Australians pay too much for local and overseas flights because Qantas exploits the slot allocation system at Sydney Airport, a Senate inquiry has heard.

Expert witnesses delivered damning evidence about failures in the aviation market to a parliamentary probe on Tuesday; and they called for an overhaul amid fears the current system limits flights and insulates Qantas from competition.

It’s the latest in a long-running debate about slot allocation at Sydney Airport, which is considered vital for airlines trying to compete on routes up and down the east coast.

Senators probed whether the national carrier is hoarding slots at the airport to prevent new competitors from driving down airfares, including through strategically cancelling their flights.

What are airport slots?

Slots are spaces within airports where airlines park and board their planes between flights.

Management of slots at Sydney Airport is hotly contested among airlines because there is limited space, creating a zero sum game of sorts where what helps one carrier hurts another.

To manage those conflicting incentives, the allocation of slots is regulated by federal legislation that outlays space on schedules.

Existing providers are given priority for slots they have previously used, meaning that the largest airlines such as Qantas naturally operate with far more space than other competitors.

Are airport slots hoarded?

A chorus of critics – including the Australian Competition and Consumer Commission (ACCC) – argue incumbents like Qantas use existing slot rules to hoard slots.

It’s alleged Qantas takes advantage of what’s known as the 80-20 system, which allows airlines to keep their take-off slots indefinitely as long as they use them at least 80 per cent of the time.

The ACCC has argued flights are being scheduled and then cancelled so that Qantas can maintain access to its airport slots without actually making use of them.

It’s even alleged that Qantas sold tickets for flights it had already cancelled, which is the subject of a Federal Court battle and came up repeatedly during the Senate hearing on Tuesday.

Aviation expert Dr Tony Webber, former chief economist at Qantas, told senators that Qantas was cancelling flights at Sydney Airport “at least in part” for commercial reasons.

“They can just take out a service and ship passengers onto adjacent services,” Webber said.

“That enables them to manipulate capacity over a short horizon and [that] in turn enables them to manipulate the airfare they charge for yields.”

Why are airport slots important?

Critics of slot management at Sydney Airport – including the airport owners – argue Australians pay more for overseas and local flights because of Qantas’s slot hoarding.

As former ACCC boss Rod Sims has explained previously, slot inaccessibility limits competition against incumbents like Qantas and results in slots going unused, delivering fewer seats to flyers.

Under federal law Sydney Airport is permitted up to 80 flights an hour, but the airport’s boss Geoff Culbert said on Tuesday that airlines only achieve 72 at most under the current system.

“Cancellation rates are way too high and access to slots is way too low,” Culbert said.

“Ultimately, it’s the travelling public that pays the price.”

Asked by Nationals Senator Bridget McKenzie whether Qantas was manipulating current rules to their commercial benefit (and to the disadvantage of flyers), Culbert said there were “patterns of behaviour” that warrant “further investigation”.

“What we don’t get is a reason for cancellation, airlines don’t notify us the rationale for cancellations,” he said.

“We’re calling for a need to investigate cancellations.”

Australian Travel Industry Association chief executive Dean Long, who appeared alongside the Senate inquiry on Tuesday with Culbert, claimed up to 40 slots a day are going unused.

What slot reforms would lower airfares?

The federal government is facing mounting pressure to reform the way slots are regulated and is considering recommendations from the 2021 Harris review calling for an overhaul of slots.

That review called for more transparency from airlines about cancelled flights and auditing that would run the ruler over whether airlines were actually using their slots 80 per cent of the time.

But experts told senators on Tuesday the 80-20 slot system should be scrapped.

Webber said that so long as it exists there will always be “strategic cancellations” from airlines like Qantas to drive profits.

“I think it should be considered to be shifted to at least 90-10, I think that will help support consumer rights,” he said.

Long also said there was “no doubt” the 80-20 rule needed to change, adding that once “exemptions” are included airlines are often using their slots at closer to a 60-40 ratio.

He claimed that current cancellation rates at Sydney Airport were running close to 10 per cent, far above long-term averages of about 2 per cent.

“That’s having massive consumer flow-ons,” he said.

“Fix the slots, have a really good cop on the beat that enforces those and get that [slot] usage above 95 per cent.”

Not everyone thinks the 80-20 system should change, however, and it’s not just Qantas.

Airport Coordination Australia chief executive Petra Popovac told senators that the existing rules reflected global standards and that changing them could make it more difficult for international airlines to service flights into Australia.

She suggested the idea of slot hoarding had been somewhat overblown.

“If you asked any airline internationally if they are gaming the system they would say no,” Popovac said.

“And if you asked any airport internationally whether they thought the airlines were gaming the system, they would say yes.”

Others have suggested that airlines be required to compensate flyers for cancelled or delayed flights, arguing this would create a financial barrier for slot hoarding and improve airline service.

Webber and Flight Centre chief executive Graham Turner both told senators that compensation rules would discourage strategic cancellations from airlines like Qantas.

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