28 Jan 2015

Watchdog investigates Qantas and Virgin

8:33 am on 28 January 2015

Australia's competition watchdog is investigating Qantas and Virgin Australia after both airlines dropped their fuel surcharges on international fares.

Qantas announced that regular fares would not fall overall while Virgin said last week there would be only minor savings.

The surcharges were introduced because of high oil charges but cheaper fuel appears to have less impact, the chairman of the Australian Competition and Consumer Commission Rod Simms said.

"If you want to put airfares up - put them up. But putting them up for a particular reason and keeping them there when that reason disappears, I think, is problematic behaviour in the eyes of consumers," he said.

The focus on global fuel surcharges comes as oil prices sit near six-year lows after plunging more than 50 percent since June owing to weak demand, a global supply glut and tepid growth in the key markets of China and Europe.

Fuel costs can account for 30-50 percent of some airlines operating expenses.

Pressure had been mounting on Qantas after Virgin Australia last week scrapped such fees for its flights to the United States.

Qantas chief executive Alan Joyce yesterday said the airline would remove fuel surcharges from its international flights but keep overall ticket prices the same.

"We are seeing significant benefit coming through on fuel and that will help our international business get back into profits and it will help Qantas invest in the customer," Mr Joyce said.

He said the highly competitive nature of the aviation market, rather than plunging oil prices, was behind the decline in fares in recent years.

"If you look at the trends in global aviation over the past decade, costs and competition have been increasing while fares and airline margins have been falling," Joyce said in a statement.

"In a highly competitive environment where customers are already paying less than they were several years ago, lower oil prices can help put the industry on a more sustainable footing."

- ABC/AFP