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Battle For The Australian Domestic Market Intensifies

The Australian aviation market is in a structurally fortunate position as a COVID recovery begins to take shape. The large domestic market, which accounted for approximately 121m passenger movements in CY-19 (Source: BITRE), provides a solid segment that is relatively independent of international border restrictions. While domestic travel restrictions have been in place previously, they are opening up with more clarity and speed than international markets. This bodes well for airlines that are seeking to get aircraft back in the sky and passengers who have put off travel plans.

From the point of view of the airlines, there have been significant developments causing disruption to the status quo. COVID is the main instigator but moving past this Virgin Australia’s move to voluntary administration and subsequent fleet reduction caused a power vacuum that other entrants were keen to move on. Interestingly, the more significant developments have come from regional airlines. Whether using temporary state border closures to their advantage, taking heed of government funding mechanisms, testing new opportunities, or a combination thereof, there have been a number of notable announcements in recent months. These include, but are not limited to:

  • Link Airways (FC): Canberra to Hobart

  • Qantas (QF): Sydney to Mildura

  • Alliance Airlines (QQ): Canberra to Sunshine Coast

  • Alliance Airlines (QQ): Sunshine Coast to Cairns

  • Fly Pelican (FP): Dubbo to Ballina Byron Bay

The following graph illustrates the capacity additions for new routes for select east coast markets. Interestingly, Qantas has commenced services in direct competition on both the Hobart (HBA)-Canberra (CBR) and Sunshine Coast (MCY)-CBR route soon after they were operated by other carriers.

Source: Airline Schedules

Another battlefront opening up rests within the golden triangle (BNE, MEL, and SYD) with Rex Airlines introducing narrow-body jets to the market. Previously focused solely on regional routes with Saab 340 aircraft, this move is marked departure from Rex’s previous strategy. The airline appears to be taking advantage of surplus aircraft on the second hand/lease market and the shift in the strategic playing field to test a new opportunity.

One thing to consider in all this upheaval is the old adage that markets regress to the mean. Will these opportunistic moves from airlines be short-lived post recovery or have they unearthed markets that were once thought to be unsustainable? The domestic market has long been a two-carrier market with regional airlines operating in their niche. The question remains whether COVID has caused enough disruption to demand and supply patterns to mark a new era for Australian aviation. Watch this space.

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