Low-cost carriers in Australia: experiences and impacts

As with other airline markets, the Australian market has experienced entry by low cost carriers. Most of these attempts have ended in failure; however one low cost carrier, Virgin Blue, continues to operate and prosper. The history of entry and exit by low cost carriers in Australia is outlined first. Two phases of entry are identified: the early 1990s, and the year 2000. The factors influencing success or failure are examined, in the light of experience in North America and Europe. The Australian market differs in some important respects from these markets, and this influences the ability of such carriers to compete. The strategies adopted by the low cost carriers are examined, as are the competitive responses of the incumbents. The lack of presence of low cost carriers in the market for much of the post deregulation period has meant that incumbent carriers have, until recently, not faced much pressure to reduce their costs. The impacts made by low cost carriers on fares, costs and profitability are examined in this paper. Some lessons are drawn from the Australian experience, and issues which remain to be addressed are noted. These include policy issues for the competition regulator, and strategic issues for the airlines. At present, the remaining low cost carrier is performing well, but it has gained considerably from the collapse of one of the two full service carriers. The likely patterns of competition between Virgin Blue and the full service carrier, Qantas, are explored, along with the scope for more entry by low cost carriers and perhaps fill service carriers