Australian Domestic Market: Australian Aviation Industry

2332 words - 9 pages

For approximately the past 20 years, since the deregulation of the Australian Aviation industry, the Australian Domestic Market has been profitable. The past half year has brought to light the first negative effects of fierce competition between Australia's airlines the Qantas group and Virgin Australia Holdings Pty Ltd (VAH) (which will be further referred to in this document as Virgin Australia) in the form of loss which can be seen in the below figure.

In recent years, the Australian Domestic market has been predominantly a duopoly style market with Qantas Group and Virgin Australia being the main competitors contributing to market share. Virgin Australia entered late after deregulation and offered the first real competition to Qantas Groups monopoly hold of the marketplace, beginning first operation in 2000 as Virgin Blue. Qantas held a monopoly position in the Australian market up until 2000, as a FCC (Full Cost Carrier). After deregulation and the end of the two airline policy, Qantas group could now bring in a LCC (Low cost carrier) in 2003 to service a newly developing market of leisure travel. Virgin Australia made the call to compete in the same market by creating their own LCC in 2007, Tiger Airways. The Qantas Group for many years has occupied around 65% market share, with Virgin Australia and Tiger market share growing each year.

In the past year, according to BITRE data, there has been an increase of 1.7% for the amount of total passengers carried on the Australian Domestic network. Accompanying the increase in total passengers carried was an appropriate increase in RPK (Revenue Passenger Kilometres) at 2.0% and an increase of ASK (Available Seat Kilometres) at 3.2%. This data tells us that the past year of operations is heading on a path that cannot financially be maintained. If the Domestic Aviation market of Australia continued to flood the market with ASK's at a rate faster than the growth of passengers buying RPK's, then financial loss can be expected to continue into the future. Accompanied by record high fuel prices, maintenance and labor costs, Australia's domestic airlines face a turning point in the industry's history.

All of Australia's top 10 most competitive routes increased in the year ending in 2014 with an average increase of 6.17% of total passengers carried. With such a high growth of travelling passengers in the top 10 city pairs over a single year demand, can definitely be ruled out as the reason of the loss to break 20 years of Industry profit. The market for domestic airfares have been changed significantly in the past as Virgin Blue introduced their new business class ticket and removal of their full economy fares, this resulted in the full economy index rising substantially.

In 2011, as Virgin Australia introduced their new flexi fares that were substantially lower priced than their previous fare. This disrupted the market as Qantas as a competitor quickly responded by dropping their Flexi...

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