Aviation is a regulated industry, and however much we like to think otherwise, there remains a huge amount of red tape and paperwork - some of which perhaps benefits the incumbents rather than encouraging new entrants. 

Obviously, there is no permissible shortcuts around airworthiness (and long may that be the case), however, there are occasions when sometimes it seems that the edges between regulation and protectionism become greyed… to say the least.

Recently, Australia has been getting quite a bit of unwanted attention around its aviation sector. By default, it meant Qantas secured some coverage, however much they try to avoid those column inches:

• selling tickets for cancelled flights,
• the earlier than expected retirement of the CEO,
• objections to an application from Qatar Airways for additional air services.

All of this pre-empted a new “Green Paper” from the Government that will at some stage turn into a “White Paper” to establish the long-term strategic vision for the aviation sector until 2050. It’s all happening in Australia!!

Inevitably airline data will end up being used for various points and arguments in the preparation of the White Paper, but ahead of that, it had us wondering how is airline capacity distributed among countries in some of the major global markets? And the results perhaps reflect where the balance of power and real demand sits in those markets.

Very Rare To See A 50/50 Split

Many years ago, capacity or even the number of flights operated between two countries was heavily regulated with frequently a principal of 50/50 shares applied between each country’s airlines. Any movement away from such splits was usually because one airline saw an opportunity to grab a larger share of the market, on many occasions to fulfil their need for connecting traffic, KLM, Amsterdam and London’s third airport springs to mind as one example.

When you look at the top twenty country-to-country markets this September, there are some interesting imbalances that, although explainable, highlight just how far we have come from those 50/50 splits and how other factors can sometimes influence how the market is structured.

The single largest international country-to-country market in September is from Spain to the United Kingdom, and at face value it would seem that Spanish-based airlines have only an 8% share of the market; but as is frequently the case the devil is in the detail and in this case, Ryanair are being their disruptive selves using other EU-registered prefixes for many of their hundreds of flights between the two countries. That said, nearly two-thirds of capacity is provided by UK-domiciled airlines as thousands of tourists, second home owners and business travellers head back and forth.

The power of the single European market and Ryanair who have multiple aircraft registered across various markets is best highlighted in the Spain to Italy market where 61% of capacity is “supplied” by airlines domiciled outside of those two countries; nearly all that capacity is Ryanair. Thirteen of the top twenty country markets are to and from countries within IATA-defined Europe and perhaps only the Russia to Turkey market has what could be considered a “normal” balance of capacity share at 43%/57%. Europe’s open skies perhaps clouding the data in the other twelve. 

Looking beyond the European market the balance between the remaining seven largest markets becomes perhaps more interesting. Mexico’s struggling local airline market combined with its beaches and leisure attractions means a 66/34 skew towards US-based carriers as they send aircraft off to Cancun and other destinations daily.

The UAE to India balance of 54/45 perhaps explains why a resurgent Indian supply market is reluctant to see any further increases in capacity from UAE-based carriers, there is a large local market but with connecting traffic seeming to always flow out of India rather than through India and its airlines, any further changes are difficult to see in the next few years.

Perhaps surprisingly the Japan to South Korea market, currently the ninth largest market in the world has a huge 92% skew towards South Korean carriers although the reluctance of Japanese airlines to operate any international services outside of the big four Japanese cities provides South Korean airlines with an open goal for both connecting traffic and local travellers wishing to avoid the Haneda/Narita transfer experience.

So, across the world’s top twenty country markets there are some imbalances, perfectly explainable and in many cases justifiable in the context of creating economic activity and local jobs, but what’s happening in Australia where attention is focussed now?

Geography Doesn’t Help Australia

Geography plays a part in the aviation industry and being remote from many major source markets and having limited access to any significant connecting traffic can be inconvenient. For airlines based in Australia, and importantly the regulator, a key question to ask is what other countries they need or want to develop trade links with. And, importantly, how to reconcile those links whilst protecting the relatively small but important local airlines.

Australia to New Zealand is a good example with a 47%/40% share between domiciled airlines and then 13% operated by a mix of 5^th freedom carriers ranging from Emirates to LATAM and even China Airlines.

Across the ten largest international markets from Australia there are three markets in which there is no Australian airline interest, although there is of course a very strong codeshare in place between Qantas and Emirates to the UAE and Dubai. China is a very difficult market for any Australian airline, competing with multiple Chinese carriers with much lower costs and with most of the market originating from China. Similarly, Malaysia is increasingly an ultra-low-cost airline and with a hub in Singapore certainly Qantas can feed traffic through their higher yielding Singapore services with of course their 5^th freedom route to London topping up any spare capacity. All of which leaves the UAE and Qatar as two country markets in which Australian airlines have no direct interest and both of which take thousands of passengers through their hubs to Europe that may have considered an Australian airline if the price, schedule and product were right; and perhaps that is where the crux of the current backlash against Qantas lies.

For any regulator balancing consumer choice, competition and supply is a real challenge, especially when the local airlines are perhaps at the top end of the scale in terms of pricing offering limited supply and yet expressing concern at other airlines entering the market. All of which is not helped by Qantas’ recent performance that places them amongst the most profitable airlines in the world. Airlines absolutely deserve and should be profitable, balancing that with increased consumer choice is difficult but needs to be transparent in how its developed and applied.

One of the results of the pandemic and its impact on aviation has been a reset in thinking across some markets. Where deregulation was all the rage there is a sense in some places that some more control in how capacity develops is needed; it may appear under the disguise of sustainability, future carbon emissions etc but what were simple “yes’s” are no longer always so obvious. Australia’s publication of a Green Paper and then a White Paper may become trend setting in the next few years as other Governments take a second or third look at how they want to see their markets develop in a sustainable way in the coming years.

OAG data forms a large part of any such analysis and “expert opinions” will be formed on all sides to argue the respective cases; airlines and airports will have differing views, issues of wider bilateral interest will be taken into account and, of course, the interest of the consumer will always be at the top of mind for everyone…..well, we can hope can’t we!

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