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Qantas may have contributed to RBA’s tight hiking cycle, inquiry says

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By Rhea Nath
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4 minute read

An inquiry led by former ACCC chair Allan Fels has rapped the national carrier over its price hikes in 2022, alleging that it inadvertently impacted the RBA’s inflation expectations and rate increases.

Qantas’ price hikes in 2022 may have affected inflation data which sparked a rapid monetary tightening response from the Reserve Bank of Australia (RBA) that year, according to a new inquiry.

Launched in August 2023, the inquiry – led by the former chair of the Australian Competition and Consumer Commission (ACCC), Professor Allan Fels – looked into price gouging and unfair pricing practices in Australia.

It examined the workings of a number of industries, including aviation, banking, and supermarkets, and over the course of the inquiry, received more than 750 public submissions and over 20 detailed contributions from academics, experts, think tanks, unions, businesses, and their representatives.

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In a final report published last week, Mr Fels highlighted a lack of competition in the aviation industry domestically, which allowed Qantas to reduce its capacity and increase its fares to a level much higher than is considered reasonable.

“Qantas’ ability to reduce supply while increasing prices and suffering no material loss of market share, may have affected CPI [consumer price index] in December 2022,” Mr Fels stated, “and therefore may have impacted the Reserve Bank’s inflation expectations and rate increases.”

That month, the monthly CPI indicator showed inflation at 8.4 per cent, compared to a lift of 7.3 per cent in November.

This record rise helped propel the annual CPI increase to 7.8 per cent – the highest it had been since 1990.

In the report, Mr Fels observed the national carrier had reduced capacity on its domestic services through the course of 2022. It cut 10 per cent of its capacity in May and in June, and announced to the ASX that it was “adjusting its domestic capacity levels for much of FY23 to assist with the recovery of sustained high fuel prices”.

It had expected to reduce capacity a further 5 percentage points in July and August and by October, it had planned a cut of 10 percentage points, he said.

Interestingly, the national carrier capped one of the most lucrative years in its history in financial year 2022–23, marking its first full-year profit since 2019.

Given this, Mr Fels opined that price gouging by Qantas could have contributed to inflation data that was being closely monitored by the RBA for signs of necessary monetary intervention.

“Since COVID, Qantas’s profit has significantly rebounded from COVID shutdown, and profit to June 2023 increased to $1.7 billion, up 208 per cent from its FY2019 net profit after tax level,” he observed.

Qantas responded to the allegations made by the report in a statement published on Thursday. Citing government data, the airline explained that average fares across the industry have declined from their December 2022 peak.

The airline said the temporary spike in fares post-COVID-19 “reflected reductions in capacity to improve operational resilience following the challenging restart of the industry once borders opened”.

“These reductions coincided with a period of high demand and the imbalance pushed up fares across all airlines. At the same time, fuel prices increased by more than 60 per cent, driving fares higher again,” Qantas said.

It also pointed out that “sale fares are frequently available”, with Qantas offering an average of 17 network-wide sales per year and Jetstar offering 10 million fares for less than $100 last year.

On the topic of competition, it insisted that Australia is “one of the most liberalised aviation markets in the world” and highlighted how there remain no restrictions on foreign carriers setting up domestic operations in the country.

Qantas didn’t, however, directly touch on the report’s inflation claims and its potential influence on monetary policy.

Since May 2022, the RBA has hiked interest rates 13 times bringing them to 4.35 per cent.

Qantas may have contributed to RBA’s tight hiking cycle, inquiry says

An inquiry led by former ACCC chair Allan Fels has rapped the national carrier over its price hikes in 2022, alleging that it inadvertently impacted the RBA’s inflation expectations and rate increases.

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