Australia’s airline cabotage laws are outdated and contrary to the interests of consumers.
The term ‘cabotage’ is typically used in the context of airline and shipping industries, and refers to the right to transport passengers or goods from one point to another within a single country. Cabotage laws place restrictions on this practice, usually reserving the right of domestic transport for companies of national origin.
This is the case in Australia, where the current airline regulatory system prohibits foreign companies from conducting domestic flights, reserving domestic routes for Australian-owned companies.
While this sounds like a well-intentioned policy, in practice it has had the effect of constraining the growth of the industry, benefiting vested interests at the expense of consumers.
Concurrent with a 4.5 per cent fall in global prices, international air fares have been at a 30 year low. In 1947 a flight to London cost the equivalent of 85 weeks of average pay. By 1981 this had reduced to 6 weeks, by 2010 it was just 1.4 weeks, to the current low of around 1.1 week.
In comparison, signs from the domestic market aren’t as positive.
The industry is dominated by Qantas and Virgin, leaving consumers with little choice. Over the past five years the average cost of domestic fares has significantly increased, with economy class prices rising by 22.8 per cent, and business class prices rising by 20.3 per cent.
Moreover, Australia’s domestic airlines are notorious for practices unfavourable to consumers, such as excessive credit card surcharges and lack of compensation for cancellations and delays. The sector is illustrating characteristics typical of state-protected industry, with the interests of big business and unions placed ahead of the interests of consumers.
Opponents of reform have argued that removing restrictions would undermine jobs and investment in Australian aviation, as well as weaken safety standards due to regulatory differences with foreign countries. These arguments are merely attempts to justify protectionism.
Consumers should be free to choose which company they fly with. The current rules are allowing domestic airlines to get away with providing Australians with second rate service, and the industry status quo’s appeals to nationalism are simply an attempt to avoid genuine competition.
In 2015 the Abbott Government considered abolishing cabotage restrictions in the north of the country as part of its Developing Northern Australia plan, but disappointingly neither the Abbott or the current Turnbull Government has opted to go ahead with the proposal.
Cabotage laws result in less choice and higher prices, and this kind of economic restriction has no place in a modern, liberalised economy. These laws should be abolished so that the airline industry reflects the needs of consumers, not the preferences of producers.
By Michael Husek