The Australian domestic aviation market share picture is changing

On the back of Jetstar Airways announcing the launch of Brisbane – Canberra services earlier this month, now is a good time to look at the strategic playing field of the Australian domestic aviation market. With services commencing on the route in September, the move by Jetstar, which is part of the Qantas Group, is perhaps more important from a symbolic perspective rather than a commercial windfall given the airline has not operated to/from the airport in its operating history. Given the Qantas Group's aggressive expansion into other domestic and regional markets, this move may help the airline solidify a new benchmark market share once the pandemic is over.

Prior to the pandemic, the domestic market as a whole was roughly split 65/35 for the Qantas Group and Virgin Australia respectively. We have analysed monthly Cirium SRS Analyser Available Seat Kilometre data from Jan-19 through to Dec-21 to understand the manner in which market shares have change pre, during, and post the pandemic.

Source: Cirium SRS Analyser, RWCG Analysis

Evident in the graph is the relative steady state of capacity prior to the pandemic, the incredible capacity drop in April and May 2020, and the steady climb back to normality. Caution should be exercised in the forward-looking data as airlines may adjust their schedules to better suit demand.

To understand the implication of these changes, we employed the HHI index methodology. This index measures the individual market shares of all entities to produce a score between 0 (perfectly competitive) and 10,000 (perfect monopoly). Utilising the market shares based on the ASKs from the previous analysis, the HHI has been calculated for the same timeframe. Note that Jetstar ASKs have been combined with Qantas’ to show the results accounting for airline ownership. The analysis indicates that the HHI is now sitting above its pre-pandemic level on the back of the Qantas Group increasing capacity at a greater pace then competitors and also due to the increasing competitive situation for the remaining market share, i.e. Rex Airlines now competing on major markets and other regional carriers increasing services.

Source: Cirium SRS Anlyser, RWCG Analysis

An appropriate question would be whether an increasingly concentrated market is ultimately a good or bad outcome. The answer depends on where one’s interests lay. From a consumer standpoint, there is the argument that market concentration will lead to air fares increasing however, according to BITRE data, this does not appear to have eventuated in the market overall as yet. From Qantas’ perspective, the airline appears to be working towards a stronger overall market position that should bolster the company’s financial position for the long-term. The remaining airlines perhaps have it the toughest as they are left to compete over a smaller share of the overall pie. This does not suggest though that those airlines are in peril or being set-up to fail, though it does mean the Australian domestic market will continue to be a hard fought battle going forward.