Can compensating Australians for travel inconveniences increase airfares?

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Forcing Australian airlines to compensate travellers for missed or delayed flights would increase reliability but come at a cost to passengers, experts say.

A pay on delay bill now before parliament would make Qantas, Virgin Australian and other carriers liable to passengers.

Australia imposes no penalties on airlines for cancelled or delayed flights, with impacted passengers reliant on individual airline policies.

National Party senator Bridget Mckenzie asked a Qantas executive whether a mandatory compensation scheme would increase the cost to fly during a Senate committee hearing on Monday.

Qantas domestic CEO Markus Svensson said compulsory payment schemes increase costs and don’t lead to fewer cancellations or delays.

“These schemes do not deliver better outcomes for the consumer in terms of reduced delays or cancellations, and they increase cost of travel,” he said.

However, experts say a minimum payment scheme for passengers in Australia would likely lead to more flights arriving on time.

Adam Glezer, from the Consumer Champion website, was invited to speak during the hearing on Monday, where he endorsed a mandatory compensation scheme.

He told SBS News on Tuesday: “A compensation scheme would improve reliability in these areas because of the deterrent factor which would be in place.”

The European Union brought in the EU261 mandatory compensation law in 2004, which aviation consultants Aviation Projects managing director Keith Tonkin said incentivised airlines to be more reliable.

The regulation gives airline passengers the right to claim compensation for flight delays and cancellations, except for in for extraordinary circumstances.

Would a compensation scheme improve reliability?

A table rating the reliability of Australian airlines

Qantas was considered the most reliable of Australia’s major carriers last year.

Tonkin said that on average, carriers under the EU261 regulations arrived on time 5 per cent more often than in Australia, with on-time arrivals averaging around 81 per cent.

Global data collated by aviation analytics firm Cirium found that Australia’s three major airlines — — recorded on-time performance rates of 73.9 per cent, 73.4 per cent and 72.7 per cent respectively in 2024.

“The airlines will generally try to meet their customer’s needs and they wouldn’t normally cancel a flight if they had revenue passengers on the flight,” he told SBS News.

“The compensation scheme in Europe has incentivised airlines to more reliably arrive on time than they had previously.”

Would airlines pass on the cost to flyers?

Tonkin said a pay on delay scheme would ultimately increase the cost of airfares.

Data from AirHelp, a Germany-based company that helps people with flight compensation claims, estimated that flights in the Eurozone and UK were around $US1.20 ($1.89) to 60 US cents (95 cents) more expensive for passengers due to the EU261 scheme.

The increased cost of flying due to compulsory compensation can lead airlines to charge customers a couple of Australian dollars more in the EU.

But Tonkin said the increase could be higher in Australia due to our aviation duopoly.

A bar chart estimating the cost per passenger of a mandatory compensation scheme for the aviation sector.

Source: SBS News

“In Australia, we’ve got basically two airlines flying about 95 per cent of the travelling public on scheduled services, Qantas, Jetstar, and then Virgin. And so they’re not as sensitive to passenger loyalty as say Europeans,” he said.

“They have a bit more pricing power than in Europe. The details that I’ve seen being reported was that there was a small jump in the airfares of a dollar or two because of the scheme. There’s potential for that price to be a bit higher in Australia just because of the lack of competition.”

‘Consistent across the board’

Consumer advocate Glezer said: “A compensation scheme like the one which exists in EU and UK is desperately needed in Australia.”

“Any compensation scheme would have to be consistent across the board for all airlines in the interest of fairness and to avoid confusion.”

Glezer said that inconvenience caused to passengers from decisions within an airline’s control should be compensated.

“When airlines cancel flights which are within their control or when flights are significantly delayed, it’s an inconvenience to passengers. It results in people missing important events such as weddings, funerals, work meetings and holidays,” he said.

“It would be unreasonable to ask airlines to pay compensation if the delay or cancellation is outside of their control. Examples would include an extreme weather event, a terror attack or a pandemic.

“Examples of cancellations within the airline’s control are crew shortages, mechanical problems (if they could have been prevented with proper maintenance) and operational issues.”

He also supported mandatory refunds for customers impacted by a cancellation or delay.

“Can you think of an industry where you pay for a service, you don’t receive the service and you do not get your money back? If you don’t get what you paid for, a refund should be an automatic entitlement, irrespective of the reason. It’s as simple as that,” he said.

“There are a lot of situations where consumers have purchased tickets well in advance to obtain the best price. If the flight is cancelled and they have to reach their destination, they must rebook either on the same airline or an alternate one. It will generally result in them paying significantly more. Who is covering that cost?”