this post was submitted on 02 Oct 2023
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But wouldn't a more free market in this case let them do more direct flights to Melbourne without requiring the extra leg?
The extra leg is only added to get around a specific kind of regulation of the market (limiting how many flights they can do with Melbourne as a destination), it wouldn't exist otherwise.
If Melbourne had unlimited capacity for flights, yes. But that's where the free market stuff tends to fail in reality, it works if you assume a market without natural limits, but not otherwise.
But a free market solution would be the airport increasing its prices until the demand at those prices matches how much capacity they have (and probably a push to add more capacity, or a build a new airport nearby, etc.)
The problem from Australia's point of view is probably that this could cause their own airlines to be out-competed by foreign ones, or it could reduce the number of destinations where flights are viable, etc.
There are slot limits that regulate that. This is just a policy to benefit domestic airlines while encouraging flights to airports other than Sydney and Melbourne.