Signs of recovery as regional tourists restart airline industry

Signs of recovery as regional tourists restart airline industry

Aussie travellers keen to explore regional destinations and reunite with family and friends are setting the pace for a recovery in the domestic aviation industry as international flights continue to remain off limits, says the ACCC.

In a second report on the aviation sector this year, the competition watchdog remains cautiously optimistic, highlighting the COVID-19 community transmission scare in Adelaide last month showed how quickly the market could dive.

In a stark assessment of the domestic market's collapse over the past 12 months, the ACCC says monthly capacity and passenger numbers in September this year were down 81 per cent and 87 per cent respectively compared to a year earlier.

While load factors have recovered to between 55 and 60 per cent in the September quarter, they were well down on the average of 79 per cent occupancy per flight in 2019.

ACCC chairman Rod Sims says as state borders reopen interstate travel is expected to drive higher demand within the Australian market.

"COVID-19 has created some of the most difficult market conditions in Australian aviation history, but we are beginning to see cautious optimism among airlines about increasing passenger numbers in the months ahead," says Sims.

"The bulk of the flying in Australia this year has been within states, mainly in Queensland and Western Australia. But with borders now re-opened, interstate travel will start to look more like it did pre-COVID, particularly with the return of the all-important Sydney-Melbourne-Brisbane golden triangle routes."

The ACCC report revealed the extent of market share gained by Qantas (ASX: QAN) at the expense of Virgin (ASX: VAH) this year.

Qantas' carried 75 per cent of all domestic passengers in September, up from 60 per cent a year earlier.

The ACCC says regional carrier Rex (ASX: REX), which has announced plans for capital-city services from March next year, has lifted its market share of intra-regional routes at the expense of Virgin.

The direction for Virgin being mapped out by new owner Bain Capital is likely to have "significant implications for competition in the domestic airline industry", says the ACCC report.

"We expect airlines' market shares will move around a bit in the short term as the industry continues operating at reduced capacity," says Sims.

"At this stage, it is difficult to know exactly how competition will evolve as the industry emerges from this period."

In the meantime, the ACCC says leisure travel will deliver a rebound in the domestic air travel market. The report notes that some industry observers suggest with the holiday season, and continued growth into 2021, airline activity may approach pre-COVID levels on some leisure routes.

"Although the international border will remain closed for the foreseeable future, the demand for domestic holiday and family-reunification travel is expected to drive recovery," says Sims.

"We are mindful that the industry's optimism is necessarily cautious and the path to recovery is fragile, as we saw with new COVID-19 cases in South Australia during November."

The ACCC report reveals that regional destinations have been more resilient in 2020 than travel between larger cities.

"With border restrictions easing, it is likely that the mix of busiest routes will shortly begin to reflect the pre-COVID situation with Sydney-Melbourne-Brisbane routes again at the top of the list," says the ACCC report.

"The airlines report a recent surge in demand for flights out of Melbourne, following the reopening of Victoria's borders. Leisure routes are also expected to be the first to show signs of recovery as people seek out domestic holidays in lieu of overseas travel."

Updated at 2.04pm AEDT on 17 December 2020.

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