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Australian airlines are on the up in recent months as a surge in domestic tourism and increased consumer confidence are driving recovery in the sector, according to the consumer watchdog.
The Australian Competition and Consumer Commission's (ACCC) fourth Airline Competition in Australia Report reveals total passenger numbers in March 2021 reaching 55 per cent of pre-pandemic numbers, up from 41 per cent in December 2020.
Airlines have since reported continued growth and forecast a return to pre-pandemic levels of flying early in the second half of 2021.
"Prior to the recent Victorian outbreaks, the domestic airline industry had experienced relatively fewer and less significant disruptions for a number of months, and the combination of cheaper airfares and growing consumer confidence to travel interstate was critical to the recovery," ACCC Chair Rod Sims said.
While airline expectations may have been downgraded since the Victorian lockdown from late May, Qantas Group (ASX: QAN) had previously forecast capacity would reach 95 per cent of pre-pandemic levels by June 2021, with both its airlines expected to exceed 100 per cent in 202122.
Virgin Australia had forecast that its capacity would reach 85 per cent of pre-pandemic levels by mid-June 2021.
Rex has expanded its capital city reach and from next week will be operating six routes connecting Sydney, Melbourne, the Gold Coast, Adelaide and Canberra.
The recovery has been bolstered by Government support programs that subsidised 800,000 half-price tickets to 15 destinations, stimulating demand for holiday travel.
While the Tourism Aviation Network Support (TANS) program only applied to certain routes, Qantas, Jetstar, Virgin and Rex all ran overlapping promotions at the same time to encourage more people to fly.
In response to Rex's promotional entry airfares across the new routes, Qantas, Jetstar and Virgin have been running competitive sales that have put downward pressure on prices.
The ACCC says consumers flying Sydney to Canberra may benefit the most as Qantas had been the only operator on the route since Virgin withdrew its service in March 2020.
"The impact of increased competition can be seen on all of Rex's new intercity routes, including Sydney-Melbourne where airfares fell to their lowest level in a decade following Rex's entry," Sims said.
Sims says growing competition on capital city routes means more passengers have more choice.
Based on March 2021 figures, 18 per cent of Australian domestic passengers flew on routes where there was a choice of three airline groups, compared to the pre-pandemic figure of 1.5 per cent. This number is expected to have increased since March as Rex has now launched more services.
"Passengers flying Melbourne-Gold Coast, Melbourne-Adelaide and Sydney-Gold Coast now have a choice of four airlines, as Qantas, Jetstar, Virgin and Rex are all operating on the routes," says Sims.
"Increasing capacity to meet demand and offering discounted fares is generally a sign of competition and is good for consumers.
"However, the ACCC will consider taking enforcement action if capacity and pricing decisions materially damage competition, including by preventing rivals from competing effectively, or driving a competitor off a route or out of business."
The report shows Qantas Group's share of total domestic passengers fell slightly to 69 per cent in March 2021, down from 74 per cent in December 2020, but remains higher than its pre-pandemic share of 61 per cent.
"The Qantas Group's high market share is due to a number of factors, including Jetstar picking up much of the price-sensitive customer segment after Tigerair withdrew, as well as Jetstar benefitting from strong demand for leisure routes," Sims said.
Virgin's passenger share recovered to 28 per cent in March 2021, up from 24 per cent in December 2020, while Rex has maintained its 2 per cent share.
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