Strong competition and high fuel prices constrain growth.
Melbourne, Australia (PRWEB) May 19, 2013
The past five years started with buoyant demand for air travel and high fuel prices boosted ticket prices. However, domestic airlines faced major hurdles as global economic conditions plummeted. Falling consumer confidence and the constant threat of terrorist attacks and disease outbreaks over the period have weighed against air travel demand in Australia. In particular, some business travellers have abandoned air travel in favour of teleconferences and other forms of electronic communication. Demand also weakened as Australian tourists shelved travel plans.
In response to the declining demand in late 2008, operators slashed prices. The heavy discounting and reductions in the fuel excise resulted in passenger numbers stabilising in 2009. As a result, IBISWorld expects revenue for the Domestic Airlines industry to grow an annualised 0.2% over the five years through 2012-13 to reach $15.7 billion. This low growth reflects the magnitude of the decline in revenue in 2008-09, as industry revenue has grown year on year since 2010-11. According to IBISWorld industry analyst Ryan Lin, “Passenger traffic is expected to hold its long-term growth path in 2012-13 due to low unemployment and continual increase in discretionary income levels, with industry revenue forecast to grow by approximately 5.2% in 2012-13.”
The Domestic Airlines industry is a duopoly. Two major companies, the Qantas Airways Limited and the Virgin Australia Holdings Limited, dominate the industry. Operating profit margins for the industry dropped from an estimated 8.2% in 2007-08 to a low 1.1% in 2008-09. “Domestic airlines have reduced capacity, cut underperforming routes and discounted prices to align supply with demand and attract more passengers," says Lin. Since then, operating profit margins have improved only slightly to an estimated 2.2% in 2012-13. Strong price competition has prevented a major recovery in profit margins. Profit margins are expected to remain weak over the next five years. This will likely be due to the increased level of competition from low-cost airlines, keeping profit margins low over the five-year outlook.
In the five years through 2017-18, domestic airlines are expected to expand capacity as demand for air travel returns. However, higher fuel prices will lift airfares and slow potential industry revenue growth. The level of competition is expected to continue to intensify over the next five years.
For more information, visit IBISWorld’s Domestic Airlines report in Australia industry page.
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IBISWorld industry Report Key Topics
Domestic airlines operate aircraft on scheduled domestic routes, for the transportation of passengers and freight.
Key External Drivers
Industry Life Cycle
Products & Markets
Products & Services
Market Share Concentration
Key Success Factors
Cost Structure Benchmarks
Basis of Competition
Barriers to Entry
Technology & Systems
Regulation & Policy
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