#AceNewsReport – June.18: The airlines have reported continued growth since March 2021 and had forecast a return to pre-pandemic levels of flying early in the second half of 2021. However, recent outbreaks and subsequent border closures are likely to delay this timeframe:
Holiday Travel: Has been driven recovery of domestic airline market: A surge in domestic tourism as a result of increased consumer confidence, lower airfares and greater competition between airlines helped drive the recovery of Australia’s airline industry in recent months, the ACCC’s fourth Airline Competition in Australia report reveals.
The Australian Government’s Tourism Aviation Network Support (TANS) program that was announced in March subsidised 800,000 half-price tickets to 15 destinations and helped stimulate demand for holiday travel. While TANS only applied to certain routes, Qantas, Jetstar, Virgin and Rex ran a number of overlapping promotions at the same time to encourage more people to fly.
“Prior to the recent Victorian outbreaks, the domestic airline industry had experienced relatively fewer and less significant disruptions for a number of months, and the combination of cheaper airfares and growing consumer confidence to travel interstate was critical to the recovery,” ACCC Chair Rod Sims said.
While airline expectations may have been downgraded since the Victorian lockdown from late May, the Qantas Group had previously forecast capacity would reach 95 per cent of pre-pandemic levels by June 2021, with both Qantas and Jetstar expected to exceed 100 per cent in 2021–22.
Virgin had forecast that its capacity would reach 85 per cent of pre-pandemic levels by mid-June 2021.
Rex has expanded its capital city reach and from next week will be operating six routes connecting Sydney, Melbourne, the Gold Coast, Adelaide and Canberra.
In response to Rex’s promotional entry airfares across the new routes, Qantas, Jetstar and Virgin have been running competitive sales that have put downward pressure on prices. Consumers flying Sydney–Canberra may benefit the most as Qantas had been the only operator on the route since Virgin withdrew its service in March 2020.
“The impact of increased competition can be seen on all of Rex’s new intercity routes, including Sydney–Melbourne where airfares fell to their lowest level in a decade following Rex’s entry,” Mr Sims said.
Growing competition on capital city routes means more passengers have more choice. Based on March 2021 figures, 18 per cent of Australian domestic passengers flew on routes where there was a choice of three airline groups, compared to the pre-pandemic figure of 1.5 per cent. This number is expected to have increased since March as Rex has now launched more services.
“Passengers flying Melbourne–Gold Coast, Melbourne–Adelaide and Sydney–Gold Coast now have a choice of four airlines, as Qantas, Jetstar, Virgin and Rex are all operating on the routes,” Mr Sims said.
Rex has publicly raised concerns that its rivals have been increasing capacity beyond passenger demand. The ACCC is assessing the impact on competition of expanding capacity and discounting airfares on certain routes.
“Increasing capacity to meet demand and offering discounted fares is generally a sign of competition and is good for consumers. However, the ACCC will consider taking enforcement action if capacity and pricing decisions materially damage competition, including by preventing rivals from competing effectively, or driving a competitor off a route or out of business,” Mr Sims said.
The ACCC also has the option of recommending policy action by the government to address any competition concerns.
The report shows that the Qantas Group’s share of total domestic passengers fell slightly to 69 per cent in March 2021, down from 74 per cent in December 2020, but remains higher than its pre-pandemic share of 61 per cent.
“The Qantas Group’s high market share is due to a number of factors, including Jetstar picking up much of the price-sensitive customer segment after Tigerair withdrew, as well as Jetstar benefitting from strong demand for leisure routes,” Mr Sims said.
Virgin’s passenger share recovered to 28 per cent in March 2021, up from 24 per cent in December 2020, while Rex has maintained its 2 per cent share.
The report notes that the government is reviewing demand management at Sydney Airport, which includes consideration of the effectiveness of the management scheme for take-off and landing slots. The ability for new entrants to access slots at this key airport is important for competition and the ACCC looks forward to engaging with government and stakeholders on this in due course.
The report also looks at the way airlines design and bundle their service offerings to target particular customer segments. The report shows that customers in the mid-market segment, with an eye on both the quality of service and price, are likely to benefit the most from competition in the current market.
Australian domestic air services – September 2019 to March 2021
Source: Bureau of Infrastructure and Transport Research Economics; Australian domestic airline activity.
Note: Data is for regular public transport and does not include charter operations.
On 19 June 2020, the ACCC was directed by the Treasurer, The Hon Josh Frydenberg MP to monitor the prices, costs and profits of Australia’s domestic airline industry and provide quarterly reports to inform Government policy. This report is the third under the Treasurer’s direction.
The direction under Part VIIA of the Competition and Consumer Act enables the ACCC to require information from relevant companies. The direction is for three years.
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#AceNewsDesk report ………Published: Jun.18: 2021:
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