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Potential benefits to passengers from airline alliances through lower fares

The growing trend for international airlines to engage in alliances in providing some services has the potential to lower air fares, according to a report released today by the Industry Commission.

The Commission's report, The Economic Impact of International Airline Alliances, examines the effect of airline alliances on competition in the international airline industry and assesses the potential benefits for passengers and airlines of such alliances.

Alliances between international airlines for the provision of airline services have grown substantially in recent years, both in Australia and overseas. Many of these alliances have incorporated the practice of code sharing which involves one airline selling seats on a flight operated by another airline.

Analysis undertaken by the Industry Commission suggests that on Australian international routes, alliances involving code sharing may have led to a fall in standard economy airfares of about $200. This translates to an average saving to passengers of about 10 per cent.

Concerns about the potential market power available to airlines through alliances will be greatest when there are barriers to entry. At present, these barriers include restrictions contained in air service agreements on ownership and control of airlines and on capacity, and restricted access to airport infrastructure such as landing and take-off slots.

The Commission argues that in some cases, restrictions imposed on the ability of airlines to engage in alliances could reduce the scope for airlines to achieve greater efficiency without necessarily reducing any market power available to the airlines.

For background information: Dr Don Gunasekera (03 9653 2192), Natalia Nunes (03 9653 2159)

Forming the Productivity Commission

The Industry Commission, the former Bureau of Industry Economics and the Economic Planning Advisory Commission have amalgamated on an administrative basis to prepare for the formation of the Productivity Commission. Legislation formally establishing the new Commission is before Parliament.

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