cancellation practices, bringing proceedings against Qantas for advertising and selling flights it had already cancelled - more on this below.
ACCC v Qantas
Qantas felt some reverse thrust when on 31 August, the ACCC launched proceedings against it, alleging that Qantas engaged in false, misleading or deceptive conduct by advertising tickets for more than 8,000 flights that it had already cancelled but not removed from sale. The ACCC also alleges that Qantas falsely represented to consumers who held tickets for 10,000 cancelled flights that their flights had not been cancelled.
While potential cancellations are an inherent feature of the industry which all airlines must contend with, the ACCC’s concern is Qantas’ conduct after it had already cancelled the flights, and not the actual cancellations themselves.
When ACCC Chair Gina Cass-Gottlieb announced the proceedings, she noted that the ACCC would seek record penalties of more than $250 million.
Interestingly there is no requirement for the ACCC to establish intent on Qantas’ part to establish the alleged breach of the Australian Consumer Law. Therefore, the case will not depend on Qantas’ intention or its belief concerning the accuracy of its representations, but rather on whether the representation was false and misleading to a reasonable person.
The parties are due back in court in February for a procedural hearing.
Qatar flying rights
The Senate’s Inquiry into Bilateral Air Service Agreements, the agreements negotiated between Governments which allow airlines to operate international services, was held between September and October 2023. This inquiry was sparked by the Government’s controversial decision to deny Qatar additional capacity to operate 28 extra flights per week to and from Australia. Stakeholders, including the Australian Chamber of Commerce and Industry, publicly commented on the significant impact the decision had on Australia’s tourism sector while Flight Centre warned that the decision could result in higher than otherwise international airfares. While the Government provided piecemeal reasons as to why the decision was in the ‘national interest’, the Senate Inquiry called for a more detailed decision-making framework, wider consultation with stakeholders and published reasons.
Although the Senate Inquiry was established to consider the Qatar decision, it changed course to cover a broader set of issues, including competition between domestic airlines. To that end, the Senate Inquiry recommended new divestiture powers to remedy any misuse of market power, continued monitoring of airfares by the ACCC and new consumer protections to address delays, cancellations and lost baggage. The Government is yet to confirm whether it will adopt recommendations other than the resumption of airline monitoring by the ACCC but will likely wait for the Aviation Green and White Paper processes to conclude before announcing any further action.
Qantas’ attempted acquisition of Alliance Airlines
After the ACCC denied clearance for Qantas to acquire Alliance Airlines in April, Qantas called off its plans to take over the fly-in, fly-out focused airline in October.
In 2019, Qantas acquired a 19.9% stake in Alliance without seeking clearance from the ACCC and faced a 2-year post completion review of the acquisition, with the ACCC announcing the closure of its investigation last year. Shortly after, Qantas announced its intentions to buy the remaining shares in Alliance.
The ACCC concluded that the deal would likely substantially lessen competition, including by increasing prices and reducing service quality in the fly-in, fly-out market. The ACCC highlighted that the proposed acquisition would have combined two of the largest suppliers of charter services in Western Australia and Queensland.
After clearance was denied by the ACCC, Qantas faced a significant roadblock to complete the deal, and would have needed to take court action to seek a declaration that the deal would not have been likely to result in a substantial lessening of competition in any market. While the publicly available agreement with Alliance suggested that Qantas and Alliance would take every step possible to seek ACCC approval, including through Federal Court proceedings, Qantas called off its plans to take over the aviation services company in October.
What’s over the horizon?
With numerous review processes and court proceedings continuing into 2024, the aviation sector will remain in the spotlight - stay tuned for our updates as these developments take off.