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With a very large land mass and vast uninhabited areas, aviation is vital to Australia's economic and social fabric. Australia’s main international gateways are Sydney, Melbourne, Brisbane, Perth, Adelaide, Darwin, Cairns and the Gold Coast. The commercial aviation market is comprised of four main carriers that serve the domestic routes: national carrier Qantas Airways; Jetstar (Qantas’ LCC unit); Virgin Australia and Tigerair Australia (Virgin's LCC unit).
Australia's Department of Infrastructure, Transport, Regional Development and Local Government – the key regulatory arm for national aviation – has established an open skies policy framework. The Australian Civil Aviation Safety Authority (CASA) monitors safety and maintenance standards, while Airservices Australia is a corporatised (government-owned) air traffic controller.
Airports in Australia
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The A380 is once again under media scrutiny, despite there being no major movement on the type. Comments from Air France and Qantas about not taking further A380s have long been assumed, and it has been apparent that Malaysia Airlines does not even have the need for its A380s. Singapore Airlines not renewing the lease on its first A380 is hardly surprising, and offers no definitive conclusion about the A380 or second-hand market; early A380s had different production and are not as efficient as later models. The lack of movement on the A380neo continues to irk the model's largest customer by far, Emirates, and may not make for a productive relationship as Emirates weighs an A350 or 787 order.
For most, the A380 continues to fly. How and where it flies is changing. Flights to and from the Middle East are becoming more common as Gulf airlines, and mostly Emirates, take delivery of A380s. A further shift to the Middle East is inevitable. In Japan there has been a near exodus of A380s; airlines dropping the type as they moved from Narita to Haneda, which cannot accommodate the A380 during the day, and Singapore Airlines down-gauging. Intra-Asia flying is decreasing – notable given the growth of A380s based in the region. Services by the A380 to Australia are growing, perhaps as it becomes an easy market for airlines to redeploy capacity amid European security concerns and trans-Pacific overcapacity.
China Airlines plans to resume Taipei-London service with the A350 by the end of 2016. The swift interest and compressed timescale may reflect the airline's new government-appointed chairman wanting to refocus the airline. The number of Taiwanese visitors to the UK has grown since China Airlines exited London in 2012, but volume is still small and one-stop competition has grown in what is mostly a leisure and price-sensitive market. China Airlines is stressing the opportunity to connect London with its growing Australian markets, but its three online Australian cities are served less than daily. Australia-London/Europe competition has also grown, so China Airlines – despite an improved product to London – will likely pick up fringe traffic. There are stronger opportunities for the relatively sleepy airline in the dynamic and booming Northeast Asia.
China Airlines will become the last major Asian flag airline at London Heathrow following the previous entry of Garuda, Philippine Airlines and Vietnam Airlines. Only Mongolia's MIAT is absent. 12 Asian airlines fly long haul but do not serve London. Besides MIAT and Hong Kong Airlines, the only Asian airlines not in London are Mainland Chinese airlines or long haul LCCs.
Lufthansa Group’s new joint venture with Singapore Airlines (SIA) will significantly improve Lufthansa’s position in the key offline markets of Australia, Indonesia and Malaysia. Lufthansa anticipates it will be able to implement the new JV in early 2017, to cover four markets in Asia Pacific along with four markets in Western Europe.
The JV should improve Lufthansa’s ability to compete against Gulf carriers. It should also help support additional nonstop capacity from Singapore to Germany and Switzerland.
This is Part 1 in a series of analysis reports on the Lufthansa-SIA JV. This part will focus on Australia, which is Lufthansa’s largest offline market in Asia Pacific. Subsequent parts will examine in more detail the Singapore market along with Indonesia and Malaysia, which are Lufthansa’s two largest offline markets in Southeast Asia.
The Australia-India market has experienced rapid growth over the last three years, prompting Australia to lobby for more direct services. Visitor arrivals from India are up 50% since mid-2013, and total passenger traffic between the two countries is up approximately 30%.
Air India launched services to Melbourne and Sydney in 2013 but the Australia-India market is still dominated by Southeast Asian flag carriers. Singapore Airlines has been able to maintain a leading 41% share of the market. Malaysia Airlines also still carries more Australia-India passengers than Air India.
Attracting more nonstop flights from Air India, or the possible launch of nonstop flights to India by Australian carriers, will not be easy despite growing demand. Southeast Asia’s network airlines have a competitive advantage as they serve several gateways in both Australia and India. Southeast Asia’s growing medium/long haul LCCs have also started to compete in the Australia-India market and are well positioned to take a large share of the anticipated growth.
Qantas on 24-Aug-2016 delivered its second consecutive AUD1 billion annual profit, indicating that the long restructuring under the tenure of CEO Alan Joyce has not only worked but created a stronger Qantas. The group has weathered the boom and bust of the Australian resource economy and times with Asian LCC JVs; has turned Gulf and Chinese competitors into partners; and has risen above a key competitor's influx of foreign shareholding, which fuelled an unsustainable capacity and product war.
The question for Qantas is what next. Domestic has returned to a comfortable duopoly and growth is on the wane, while international partners will contribute higher growth by putting passengers onto the domestic Qantas network. Loyalty, a stable business, is growing and profitable but does not capture Mr Joyce's passion. Internationally, North America is Qantas' anchor. The continent accounts for one third of Qantas' now profitable international capacity. Qantas and its proposed partner American Airlines dominate, holding 42% of the Australia/New Zealand-North America market. It is a profitable but not very emotional business, although it could move to new 787-9 routes to Dallas or Chicago. Where Qantas remains strategically keen is to Asia and Europe, where its historical deficiency helped rivals Singapore Airlines and Cathay Pacific to rise to their powerhouse status.
The competition with SIA and Cathay is longstanding but reinvigorated: SIA has reiterated its desire to operate between Australia and the US, while Qantas blames Cathay for squashing the proposed LCC Jetstar Hong Kong. Qantas may not be able to beat SIA and Cathay entirely, but for the first time in its history Qantas believes it can compete with them on cost. Qantas seeks mainline and Jetstar growth to and within Asia. Qantas is weighing a European restructuring that could result in the launch of 787-9 flights between Perth and London – the first nonstop flight between Australia and Europe. Qantas may not be as big as it used to be, but it is smarter, more agile and more profitable. Qantas has evolved, but its competitors appear less stable. This is a time to seize momentum and rebuild Qantas' flagship status.
The Lion Group full service Indonesia-based airline subsidiary Batik Air is preparing to launch services to Australia, initially from the popular resort island of Bali. If approved by Australia’s Civil Aviation Safety Authority (CASA), Batik will become the second Lion Group airline to serve Australia, after its Malaysian JV – Malindo Air.
Malindo secured CASA approval in 2015 and launched services from Kuala Lumpur to Perth in Nov-2015. Batik will be able to reach deeper into Australia, including Melbourne and Sydney, since Bali is closer to Australia than Kuala Lumpur, and the airline will use new generation longer-range A321neos.
Going through the approval process at CASA – known as one of the world’s most stringent regulators – is part of an overall initiative by the group to raise its international profile and improve safety standards. Lion Group expects all its airlines to be IOSA-registered by the end of 2016 and recently succeeded in removing its parent airline from the EU blacklist.