Answering my own question regarding the regulation of airfares during the Two Airlines Policy... the answer is found in
https://www.bitre.gov.au/sites/defau...report_073.pdf
"... domestic aviation policy began to be increasingly criticised on the grounds that effective competition had not been achieved and both airlines were operating the same equipment on the same routes with the same schedules for the same fares. In response to these criticisms some changes were made to the agreement in 1972.
The policy debate, partly stimulated by dramatic decreases in price and increases in availability of international air travel, continued through the 1970s. The end result was the introduction in 1981 of a package of legislation which remained largely unchanged until its repeal with deregulation in October 1990. The 1981 Airlines Agreement was designed to increase the level of competition within the industry, but it maintained the basic thrust of the two airlines policy as it applied to the trunk route network.
The fundamental question of the Commonwealth's role in the economic regulation of interstate aviation was addressed by the Independent Review of Economic Regulation of Domestic Aviation (May Review), commissioned by the Hawke Government in 1985.
The May Review, which took place over about two years, was critical of the existing arrangements and drew attention to significant public dissatisfaction with the current policy, including the widespread view that it worked to the disadvantage of consumers and encouraged the airlines to serve the high yield (business) market to the detriment of the leisure market. It found that, in comparison with its overseas counterparts, Australian aviation was characterised by relatively low labour productivity and relatively high and stable profit levels.
In October 1987 the Government gave notice that it would terminate the Airlines Agreement in October 1990 and allow the market to operate within the constraints of the established competition policy controls applicable to industry generally (Evans 1987). In announcing its decision, the Government indicated that its objective was to create an environment which would foster:
- increased responsiveness by airlines to consumer needs;
- a wider range of fares and types of services to provide enhanced travel opportunities;
- increased competition and pricing flexibility, leading to greater economic efficiency in the industry; and
- a continuation of Australia's world-renowned aviation safety record.
In practice, the deregulation decision meant that from 31 October 1990 the Government withdrew from economic regulation of the following four matters.
Firstly, controls over the importation of aircraft were removed. These controls provided the basis for the legislative and contractual arrangements which regulated the industry.
Secondly, the detailed determination of the passenger capacity that could be provided by each trunk airline ceased. Under the two airlines policy, Ansett and Australian had equal capacity over competitive routes.
Thirdly, the Independent Air Fares Committee (IAFC), which set all fares for scheduled passenger services, was abolished and the Commonwealth withdrew from the determination of air fares. During the nine years in which the IAFC set fares, the revenue per passenger kilometre, averaged over Ansett, Australian and Eastwest services, decreased slightly in real terms.
Fourthly, the constraints on the entry of new domestic operators to trunk routes were removed.
In strict terms, the two airlines policy did not apply to interstate routes, but rather to the provision of scheduled passenger services over trunk routes (which included both interstate and intrastate routes). Under the Airlines Agreement Act 1981, a trunk route was defined as any route linking the following 18 trunk route centres: Adelaide, Alice Springs, Brisbane, Cairns, Canberra, Coolangatta, Darwin, Gove, Hobart, Launceston, IMackay, Melbourne, Mount Isa, Perth, Proserpine, Rockhampton, Sydney and Townsville."