An Essay On Australian Airline Industry: Market Structure And Characteristics.

Structure of the selected industry

Discuss about the Work in Aviation and Medicine.

Australian economy is one of the fastest growing economy in the western nations that has been growing through its 27^th consecutive growth stage (McCombie & Thirlwall, 2016). With the aim to achieve sustainability Australian economy is cannon balling the annual growth rate with the rapid production in the mining industry as well as substantial improvement in the GDP share of the service sector (Byrne, Fernald & Reinsdorf, 2016). In addition to this, it has been found that the economy is having high flow of foreign tourists to the Australia that has been making it one of the sustainable economy in the world. Well, in this regard it is important to mention that various

Australian airline industry plays a significant role in the growth of the country’s GDP. Combining all the airline industries, it can be seen that they represent 1.2% of country’s GDP and has produced more than 35,000 jobs in the economy (Zhang et al. 2018).             Considering the importance of the airline industry in the Australian economy, this report is aimed to study the airline market with special focus to the Qantas airline and find out the insight details regarding the market structure of the same. In addition to this, the report is aimed to provide economic interpretation of the market structure and provide contrast to the characteristics of the chosen industry.

C and it is the third oldest airline in the world. Introduced back in 1920, it was initially focused to provide air service to the domestic passengers and during 1935 it went for its first international flight (Shaffner, Mills & Helms, 2017). According to the statistics of 2014, Qantas is accounted for 65% of providing service to 65% of domestic customers and when it comes to the international customers then it enjoys a healthy share of 14.9% out of total out going passengers (Domestic aviation activity, 2018). It has at least 11 subsidiaries, which are focused on the trunk roads to gain higher amount of profit and deter the new entrants to enter into the Australian airline industry.   Since 2008 post recession though the profit share of the Qantas has fell substantially, however it enjoys sustainable income from its domestic and international flights combined. The firm has produced 29,596 employment in the year 2017 and with the 806% of passenger load factor it can be stated that the firm is performing goof business with their effective strategies to control the market (Australia domestic airline market outlook, 2018).

Characteristics of the chosen industry

Australian airline market is a duopoly market, which is another type of oligopoly. In Australian airline industry there are only two large players who enjoy 92% of the market share making the existence of the other players minimal (Forsyth, 2018). Under the duopoly market structure the Qantas is accounted to 62% of the market share alone and its nearest competitor, which is virgin blue enjoys 30% of the total airline market share (Australian Airline Industry – Parliament of Australia, 2018). According to the same source, contrary to Qantas and Virgin Blue, 8% of the market share is enjoyed by the other firms. However, post 2002, Australian airline market was an oligopoly market, where the large three players were present, namely Qantas, Virgin Blue and the Ansett and there were small regional airline service providers too who used to enjoy considerable amount of market share. During that time Qantas was accounted for 39% of total airline market share and the market leader was Ansett with market share of more than 42% (Domestic aviation activity, 2018). However, post 2003, Ansett closed its operation and the market transformed into a duopoly market, where only two players, namely Virgin Blue and Qantas operate and the prior one has become the market leader with 62% of market share (Australia domestic airline market outlook, 2018). Considering the market share statistics, it can be seen that that the present firms are highly diverse in case of market share that makes it hard for the Virgin Blue with the Qantas. And on the other hand trunk airlines are nowhere near to the potential of the Qantas that has made it the market leader as well as the price setter. In addition to this, it has also been seen that the trunk airline duopoly has went to an end during 2003 due to the absence of Ansett all the market share has been absorbed by the Qantas (Helmreich & Merritt, 2017). Thus, though prior to 2003, Australian airline industry was an oligopoly market, however, over the time in absence of Ansett it has become a duopoly market. And when the trunk road is considered, then it is a monopoly market, where the market is controlled by the Qantas.

The selected industry is an Australian airline industry, which operates under the duopoly framework. According to the duopoly model of economy, it is a special form of oligopoly where the number of market player is limited to two. Considering the case of the Australian airline industry it can be seen that the Australian airline has two market player, which are namely Qantas and Virgin Blue that makes it a duopoly market (Zhang, Sampaio & Fu, 2016). On the other hand oligopoly is the market framework, where the number of players in the market is higher than two. Under the duopoly market, products are differentiated and each product have some amount of customer loyalty that provides the firm some amount of monopoly power (Feng, Li & Li, 2014). On the other hand like oligopoly as the policy to promote the product, duopoly utilize the advertising technique and for deterring the new entrants brand loyalty as well as price cut is utilized by the firms. In case of the Australian airline industry same principal can be observed, where the market is controlled by the Qantas that provides it much amount of monopoly power and along with the brand preference of customers the Australian airline deters the new entrants through price cut or coordinating pricing strategy.

Price determination

As it has been observed through analysing the Australian airline industry, there are only two prominent market players are present. These are Qantas and the other one Virgin Blue. When it comes to the number of sellers, then there is more than 5.28 million passengers in Australia who uses Australian airline service as their medium of transportation frequently (Andrew et al., 2015).

Australian market performs under the duopoly framework and analysing the same, it can be seen that the airline duopoly of Australia is potent to deter any new entrants. Both the firms are almost same in size considering the actual potential of them, thus it makes the chances for the new entrant to penetrate the market is almost zero (Baker, Merkert & Kamruzzaman, 2015). Though the competition between the Qantas and Virgin Blue is not as much severe as it used to be between the Qantas and the Ansett, however both of them are not willing to let the other player enter into the market.  Thus there is entry barriers to a high magnitude and when it comes to exit, then the firm faces barriers too. Considering the case of the Ansett, it can be seen that the firm has lost all of its physical capitals that has caused them good amount of loos. Thus the barrier in the case of exit is also present.

Considering the duopoly market structure, Qantas in short run earn normal profit, where the price equilibrium occurs where the marginal cost and average cost equates. On the other hand during long run Qantas enjoys supernormal profit, because the willingness to pay is higher compared to the prevailing market price (Goeters, 2017).

Between the two market players, Qantas is the largest one which enjoys almost 62% of market share; on the other hand only 30% of market share is enjoyed by the Virgin blue ("Australian Airline Industry – Parliament of Australia", 2018). That makes the Qantas market leader. However, when the potential of the firms are judged, they are almost same, that makes the situation tough for both the firm. Though the price is being determined by the Qantas, however, when it comes to leisure travel, then Virgin Blue is the market leader.

Under duopoly market structure, other than price competition there need to non-price competition too. In case of the Australian airline industry, it uses advertising and brand loyalty along with the price cutting as the means of non-price competition.

Conclusion:

From the above discussion it can be seen that the Australian airline industry is a duopoly framework, where only two large players namely, Qantas and Virgin Blue operates. Due to the considerable amount of market share, Qantas acts as the market leader and decides the price. On the other hand, the firms opts for collusive pricing strategy in order to reduce the monopoly power of each other. Thus to conclude, it can be stated that through the duopoly airline market structure, Australian economy has performed well, that has shared substantial amount of share to GDP and produced great amount of job annually.

Reference:

Andrew, E., De Wit, A., Meadley, B., Cox, S., Bernard, S., & Smith, K. (2015). Characteristics of patients transported by a paramedic-staffed helicopter emergency medical service in Victoria, Australia. Prehospital Emergency Care, 19(3), 416-424.

Australia domestic airline market outlook: Qantas Group reins in capacity as Virgin continues growth. (2018). CAPA - Centre for Aviation. Retrieved 16 April 2018, from https://centreforaviation.com/insights/analysis/australia-domestic-airline-market-outlook-qantas-group-reins-in-capacity-as-virgin-continues-growth-218946

Australian Airline Industry – Parliament of Australia. (2018). Aph.gov.au. Retrieved 16 April 2018, from https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/rp/rp0203/03RP10#aair

Baker, D., Merkert, R., & Kamruzzaman, M. (2015). Regional aviation and economic growth: cointegration and causality analysis in Australia. Journal of Transport Geography, 43, 140-150.

Byrne, D. M., Fernald, J. G., & Reinsdorf, M. B. (2016). Does the United States have a productivity slowdown or a measurement problem?. Brookings Papers on Economic Activity, 2016(1), 109-182.

Domestic aviation activity. (2018). Bitre.gov.au. Retrieved 16 April 2018, from https://bitre.gov.au/statistics/aviation/domestic.aspx

Feng, Y., Li, B., & Li, B. (2014). Price competition in an oligopoly market with multiple iaas cloud providers. IEEE Transactions on Computers, 63(1), 59-73.

Forsyth, P. (2018). Predatory Behaviour in Australian Aviation Markets. In Competition versus Predation in Aviation Markets(pp. 81-94). Routledge.

Goeters, K. M. (Ed.). (2017). Aviation Psychology: Practice and Research. Routledge.

Helmreich, R. L., & Merritt, A. C. (2017). Culture at work in aviation and medicine: National, organizational and professional influences. Routledge.

McCombie, J., & Thirlwall, A. P. (2016). Economic growth and the balance-of-payments constraint. Springer.

Shaffner, E., Mills, A. J., & Helms Mills, J. C. (2017). Reading Qantas History: Discourses of Intersectionality and the Early Years of Qantas. In Insights and Research on the Study of Gender and Intersectionality in International Airline Cultures(pp. 445-469). Emerald Publishing Limited.

Zhang, Y., Sampaio, B., & Fu, X. (2016). Duopoly competition between airline groups with dual-brand services: the case of the Australian domestic market.