Australian premium and discount fares slide further as competition thrives


Australian domestic fares continue to slide, as competition intensifies between Qantas/Jetstar, Virgin Blue and Tiger Airways and consumers grow more wary about the prospects for economic growth. Australia is also (again) in pre-election mode, which also dampens consumer sentiment.

The benchmark Bureau of Infrastructure, Transport and Regional Economics Domestic Airfare Index for Business Class fares ((July 2003 = 100) eased from 94.5 in Jun-2010 to 93.9 in Jul-2010 (a shade below the index’s 94.2 in Jul-2009 and well below recent highs of 103.5 in Feb/Mar-2010).

Australian domestic business fare index (July 2003 = 100): Jul-2005 to Jul-2010

Australian domestic fare index (July 2003 = 100): Jul-2009 to Jul-2010

Lowest fares below half their 2003 levels

The index of ‘Best Discount’ domestic fares continued its steep downtrend again this month to 54.2 from 62.0 in Jun-2010 and 62.4 in Jul-2009. The index is marginally above lows established in May-2010 when fares had effectively halved from levels seven years earlier (Jul-2003).

Australian domestic best discount fare index (July 2003 = 100): Jul-2005 to Jul-2010

The outlook for domestic fares in Australia remains challenging in the absence of a sustained economic upswing, as airlines enter what is likely to be a bruising battle over market share. Indeed, only the Reserve Bank and the Treasurer seem to think there is strength in the economy - distorted by solid mineral exports to China.

Qantas this week announced it will take delivery of eight B787s two years earlier than planned in response to domestic competition from Tiger Airways and Virgin Blue. Virgin Blue's new CEO, John Borghetti has signalled plans to boost the airline's share of the corporate market from 10% to at least 15% in the next two years, which will require considerable investment in product, accompanied by attractive corporate rates.

Australia has avoided the worst effects of the global recession, but China’s cooling growth and expectations of a slowdown in US GDP could constrain Australia’s economic prospects. A strong Australian dollar also encourages overseas travel, further pressuring the domestic environment.

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