Deregulation of Domestic Aviation - the First Year

The Commonwealth's regulation of interstate aviation, in place for over thirty years, came to an end at midnight on 30 October 1990. This study reviews the developments in the last few months of regulation and in the first year of deregulation. Based on the first year's evidence, deregulation of domestic aviation in Australia has, from the consumer's perspective, been very successful. Reliance on market forces and competition, as opposed to regulation, has so far provided clear benefits to consumers in terms of lower fares and improved servcie quality. In particular, discount air fares have been much deeper and more readily available under deregulation. Between September 1990 and June 1991quarters, real average fares of a large sample of the top 20 routes fell by 12 per cent. Service quality on a number of dimensions has also improved with deregulation. Most notably, an analysis of the services provided by domestic and commuter operators on the top 40 routes indicated that there was a 21 per cent increase in the number of flights between the June quarters of 1990 and 1991. The airlines have been able to reduce costs, but their financial performance has been adversely affected by the recession and the increased level of competition in the industry. the analysis suggests that the expected outcomes from deregulation are being realised so far.