Australian Airline Industry: High fuel prices and strong competition keep profit grounded

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New fuel-efficient planes and growth in domestic trips will provide a tailwind for the Australian Airline Industry over the next five years, according to a new report from IBISWorld, the nation’s largest publisher of industry research. Rising disposable incomes, tourism promotion, and a third low-cost domestic airline expanding capacity will assist industry revenue growth for most of the five-year period. Buoyant business confidence will lead to stronger business-related demand. Low unemployment and rising household disposable income will bolster air travel expenditure, while slightly lower consumer sentiment due to interest rate rises will dampen the growth in air travel expenditure, according to IBISWorld’s latest report findings.

IBISWorld Market Research

IBISWorld Market Research

Revenue for Australian Airlines will average growth of only 0.5% per annum over the five years through 2011-12 to reach $14.5 billion

New fuel-efficient planes and growth in domestic trips will provide a tailwind for the Australian Airline Industry over the next five years, according to a new report from IBISWorld, the nation’s largest publisher of industry research. Rising disposable incomes, tourism promotion, and a third low-cost domestic airline expanding capacity will assist industry revenue growth for most of the five-year period. Buoyant business confidence will lead to stronger business-related demand. Low unemployment and rising household disposable income will bolster air travel expenditure, while slightly lower consumer sentiment due to interest rate rises will dampen the growth in air travel expenditure, according to IBISWorld’s latest report findings.

According to IBISWorld analyst, Aries Nuguid, the past five years started with buoyant demand for Australian air travel even as high fuel prices pressured airlines to increase airfares. However, domestic airlines faced major hurdles when the global economic downturn hit. High unemployment and low discretionary income growth slowed demand for air travel in Australia. Demand weakened significantly for two years as Australians shelved their travel plans. On the other hand, strong price-based competition between the major domestic airlines increased demand for air travel. Although the price-cutting helped maintain passenger numbers, industry revenue and profit margins suffered. “Revenue for Australian Airlines Industry will average growth of only 0.5% per annum over the five years through 2011-12 to reach $14.5 billion,” says Nuguid. Passenger traffic is expected to improve in 2011-12 due to low unemployment. Consequently, industry revenue will grow by approximately 5.1%.

Domestic airlines' operating profit nosedived over the past five years as the global economic downturn reduced demand for air transport. Operating profit margins dropped from an estimated 9.2% in 2007-08 to a low 1.1% in 2008-09. Domestic airlines reduced capacity, cut underperforming routes and discounted prices to align supply with demand and attract more passengers. As such, earnings remained above zero. Since then, operating profit margins have improved only slightly to an estimated 3.7% in 2011-12. Strong price competition and high fuel prices prevented a major recovery in profit margins. Profit margins are expected to remain weak over the next five years and competition from low-cost airlines is expected to keep profit margins low over the five-year outlook.

Low unemployment and rising household disposable income will bolster air travel expenditure. However, slightly lower consumer sentiment due to interest rate rises will dampen the growth in air travel expenditure. The Australian airlines industry will expand capacity as demand for air travel returns. However, higher fuel prices will lift airfares and slow potential industry revenue growth. Furthermore, competition is expected to intensify over the next five years.

For more information, download the full report from IBISWorld on the Australian Airline Industry

IBISWorld Industry Market Research Reports Contain:

About this Industry
Industry Definition
Main Activities
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Industry at a Glance

Industry Performance
Executive Summary
Key External Drivers
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About IBISWorld
Recognized as the nation’s most trusted independent source of industry and market research, IBISWorld offers a comprehensive database of unique information and analysis on every Australian industry. With an extensive online portfolio, valued for its depth and scope, the company equips clients with the insight necessary to make better business decisions. Headquartered in Melbourne, IBISWorld serves a range of business, professional service and government organizations through more than 10 locations worldwide. For more information, visit http://www.ibisworld.com.au or call +61 3 9655 3886.

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James Karklins
IBISWorld
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