Two airlines, one fare and zero choice

Australia Two Airline Policy

For nearly four decades, if you flew Ansett or TAA between Sydney and Melbourne, you were, for all practical purposes, flying the same airline.

Same aircraft type. Same schedule, often within minutes of each other. Same fare, to the cent, because it was illegal for either airline to charge differently without the federal government's sign-off. When one airline bought new aircraft, the government made sure the other got equivalent capacity. When TAA introduced the Vickers Viscount, Canberra leaned on the process to ensure Ansett could get equivalent turboprop capability.

It was competition in name only, but in practice it was closer to a government-choreographed duet.

This was the Australian Two Airlines Policy. For die-hard Australian aviation history readers, it's one of the strangest regulatory experiments this country ever ran, and it shaped everything from the aircraft in the sky to the fare in your pocket for the better part of forty years.

How it started

In 1946, the Chifley Labor government established Trans Australia Airlines as a fully government-owned carrier. The original intention was audacious, TAA was meant to become a monopoly national carrier, absorbing the routes of Australian National Airways and every other private operator in the country.

That plan died in the High Court, and ANA and the private operators successfully challenged the government's attempt to nationalise domestic aviation, and TAA was forced to compete rather than absorb.

What emerged instead, under the Menzies government in 1952 through the Civil Aviation Agreement Act, was something arguably stranger than a monopoly. The Two Airlines Policy formally restricted interstate trunk routes to exactly two operators, the government-owned TAA and a private carrier. When Reg Ansett purchased the failing ANA in 1957, his airline became that second operator, and the duopoly that would define Australian aviation until 1990 was locked in.

The policy went well beyond simply capping the number of competitors. It mandated equivalent capacity between the two airlines, coordinated route allocation, and required government approval for fare changes. If Ansett wanted to drop the Sydney-Melbourne fare by five dollars, it needed federal sign-off, and the same applied to TAA. Both airlines were, by regulatory design, prevented from meaningfully competing on the one lever that matters most to passengers.

Who it benefited, and who paid for it

The policy's stated purpose was stability. Post-war Australia had seen nearly twenty independent regional operators collapse or consolidate in the years after the war, and the government's rationale was that a fragmented, undercapitalised aviation sector wasn't good for the country's connectivity or its two flag carriers' ability to invest in modern aircraft.

On that narrow measure, it worked. Both TAA and Ansett survived and grew for four decades. Regional and remote connectivity was maintained, the policy required both carriers to service Tasmania, the Northern Territory, and other lower-density routes as part of the deal, effectively cross-subsidising unprofitable regional services from profitable trunk routes.

It also created one of the most genuinely bizarre entry barriers in Australian commercial history. East-West Airlines, a regional New South Wales operator, tried to break the duopoly by offering cheaper fares on capital city routes. Because the policy legally barred a third carrier from operating direct trunk services, East-West was forced to route its flights via regional centres to technically comply, thus burning time and fuel to work around a law that existed purely to protect two incumbents. East-West was eventually absorbed by Ansett anyway.

The passengers paid for all of it. With no fare competition permitted, ticket prices sat well above what comparable deregulated markets, with New Zealand chief among them, were charging for equivalent routes. Economists studying the policy in its final years found Australian domestic fares were significantly higher than could be justified by cost alone, and that the restrictive, hard-to-access discount fare structure did little to soften the blow for the ordinary pleasure traveller. Flying remained, for much of the policy's life, a comparatively expensive proposition for average Australians.

Why it ended

The Two Airlines Policy didn't collapse under scandal; it died from a change in economic orthodoxy.

Through the late 1970s and 1980s, deregulation swept the developed world's aviation sectors one after another, the United States in 1978, Canada from 1984, New Zealand in 1986. Australia was, if anything, a relative latecomer. The Hawke government's 1981 Airlines Agreement signalled the beginning of the end, formally announcing that the policy would be wound back with full deregulation from October 1990.

The economic argument that won out was straightforward: consumer welfare was being sacrificed for producer stability. Comparative fare studies against New Zealand's already-deregulated market gave critics hard numbers to point to. The industry itself was maturing to the point where the original justification, an underdeveloped sector needing protection to establish itself, no longer held true.

TAA was rebranded Australian Airlines in the mid-1980s to prepare for a more competitive future and was ultimately merged into Qantas as the government prepared both for privatisation. Ansett remained independent, now facing genuine competition for the first time in its corporate life. Compass Airlines launched in December 1990, weeks after deregulation took effect and collapsed within fifteen months, the first hard lesson in what genuine, unprotected competition actually looked like. Ansett itself, no longer shielded by government-mandated capacity parity, would take eleven more years to unravel before its own 2001 collapse.

Was Australia unique?

Not in regulating aviation. Almost every developed nation restricted and controlled domestic aviation heavily through the mid-twentieth century, the deregulation wave of the 1970s through 1990s was a global phenomenon, not an Australian one.

What was distinctive about Australia's approach was the mechanism. Most regulated aviation markets-controlled entry and set broad pricing bands. Australia's Two Airlines Policy went further, mandating not just how many airlines could exist but requiring near-identical capacity and coordinated fares between them, effectively legislating a synchronised duopoly rather than simply limiting competition. New Zealand's own aviation market, while heavily regulated for a period, never enforced the same degree of operational lockstep between its carriers that Australia did.

It's a genuinely unusual case study in how far a government can go in shaping not just market structure but the day-to-day operational decisions of two private and quasi-private companies.

Could anything like it work now?

There's no serious contemporary proposal to reinstate anything resembling the Two Airlines Policy, and there shouldn't be, as the model's core flaw, suppressed price competition, is precisely the outcome most current policy work is trying to avoid.

But the underlying problem the policy was partly designed to solve, the commercial unviability of regional and remote air services has never gone away, and it's back on the table right now. The Productivity Commission is currently running a formal inquiry into the determinants of regional airfares, with submissions closing earlier this year and interim findings expected through 2026. Western Australia has extended its Regional Airfare Zone Cap subsidy scheme into 2026 following a successful pilot. The Regional Aviation Access Programme continues subsidising services into remote communities that would never otherwise be commercially viable.

None of that is a two-airline model. It's the opposite instinct actually, targeted subsidy rather than blanket market control, aimed at keeping regional Australia connected without freezing competition on the profitable trunk routes. But it's worth noting that the underlying tension the 1952 policy was built around, profitable capital city routes subsidising unprofitable regional ones, is precisely the tension current regulators are still trying to solve, just with considerably more sophisticated tools than a government official approving Ansett's fare card.

The verdict

The Two Airlines Policy was a product of its time, and a response to genuine post-war instability that outlived its usefulness by at least two decades and cost Australian passengers dearly in the process. It kept two airlines alive, but it kept fares artificially high. It kept a third competitor out of the sky through legal fiction. And it eventually produced two carriers so insulated from real competition that when the shield came down, one of them took eleven years to find out it couldn't actually compete, and the other never really got the chance to try.

It will not come back in anything like its original form. But the question it was originally built to answer, how do you keep a vast, thinly populated country connected by air without bankrupting the airlines that serve it; is exactly the question Australia's regulators are still wrestling with today.

Some problems in aviation don't go away.

Jotore Aviation Consulting provides maintenance strategy, regulatory compliance, and CAMO/AMO advisory services to Australian aviation operators. For more Australian aviation history and industry analysis, visit www.jotoreaviation.au