International Airlines

Gaining altitude: Passenger numbers are growing and will promote revenue growth
IBISWorld Industry Report I4901

August 2013
International Airlines in Australia

Ryan Lin
2 About this Industry
2 2 2 2 Industry Denition Main Activities Similar Industries Additional Resources 16 International Trade 17 Business Locations 34 Revenue Volatility 34 Regulation & Policy 35 Industry Assistance
19 Competitive Landscape
19 Market Share Concentration 19 Key Success Factors 19 Cost Structure Benchmarks 21 Basis of Competition 22 Barriers to Entry 23 Industry Globalisation
37 Key Statistics
37 Industry Data 37 Annual Change 37 Key Ratios
3 Industry at a Glance 4 Industry Performance

4 4 5 7 Executive Summary Key External Drivers Current Performance Industry Outlook
38 Jargon & Glossary
24 Major Companies
24 Qantas Airways Limited 25 Virgin Australia Holdings Limited 27 Singapore Airlines Ltd 29 Emirates Group
10 Industry Life Cycle
12 Products & Markets

12 Supply Chain 12 Products & Services 14 Demand Determinants 15 Major Markets
32 Operating Conditions
32 Capital Intensity 33 Technology & Systems
www.ibisworld.com.au | (03) 9655 3881 | info@ibisworld.com
WWW.IBISWORLD.COM.AU
International Airlines in AustraliaAugust 2013 2
About this Industry

Industry Denition
The International Airlines industry provides air transportation of passengers or freight over regular routes and on regular schedules. These include any flights that either end or originate internationally. Airlines that provide scheduled domestic air transportation of mail on a contract basis are also included in this industry.
Main Activities
The primary activities of this industry are Aircraft charter, lease or rental Scheduled international air transport Air transport terminal operation (except airports) International freight transport International passenger transport
The major products and services in this industry are Freight Low-fare passenger transport Passenger transport
Similar Industries
C2394 Aircraft Manufacturing and Repair Services in Australia Businesses in this industry manufacture and repair aircraft, aircraft engines and frames. I4903 Non-Scheduled Air Transport in Australia Firms in this industry operate aircraft on a non-scheduled basis for the transportation of passengers or freight between domestic and foreign airports. N7220 Travel Agency and Tour Arrangement Services in Australia Companies in this industry operate ticket sales or booking ofces of non-resident airlines. I5292b Rail, Air and Sea Freight Forwarding in Australia Enterprises in this industry operate ticket sales or booking ofces of non-resident airlines.
Additional Resources
For additional information on this industry www.bitre.gov.au Bureau of Infrastructure, Transport and Regional Economics www.casa.gov.au Civil Aviation Safety Authority www.tourism.australia.com Tourism Australia
Industry at a Glance
International Airlines in 2013-14 Key Statistics Snapshot
Revenue
$16.5bn 5.1%
Prot Wages
Revenue vs. employment growth
12 9
Annual Growth 09-14
Annual Growth 14-19
$230.6m $2.4bn
Market Share
1.5% 87
Businesses
6 4
International travel to Australia
Qantas Airways Limited 23.5%

% change
3 0 3
% change
Virgin Australia Holdings Limited 8.0% Singapore Airlines Ltd 7.7% Emirates Group 6.3%
p. 24
2 0 2 4
Year 06 Revenue
08
10
12
14
16
18
20
Year
07
09
11
13
15
17
19
Employment
SOURCE: WWW.IBISWORLD.COM.AU
Flight volume
Key External Drivers

International travel by Australians International travel to Australia Trade-weighted index World price of crude oil Consumer sentiment index
2.8% 1.4% NT 9.6%

WA SA
1.1% 0.8% TAS

ACT
39.3%
NSW
22.1%
VIC
p. 4
22.9%
QLD
SOURCE: WWW.IBISWORLD.COM.AU SOURCE: WWW.IBISWORLD.COM.AU
Industry Structure
Life Cycle Stage Revenue Volatility Capital Intensity Industry Assistance Concentration Level
Mature Medium High Low Medium
Regulation Level Technology Change Barriers to Entry Industry Globalisation Competition Level
Heavy High High High High
FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIX ON PAGE 37
Industry Performance
Executive Summary
The International Airlines industrys flight to success over the five years through 2013-14 began with some turbulence. The economic downturn of 2008-09 wiped away much of the growth achieved by the industry in the previous two years. Industry revenue fell 3.3% in 2008-09. Since then, revenue has been on the ascent. The main reason for the upward trend has been solid growth in passenger numbers (partly due to favourable economic conditions in Australia and developing Asian countries) and record low prices from the growth of low-cost carriers. Industry revenue is expected to record a compound annual growth rate of 5.1% over the five years through 2013-14, reaching $16.5 billion. Major airlines have participated in price wars since the beginning of 200809 to attract higher passenger numbers. This competitive behaviour continued into 2009-10, albeit at a smaller scale. Furthermore, even though the world experienced a downturn in those two years, Australia avoided a recession, as did China and other developing Asian nations. International airlines are expected to record 3.1% growth in
Executive Summary | Key External Drivers | Current Performance Industry Outlook | Life Cycle Stage
revenue over 2013-14, as passenger numbers continue to increase. A number of airlines from different countries service the International Airlines industry in Australia. However, few enterprises have their headquarters in Australia. Qantas Airways Limited is headquartered in Australia and boasts the largest market share. Virgin Blue also offers international flights. Virgin Blue expanded its presence in the International Airlines industry through its subsidiary, V Australia, now branded Virgin Australia. Other major players include Singapore Airlines, Emirates and Air New Zealand. The industry is headed for another five-year period of revenue growth. Industry revenue is forecast to increase at a compound annual rate of 1.5% over the next five years, to reach $17.8 billion in 2018-19. Increasingly favourable conditions, such as solid income growth in Australia and Asia, will result in increased demand for travel. However, continual downward pressure on airfares, a weaker Australian dollar and strong competition on a global scale will partly offset the favourable conditions, although not enough to stop growth.
Key External Drivers
International travel by Australians International travel by Australians is an indicator of the number of people exiting the country. Most Australians travel to other countries by plane. This means that an increase in the number of travellers increases demand for air transportation. In 2013-14, international travel by Australians is expected to increase. International travel to Australia International tourism is a significant source of passengers on international airlines. The number of inbound visits to Australia is a good indication of the number of tourists entering the country, as most tourists arrive by air transport. In 2013-14, international travel to Australia is expected to grow, presenting the industry with continual growth opportunity.
Trade-weighted index The trade-weighted index is a measure of the value of the Australian dollar relative to the currencies of its largest trading partners. The purchasing power of Australians in some countries increases when the trade-weighted index grows, which supports travel to those destinations. Conversely, when the trade-weighted index is falling, foreigners may be encouraged to visit Australia. Because Australians represent the majority of international travellers, the industry benefits from a strong tradeweighted index. In 2013-14, the index is expected to grow marginally. World price of crude oil The price of fuel is a significant determinant of operating costs and can
Key External Drivers continued
influence profitability in highly competitive segments of the market. When the price of crude oil increases, airline purchase costs also rise. Many airlines are not able to pass on the full cost increase to their customers and profit margins are often compromised. In 2013-14, world crude oil prices are expected to fall slightly, but to remain high. High oil prices threaten the industry.
International travel to Australia
6 4
Consumer sentiment index When consumer confidence levels are high, expectations are that consumers are more likely to travel and spend time abroad. Conversely, when confidence levels are low, consumers are expected to restrict leisure travel and holidays. In 2013-14, consumer sentiment is expected to grow.
International travel by Australians
18 15
% change
% change
2 0 2 4
12 9 6 3
Year
07
09
11
13
15
17
19
Year
08
10
12
14
16
18
20
Current Performance
During 2008-09, as a result of the global financial crisis, fluctuations in household disposable income and dips in consumer and business confidence led to a fall in industry revenue. However, over much of the five years through 2013-14, the strong Australian dollar has encouraged Australians to travel overseas and discouraged foreigners from visiting Australia. The low demand created stiff ongoing competition among major players, which led to falling revenue for many firms and subsequent deterioration of profit margins. The International Airlines industry remained subdued during 2009-10. While passenger numbers recovered
strongly, competition among airlines was still very strong. International flight capacity was high and carriers kept prices low as a result. Since then, rising fuel costs and growing demand have caused the average airfare to slowly increase. As such, industry revenue is expected to grow at a compound annual rate of 5.1% over the five years through 2013-14 to reach $16.5 billion. Revenue is projected to grow 3.1% in 2013-14. Even though revenue growth is expected, challenging conditions over the past five years have affected profit. Both profit margins and the absolute value of profit are expected to decline over the five-year period.
Passenger numbers soar
Demand for industry services has been strong, with year-on-year growth in revenue passengers. Although the world entered into a recession in 2009, GDP growth in developing countries slowed rather than outright declined. Australias performance was similar, as demand from developing economies resulted in increases in the volume and value of the nations exports, helping the country to grow. Terms of trade reached a historical high during the past five years and talk of a two-speed economy became common. The International Airlines industry in Australia falls on the high-speed side of the economy. A strong Australian dollar has encouraged Australians to go overseas in record numbers. Ongoing capital investment by business in Australia and the surging markets of the Asia-Pacific region have propped up passenger numbers with tourist and business travellers. The volatility in revenue mainly reflects the international dynamics of the industry and the movements in the oil price over the five years through 2013-14. In 2008-09, the industrys worst year, passenger volumes still grew. The strength of the global recession resulted in airlines competing heavily on price with each other as passenger growth stalled on a global basis. Fuel costs also decreased as a result of the global recession. This flowed onto reduced fuel surcharges on fares, which further suppressed industry revenue in this year as prices were driven lower. Aside from the price competition resulting from the global recession, the long-running industry movement towards lower service and lower cost
International airline activity passengers carried

Year 2008 2009 2010 2011 2012 2013* 2014*
*Estimate SOURCE: BITRE AND IBISWORLD
Passengers 23,472,030 24,406,900 26,790,315 28,155,009 29,624,041 30,764,500 32,284,200
(% change) N/C 4.0 9.8 5.1 5.2 3.8 4.9
airlines has left its mark on the Australian industry. Low-cost carriers such as Virgin Australia, Jetstar, AirAsia X and Tiger Airways entered the market and reduced airfares by competing largely on price. The result has been an increase in international air travel and an increase in industry revenue, but at a slower rate due to the lower price level. The success of low-cost carriers has also reduced the market share of premium operators such as Qantas. Mail and freight account for a small proportion of industry activity. Over the past five years, freight volumes have increased slower than passenger numbers. Airfreight demand fell significantly during 2008-09 as freighters substituted expensive airfreight with cheaper, albeit slower, sea freight. Overall, passenger services have fared more favourably than freight over the past five years. Much of that is due to the responsive price of air travel and the increase in demand when airfares fall. Demand for freight is less dependent on prices.
Prot under pressure
The entry of low-cost carriers into the market and increased price competition is a sign of the industry getting leaner. Profit margins have declined over the five years through 2013-14. The global recession has amplified this trend. The industrys margins were hit by the combination of
ticket price decreases and hedges put in place to minimise the impact of fuel prices that were expected to rise. International airlines, as large fuel consumers, were unhappy about the skyrocketing price of petrol in the lead up to 2008. Many companies also took on
Prot under pressure continued
hedged contracts for fuel, which locked in the price at a much higher level than the average price since August 2008. As such, earnings remained weak during 2008-09,
with not much improvement during 2009-10. Aggressive price competition continues into 2013-14, where profit is expected to represent 1.4% of revenue.
The industry adapts
Airlines have responded to lean profit by trying to reduce variable costs, chiefly labour. Qantas has sought to reduce labour costs for international business segments in the past two years, especially for the Jetstar business. Low profitability and high levels of competition claimed another victim in February 2012 when Air Australia (formerly Strategic Airlines) entered administration. The airline was subsequently liquidated in March 2012. Overall, the number of industry establishments is expected to fall by a compound annual rate of 0.1% over the five years through 2013-14. The decline in establishments reflects the strong cost pressures that airlines have faced during the past five years, particularly in terms of fuel prices. In addition, price-based
competition from low-cost airlines and a larger array of routes offered by major airlines have pushed some of the smaller companies out of business. While there were some new entrants because of strong demand prior to 2008-09, these companies usually had strong financial backing and entered the market in direct competition to the major players. However, slight instances of consolidation have occurred, with Virgin taking over Tiger in mid-2013. Competitive pressures for smaller airlines have been increasing as larger airlines position themselves to maximise their competitive advantages. In line with the contraction in industry participation, employment is expected to decline by a compound annual rate of 0.3% over the five years through 2013-14.
Industry Outlook
The International Airlines industry is expected to continue to benefit from increasing tourist numbers. However, unfavourable conditions loom ahead. Airlines are expected to record stronger demand from passengers over the next five years. However, airfares will not keep pace with demand. Competition from low-cost airlines will boost passenger numbers but weaken price increases, slowing industry revenue growth. Nonetheless, inbound tourists will likely provide a significant revenue source, with sturdier conditions in overseas economies. Purchase costs continue to remain a significant issue to be faced by international carriers. Oil prices are expected to increase at a faster rate over the five years through 2018-19. Rising oil prices will create some upward pressure on airfares, which is expected to flow through to higher revenue as oil
surcharges inflate industry revenue. The introduction of the carbon tax will place further pressure on industry margins, although IBISWorld expects these costs to be passed on in bulk to passengers. Competition in the industry is likely to increase in the coming five years as new operators compete with established Australian-based airlines on price. Outright losses are not expected in the coming years, but lean margins are projected. Over the five years through 2018-19, the average margin is forecast to be 2.0%, which is an improvement on the five years through 2013-14. This is anticipated to be primarily due to the significant level of new investment in the past few years, such as the purchase of new fleets. Operators will likely seek to minimise labour expenses in reaction to these pressures. Both the average wage and wages as a share of revenue are expected to decline in the five years through 2018-19.
Revenue continues to gain altitude
Industry revenue is expected to exhibit compound annual growth of 1.5% over the next five years, to reach $17.8 billion in 2018-19. In 2014-15, revenue is expected to grow by 5.0%. Revenue is projected to improve because of a recovery in global economic conditions and growth in passenger numbers. International travel to Australia is forecast to be greater, while Australians are expected to increase overseas travel. International travel in and out of Australia is expected to remain largely high. Even the global downturn only managed to slow international passenger growth. The only exception over the past 50 years is the two years in the aftermath of the September 11 terrorist attacks. Australians are likely to rediscover domestic holiday destinations as the Australian dollar loses strength. However, the desire of Australias population to travel overseas is extremely robust and
Industry revenue
12 9
% change
6 3 0 3
Year 06
08
10
12
14
16
18
20
increasing with prosperity. Barring exceptional events, international passenger numbers are expected to continue growing as rising global prosperity fuels global travel demand in the coming five years.
Competition heats up
The industry is opening itself up to foreign airlines, partly to promote tourism and business activity to Australia. In the past few years, many airlines expanded operations into Australia, offering more choices to travellers. International low-cost carriers are targeting the Australian market. The most recent entry is Scoot, a subsidiary of Singapore Airlines, with the first service landing in Sydney in June 2012, following Air Asia Xs entry in April 2012. Furthermore, Jetstar is following a strong expansion into international destinations. However, the later than anticipated delivery dates for the new Boeing 787 Dreamliner aircraft may delay the scale of this expansion, in addition to the spate of technical difficulties that the new liner experienced during late 2012. However, the trend of newer, more fuel-efficient aircraft over time will lead to greater productivity and higher fuel efficiency, which should promote lower airfares over the coming five year period. In response, higher service and heritage airlines like Virgin and Qantas have sought to expand their networks.
The number of joint ventures and codesharing with foreign airlines is expected to increase over the next five years. With the most recent large-scale partnership between Qantas and Emirates underway since September 2012, the two airlines have agreed not only to codeshare, but also have moved Qantass European transfer hub from Singapore to Dubai. Joint ventures and codesharing are a common trend among airlines globally as they strive to align capacity and costs, and increase competitiveness. Airlines are forced to forge alliances because governments around the world, due to historical reasons, are protective of airlines and airspace. These kinds of arrangements allow airlines to increase the frequency of services and the range of their networks. Virgin has expanded codesharing and joint venture arrangements aggressively. Enterprises are expected to decline over the five-year period as players share the operation of key routes, and consolidation slowly ramps up from Virgins acquisition of Tiger. Existing players are also expected to withdraw marginal services.
The price of emitting
The introduction of new government regulations designed to reduce greenhouse gas emissions may limit airline profit growth and hurt revenue. Currently, the Australian Governments carbon pricing policy does not cover international aviation. However, if the Federal
Government were to extend carbon pricing to international aviation, the higher costs would put pressure on profit margins and likely raise airfares. The higher airfares would then translate to lower demand for air travel and lower industry revenue as compared to the current forecast.
Life Cycle Stage
Player numbers fell as cost pressures increased and major players scrambled for market share Technological developments have slowed down after a boost in the early 2000s Per capita consumption of international travel is slowing
% Growth in share of economy
20
Company consolidation; level of economic importance stable 15
Maturity
Quality Growth
High growth in economic importance; weaker companies close down; developed technology and markets
Key Features of a Mature Industry Revenue grows at same pace as economy Company numbers stabilise; M&A stage Established technology & processes Total market acceptance of product & brand Rationalisation of low margin products & brands
10
Quantity Growth
5
Many new companies; minor growth in economic importance; substantial technology change
International Airlines
0
Rail, Air and Sea Freight Forwarding Non-Scheduled Air Transport Tourism Petroleum Product Wholesaling
-5
Aircraft Manufacturing and Repair Services
Decline
Shrinking economic importance
-10 -10
-5
10
15
20
% Growth in number of establishments

Industry Life Cycle This industry is M ature
The emergence of low-cost carriers as well as the consistent growth in demand for industry services has been insufficient in rebooting the industry into a new growth phase. IBISWorld expects that the industry, despite its momentum is in the mature phase of its life cycle. This mature phase has been characterised by profit margins dropping as new entrants compete for customers. The International Airline industrys contribution to the overall economy measured by the industry value added (IVA) is expected to have increased at a compound annual rate of 4.0% over the
10 years through 2018-19. Although this outperforms the GDP growth of 2.5% over the same period, the growth in IVA was mostly from a lower point due to the fall in 2008-09. Additionally, while only very few enterprises exist within the market, the slow but inevitable decline in numbers cite a fall in the ability of industry players to compete significantly and maintain profitability amidst increasing costs and low demand. Industry enterprises are forecast to be stagnant over the five years through 2013-14, with slow consolidation occurring.
International Airlines in Australia August 2013
12
Products & Markets

Supply Chain
KEY BUYING INDUSTRIES
X0003
Supply Chain | Products & Services | Demand Determinants Major Markets | International Trade | Business Locations
Tourism in Australia The Tourism industry relies on the International Airline industry to transport visitors to thecountry.
KEY SELLING INDUSTRIES

C2394 Aircraft Manufacturing and Repair Services in Australia The Aircraft Manufacturing industry is one of the major industries that supply international airlines. Petroleum Product Wholesaling in Australia Petroleum wholesalers supply international airlines with fuel for aircraft. Non-Scheduled Air Transport in Australia This industry is responsible for training aircrews and pilots.
F3321 I4903
Products & Services
Industry services can be segmented into passenger and freight transport. Passenger transport services are by far the largest product segment, with an estimated 90.1% of total revenue. The total number of revenue generating passengers carried on international flights is expected to increase at a 6.3% compound annual rate over the five years through 2013-14. This is solid growth, resulting in an increase in the number of passengers travelling, even with the slowdown during 2008-09. However, revenue has been growing at a slower rate than overall passenger growth, suggesting that low-fare passenger transport is still growing. Passenger transport Carriers that offer traditional passenger transport still account for the bulk of the International Airlines industry in
Australia. Despite the success of low-cost carriers, international flights still mostly remain in the domain of large traditional carriers such as Qantas and Singapore Airlines. The idea of low-cost airlines, without the amenities such as comfortable seating, hot meals and in-flight entertainment, are anticipated to be less appealing to customers who would travel internationally. This is predominantly due to the large amount of time airborne, where comfort becomes an increasingly important factor for airline customers. Coupled with this may be the notion that low-cost carriers may be less safe than traditional larger carriers over long distances. However, during the economic downturn in 2008-09, traditional carriers experienced large declines in passenger volume, this forced significant price cuts across the board, weighing heavily against revenue.
International air transport operating statistics

Year 2009 2010 2011 2012 2013* 2014*
*Estimate SOURCE: BITRE AND IBISWORLD
Revenue passengers (Thousands of people) 23,487 25,626 27,549 28,882 30,564 31,849
(% change) N/C 9.1 7.5 4.8 5.8 4.2
Freight and mail (Tonnes) 745,955 798,119 864,809 898,528 912,647 935,581
(% change) N/C 7.0 8.4 3.9 1.6 2.5
13
Products & Markets
Products & Services continued
A main cause of this was the lack of business travellers flying business or first class, which ordinarily is a large source of revenue. These business travellers fell in numbers as firms around the world sought to cut costs during economic uncertainty. That being said, traditional passenger transport remains an integral part of air travel, with the desire to seek comfort and the small luxuries associated with air travel being hard to replace entirely with lower price incentives. However, IBISWorld expects that as low-fare carriers up their provision of services, low-fare travellers will continue to increase in numbers over the coming five years. Low-fare passenger transport One of the reasons for passenger number growth over the past five years is industry competition and more affordable travel. Low-cost airlines run by Australian and international carriers have been increasingly involved in international air transport. Low-cost airlines, such as Jetstar, Virgin Australia and Tiger Airways are all playing larger roles in the scheduled international air travel market in Australia due to increased number of cost conscious consumers. The typical low-cost airline customer would be a middle-income earner and their family, who are open to the notion of low-cost holidaying and visiting friends and
family abroad. This was one of the primary reasons that helped low-cost carriers weather the downturn of the global economy during the financial crisis. Consumers were less likely to spend the extra money on traditional airlines for amenities such as food and a higher level of customer service, both viewed as a value added service. The growth of low-cost airlines has been a response to the higher costs borne by the industry. Higher fuel costs, security costs and other operational expenses have created opportunities for businesses with a lower cost structure to take advantage of the market. Low-cost airlines have capitalised on their business models in a particularly price-conscious environment, especially following events of the global financial crisis in 2008-09. Freight The freight segment has grown steadily since 2003, as international air cargo volumes have increased. However, with the steep increases in jet fuel prices in the past few years, growth rates in air cargo volume have softened in the second half of the past five years. During 2008-09, freight and mail volumes decreased by 9.0% in total. High fuel prices and the dip in 2008-09 translate into expected low compound annual growth of 2.7% for this segment over the five years through 2013-14. This segment provides air transportation of cargo on both freighter
Products and services segmentation (2013-14)
5.4%
Freight
4.5%
Other
Low-fare passenger transport
25.7%
Passenger transport
64.4%
Total $16.5bn
14
Products & Markets
Products & Services continued
and passenger aircraft over regular routes and schedules. Firms in this service segment operate flights even if partially loaded and the segment includes the transportation of mail for the national postal system.
Other Other products and services include aircraft charter, lease and rental and airline terminal and gateway operations. These are expected to account for a smaller proportion of industry revenue in 2013-14.
Demand Determinants
Factors affecting demand for air travel include general economic activity, airfares, exchange rates, personal disposable income, prosperity and the attraction of the destination. Leisure and business Movements in airfares determine nonbusiness travel to a greater extent, as holidays or overseas visits are either postponed or excluded from the leisure itinerary during periods of high airfares. A similar logic applies to exchange rates when the domestic currency is strong, Australians are more likely to travel overseas as their trip becomes relatively cheaper. Foreigners are likely to increase trips into Australia if their currency appreciates against the Australian dollar. For the business traveller, airfares and exchange rates are not such an important factor as they are part of the cost of running a business. Demand determinants for business travel are the level of international trade activity, corporate profitability and available substitutes such as video conferencing. During periods of weak corporate profitability, business travel may be restricted or class of travel may be downgraded for shorter international trips. Freight Demand determinants of airfreight include the level of high-value, timesensitive imports and exports, airfreight rates that are influenced by operating
costs and capacity, and innovation in shipping and packaging technology. Goods with high-value and timesensitive products are more likely to be shipped using air transport rather than other means such as shipping or road transport. It is more profitable to ship products via air, especially if the goods have a high value-to-weight ratio. Electronics and high-end products are usually transported by air to reach the market in a fast and efficient manner due to the rapid change in technology. Time to market is important, which could influence the demand for these products. Many carriers are also certified to handle dangerous goods such as explosives, gases, flammable liquids, toxic and infectious substances, and radioactive materials. Demand deterrents One major concern for passengers is the safety of air travel, with terrorism being a key concern. After the September 11 attacks in the United States, demand for air travel in the same country dropped dramatically. It took a few years for passengers to regain confidence in safety in the air; terrorist attacks on planes therefore put significant downward pressure on demand for flying. An increase in jet fuel price will also lead to lower demand for air transport. Similarly, the spread of diseases such as avian influenza or the swine flu will lower the amount of trade and reduce the demand for airfreight services.
15
Products & Markets
Major Markets
The International Airlines industry sells its services to both Australian and foreign travellers. Australians and foreigners travel to and from Australia for various reasons, including holidaying, visiting friends and family, business, school and work. Business travellers IBISWorld expects that the corporate travel segment accounts for 18.9% of industry revenue in 2013-14. Over the past five years, the business segment experienced the largest drop in numbers, mainly due to the global economic downturn and cuts in many business budgets. Recessionary conditions in the United States, the United Kingdom and other countries caused fewer business travellers coming to Australia. Likewise, businesses in Australia tightened spending on unnecessary expenditure such as travel. As such, the business market declined over the past five years. The business segment includes travel where airlines may charge a premium for tickets (business class). This is in order to reflect the added benefits, such as larger and more comfortable seating, and gourmet meals and refreshments with payment usually made under the travellers company account. In addition, sometimes bookings are short notice and consequently attract a higher price. Major market segmentation (2013-14)
Therefore, the unit value of sales per person is higher for business customers. Outbound consumers An increase in outbound tourism by Australians has been supported by the continual strength of the Australian dollar. Consumers have found they have increased purchasing power as compared to foreign destinations, prompting more consumers, especially families, to travel to international destinations. The emergence of discount carriers such as Jetstar, together with intense price-based competition, made air travel more affordable. The increased affordability promoted growth in the passenger market segment over the past five years. Holidaying tourists Inbound tourism on the other hand has been mostly aided by external factors, such as the increasing wealth of the middle-income bracket in Asia. This has seen the significant increase in Asian tourist numbers over the past five years as Australia became an increasingly popular tourist destination due to its relatively closer proximity. This trend is expected to continue in coming years as the burgeoning demand for travel by the rising Asian middle class results in increased tourist numbers to Australia.
Business travellers
18.9%
Freight forwarders
3.6%
Outbound consumers
35.3%
Holidaying tourists
42.2%
Total $16.5bn
16
Products & Markets
Major Markets continued
Freight Freight forwarders make the smallestmarket segment. Freight volumes have declined significantly since 2008-09, leading to a fall in the
percentage of revenue received for freight services. This trend was largely caused by the significant drop in international trade that followed the global financial crisis.
International Trade
There is no data available on imports and exports for this industry. However, IBISWorld expects that the industry generates both service exports and imports. Moreover, many companies provide contract or ad hoc services to foreign airlines when they are in the Australia. In effect, they are providing a service export. Service exports relate to Australian carriers carrying non-resident passengers to and from the country. Service imports relate to foreign carriers carrying Australian residents to and from Australia. It is, however, extremely difficult to obtain industry level import and export data. Trade analysis in the International Airlines industry is difficult due to the paucity of data and the complexity of the industry. IBISWorld estimates that import competition in the industry intensified over the past five years. With developments in the airlines industries in developing countries and countries from the Middle East, international air transport service operator numbers have grown. This increased the number of flights offered by those carriers in Australia, which increased industry competition. In the absence of imports and exports, domestic demand equals industry revenue, which in 2013-14 is estimated to be $16.5 billion. Open Skies opens opportunities After Australia signed an Open Skies agreement with New Zealand in 1996, the same was commenced with the United States in February 2008, allowing a significant expansion of air travel on the trans-Pacific route between the two countries. Previously, new airlines on the route were only allowed to operate four
services per week. The limited number of flights effectively made the route uneconomical for new entrants and restricted competition. The Open Skies agreement lifted these restrictions and increased route access for new airlines, allowing them to fly as often as they deem economically viable. One airline to take advantage of the agreement is Virgin Australias new international offshoot (previously branded V Australia), which commenced flights to Los Angeles in December 2008. Alliances Globally most airlines have a legacy of or currently are state owned. This results in complex ownership provisions and difficulty executing mergers and acquisitions. As a result airlines enter into network sharing agreements and joint ventures to expand. Three main alliances dominate the global industry, Star Alliance, Sky Team and Oneworld. Qantas is currently a member of Oneworld. Virgin Australia, as the second-largest international carrier in Australia, is working hard to increase competitive advantage via joint ventures overseas. During 2010, the company attempted to organise alliances with Etihad, Air New Zealand and Delta Air. The ACCC allowed the Etihad alliance to go through, as did its local authorities, and the two airlines began code-sharing in October 2010. Following regulatory approval, Air New Zealand purchased 14.9% of Virgin Australia. The alliance solidified plans to coordinate plans, schedules, capacity and routes. Alliances are expected to increase competition on the more popular routes to New Zealand, Los Angeles and the Middle East.
Products & Markets

Business Locations 2013-14
NT
1.4
QLD
22.9
WA
9.6
SA
2.8
NSW
39.3
ACT
0.8
VIC
22.1
Flight volume (%) Cold Zone (<10) <25 <50 Hot Zone (<100) Not applicable
TAS
1.1
Products & Markets
Business Locations
A significant proportion of industry operations are located in New South Wales, namely Sydney. Sydneys Kingsford Smith airport is one of the busiest passenger airports in the AsiaPacific region, with passenger numbers comparable to Singapores Changi and Tokyos Narita airports. Over the past five years, competition from other airports, including Brisbane and Melbourne, has resulted in a loss of the share of establishments. This is due to the speed of population growth of the two cities as well as their growing popularity as a tourist destination. Melbournes Tullamarine Airport is the second busiest airport in Australia. This is partly attributed to Melbourne having one of the most competitive landing fees structure around Australia. International passenger volumes from Melbourne Airport have been increasing year to year in the five years to 2013-14 and will likely continue to increase in the next five years as new industry participants choose Melbourne as its Australian hub due to overcapacity at Sydney. Brisbane is estimated to account for 13% of industry operations, with Brisbane airport catering for the majority
Distribution of ight volume vs. population

40 30
Percentage
20 10 0 NSW QLD ACT NT SA TAS VIC WA
Flight volume Population

of incoming flights from the Pacific Islands. Other Queensland airports with international scheduled air transport include the Gold Coast, Cairns and Townsville, which places Queenslands share of passenger arrivals and departures ahead of Victoria, at 22.9%. Queensland offers some of the most visited holiday destinations, which makes it popular among foreign tourists.
Competitive Landscape
Market Share Concentration
Level Concentration in this The International Airlines industry has medium level of concentration, with the top four players accounting for an estimated 45.5% of industry revenue. Qantas is the largest company in the industry holding 23.5% market share. Other major players are Virgin Australia and foreign enterprises including Singapore Airlines and Emirates. There are a number of smaller airlines operating in certain regions of Australia only, operating scheduled flights to Pacific Islands or other surrounding countries in smaller aircraft. The level of industry concentration has fallen over the past five years. This indicates a growing level of competition
Market Share Concentration | Key Success Factors | Cost Structure Benchmarks Basis of Competition | Barriers to Entry | Industry Globalisation
industry is M edium
in the industry and a mature market. There has been rising competition from low-cost airlines, specifically new entrants like Air Asia X and Scoot. These companies have outperformed the larger and more expensive airlines over the past five years, particularly during the economic downturn. During the downturn, Qantas and Singapore Airlines experienced the largest drops in revenue, while Jetstar and Virgin Australia expanded their shares of the market (despite weak demand conditions). Consolidation has also been occurring slowly for the industry as the completion of Tigerairs acquisition by Virgin increases their market share.
Key Success Factors IBISWorld identies 250 Key Success Factors for a business. The most important for this industry are:
Ability to manage risk effectively A successful fuel hedging strategy is imperative in the control of the biggest and most volatile cost to the industry and key to the management of the financial stability of operators. Optimum capacity utilisation Operators need the ability to match aircraft with routes for better utilisation. Ability to accommodate environmental requirements It is essential for firms to accommodate environmental requirements, as the general community increasingly demands
more environmentally friendly aircraft. Effective cost controls Good cost control systems to manage yields better and increase earnings. Ability to expand and curtail operations rapidly in line with market demand Having flexible capacity to meet troughs and peaks in demand is important. Access to the latest available and most efcient technology and techniques The use of up-to-date technology such as the internet and loading facilities will help improve efficiency in this industry.
Cost Structure Benchmarks
The International Airlines industry is less profitable compared with the Domestic Airlines industry, with profit at an estimated 1.4% of revenue. A number of industry trends adversely affected earnings as a proportion of revenue. These detrimental trends include increasing oil prices, the introduction of low-cost air carriers (who aggressively compete almost solely on price) and the increase in capital costs across the globe as credit markets tightened. In the coming years, industry profit performance is expected to improve as operators
establish new business models and expand their networks through alliances. Purchases A major expense in this industry is purchases, which include the acquisition of materials and commodities such as fuel. Because these costs are relatively large, the industry is vulnerable to fluctuations in the prices of materials and supplies. Aside from fuel, other purchases include in-flight meals, airline merchandise such as headphones and toiletries, and refreshments and beverages.
Cost Structure Benchmarks continued
Fuel purchases The main reason for such volatile costs is the fluctuating price of fuel. Aviation fuel is one of the most significant expenses for an airline (within the purchases segment), often accounting for about 20% to 30% of all operating expenses for firms in the industry. Since 2008-09, rising crude oil prices put increasing upward pressure on purchase costs. Fuel prices increased dramatically in late 2007 and the first half of 2008. However, many airlines had hedged fuel contracts, with prices set much higher compared with the price of oil during 2008-09. Some hedge contracts last up to 18 months and were still effective in 2009-10. Wages Wages are another major expense item, accounting for an estimated 14.6% of revenue. Wage levels differ from country to country, and Australian wages are not excessive, given cost of living comparisons with other countries. Wages as a proportion of revenue fell gradually Sector vs. Industry Costs
Average Costs of all Industries in sector (2013-14) 100
over the past five years, as higher costs and profitability pressures (e.g. insurance premiums and fuel expenses) caused many operators to reduce labour costs in conjunction with increased productivity. Over the coming five years, wages are expected to decline further as airlines target this area of expense. Generally, a crew consists of a pilot, co-pilot, flight engineer (depending upon the type and age of the aircraft) and flight attendants. Crew and other employee travel expenses reflect the cost of air transportation, hotels and reimbursements to cockpit and cabin crew members incurred when crews operate away from home. The average wage per person is estimated at approximately $138,000 per annum, which is reflective of the high skill level required to work in the industry. Rent Large commercial airlines purchase passenger aircraft. However, charter operators lease rather than purchase aircraft due to their small size and the
Industry Costs (2013-14)
5.1
80
9.2 3.7 7.3 25.6
6.0
1.4 6.5 21.9 14.6 2.2
Percentage of revenue
60
Prot Rent Utilities Depreciation Other Wages Purchases
40
22.9 47.4 26.1
20
0
Cost Structure Benchmarks continued
high cost of aircraft. Most of these lease agreements give the lessee the option to purchase at the end of the lease, enabling the lessee to depreciate the aircraft. Therefore, lease agreements do not significantly affect industry depreciation. Aircraft leasing costs account for an estimated 6.0% of operating revenue. This has declined slightly over that past five years, mainly due to more airlines choosing to purchase aircraft as opposed to leasing. Depreciation With more companies owning their own aircraft, maintenance increased slightly as a percentage of revenue over the past five years. The depreciation of aircraft, aircraft parts, loading and unloading equipment, communication equipment, office equipment, technology and software accounts for an estimated 6.5% of operating revenue. Depreciation has become a larger share of costs for the industry over the past five years, with an increasing number of aircraft purchases and companies investing more in newer planes, such as the Airbus A380. Other expenses Other costs include operating leases,
utilities, interest, insurance, selling and administrative, landing fees, advertising and similar items. The cost of utilities is relatively consistent as a percentage of revenue. The growing use of electronic ticket distribution systems provides the industry with an opportunity to lower its distribution and administrative costs. However, the continuous increase in pricing transparency resulting from internet use enabled cost-conscious customers to more easily obtain the lowest fare on any given route, thus diminishing the influence of price discrimination strategies to increase revenue. Advertising is a major tool for attracting customers among major airlines. While these are multibilliondollar companies and advertising does not account for a large share of revenue, advertising is an ongoing cost that is expected to increase over time as competition intensifies. Landing fees are perhaps the most crucial fluctuating cost for international airlines with different airports pricing landing fees differently. This cost segment greatly affects the decision for airlines to build a local hub within Australia based on the costs associated with landing at different airports.
Basis of Competition
Level & Trend ompetition C
in this industry is Highand the trend is I ncreasing
The International Airlines industry is highly competitive, and competition is growing. There are two distinctive factors in competition: price and quality of service. These tend to be two separate focal points of airlines. Companies will either focus on price competitiveness or compete on value-added to attract the higher-end consumer. This trend has been highlighted by the rapid expansion of lower-cost airlines over the past decade. Jetstar, Virgin Blue and Tiger Airways are three of the most successful lower-cost carriers in the Australian market, all three offering lower prices as reflective of limited value-added services that accompany low-cost carriers in an
effort to drive down costs. Quality of service includes the types of services included in the airfare, such as meals, luggage and entertainment. Low-cost carriers tend to charge extra for these items, meaning that customers get less options if they purchase lower fares. Cheap fares and less service has been a popular trend among the Australian public, with the success of these companies reflected in their expanding market share. Certain groups of customers still prefer to pay more to enjoy a better quality of service. These customers tend to be business travellers and other people who travel based on need rather
Basis of Competition continued
than want. Factors that also contribute to competitiveness of companies focusing on the non-price sensitive customers include frequency of service, airport lounges, route coverage and rewards programs. For this reason, the largest airlines usually have the highest competitive advantage for business travellers, as they have the largest route coverage and offer most supplementary services. Industry competition is in part controlled by the number of carriers, despite the different types of services they may offer. For instance, a smaller number of carriers will mean more route coverage by each, higher frequency of flights, and more market power. Over the past five years, the number of participants in the International Airlines industry has grown, with the introduction of Tiger Airways and AirAsia X in 2007.
These new companies offer cheap flights to and from Asia, and have increased the level of competition in the industry. Additionally, Virgin Blue introduced V Australia in 2008, putting more pressure on existing companies to lower prices or increase the quality of services offered. Competitive pressures from other international airline have also threatened the industry. Chinas three largest airlines Air China, China Eastern and China Southern airlines have increased capacity in the Australian market. IBISWorld expects that capacity from these airlines have increased at an annualised rate of more than 20% in the current five year period. While they account for less than 5% of total capacity in the International Airline industry in Australia, IBISWorld expects that carrier unit costs are substantially lower for these airlines as compared to their Australia counterparts.
Barriers to Entry
Level & Trend arriers to Entry B
in this industry are Highand S teady
IBISWorld expects the International Airlines industry to exhibit high barriers to entry. Costs to purchase aircraft, specialist machinery, hangar and other airfield space, skilled labour and to satisfy stringent safety requirements are very high. This qualifies the industry as one of the hardest to get into in Australia, although conditions have loosened in the past few years. This is mainly due to a reduction in industry regulation, namely the argument against foreign ownership in Australia. However, this has not offset the level of difficulty in entering the industry from both a regulatory and capital intensive perspective. The Federal Government has a 49% foreign ownership cap imposed on airlines to ensure they remain an Australian-based carrier and enjoy full benefits of bilateral agreements. However, this restriction has been lifted from only 30% a few years ago (for Qantas, the largest carrier), which indicates the Governments intention to liberalise the industry more. Furthermore, the Government has allowed 100% foreign-owned companies
Barriers to Entry checklist Competition Concentration Life Cycle Stage Capital Intensity Technology Change Regulation & Policy Industry Assistance
Level High Medium Mature High High Heavy Low

to begin operations to and from Australia in Australian hubs, which is another move towards free market conditions. Airline agreements involving landing rights can determine the number of aircraft designated to operate on each route and therefore act as a barrier to the entry of non-designated airlines. These agreements also set capacity limits for each country and impose a volume quota on international airline services on a country-by-country basis. Airlines tend to use these quotas as an incentive to maximise benefits by aiming for the higher end of the market, reducing the number of discount and economy airfares
Barriers to Entry continued
offered and therefore offering less variety in fares and services than would occur in a more competitive environment. A major constraint in Australia is insufficient airport capacity, particularly in runways, terminals and apron parking for aircraft. This is particularly the case with Kingsford-Smith Airport in Sydney, where nearly half of all international visitors to Australia arrive and depart. In addition, Sydney is the gateway for all freight clearance, whether it be quarantine or customs-related. Increased domestic jet flights and
smaller aircraft using the two runways, and the nightly curfew operating at Sydney airport add to the congestion faced by international flights. As a result of airport congestion, airports have increasing power to alter airport fees and landing structures for international airline operators, additional surcharges include re-fuelling costs and other costs relating to the docking and fleet preparation. These costs vary between airport to airport and can be a large determinant to the difference in entry barriers between certain regions.
Industry Globalisation
Level & Trend lobalisation G
in this industry is Highand the trend is I ncreasing
IBISWorld expects that the International Airline industry in Australia exhibits a high level of globalisation due to the expanding number of foreign operators in the industry and the increasing instance of foreign ownership, especially with lifting of the foreign ownership cap from 30% to 49% in 2009. Since the 1980s, air services agreements were increasingly liberalised due to higher demands for international air services. Many passenger airline operators in this industry have branch offices setup outside their domiciled country. Many airlines also act as travel consultants, providing various travel options through their own or partner airlines. Many airlines form partnerships such as SkyTeam, Star Alliance and Oneworld global alliance to tap into additional routes through codesharing agreements. The number of code-sharing agreements increased considerably over the past 10 years, as global competition intensified. Foreign ownership is a hot topic in
Australia, and an important indicator of globalisation in the industry. As it stands, the Federal Government allows a maximum of 49% foreign investment in local companies such as Qantas and Virgin Blue. Meanwhile, 100% foreignowned enterprises such as Emirates and Singapore Airlines can operate flights to and from Australia. Qantas is pushing for a removal of the 49% cap, as it is looking for investment opportunities from abroad. The cap was set to 35% until 2008, when the Federal Government reduced the restrictions. It is likely that further liberalisation will follow in the near future as less regulation frees new and existing carriers to improve their networks, create new business models and pursue different strategies. The Government is likely to realise the efficiency benefits of increasing globalisation locally, as code-sharing agreements demonstrated over the past decade.
Major Companies
Major players
(Market share)
Qantas Airways Limited | Virgin Australia Holdings Limited Singapore Airlines Ltd | Emirates Group | Other Companies
Emirates Group 6.3%
Virgin Australia Holdings Limited 8.0%
54.5%
Other Singapore Airlines Ltd 7.7% Qantas Airways Limited 23.5%
Player Performance Qantas Airways Limited Market share: 23.5%
The Qantas Group provides airline services through an extensive domestic and international network, including those flown by QantasLink, its regional network operator. The group also offers services across a network covered by code-share partners in Australia, the Asia-Pacific, the Americas, Europe and Africa. Qantas, founded in the Queensland outback in 1920, was originally registered as Queensland and Northern Territory Aerial Services Limited. The Qantas Group has placed an increasing focus on Jetstar, in a move to capture market share in the rapid expansion of the budget airline industry segment. The move is also in response to strong competition from foreign international airlines that operate with lower costs. To support the strategy to lower costs, Qantas planned to launch a new airline based in Asia. A new subsidiary in Asia was expected to reduce Qantass costs due to cheaper labour sourced in the region. However, the planned shift to Asia sparked fierce industrial action from Qantas employees, which culminated in a grounding of the Qantas fleet in 2011. Fair Work Australia intervened to terminate the industrial action and get Australian passengers back in the air. The intervention is expected to create a more stable future for Qantas with reduced threat of industrial action. Qantas has since abandoned the planned expansion and is currently restructuring its international operations to improve competitiveness. In December 2009, the government allowed an increase in foreign ownership of Qantas from 35% total foreign share, to 49% total foreign share. The increased allowance for foreign ownership is expected to improve Qantass capital
Qantas Group industry segment performance*

Year 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13
*Estimate SOURCE: IBISWORLD
Revenue ($ billion) 3.72 3.46 3.09 3.27 3.53 3.76
(% change) N/C -7.0 -10.7 5.8 8.0 6.5
generation. The company also expanded code-share agreements with Etihad and China Eastern in an attempt to secure a stronger international standing during the global economic downturn. In April 2010, the company cancelled numerous flights to Europe over a period of nearly a week due to a volcano eruption in Iceland. In May 2010, Qantas and Tourism Australia signed a $44 million partnership to market Australia as a tourist destination internationally. Since September 2012, Qantas and Emirates airline have officially formed a partnership. This integrated partnership is deemed more significant than codesharing or a joint-service agreement, with Qantas shifting its European transfer hub from Singapore to Dubai. The two carriers will also share reciprocal access to their respective frequent flyer schemes in an effort to provide more incentives and benefits for customers. Financial performance Qantass international flight revenue had
Major Companies
Player Performance continued
already started to decline before the economic downturn, illustrating the competitive pressures faced by the group. Demand for both passenger and freight transport dropped further during the economic downturn in 2008-09. The most significant decline was in the sale of business class tickets. The Qantas Group is estimated to have lost market share in the International Airlines industry over the past five years. Competition from foreign carriers has resulted in fewer travellers choosing Qantas to fly overseas or to Australia. The change is due to stronger competition from Virgin Australia, foreign airlines and a number of newer low-cost carriers flying to Australia. The Qantas Groups industry revenue over the five years through 2012-13 has been relatively static, growing at a compound annual rate of only 0.2%. Revenue from international flying represents approximately one-fifth of company revenue and is steadily declining. The decline indicates that strong competition in the industry
created a greater focus on domestic operations. At the same time, Jetstar outperformed the company as a whole, due to its status as a low-cost domestic leader. The groups industry-related profit declined drastically in the five years through 2012-13, due to several large losses. Qantass revenue and profit margins underperform the industry. However, in a move to increase operational efficiency, the Qantas Group has increased its focus on Jetstars expansion into international markets over the past five years, especially Asian markets. Jetstar now flies to Japan through the recent launch of Jetstar Japan, as well as China, Indonesia, Thailand and Vietnam among many other Asian destinations. While revenue in the five-year period through 2012-13 was yet to rebound from the restructure, IBISWorld expects that efficiency and specialisation for both business units (Qantas Airways and Jetstar) will benefit in coming years from increased economies of scale and better use of travel routes.
Qantas Group nancial performance

Year 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13*
*Estimate
Revenue ($ billion) 15.63 14.55 13.77 14.89 15.72 15.82
(% change) N/C -6.9 -5.4 8.1 5.6 0.6
EBIT ($ million) 1,318 136 468 644 265 N/C
(% change) N/C -89.7 244.1 37.6 -58.9 N/C
SOURCE: ANNUAL REPORT AND IBISWORLD
Player Performance Virgin Australia Holdings Limited Market share: 8.0%
Virgin Australia Holdings Limited is the parent company for the Virgin Blue Airlines Group, which encompasses the following airlines: Virgin Australia (formerly Virgin Blue, V Australia and Pacific Blue) and Polynesian Blue. Virgin Blue started operations in Australia in
2000, offering no-frills cheap air travel between capital cities around Australia. The company had support from federal, state and local governments, who provided incentives for Virgin Blue to service routes that would otherwise be subject to high-price monopoly. Virgin
Major Companies
Blue participates in the industry through its international flights. Virgin Blue was involved in trying to secure codesharing and joint venture agreements with foreign airlines to increase its position on international flights to and from Australia. Alliances are part of Virgin Blues strategy to build an international network that complements their domestic business. Air New Zealand strengthened ties with Virgin Blue in 2010-11, with Air New Zealand purchasing 14.9% of Virgin Blue. The newly cemented alliance solidifies plans to coordinate prices, schedules, capacity and routes. Virgin Australia and Singapore Airlines also began interlining flights in June 2011, with codesharing and shared access to each airlines lounges. Virgin Blue introduced V Australia during 2009. V Australia was an international airline with direct services from Australia to Los Angeles. In March 2007, Virgin Blue confirmed its intentions to start V Australia, by signing of an order for six Boeing 777-300ER aircraft. V Australia launched direct services between Sydney and Los Angeles on 27 February 2009, with an array of flights from Australia to the United States added since. In December 2009, V Australia began services to South Africa and Thailand. V Australia now forms part of the Virgin Australia brand. In December 2011, Virgin Australia Group relaunched its international airline operations under a single umbrella, Virgin Australia. Virgin Australia brings
Virgin Blue Holdings industry segment performance

Year 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13*
*Estimate SOURCE: ANNUAL REPORT AND IBISWORLD
Revenue ($ million) 258.9 523.3 764.0 953.8 1,053.4 1,258.6
(% change) N/C 102.1 46.0 24.8 10.4 19.5
together V Australia and Pacific Blue into one operator. A single brand will enable the operator to streamline both operations and marketing to reduce costs and boost profitability. In the first quarter of 2013, Virgin announced plans to acquire a 60% stake of Tiger Airways Australia. At the time of writing, the airline was still seeking regulatory approval from the ACCC after the consumer watchdog delayed a decision to probe deeper into the deal. At the same time, Virgin has made further inroads into regional airline operations after its proposal to fully acquire the regional Western Australia airline Skywest was give the green light by Skywest shardholders. Financial performance Virgin Australia is a relatively new major
Virgin Blue Holdings Limited nancial performance

Year 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13*
*Estimate
Revenue ($ billion) 2.33 2.64 2.98 3.27 3.92 4.12
(% change) N/C 13.3 12.9 9.7 19.9 5.1
EBIT ($ million) 168.0 -162.3 90.5 -14.0 151.0 N/C
(% change) N/C N/C N/C N/C N/C N/C
Major Companies
player. The companys launch of V Australia in 2009 doubled the companys international passenger traffic. As the company expanded its international operations, its international revenue rapidly expanded at an estimated compound annual growth rate of 34.2% over the five years through 2012-13, a strong outperformance of the industry. International passengers accounted for approximately 40% of company traffic in 2012-13, up from 10% in 2007-08. International passenger transport has become a major area of activity for Virgin Australia over the past five years. The number of international passengers flying Virgin Blue during 2012-13 accounted for approximately 8.0% of industry-wide totals, up from 2.6% in 2007-08. However, the average price of the services is lower compared with Qantas flights, which means that Virgin
Blue accounts for less revenue share in the industry than it does its passenger share. IBISWorld estimates that Virgin Blue rapidly gained market share over the past five years, up from 3.0% in 2007-08, with much of the growth occurring during the introduction of V Australia. The slowdown in passenger number growth due to the global downturn, and rapid increases in fuel prices in the few years prior, negatively affected the companys industry profitability. Additional pressure on earnings came from costs associated with establishing V Australia and its continual expansion. Since then, the bottom line has improved due to cost cuts and overcapacity reduction. Boeings decision to defer the production of 777s (aircraft used by V Australia) allowed the new airline to readjust capacity on the new routes to match the climate of falling demand.
Player Performance Singapore Airlines Ltd Market share: 7.7%
Singapore Airlines is Singapores national airline and operates its hub at Singapores Changi Airport. The airline is highly prominent in the South-East Asia region and is considered a major player in the Europe-Oceania route. The airline began in 1947 as Malayan Airways Limited, flying from Singapore to Kuala Lumpur. Following several name changes, the airline as it was known ceased operating in 1972 following political disagreements between Singapore and Malaysia, resulting in the creation of two separate entities, Singapore Airlines and Malaysian Airlines Systems. The airline was one of the first to order the new Boeing A380 in 2000, placing an order for 19 of the aircrafts in that year. Singapore Airlines has traditionally been known for its extended level of service and centralised location of Changi airport. The geographic advantage has been played to the benefit of Singapore airlines, with its close proximity to markets making it a hub for international travel, especially across Asia and Europe. Singapore Airlines has continued to
Singapore Airlines industry segment performance*

Year 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13
Revenue ($ million) 1,068.0 1,281.3 805.7 946.9 1,072.4 1,211.2
(% change) N/C 20.0 -37.1 17.5 13.3 12.9
differentiate and brand itself as a leading carrier with the provision of the Singapore Airlines Suites, an exclusive class available on its A380 flights from Melbourne and Sydney. These private suites are designed by French luxury yacht interior designer Jean-Jacques Coste and comprise of separate private compartments with sliding doors, leather interiors and wood grain finishes. Singapore Airlines has made repeated
Major Companies
attempts to gain better access to the Australian market, but foreign ownership regulations and airspace agreements has prevented the airline from a thorough penetration of its services into the Australian aviation industry. In June 2011, an agreement was signed with the Virgin Australia group of companies to establish a long-term alliance that covered a 20 city codeshare on each others flights as well as reciprocal frequent flyer benefits and lounge access. Qantas has been its main opponent in the Australian market, fiercely defending its market territory. Since the purchase of the new A380 by both companies, competition has intensified, with Singapore Airlines A380 flights available from all the major cities in Australia. Financial performance Singapore Airlines has lost market share over the past five years from an estimated 9.2% in 2007-08. The Singaporean airlines industry revenue decreased at a compound annual growth rate of 1.2% over the five years through 2012-13. This is a significantly slower rate compared to the industry, which grew over the same period. The reason for the slow growth
lies in very low takings during 2009-10, when the full impact of the global financial crisis was felt by the airline. The airline had to substantially cut capacity and lowered prices during the period of low air travel demand. Singapore Airlines lost a large chunk of market as consumer confidence globally hit all-time lows. The large drop in business travel, of which Singapore Airlines was regarded as a leading carrier, affected revenue substantially. The south-west Pacific region revenue was also greatly affected by the global financial crisis. This was also greatly reflected in the related industry performance of Singapore Airline, with international travel in Australia for the carrier forecast to have fallen 37.1% alone in 2009-10. As such, the company directed its focus towards the development of more profitable routes, especially in connecting Asia with Australia and New Zealand. However, an upturn for the carrier is the slow recovery of the global economy, testament through the successive years of growth from the 2009-10 shock. IBISWorld expects that industry revenue will continue to recover in coming years to reach pre-crisis levels.
Singapore Airlines nancial performance

Year* 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13**
*Year end March **Estimate
Revenue ($ billion) 12.60 15.39 9.88 11.16 11.42 11.87
(% change) N/C 22.1 -35.8 13.0 2.3 3.9
EBIT ($ million) 1,676.0 869.3 49.1 976.8 219.7 N/C
(% change) N/C -48.1 -94.4 1,889.4 -77.5 N/C
Major Companies
Player Performance Emirates Group Market share: 6.3%
Emirates, launched in October 1985, is the main subsidiary of the Emirates Group, a Dubai based international aviation holding company. The Emirates airline is the international carrier of the United Arab Emirates and the largest airline in the Middle East. Emirates is a privately owned airline with the royal family of Dubai the major shareholder. It has an international cargo segment and a travel management and leisure segment. Emirates goal is to be able to fly all its fleet from any destination on one side of the world to any destination on the other side of the world with just one stop in Dubai. Emirates is responsible for more than 60% of flight movements in and out of Dubai International Airport. Emirates has been making significant inroads into the Australian Tourism and Aviation industry since its first flight into Australia in 1996, with the establishment of aviation operations as well as developments in luxury tourism. In 2010, Emirates Groups Wolgan Valley Resort & Spa, Australias first conservationbased luxury resort received recognition from the Leading Hotels of the World Awards. The airline does not compete directly on price on the international market but on product differentiation. The airlines passengers have the ability to fly one-stop to most major European cities, rather than having to stop in Asia and then transit through Heathrow. Late 2012 marked the beginning of an extensive partnership between Qantas and Emirates Airline, with the relocation of
Emirates Group industry segment performance*

Year 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13
Revenue ($ million) 698.4 761.5 723.6 806.8 895.8 988.1
(% change) N/C 9.0 -5.0 11.5 11.0 10.3
Qantas European hub to Dubai, Emirates base. Included in this global partnership is the reciprocation of frequent flyer rewards offered by the two carriers as well as access to 33 European cities for Qantas customers. IBISWorld expects Emirates to continue to form strengthened ties with the Australian Aviation industry, opening up Europe and the Middle-Eastern cities such as Dubai and Abu Dhabi as travel destinations. Financial performance Emirates Groups industry segment revenue increased at a compound annual growth rate of 7.2% over the five years through 2012-13. The Emirates airline grew rapidly because of new route introductions, attractive packages, loyalty programs and competitive behaviour in new markets (such as Australia in the early 2000s). The far east and Australasia
Emirates Group nancial performance*

Year 2007-08 2008-09 2009-10 2010-11 2011-12** 2012-13** Revenue ($ billion) 13.17 15.98 14.62 15.30 16.12 16.84 (% change) N/C 21.3 -8.5 4.7 5.4 4.5 EBIT ($ million) 1,475.7 967.9 1,328.1 1,584.0 1,755.2 N/C (% change) N/C -34.4 37.2 19.3 10.8 N/C
*AED converted to AUD using March year end exchange rates **Estimate
Major Companies
region accounted for an estimated 30.2% of company sales in 2012-13, up from 28.1% in 2007-08. The expansion was a result of increased demand for travellers in the region and pricing in the upper ranks. As a result, market share increased from 4.0% in 2007-08 to reach 6.3% in 2012-13. Like most other international
airlines, Emirates felt the heat of the global financial crisis. As a traditionally value-added and premium airline, many customers were turned away during times of economic duress. In the five years to 2012-13, forecasts show that the only year revenue fell was 2009-10, where revenue fell 8.5%.
Other Companies
The International Airlines industry is characterised by a number of global carriers who have international hubs located within Australia. Despite the lower number of industry enterprises, each enterprise has a relatively high share of the industry due to the number of passengers transported, and the exclusive flight routes provided by certain carriers.
Air New Zealand
Estimated market share: 4.0% Air New Zealand commenced operations in April 1940 with the incorporation of Tasman Empire Airways Limited (TEAL). It began with trans-Tasman services using flying boats. The company steadily expanded the size and scope of its operations with the introduction of its international network. In October 1953, TEAL became jointly owned by the New Zealand and Australian governments, and in April 1961, the New Zealand Government assumed full ownership. In 1999, Air New Zealand became a full member of the Star Alliance Group. Air New Zealands involvement in the
Australian aviation market is significant, driven by its purchase of 50% of Ansett Australia in 1996 and increasing that stake to 100% ownership in February 2000. Ansett was effectively operating in a duopoly environment for the significant majority of its existence. With strong brand recognition across the Oceania region, the airline was an Australian icon. Ansett entered into voluntary administration on 13 September 2001, as the company struggled to adapt its operational structure in an increasingly low-cost environment. In the absence of any buyers for the airline, the company ceased operating on 4 March 2002. Air New Zealand strengthened ties with Virgin Blue in 2010-11, with Air New Zealand purchasing 14.9% of Virgin Blue. The newly cemented alliance solidifies plans to coordinate prices, schedules, capacity and routes.
Malaysia Airlines
Estimated market share: 2.8% Malaysia Airlines has been increasing its presence in the Australian International Airline industry as Kuala Lumpur
Air New Zealand nancial performance*

Year 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13** Revenue ($ billion) 4.00 3.76 3.22 3.46 3.51 3.59 (% change) N/C -6.0 -14.4 7.5 1.4 2.3 EBIT ($ million) 308.0 63.6 120.4 86.5 122.9 N/C (% change) N/C -79.4 89.3 -28.2 42.1 N/C
*NZD converted to AUD using June year end exchange rates **Estimate SOURCE: ANNUAL REPORT AND IBISWORLD
Major Companies
Other Companies continued
becomes a major transport hub not just for passengers heading to Europe but also for passengers travelling throughout Asia. Supporting this growth has been the success of Air Asia the companies
discount carrier. Malaysia Airlines market share is expected to increase over the next five years with the airline expanding to include routes from Kuala Lumpur to major cities in Australia.
Operating Conditions
Capital Intensity
Level The level The International Airlines industry has a high level of capital intensity. For every $1.00 paid as wages to labour, $0.45 is spent on capital investments. The industrys high capital intensity is due to the large capital investment required to operate an airline. Aeroplanes can be leased to ease capital requirements, although most airlines, especially larger international carriers prefer to own aeroplanes as assets. In addition, efficient communications equipment, newer aircraft and computer-assisted booking, strong and flexible packing equipment and route planning facilities can reduce the need for non-flying and maintenance labour. Over the past five years, capital expenditure rose due to a large number of new aircraft purchases and upgrades of existing vehicles. As such, capital intensity increased over this period.
Capital Intensity | Technology & Systems | Revenue Volatility Regulation & Policy | Industry Assistance
Capital units per labour unit 0.5 0.4 0.3 0.2 0.1 0.0 Economy Transport, Postal and Warehousing International Airlines
Capital intensity
of capital intensity is H igh
Dotted line shows a high level of capital intensity

However, certain labour functions in the industry, such as piloting, safety requirements and customer service, are irreplaceable and require a specialised knowledge. Wages are estimated to account for 14.6% of industry revenue.
Tools of the Trade: Growth Strategies for Success

New Age Economy Recreation, Personal Services, Health and Education. Firms benet from personal wealth so stable macroeconomic conditions are imperative. Brand awareness and niche labour skills are key to product differentiation. Investment Economy Information, Communications, Mining, Finance and Real Estate. To increase revenue rms need superior debt management, a stable macroeconomic environment and a sound investment plan.
Capital Intensive
Labour Intensive
Aircraft Manufacturing and Repair Services
Traditional Service Economy Wholesale and Retail. Reliant on labour rather than capital to sell goods. Functions cannot be outsourced therefore rms must use new technology or improve staff training to increase revenue growth.
Non-Scheduled Air Transport Rail, Air and Sea Freight Forwarding Tourism Old Economy Petroleum Product Agriculture and Manufacturing. Wholesaling
Traded goods can be produced using cheap labour abroad. To expand rms must merge or acquire others to exploit economies of scale, or specialise in niche, high-value products.
Change in Share of the Economy
Capital Intensity continued
Moreover, long or quick turnaround trips (and certain types of aircraft) require extra crew members to adhere to Federal Government safety requirements. The
average wage in this industry is high at $138,000, because staff duties require high skills (for pilots) and long hours, overtime and travel expenses.
Technology & Systems Airlines will invest in larger capacity,

Level The level
of Technology Change is H igh
more fuel-efficient aircraft to combat rising fuel prices. Radically different aircraft designs exist that can greatly improve fuel efficiency. However, these cutting-edge designs are unlikely to be adopted in the next five years. This is because new aircraft designs must be compatible with existing airport infrastructure and satisfy safety regulations. It will take time to overcome these hurdles. In the meantime, to counter higher operating costs, airlines are likely to increase their reliance on low-cost business models. The International Airlines industry is hi-tech, even though most of its technologies are imported from the United States, Europe and major global associations such as the International Air Transport Association (IATA) and International Civil Aviation Organization (ICAO). The fields of advancements include the manufacturing of more fuel-efficient aircraft, online booking and check-in, self-serve kiosks at airports, e-ticketing and similar improvements. Aircraft efciency Given the rising climate change awareness among individuals, businesses and governments, airlines have turned their focus onto reducing greenhouse gas emissions. The most important tool for combating this issue is the use of aircraft manufacturing technology, which allows for more efficient fuel consumption. Aircraft that are more efficient are already in production, including the Airbus A380, which is the largest commercial plane in the world. Larger aircraft available to airlines provide economies of scale and help alleviate congestion at airports. The A380 can carry 555 passengers in a three-class configuration or up to 853 passengers in a single-class economy
configuration and is sufficient to fly from Chicago to Sydney non-stop (a maximum range of 15,000 kilometres). However, Boeing is developing the 787 Dreamliner, which it claims will be the most fuel-efficient aircraft made. Commencement of commercial service for the 787 began in October, 2011. The 787 is designed to provide airlines with more fuel efficiency, with the aeroplane using 20% less fuel for comparable flights. Boeing has announced that as much as 50% of the primary structure including the fuselage and wing on the 787 will be made of composite materials. In addition, Boeing is considering incorporating healthmonitoring systems that will allow the aeroplane to self-monitor and report maintenance requirements to groundbased computer systems. Qantas has placed an order for 50 787s, to be delivered from 2013. At the time of writing, the feasibility of greener flights from the 787 were still in question after a serious of technical failures of the airliner lead to the grounding of existing 787 fleets. Airline efciency Developments in the operational efficiency of airlines have been plentiful over the past five years, particularly in the field of administration. This includes online booking, payment, scheduling, check-in and other online self-service functions. The IATA accomplished the task of making all major airlines paperless by issuing only electronic ticketing by June 2008. This means that costs related to paper and other administration were eliminated. Other technological advancements include self-serve kiosks for check-in, mobile check-in through smartphones and bar-coded boarding passes as well as e-freight.
Technology also allowed for higher Technology & Systems levels of competition among airlines. continued
Consumers expect advanced entertainment systems onboard a flight. As such, airlines have upgraded their
systems over the past five years. Technological advancements include the availability of a wide range of entertainment for each passenger and internet access.
Revenue Volatility
Level The level
of Volatility is M edium
International air travel is dependent on the performance of economies, consumer sentiments and price of fuel in various countries the industry serves. Industry output is affected by economic activity, as measured by world GDP. With the general welfare of a population greatly affected by a nations economic situation, it follows that economic activity and growth would largely affect international air travel to and from prospering economies. Testament to this is the growth of Asias Aviation industry in the last five years, with significant
A higher level of revenue volatility implies greater industry risk. Volatility can negatively affect long-term strategic decisions, such as the time frame for capital investment. When a rm makes poor investment decisions it may face underutilised capacity if demand suddenly falls, or capacity constraints if it rises quickly.
achievements not only in investment and development but its continual growth as a tourism destination and conversely, a source of tourists. With fuel purchases a significant cost for airlines, prices charged by carriers often reflect changing prices in jet fuel. With world oil prices projected to maintain their high level of volatility, price of air travel may be difficult to contain in coming years. The emergence of budget carriers in response to this has also increased capacity and stimulated air travel, especially across the Tasman route.
Volatility vs Growth
1000
Hazardous
Rollercoaster
Revenue volatility* (%)
100 10 1 0.1
Stagnant
30 10 10 30 50
Blue Chip
70
Five year annualised revenue growth (%)

* Axis is in logarithmic scale
Regulation & Policy

Level & Trend he level of T
Regulation is Heavyand the trend is S teady
The framework under which Qantas and other airlines operate has a regulatory basis dating back to the Chicago Convention of 1944. At the convention, attendees agreed that every state has complete and exclusive sovereignty over the airspace above its territory and territorial waters, and scheduled air services cannot be operated over, or into, the territory of a contracting state except with the authorisation of that state. They
also agreed that each state is to comply with uniform standards when practical to do so. If not, deviation from standards is to be documented and communicated to fellow member states. The attendees agreed that a non-scheduled flight has the right to fly across the territory of another state and to make stops for non-traffic purposes. The IATA is an organisation of international airlines. It involves itself in
Regulation & Policy continued
all aspects of airline operations, and most non-government discussions within the industry take place under IATA auspices. In the past, airfare negotiations were an integral function of IATA, but with the emergence of more non-IATA members and increased market size, its role is now limited to clearing inter-airline debts and providing general guidelines for fare setting in the industry. Bilateral air agreements The most common method of arranging airline movements from country to country is through bilateral air agreements. The Federal Government negotiates bilateral agreements in consultation with Qantas. These agreements are administered by the Department of Infrastructure and Transport. In July 1992, the Federal Government established the International Air Services Commission to allocate capacity rights on international routes among designated Australian international carriers. These bilateral agreements are usually based on mutual benefits, but can have political motives that make commercially based decisions difficult to implement. In the past however, airlines sought airline-to-airline agreements in an attempt to overcome political influence. Civil Aviation Safety Authority In Australia, the Civil Aviation Safety Authority manages the industry. It was established in 1995 as an independent
statutory authority under the Civil Aviation Act 1988. Its purpose is to enhance and promote aviation safety through effective safety regulation and by encouraging industry to deliver high standards of safety. The primary function is to conduct the safety regulation of civil air operations in Australia and the operation of Australian aircraft overseas. The organisation also provides safety education and training programs. Government controls The Federal Government has a 49% foreign-ownership cap imposed on Qantas to ensure Qantas remains an Australian-based carrier and enjoys full benefits of bilateral agreements. Bilateral agreements stipulate that to qualify as an Australian international airline, a carrier must be substantially owned and effectively controlled by Australian nationals. However, there is no official definition for substantial ownership and effective control. Qantas has been unsuccessfully lobbying the Government to lift its ownership restrictions so it can attract cheaper capital. The Federal Government also regulates competition in the industry, through its ACCC branch. During 2010, the ACCC granted approval for Virgin Blue to form an alliance with Delta Air Lines, a USbased major airline. The Government also granted approval for Virgin Blue to form an alliance with Middle Eastern airline Etihad. These alliances are aimed at increasing competition in the industry.
Industry Assistance
Level & Trend he level of T
Industry Assistance is L owand the trend is S teady
Prior to the deregulation of Australias airline industry from 1990-92, Qantas had no Australian competitors on international routes. Since 1992, a key element of Australias international aviation policy has been multiple designations that allow more than one Australian carrier to operate international air services. Deregulation was aimed toward boosting competitiveness in the industry to increase productivity and innovation.
For customers, it meant lower airfares and increased frequency of flights to and from Australia. While tariffs do not apply to the International Airline industry, changes in the cost of airport fees and landing fees for international players aid the industry to some extent. The Board of Airline Representatives of Australia since the expiry of airport pricing agreements in 2009, have called on the ACCC to investigate changes to pricing, shifting
Industry Assistance continued
towards airport landing location based pricing rather than a system where all airlines paid for services across the board. This was one of the reasons that
Melbournes Tullamarine Airport has grown in popularity over recent years as airport servicing and landing fees for international carriers remain competitive.
Key Statistics
Industry Data
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 Sector Rank Economy Rank Revenue ($m) 12,702.0 12,831.6 13,260.4 13,288.7 12,852.9 13,175.1 14,352.2 15,105.0 15,971.5 16,472.5 17,301.5 17,128.7 17,338.8 17,445.3 17,763.6 2/30 76/625 Industry Value Added ($m) Establishments 3,629.8 328 3,574.2 320 3,743.0 310 3,780.2 304 2,644.6 292 2,504.6 290 3,004.0 291 3,963.4 293 3,729.2 292 3,727.7 291 3,814.1 290 4,146.1 291 4,280.3 290 3,906.8 290 3,907.9 289 4/30 19/30 101/625 459/625 Enterprises 93 93 92 89 88 88 88 88 88 87 87 87 87 87 86 20/30 505/624 Employment 19,228 18,920 18,832 18,581 17,755 17,607 17,635 17,651 17,560 17,496 17,478 17,566 17,531 17,513 17,842 12/30 184/625 Exports ---------------N/A N/A Imports ---------------N/A N/A Wages ($m) 2,364.0 2,309.6 2,241.0 2,127.8 2,094.0 2,028.2 2,060.0 2,391.1 2,467.5 2,410.1 2,396.5 2,372.7 2,367.9 2,365.6 2,451.4 5/30 87/625 Domestic Demand N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Annual Change
2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 Sector Rank Economy Rank Revenue (%) 1.0 3.3 0.2 -3.3 2.5 8.9 5.2 5.7 3.1 5.0 -1.0 1.2 0.6 1.8 16/30 219/625
Industry Value Added Establishments (%) (%) -1.5 -2.4 4.7 -3.1 1.0 -1.9 -30.0 -3.9 -5.3 -0.7 19.9 0.3 31.9 0.7 -5.9 -0.3 0.0 -0.3 2.3 -0.3 8.7 0.3 3.2 -0.3 -8.7 0.0 0.0 -0.3 26/30 26/30 472/625 453/625
Enterprises (%) 0.0 -1.1 -3.3 -1.1 0.0 0.0 0.0 0.0 -1.1 0.0 0.0 0.0 0.0 -1.1 29/30 502/624
Employment (%) -1.6 -0.5 -1.3 -4.4 -0.8 0.2 0.1 -0.5 -0.4 -0.1 0.5 -0.2 -0.1 1.9 25/30 462/625
Exports (%) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Imports (%) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Wages (%) -2.3 -3.0 -5.1 -1.6 -3.1 1.6 16.1 3.2 -2.3 -0.6 -1.0 -0.2 -0.1 3.6 29/30 575/625
Domestic Demand (%) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Key Ratios
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 Sector Rank Economy Rank IVA/Revenue (%) 28.58 27.85 28.23 28.45 20.58 19.01 20.93 26.24 23.35 22.63 22.04 24.21 24.69 22.39 22.00 28/30 476/625 Imports/Demand Exports/Revenue (%) (%) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Revenue per Employee ($000) 660.60 678.20 704.14 715.18 723.90 748.29 813.85 855.76 909.54 941.50 989.90 975.11 989.04 996.13 995.61 4/30 79/625
Wages/Revenue (%) 18.61 18.00 16.90 16.01 16.29 15.39 14.35 15.83 15.45 14.63 13.85 13.85 13.66 13.56 13.80 22/30 396/625
Employees per Est. 58.62 59.13 60.75 61.12 60.80 60.71 60.60 60.24 60.14 60.12 60.27 60.36 60.45 60.39 61.74 6/30 47/625
Average Wage ($) 122,945.70 122,071.88 118,999.58 114,514.83 117,938.61 115,192.82 116,813.16 135,465.41 140,518.22 137,751.49 137,115.23 135,073.44 135,069.31 135,076.80 137,394.91 2/30 20/625
Share of the Economy (%) 0.30 0.29 0.29 0.29 0.20 0.18 0.21 0.27 0.25 0.24 0.24 0.25 0.26 0.23 0.23 4/30 101/625
Figures are ination-adjusted 2014 dollars. Rank refers to 2014 data.
Jargon & Glossary
Industry Jargon
APRON PARKINGAreas for parking and maintenance. CIVIL AVIATION SAFETY AUTHORITYAn independent statutory authority that manages this industry. CODESHARE AGREEMENTAn agreement between two or more carriers to share the same ight but with tickets sold under different ight codes.
IATAStands for the International Air Transport Association, an organisation of international airlines. REVENUE PASSENGERA passenger that earns revenue for the airline not crew getting transported or friends and family of the pilot.
IBISWorld Glossary
BARRIERS TO ENTRYHigh barriers to entry mean that new companies struggle to enter an industry, while low barriers mean it is easy for new companies to enter an industry. CAPITAL INTENSITYCompares the amount of money spent on capital (plant, machinery and equipment) with that spent on labour. IBISWorld uses the ratio of depreciation to wages as a proxy for capital intensity. High capital intensity is more than $0.333 of capital to $1 of labour; medium is $0.125 to $0.333 of capital to $1 of labour; low is less than $0.125 of capital for every $1 of labour. CONSTANT PRICESThe dollar gures in the Key Statistics table, including forecasts, are adjusted for ination using the current year (i.e. year published) as the base year. This removes the impact of changes in the purchasing power of the dollar, leaving only the real growth or decline in industry metrics. The ination adjustments in IBISWorlds reports are made using the Australian Bureau of Statistics implicit GDP price deator. DOMESTIC DEMANDSpending on industry goods and services within Australia, regardless of their country of origin. It is derived by adding imports to industry revenue, and then subtracting exports. EMPLOYMENTThe number of permanent, part-time, temporary and casual employees, working proprietors, partners, managers and executives within the industry. ENTERPRISEA division that is separately managed and keeps management accounts. Each enterprise consists of one or more establishments that are under common ownership or control. ESTABLISHMENTThe smallest type of accounting unit within an enterprise, an establishment is a single physical location where business is conducted or where services or industrial operations are performed. Multiple establishments under common control make up an enterprise. EXPORTSTotal value of industry goods and services sold by Australian companies to customers abroad. IMPORTSTotal value of industry goods and services brought in from foreign countries to be sold in Australia. INDUSTRY CONCENTRATIONAn indicator of the dominance of the top four players in an industry. Concentration is considered high if the top players account for more than 70% of industry revenue. Medium is 40% to 70% of industry revenue. Low is less than 40%.
INDUSTRY REVENUEThe total sales of industry goods and services (exclusive of excise and sales tax); subsidies on production; all other operating income from outside the rm (such as commission income, repair and service income, and rent, leasing and hiring income); and capital work done by rental or lease. Receipts from interest royalties, dividends and the sale of xed tangible assets are excluded. INDUSTRY VALUE ADDED (IVA)The market value of goods and services produced by the industry minus the cost of goods and services used in production. IVA is also described as the industrys contribution to GDP, or prot plus wages and depreciation. INTERNATIONAL TRADEThe level of international trade is determined by ratios of exports to revenue and imports to domestic demand. For exports/revenue: low is less than 5%; medium is 5% to 20%; and high is more than 20%. Imports/domestic demand: low is less than 5%; medium is 5% to 35%; and high is more than 35%. LIFE CYCLEAll industries go through periods of growth, maturity and decline. IBISWorld determines an industrys life cycle by considering its growth rate (measured by IVA) compared with GDP; the growth rate of the number of establishments; the amount of change the industrys products are undergoing; the rate of technological change; and the level of customer acceptance of industry products and services. NONEMPLOYING ESTABLISHMENTBusinesses with no paid employment or payroll, also known as nonemployers. These are mostly set up by self-employed individuals. PROFITIBISWorld uses earnings before interest and tax (EBIT) as an indicator of a companys protability. It is calculated as revenue minus expenses, excluding interest and tax. VOLATILITYThe level of volatility is determined by averaging the absolute change in revenue in each of the past ve years. Volatility levels: very high is more than 20%; high volatility is 10% to 20%; moderate volatility is 3% to 10%; and low volatility is less than 3%. WAGESThe gross total wages and salaries of all employees in the industry. Benets and on-costs are included in this gure.
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Gaining altitude: Passenger numbers are growing and will promote revenue growth

IBISWorld Industry Report I4901

International Airlines in Australia

3 Industry at a Glance 4 Industry Performance

38 Jargon & Glossary

10 Industry Life Cycle

12 Products & Markets

www.ibisworld.com.au | (03) 9655 3881 | info@ibisworld.com

International Airlines in AustraliaAugust 2013 2

About this Industry

International Airlines in AustraliaAugust 2013 3

Annual Growth 09-14

Annual Growth 14-19

International travel to Australia

Qantas Airways Limited 23.5%

Key External Drivers

2.8% 1.4% NT 9.6%

1.1% 0.8% TAS

Mature Medium High Low Medium

Heavy High High High High

International Airlines in AustraliaAugust 2013 4

Key External Drivers

International Airlines in AustraliaAugust 2013 5

Key External Drivers continued

International Airlines in AustraliaAugust 2013 6

Passenger numbers soar

International airline activity passengers carried

Passengers 23,472,030 24,406,900 26,790,315 28,155,009 29,624,041 30,764,500 32,284,200

(% change) N/C 4.0 9.8 5.1 5.2 3.8 4.9

Prot under pressure

International Airlines in AustraliaAugust 2013 7

Prot under pressure continued

The industry adapts

International Airlines in AustraliaAugust 2013 8

Revenue continues to gain altitude

International Airlines in AustraliaAugust 2013 9

The price of emitting

International Airlines in AustraliaAugust 2013 10

% Growth in share of economy

Company consolidation; level of economic importance stable 15

Aircraft Manufacturing and Repair Services

Shrinking economic importance

% Growth in number of establishments

International Airlines in AustraliaAugust 2013 11

Industry Life Cycle This industry is M ature

International Airlines in Australia August 2013

Products & Markets

KEY SELLING INDUSTRIES

Products & Services

International air transport operating statistics

(% change) N/C 9.1 7.5 4.8 5.8 4.2

(% change) N/C 7.0 8.4 3.9 1.6 2.5

International Airlines in Australia August 2013

Products & Markets

Products & Services continued

Products and services segmentation (2013-14)

Low-fare passenger transport

International Airlines in Australia August 2013

Products & Markets

Products & Services continued

International Airlines in Australia August 2013

Products & Markets

International Airlines in Australia August 2013

Products & Markets