Airlines found to be ripping off customers in uncompetitive routes

In a speech to be delivered on Tuesday, Assistant Minister for Competition Andrew Leigh will outline research undertaken for the government's Competition Taskforce showing that passengers flying routes served by just one airline were charged an average 39.6 cents a kilometre, compared with 28.2 cents where two airlines were operating and 19.2 cents where there were three carriers.

Dr Leigh is due to say that the results underline the importance of competition in the airline industry.

"Aviation competition has been fundamental to connecting Australian cities to one another, and connecting our country to the world," he will say.

"[The study] shows how competition has had a significant downward impact on fares. Adding airlines to a route reduces fares."

His scheduled remarks come little more than six months after Transport Minister Catherine King controversially rejected a Qatar Airways bid for additional flights to the major airports.

The decision drew heavy criticism amid heightened concerns about the level of competition in key sectors across the economy, including not only airlines but supermarkets and banks.

Major retail chains have been accused of price gouging over claims they have been slow to pass on falling wholesale meat, fruit and vegetable prices to their customers.

The government has directed the competition and consumer watchdog to investigate the gouging allegations and the level of competition in the supermarkets sector.

Dr Leigh is due to say that, despite the deregulation of the aviation sector in the 1980s, "many Australians suffer from a lack of competition", citing the example of Darwin residents who find it cheaper to fly to Singapore than Sydney.

The "mere threat of competition in the aviation sector has, on average, helped to lower prices," he will add.

The finding will form part of the Competition Taskforce's contribution to the government's Aviation White Paper, which is due mid-year.

The government has come under intense pressure over aviation competition and service standards amid soaring airfares and high rates of flight delays and cancellations.

The competition watchdog has launched legal action against Qantas over claims it sold tickets on more than 8000 flights that had already been cancelled and Transport Minister Catherine King faced criticism after rejecting a Qatar Airways .

Intense consumer dissatisfaction led to the early departure of combative Qantas chief executive Alan Joyce last year and the carrier's board was grilled over the airlines performance at a shareholder meeting.

High rates of flight cancellations on the busy Canberra-Sydney route have led to accusations that the major airlines, particularly Qantas, have been manipulating the system to hoard Sydney Airport slots as a way to stymie competition. The carrier has rejected the claims.

Dr Leigh will also use his speech to highlight the need for merger law reform.

Citing a study undertaken by the Competition Taskforce in collaboration with researchers from Reserve Bank of Australia and the Australian National University, the minister will argue that the regulator is only notified of a fraction of the mergers undertaken each year.

The research, which uses employment data, found that there were between 1000 and 1500 mergers each year, but the Australian Competition and Consumer Commission is only informed of around 330.

Furthermore, the research has found about half of all acquisitions are undertaken by the biggest 1 per cent of companies, and their biggest targets are firms holding valuable trademarks or patents.

The ACCC announced last year that it was reviewing the country's merger regime because of concerns many companies were ignoring or sidelining the regulator.

According to Dr Leigh, the research was "a significant development...to put mergers under the competition microscope".

"Mergers aren't necessarily a bad thing. They can enhance competition if efficiencies are passed on to consumers," the minister will say. "But the small number of proposed mergers that raise competition concerns warrant close scrutiny."

There are signs that competition has weakened in many parts of the economy, costing both businesses and consumers, Dr Leigh is expected to say.