I6401 International Airlines in Australia Industry Report

Flight to success: Solid passenger numbers are fuelling strong revenue growth
IBISWorld Industry Report I6401
International Airlines in Australia

December 2011
2
2 2 2 2
Aries Nuguid
About this Industry

Industry Definition Main Activities Similar Industries Additional Resources
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
35 Key Ratios
36 Jargon & Glossary
3 4
4 4 5 8
Industry at a Glance Industry Performance

Executive Summary Key External Drivers Current Performance Industry Outlook
24 Major Companies
24 Qantas Airways Limited 26 Singapore Airlines Ltd 27 Virgin Blue Holdings Limited
11 Industry Life Cycle
31 Operating Conditions
31 Capital Intensity 32 Technology & Systems 33 Revenue Volatility 33 Regulation & Policy 34 Industry Assistance
13 Products & Markets

13 Supply Chain 13 Products & Services 14 Demand Determinants 15 Major Markets 16 International Trade 17 Business Locations
35 Key Statistics
35 Industry Data 35 Annual Change
www.ibisworld.com.au | (03) 9655 3881 | info@ibisworld.com
www.IbISwOrLD.COM.Au
International Airlines in Australia December 2011
About this Industry

Industry Definition
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
C2824 Aircraft Manufacturing in Australia Businesses in this industry manufacture and repair aircraft, aircraft engines and frames. I6403 Non-Scheduled Air and Space 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. I6641 Travel Agency Services in Australia Companies in this industry operate ticket sales or booking offices of non-resident airlines. I6643 rail, Air and Sea Freight Forwarding in Australia Enterprises in this industry operate ticket sales or booking offices 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 2011-12 Key Statistics Snapshot
revenue
$14.9bn 2.5%
Profit wages
Revenue vs. employment growth
20 15
Annual Growth 07-12
Annual Growth 12-17
$447.7m $1.8bn
Market Share
2.8% 88
businesses
International travel to Australia

15 10
Qantas Airways Limited 23.4%

% change
% change
Singapore Airlines Ltd 6.8% Virgin Blue Holdings Limited 6.8%
10 5 0 5
5 0 5
Year 04 Revenue
p. 24
10
06
08
10
12
14
16
18
Year
04
06
08
10
12
14
16
Employment
SOURCE: WWW.IBISWORLD.COM.AU
Business locations
Key External Drivers

International travel by Australians International travel to Australia Trade-weighted index world price of crude oil Policy and legislation for scheduled international air transport
3.4% 3% ACT
SA
12.7%
VIC
68.2%
NSW
12.7%
QLD
p. 4
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 Medium High
FOR ADDITIOnAL STATISTICS AnD TIME SERIES SEE THE APPEnDIx On PAGE 35
Industry Performance
Executive Summary
The flight to success was turbulent over the past five years. The economic downturn of 2008-09 wiped away much of the growth achieved by the International Airlines industry in the previous two years. Industry revenue fell 2.6% in 2008-09. Since then, revenue has grown. The main reason for the upward trend has been solid growth in passenger numbers, partially due to favourable economic conditions in Australia and developing Asian countries, and partially due to record low prices. Industry revenue is expected to grow at an annualised rate of 2.5% per annum over the five years through 2011-12 to reach $14.9 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, although 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 3.0% growth in revenue over 2011-12, as passenger
Executive Summary | Key External Drivers | Current Performance Industry Outlook | Life Cycle Stage
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. The main enterprise with that status is Qantas Airways Limited. 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 an annualised rate of 2.7% over the next five years, to reach $17.1 billion in 2016-17. Increasing favourable conditions, such as solid income growth in Australia and Asia, will result in an increase in demand for travel. Continual downward pressure on airfares, a weaker Australian dollar and strong competition on a global scale will partially offset the favourable conditions, but 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
International travel to Australia
15 10
an increase in the number of travellers increases demand for air transportation. International travel to Australia International tourism is a significant
International travel by Australians
25 20
% change
5 0 5
% change
15 10 5 0
Year
04
06
08
10
12
14
16
Year
04
06
08
10
12
14
16
Key External Drivers continued
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. 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 trade-weighted index.
World price of crude oil The price of fuel is a significant determinant of operating costs and can 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 profits are often compromised. Policy and legislation for scheduled international air transport The industry is under strict regulation from the Federal Government, particularly regarding safety concerns. Regulation has a negative effect on the industry as it restricts operators from certain activities, increasing production costs. Compliance requirements prevent some aircraft from flying if not in top condition, reducing revenue prospects for operators.
Current Performance
Dips in consumer and business confidence and fluctuations in household disposable income slowed industry revenue growth over the past five years. At the same time, the strong Australian dollar encouraged Australians to travel overseas and discouraged foreigners from visiting Australia. The global economic downturn resulted in a significant slowdown in demand for international air travel during 2008-09. The low demand created a price war among major players, which led to falling revenue for many firms. The International Airlines industry remained subdued during 2009-10.
While passenger numbers recovered strongly over 2009-10, 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 caused the average airfare to increase. As such, industry revenue recovered strongly in the years after. Industry revenue is expected to grow 3.0% over 2011-12 to reach $14.9 billion. However, even though revenue will grow, high fuel prices and strong competition will put downward pressure on industry profits.
Passenger numbers soar
Total industry revenue is expected to increase at an average rate of 2.5% per annum over the five years through 2011-12. The main driver of growth in international flights was strong consumer and business confidence in Australia and developing Asian countries. The strong confidence increased demand for travel to Australia and for travel by Australians overseas. Another determining factor was
aggressive price competition between major airlines. The aggressive price cuts spurred demand for air travel. The lower fares tended to encourage travellers to travel more frequently, and people previously unable to afford airfares to use air travel. Total passenger numbers boarding international flights to and from Australia is expected to increase by a
Passenger numbers soar continued
solid 5.3% per annum over the five years through 2011-12. This includes a slowdown in numbers during 2008-09, when the number of passengers increased only 1.0%. During the slowdown in passenger numbers, demand for air travel took a step back in light of the global downturn. Nonetheless, major airlines managed to grow their passenger numbers slightly through record-low airfares during 2008-09. As such, the average price of international scheduled air transport decreased an estimated 6.8% in 2008-09. Prices fell again during 2009-10, with the overall average producer price index for the industry declining by an estimated 5.3% per annum over the five years through 2010-11. The downward pressure on prices stemmed from strong
competition in the industry and the success of low-cost carriers. Mail and freight account for a small proportion of industry activity. Over the past five years, freight volumes increased slower than passenger numbers. Airfreight demand fell significantly during 2008-09, when oil prices skyrocketed. Even when commodity prices began to plummet, poor global economic conditions reduced trade volumes of goods, resulting in further losses for freight providers. Overall, passenger services 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.
Open Skies opens opportunities
Australia signed an Open Skies agreement with the United States in February 2008, allowing the significant expansion of air travel on the transPacific route between the two countries. Previously, new airlines on the route were only allowed to operate four services a 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 Blues new international offshoot of
Virgin Australia (previously branded V Australia), which commenced flights to Los Angeles in December 2008. Airlines offering routes to and from Los Angeles, including Virgin Australia, Qantas, Delta Air and United Airlines, entered a price war during 2009 because of falling demand. During the year, Delta Air and Virgin Blue proposed a joint venture to the Australian and US authorities. The Australian Competition and Consumer Commission (ACCC) and the US Government have approved the proposal. Australia also has an Open Skies agreement with New Zealand, effective since 1996.
Profit under pressure
International airlines, as large fuel consumers, were unhappy to see the skyrocketing price of petrol in the lead up to 2008. With fuel and oil expenses accounting for over 20% of total revenue, companies faced significant challenges in providing services at a price that would attract customers and keep profits above zero. Most airlines introduced additional charges to salvage earnings, including
Skyrocketing fuel prices resulted in weak earnings for airlines

strict excess baggage charges, cancellation fees and additional charges for check-in luggage. However, the extra charges proved insufficient to cover the
Profit under pressure continued
rapid increase in fuel costs, resulting in poor income for most industry operations over the past five years. Many companies also took on 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 200910 and 2010-11. The main reason behind the inability to improve the bottom line was aggressive price competition, which lowered the unit value of sales. This year will see average profit of 3.0% as airlines better match capacity with demand and implement efficiency measures.
Airline numbers fall
The number of industry establishments is expected to fall by an annualised 1.1% over the five years through 2011-12. The decline in establishments reflects the strong cost pressures that airlines faced during past five years, particularly in terms of fuel prices. In addition, pricebased competition from low-cost airlines and a larger array of routes offered by major airlines pushed some of the smaller companies out of business. While the industry saw 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. Therefore, they contributed to the intense competitive pressures for smaller airlines. In line with the contraction in industry participation, employment in this industry is expected to decline
Declining industry establishment numbers reflect strong cost pressures

1.3% per annum over the five years through 2011-12. Many key airlines cut staff to maintain margins and used technology to improve the productivity and efficiency of their operations. During 2008-09, major airlines announced labour cuts in response to capacity rationalisation and declining demand. Industry wages are projected to be down 2.9% per annum during the same five years. The average wage declined over the past five years, as major airlines restructured and cut labour costs.
Airlines forge alliances
To operate an international airline based in Australia, current regulations require that the companys foreign-ownership is no greater than 49%, leaving the company majority owned by Australian interests. This requirement is Qantas single greatest burden, as it restricts the airlines ability to source cheaper capital in international markets and fund new projects. Qantas indicated that the Australian labour movement needed to accept that the airline would have to employ more people offshore, as over 45% of revenue is sourced from overseas but less than 7% of its employees are employed overseas. These restrictions are a constraint to
investment in Australian international airlines, as they limit the sources of additional capital for an airline in Australia. However, the Federal Government ruled against the lifting of the foreign-ownership cap, placing great importance on maintaining majority Australian ownership in companies like Qantas. Virgin Blue, as the second-largest international carrier in Australia, is working hard to secure some competitive advantage via joint ventures overseas. During 2010, the company attempted to organise alliances with Etihad, Air New Zealand and Delta Air Lines. The Australian Competition and Consumer
Airlines forge alliances continued
Commission allowed the Etihad alliance go through, as did their local authorities, and the two airlines began code-sharing in October 2010. Following regulatory approval, Air New Zealand purchased 14.9% of Virgin Blue. The alliance solidifies 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. Another trend evident over the past
five years was the rapid emergence of low-cost carriers in the industry. Lowcost carriers such as Virgin Blue and V Australia, Jetstar, AirAsia X and Tiger Airways entered the market and reduced airfares by competing largely on price. The result was an increase in international air travel and an increase in industry revenue. The success of low-cost carriers also reduced the market share of premium operators such as Qantas.
Industry Outlook
The International Airlines industry faces brighter skies, but some dark clouds remain on the horizon. Airlines will experience stronger demand from passengers over the next five years. However, airfares will not keep pace. Competition from low-cost airlines will boost passenger numbers but weaken price increases, slowing industry revenue growth. Nonetheless, inbound tourists will provide a significant revenue source, with sturdier conditions
in overseas economies. Offsetting this will be the strong Australian dollar, which will deter some travellers from coming to Australia. On the other hand, the strong Australian dollar means Australians will be more likely to travel overseas. Oil prices are expected to increase at a faster rate over the next five years. Rising oil prices will create some upward pressure on airfares. The introduction of the carbon tax will also squeeze industry margins.
revenue regains altitude
Industry revenue is expected to grow at an average rate of 2.7% per annum over the next five years, to reach $17.1 billion in 2016-17. Revenue is projected to improve because of a recovery in global economic conditions and growth in passenger numbers. International travel to Australia will be greater, while Australians will increasingly travel overseas. International travel in and out of Australia virtually never falls. 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. Barring exceptional events, international passenger numbers will continue to grow. International travellers will increasingly come from Asia as incomes in the high-growth region rise. Furthermore, the Federal Government will fund promotional activity overseas to
Industry revenue
20 15
% change
10 5 0 5
Year 04
06
08
10
12
14
16
18
encourage growth in international visitors. The promotional activity will gradually build up the number of shortterm arrivals to Australia. The forecast depreciation of the Australian dollar from 2013-14, will further encourage growth in foreigners travelling to Australia.
revenue regains altitude continued
Australians will increasingly fly overseas, which will aid industry revenue growth over the next five years. Supporting the trend are low-cost airlines, which will continue to offer low-fare flights to Asia. Furthermore, real household disposable income levels are expected to improve. More money to spend and cheap airfares will support industry revenue growth. Sporting events such the 2012 Olympics in the United
Kingdom will also boost the number of Australians travelling overseas. On the other hand, lower consumer and business sentiment are expected to dampen revenue growth. In addition, Australians are forecast to possess reduced purchasing power with the forecast decreased value of the Australian dollar. With lower purchasing power, some Australians will return to holidaying in Australia.
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. Tiger Airways is the latest foreign airline to come into and compete in the Australian market. In addition, 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. The introduction of newer, more fuel-efficient aircraft over time will lead to greater productivity, which should promote lower airfares over the next five years. In addition to new airlines in Australia, the number of joint ventures and code-
In the past few years, many airlines have expanded their operations into Australia
sharing agreements with foreign airlines is expected to increase over the next five years. This is 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. Nonetheless, consumers will benefit from these alliances through lower prices and greater seat availability on popular routes.
High fuel prices and carbon pricing
Fuel prices are expected to increase at a faster rate over the next five years than they did over the past five, threatening airline profit margins. International airlines are expected to raise airfares to protect profit margins and pass on the cost increases to customers. The resulting higher airfares will slow demand and revenue growth. The introduction of new government regulations designed to reduce greenhouse gas emissions may limit airline profit growth and hurt revenue growth. 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. Airlines will invest in larger capacity, 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
10
High fuel prices and carbon pricing continued
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. In August 2009, the European Union announced that commercial airlines,
business jet operators and air forces from around the world will have to join their greenhouse gas emissions trading plan by 2012 or be penalised when flying to the continent. Under the program, operators had to submit plans for monitoring their emissions. These additional regulatory costs will put downward pressure on earnings and force some smaller companies out of business.
11
Life Cycle Stage
Industry value added is underperforming the economy as a whole 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 capital consumption of international travel is slowing
% Growth of profit/GDP
30
25
Company consolidation; level of economic importance stable
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
20
15
Quantity Growth
10
Many new companies; minor growth in economic importance; substantial technology change
Tourism
0
International Airlines
Travel Agency Services
Shakeout
Petroleum wholesaling Non-Scheduled Air and Space Transport
Shakeout
Decline
10 10 5
Aircraft Manufacturing
Crash or Grow?
Potential Hidden Gems

Future Industries 5 10 15 20
Time wasters
Hobby Industries 25 30
% Growth of establishments
12
Industry Life Cycle This industry is Mature
According to the IBISWorld life cycle model, the International Airlines industry began to mature during the past five years. The phase of maturity includes a slowdown in demand, high cost pressures, falling profitability, strong competition among players and operators leaving the industry. While there are still companies entering the market, such as Jetstar in 2005 and Tiger Airways in 2007, these enterprises have to offer an extremely competitive service to remain in business. Operating conditions have become tougher and companies are struggling to gain market share. Industry value added is expected to decline 0.8% per annum over the 10 years through 2016-17. This is a weak performance compared with the economy as a whole, which is expected to grow 3.3% per annum over the same period. Downward pressures on value added include falling profits due to high cost pressures, cut labour cost and declining wages, and a slowdown in capital investment in the industry. Qantas cancelled 15 Boeing 787s orders during the first half of 2009, indicating that companies are looking to remove some of the current overcapacity in the market. Growth in per capita consumption of international travel is slowing in Australia. The number of passengers per population is expected to grow at 3.5% per annum over the five years
through 2011-12. This is a weaker rate of growth compared with 6.0% per annum over the five years ending 2007-08. As such, companies are struggling to win a larger market share and have entered into competitive campaigns and price wars. This has been made harder by the global economic slowdown since 2008, resulting in fewer passengers on flights to and from Australia. Competition among major players forced smaller companies to leave the industry, as they were unable to handle extreme price cuts. The total number of enterprises declined an estimated 0.9% per annum over the five years through 2011-12. Some will likely return to the industry once profit margins improve. Technological developments among airlines and aircraft manufacturers have been prominent over the past five years. However, the changes have had less effect and benefit compared with those implemented in the early 2000s, which included online booking and in-flight entertainment. As such, returns on investment are diminishing, leading to slower capital expenditure by major players. A significant source of investment has been in new aircraft, such as the Airbus A380. The introduction of the A380 on existing routes was a source of competition for many airlines over the past five years.
13
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 the country.
KEy SELLING INDuSTrIES

C2824 Aircraft Manufacturing in Australia The Aircraft Manufacturing industry is one of the major industries that supply international airlines. Petroleum wholesaling in Australia Petroleum wholesalers supply international airlines with fuel for aircraft. Non-Scheduled Air and Space Transport in Australia This industry is responsible for training aircrews and pilots.
F4521 I6403
Products & Services
Industry services can segment 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 passengers carried on international flights increased at a 5.5% annualised rate over the past five years. This is solid growth resulting in an increase in the percentage of revenue generated by passengers, even with the slowdown during 2008-09. These services include everything from tickets to excess baggage charges and cancellation fees. One of the reasons for passenger number growth over the past five years is industry competition and more affordable travel. Low-cost airlines by Australian and international carriers
were increasingly involved in international air transport. Low-cost airlines, such as Jetstar, Virgin Australia, Tiger Airways and AirAsia X, are all playing larger roles in the scheduled international air travel market in Australia. The growth of low-cost airlines was in response to the higher costs borne by the industry. Higher fuel costs, security costs and other operational expenses created opportunities for businesses with a lower cost structure to take advantage of the market. Low-cost airlines capitalised on their business models in a particularly price-conscious environment. The freight segment has grown steadily since 2003, as international air cargo volumes increased. However, with the steep increases in jet fuel prices in
Products and services segmentation (2011-12)
5.4% 4.5% Other

Freight
Passenger transport
Low-fare passenger transport
64.4%
25.7%
Total $14.9bn
14
Products & Markets
Products & Services continued
recent times, growth rates in air cargo volume have softened in the latter half of the past five-year period. During 2008-09, freight and mail volumes decreased 9.0% in total. High fuel prices and the dip in 2008-09 translated into subdued growth of 2.8% per annum for this segment over the past five years.
This segment provides air transportation of cargo on both freighter and passenger aircraft over regular routes and regular schedules. Firms in this service segment also operate flights even if partially loaded and includes the transportation of mail for the national postal system.
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 non-business 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. Companies expanding overseas and becoming more globalised influence demand for air transport. Business travel forms a significant proportion of industry revenue given the premium rates paid by business travellers (e.g. business and first class). As more companies globalise, demand for international business travel increases. The anticipated widespread use of video conferencing in the future
will likely offset this demand for international air travel. The attraction of the destination can take many different forms and includes price parity advantages such as in the Asian nations, business convention centres and the growth of the visiting friends and relatives market due to the multicultural composition of the Australian population. Rapid economic growth in China and other Asian countries has resulted in an increase in demand for holidaying in Australia. The connectivity of airline network routes constantly change, influenced by supply and demand factors. Carriers will only operate a route when there is sufficient market due to the high level of fixed costs. Demand is likely to increase if companies stick to the scheduled routes offered and provide point-to-point primary destinations that will enable passengers to reach their destination in the shortest possible timeframe. Seasonality is another factor that influences demand in this industry. Due to seasonality factors, the first and fourth quarters of the year are generally weaker than the second and third quarters. Favourable summer weather conditions, and extended school and work holidays boost the second and third quarters. 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
15
Products & Markets
Demand Determinants continued
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 terrorism. After the September 11 attacks in the United States, demand for air
The popularity of travel substitutes, such as video conferencing, affects demand for business travel
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.
Major Markets
The International Airlines industry sells its service 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. 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 Major market segmentation (2011-12)
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 because payment is usually under the travellers company account. In addition,
Business travellers
20.7%
Freight forwarders
3.8%
Holidaying tourists
42.2%
Total $14.9bn
Consumers visiting friends

33.3%
16
Products & Markets
Major Markets continued
sometimes bookings are in short notice and consequently attract a higher price. Therefore, the unit value of sales per person is higher for business customers. 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. Freight forwarders make the smallest market segment. Freight volumes have declined significantly since 2008, leading to a fall in the percentage of revenue received for freight services.
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
The use of foreign carriers by Australian residents has been on the rise over the past five years
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 2011-12 is estimated to be $14.9 billion.
17
Products & Markets

business Locations 2011-12
NT
0.0
QLD
12.7
wA
0.0
SA
3.4
NSw
68.2
ACT
3.0
VIC
12.7
Enterprises (%) Cold Zone (<10) <25 <50 Hot Zone (<100) Not applicable
TAS
0.0
18
Products & Markets
business Locations
A significant proportion of industry enterprises are located in New South Wales, namely Sydney. Sydney accounts for about 46% of seat availability and 45% of all passengers on all international flights, which makes it the main hub of international travel. Sydneys Kingsford Smith airport is one of the busiest passenger airports in the Asia-Pacific 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. Melbourne is the second busiest airport, with 13% of industry enterprises, 19% of available seats and 20% of passenger traffic. 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 since 2004-05. It will likely continue to increase in the next five years as Tiger Airways chose Melbourne as its Australian hub. The entry of AirAsia X in March 2008 also provided a boost to Melbournes passenger traffic. Brisbane is estimated to be home to
Distribution of enterprises vs. population

80 60
Percentage
40 20 0 VIC ACT QLD NSW TAS WA NT SA
Enterprises Population
13% of industry enterprises, which is up from 10% in 2005-06. Brisbane Airport accounts for 17% of available seats and 17% of passenger traffic. The airport caters for the majority 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 21%. Queensland offers some of the most visited holiday destinations, which makes it popular among foreign tourists.
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Competitive Landscape
Market Share Concentration
Level The International Airlines industry has medium level of concentration, with the top four players accounting for an estimated 47.6% of industry revenue. Qantas is the largest company in the industry and it holds 25.6% market share. Other major players are Virgin Blue 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 fell over the past five years. This
Market Share Concentration | Key Success Factors | Cost Structure benchmarks basis of Competition | barriers to Entry | Industry Globalisation
Concentration in this industry is Medium
indicates a growing level of competition in the industry and a mature market. The International Airlines industry is experiencing rising competition from low-cost airlines, specifically new entrants like Tiger Airways. These companies 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 Blue expanded their share of the market (despite weak demand conditions).
Key Success Factors IBISWorld identifies 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. Ability to pass on cost increases Operating costs in this industry are high. Transferring cost increases to the client can help firms maintain their profit margin. Well-developed internal processes Reservation systems that provide good access to origins and destinations are beneficial. Access to the latest available and most efficient 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 similarly profitable compared with the Domestic Airlines industry; profit is an estimated 3.0% 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 compete solely and aggressively on price) and the
increase in capital costs across the globe as credit markets tightened. Because the industry is in the mature stage of its life cycle, industry profit will be stable and consolidation of enterprises will become increasingly common. More recently, however, profit was lower due to the high effect of volatile oil prices on airline operations, with margins dropping to as low as 1.0% in 2008-09.
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Cost Structure benchmarks continued
Fluctuating fuel costs 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, this industry is vulnerable to fluctuations in the prices of materials and supplies. Purchases account for 47.0% of industry revenue. This is higher than 43.1% in 2005-06 and lower than 49.3% in 2008-09. 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 this industry. Fuel prices increased dramatically in late 2007 and the first half of 2008. On average, the world price of crude oil grew at 26.2% over the five years through 2007-08. Oil prices then plummeted. 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 Sector vs. Industry Costs
Average costs of all industries in sector (2011-12) 100
2009-10. Since 2008-09, rising crude oil prices put increasing upward pressure on purchase costs. Wages for skilled labour Wages are another major expense item, accounting for an estimated 12.2% 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 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. 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 is estimated at $113,249 per
Industry costs (2011-12)
9.7 17.0 27.8 3.4 7.1 4.1
3.0 12.2 21.0 2.1 7.7 6.1
80
Percentage of revenue
60
Profit wages Purchases Depreciation utilities rent Other
40
20
47.9 31.0
0
21
Cost Structure benchmarks continued
annum, per person, which is reflective of the high skills level required to work in the industry. Lease or own Large commercial airlines purchase passenger aircraft. However, charter operators lease rather than purchase aircraft due to their small size and the 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. 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 7.7% of operating revenue. Depreciation has become a larger share of costs for the
industry, 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 rent and 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 obtain more easily the lowest fare on any given route, thus diminishing the impact 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.
basis of Competition
Level & Trend
Competition in this industry is High and the trend is Increasing
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 improve quality to attract the higher-end consumer. This does not mean they must be mutually exclusive, but they tend to be. This trend has been highlighted by the strong emergence of lower-cost airlines over the past decade. Jetstar, Virgin Blue and Tiger Airways are three of the most successful lower-cost airlines in the Australian market, all three offering sub-par quality of service based on lower prices. Quality of service includes the types of
services included in the airfare, such as meals, luggage and entertainment. These companies 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 evident in 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 than want. Factors that also contribute to competitiveness of companies focusing on the non-price sensitive customers include frequency of service,
22
basis of Competition continued
airport lounges, route coverage and frequent flier 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.
barriers to Entry
Level & Trend
Barriers to Entry in this industry are High and Decreasing
IBISWorld rates the International Airlines industry as having 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. 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 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
barriers to entry checklist Competition Concentration Life cycle stage Capital intensity Technology change Regulation and policy Industry assistance
Level High Medium Mature High High Heavy Low

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 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 KingsfordSmith 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.
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Industry Globalisation
Level & Trend
Globalisation in this industry is Medium and the trend is Increasing
IBISWorld rates the industry as having a high level of globalisation and it is increasing. 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 code-sharing 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 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.
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Major Companies
Qantas Airways Limited | Singapore Airlines Ltd Virgin blue Holdings Limited | Other Major players
(Market share)
Singapore Airlines Ltd 6.8%
63.0%
Other Virgin blue Holdings Limited 6.8% Qantas Airways Limited 23.4%
Player Performance Qantas Airways Limited Market share: 23.4%
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, Asia and the Pacific, the Americas, Europe and Africa. Qantas, founded in the Queensland outback in 1920, was originally registered as the Queensland and Northern Territory Aerial Services Limited (QANTAS). Qantas Groups flying businesses operates under two major brands: Qantas and Jetstar. Qantas also includes the group of smaller regional carriers under Qantaslink. Qantas Group operates in the International Airlines industry through the international air transportation of passengers and freight by Qantas and Jetstar. Jetstar is the Qantas Groups low-cost airline, with its Australian operations first commencing in 2004. Qantas is the founding member of Oneworld Alliance, which provides the company access to hundreds of destinations and airport lounges around
the world. The Qantas Group has increasingly placed greater focus on its low-cost airline Jetstar. The company is shifting focus to lower costs and respond to customer demand for cheap air travel. The move is also in response to strong competition from foreign international airlines that operate with lower costs. Supporting the strategy to lower costs is Qantas launch of a new airline based in Asia. A new subsidiary in Asia is expected to reduce Qantas costs due to cheaper labour sourced in the region. However, the shift to Asia sparked fierce industrial action from Qantas employees, which culminated in a grounding of the Qantas fleet. 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. 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
Qantas Group (international operations) financial performance*

year 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
*Estimate
revenue ($ million) 3,515.5 3,814.7 3,740.8 3,458.7 3,093.7 3,271.0
(% change) n/C 8.5 -1.9 -7.5 -10.6 5.7
EbIT ($ million) 80.1 136.8 184.2 -224.4 -193.5 -200.0
(% change) n/C 70.8 34.6 n/C -13.8 3.4

SOURCE: IBISWORLD
25
Major Companies
Player Performance continued
expected to improve Qantas capital 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 the volcano eruption in Iceland. In May 2010, Qantas and Tourism Australia signed a $44 million partnership to market Australia internationally as a tourist destination. Numerous faults and maintenance concerns over the past five years marred Qantas reputation. A significant incident was the engine fire on the A380 flight from Singapore to Sydney, which saw the company ground all of its A380 planes for 23 days. The problems stemmed from the Rolls-Royce engines fitted to the A380s. The engine problems had a detrimental effect on Qantas reputation and consequently profitability. Financial performance The Qantas Groups industry revenue declined an estimated 1.4% per annum over the five years through 2010-11. Operations from international flying represent approximately one-fifth of company revenue and is steadily declining. The decline indicates that strong competition in the International Airlines industry created a greater focus on domestic operations. At the same time, Jetstar outperformed the company as a whole, and Jetstar mainly
operates domestically. The Qantas Groups international business is its weakest. The Qantas Groups industry-related profit declined drastically, suffering losses in 2010-11. The company plans to restore competitiveness by establishing a new premium airline based in Singapore. The new platform is expected to drive company growth in Asia and bypass Australias geographical isolation. The strategy will also lower Qantas labour costs. Qantas international flight revenue had already started to decline before the global downturn, illustrating the businesses anti-competitiveness. 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 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 relatively new airlines like Tiger Airways. International flights by Jetstar are expected to account for 15.3% of industry-wide passenger numbers in 2009-10. The company began to fly internationally in 2005. Jetstar experienced phenomenal growth in numbers over the years due to its low-
Qantas Group financial performance

year 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 revenue ($ billion) 13.06 14.53 15.63 14.55 13.77 14.89 (% change) 8.0 11.3 7.6 -6.9 -5.4 8.1 EbIT ($ million) 726 976 1,318 136 468 644 (% change) n/C 34.4 35.0 -89.7 244.1 37.6
SOURCE: AnnUAL REPORT AnD IBISWORLD
26
Major Companies
cost airline status, while lower prices prevented it from developing revenue at the same rate. Because of Jetstars
popularity, the Qantas segments international flights lost passenger share over the past five years.
Player Performance Singapore Airlines Ltd Market share: 6.8%
Singapore Airlines is Singapores national airline and operates its hub at Singapores Changi Airport. The airline is highly prominent in the South-East Asian 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. Singapore Airlines experienced strong growth during the 1970s as it added to its list of destinations and fleet of aircraft, flying to India and other destinations in the subcontinent. In the 1980s, the airline commenced flying to the United States, Canada and European destinations. Continued expansion of the airlines fleet saw it grow profitably during the 1990s and it became one of the first airlines to order the new Boeing A380 in 2000, placing an order for 19 of the aircraft in that year. Singapore Airlines has made repeated and continued attempts to gain better access to the Australian market, with foreign ownership regulations and airspace agreements preventing the
airline from expanding the services it offers into the Australian industry. 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. In 2009, Singapore introduced the aircraft to fly to and from Melbourne, which makes Singapore Airlines A380 flights available from all the major cities in Australia. Financial performance Singapore Airlines industry sales increased at an annualised rate of 1.2% over the five years through March 2010-11. This is a slower rate of growth compared with the industry as a whole. The reason for the slow growth lies in very low takings during 2009-10, as the company cut capacity and lowered prices substantially. Singapore Airlines lost a large chunk of market share in that year. The large drop in business travel affected revenue substantially. In addition, the South West Pacific region revenue (including flights to and from Australian and New Zealand) accounted for 9.9% of sales in 2009-10, which was down from 10.9% the year prior. As such, the company directed its focus towards more profitable routes. Singapore Airlines lost market share over the past five years from an estimated 8.2% in 2006-07.
Singapore Airlines financial performance*

year** 2005-06 2006-07 2007-08 2008-09 2009-10 revenue ($ billion) 10.66 12.12 12.48 14.31 10.51 (% change) 9.9 13.7 3.0 14.7 -26.6 EbIT ($ million) 969.7 1,098.6 1,659.9 808.5 52.3 (% change) -8.8 13.3 51.1 -51.3 -93.5 Employees 28,558 29,125 30,088 31,834 33,222 (% change) 0.0 2.0 3.3 5.8 4.4
*SGD converted to Australian dollars using yearly average exchange rate **year end March SOURCE: AnnUAL REPORT
27
Major Companies
Singapore Airlines (Australia and New Zealand) financial performance*

year 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
*Estimate
revenue ($ million) 891.5 900.4 1,068.0 1,281.3 805.7 946.9
(% change) 10.2 1.0 18.6 20.0 -37.1 17.5
EbIT ($ million) 101.4 102.1 177.6 90.5 5.0 103.6
(% change) n/C 0.7 73.9 -49.0 -94.5 1,972.0
Player Performance Virgin blue Holdings Limited Market share: 6.8%
Virgin Blue Holdings Limited is the parent company for 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 Blue participates in the industry through its international flights. Since floating on the security exchange in 2005, Virgin Blues immediate focus was to win a greater share of the lucrative corporate market following the introduction of revamped passenger
lounges, a new frequent-flyer program (Velocity) and internet check-ins to lure business travellers. Virgin unveiled radically transformed airport lounges in May 2006. The new lounges offered an enhanced range of business facilities and services. Virgin Blues focus on the corporate market became necessary because the company underestimated the number of leisure travellers that migrated to Jetstar. Virgin Blue was involved in trying to secure code sharing 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 Holdings (international ights) financial performance

year 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 revenue ($ million) 182.3 216.9 258.9 523.3 764.0 953.8 (% change) n/C 19.0 19.4 102.1 46.0 24.8 EbIT ($ million) n/C n/C n/C -69.0 -25.2 22.4
28
Major Companies
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 2011. The partners also offered 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, with the signing of an order for six Boeing 777300ER 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 since. In December 2009, V Australia began services to South Africa and Thailand. V Australia now forms part of the Virgin Australia brand. Financial performance Virgin Blue is a relatively new major 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 39.2% per annum over the five years through 2010-11. International passengers accounted for approximately 39.9% of company traffic in 2010-11 up from
10.0% in 2005-06. International passenger transport became a more important activity for Virgin Blue over the past five years. The companys focus is affordable passenger transport, with tickets sales representing an overwhelming 90.3% of revenue. The rest is from freight, holiday bookings, frequent-flyer programs, and fees and charges. Revenue from other sources grew over the past five years. The rise in revenue from other sources was due to extra charges introduced by the company and to success in other programs. The number of international passengers flying Virgin Blue during 2010-11 accounted for 9.5% of industrywide totals, up from 4.5% in 2005-06. 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 in passenger numbers. IBISWorld estimates that Virgin Blue rapidly gained market share over the past five years up from 1.8% in 2005-06. Much of the growth occurred 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
Virgin blue Holdings Limited financial performance

year 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 revenue ($ billion) 1.82 2.17 2.33 2.64 2.98 3.27 (% change) 9.3 19.2 7.4 13.3 12.9 9.7 EbIT ($ million) 132.5 324.3 168.0 -162.3 90.5 -46.6 (% change) n/C 6.5 -48.2 n/C n/C n/C
29
Major Companies
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.
Other Companies
Emirates Group
Estimated market share: 6.2% Emirates, launched in October 1985, is the main subsidiary of the Emirates Group and is the international carrier of the United Arab Emirates. Dubai-based 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 slowly building capacity through Australia since its first flight into Australia in 1996. 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. Group sales increased at an annualised rate of 15.8% over the five years through 2009-10. Emirates grew at a rapid rate because of new route introductions, attractive packages, loyalty programs and competitive behaviour in new markets
(such as that in Australia in the early 2000s). The Far East and Australasia region accounted for 28.1% of company sales in 2009-10, up from 27.8% in 200405. 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 3.7% in 2005-06 to 6.2% in 2010-11.
Air New Zealand
Estimated market share: 3.4% 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
Emirates Group financial performance*

year** 2005-06 2006-07 2007-08 2008-09 2009-10 revenue ($ billion) 8.77 11.09 13.17 15.98 14.62 (% change) 24.8 26.5 18.8 21.3 -8.5 EbIT ($ million) 1,064.2 1,294.9 1,475.7 967.9 1,328.1 (% change) 1.0 21.7 14.0 -34.4 37.2 Employees 17,296 20,273 23,650 28,037 28,686 (% change) 9.1 17.2 16.7 18.5 2.3
SOURCE: AnnUAL REPORT
*Converted to Australian dollars using yearly average exchange rate **year end March
30
Major Companies
Other Companies continued
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. Company sales increased at an annualised rate of 2.2% over the five years through 2009-10. This was a slower performance than the industry as a whole. The Australia and Pacific Islands
region of destinations accounted for approximately 14.0% of revenue. The company experienced weak conditions in 2009-10 because of a global downturn in demand for flying. Furthermore, Air New Zealand lowered international tickets considerably during the first half of the year, as part of a price war in the global industry at the time. As a percentage of industry revenue, Air New Zealand is estimated to have held 3.4% market share in 2010-11, down from 3.9% in 2005-06. The company remained profitable during the global economic downturn, unlike its counterparts in Europe and the United States. This is mainly due to a minor fall in demand in the region, compared with North America and Europe.
Air New Zealand financial performance*

year 2005-06 2006-07 2007-08 2008-09 2009-10 revenue ($ billion) 3.41 3.73 4.00 3.76 3.22 (% change) n/C 9.4 7.2 -6.0 -14.4 EbIT ($ million) 132.5 253.0 308.0 63.6 120.4 (% change) n/C 90.9 21.7 -79.4 89.3
SOURCE: AnnUAL REPORT
*Converted to Australian dollars using yearly average exchange rate
31
Operating Conditions
Capital Intensity
Level The International Airlines industry has a high level of capital intensity. Approximately $1.58 worth of labour is required for each $1.00 spent on capital investment. The industrys high capital intensity owes to the large capital investment required to operate an airline. Airplanes can be leased to ease capital requirements, although most airlines prefer to own airplanes as assets. In addition, efficient communications equipment, newer aircraft and computerassisted booking, strong and flexible packing equipment and route planning facilities can reduce the need for nonflying 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 1.0 0.8 0.6 0.4 0.2 0.0 Economy Transport and Storage International Airlines
Capital intensity
The level of capital intensity is High
Dotted line shows a high level of capital intensity

However, many labour functions in the industry, such as piloting, safety requirements and customer service, are difficult to make less labour intensive. Wages are estimated to account for 12.2%
Tools of the trade: Growth strategies for success

New Age Economy recreation, Personal Services, Health and Education. Firms benefit 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 firms need superior debt management, a stable macroeconomic environment and a sound investment plan.
Capital Intensive
Labour Intensive
Travel Agency Services
Traditional Service Economy wholesale and retail. Reliant on labour rather than capital to sell goods. Functions cannot be outsourced therefore firms must use new technology or improve staff training to increase revenue growth.
Tourism Aircraft Manufacturing
Non-Scheduled Air and Space Transport
Petroleum wholesaling
Old Economy
Agriculture and Manufacturing. Traded goods can be produced using cheap labour abroad. To expand firms must merge or acquire others to exploit economies of scale, or specialise in niche, high-value products.
Change in Share of the Economy
32
Capital Intensity continued
of industry revenue. Moreover, long or quick turnaround trips (and certain types of aircraft) require extra crewmembers to adhere to federal safety requirements.
The average wage in this industry is high at $113,249, because staff duties require high skills (for pilots) and long hours, overtime and travel expenses.
Technology & Systems

Level
The level of Technology Change is High
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 efficiency 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. It will deliver the 787 into service in 2011. This is approximately two years later than originally anticipated. The 787-8 Dreamliner will carry 210 to 250 passengers on routes of 7,650 to 8,200 nautical miles, while the 787-9 Dreamliner will carry 250 to 290 passengers on routes of 8,000 to 8,500 nautical miles. A third
Aircraft efficiency will lead to fewer greenhouse gas emissions by airlines

787-3 Dreamliner will accommodate 290 to 330 passengers. It will be optimised for routes of 2,500 to 3,050 nautical miles. The 787 is designed to provide airlines with more fuel efficiency, with the airplane 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 health-monitoring systems that will allow the airplane to self-monitor and report maintenance requirements to groundbased computer systems. Airline efficiency 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, bar-coded boarding passes and e-freight. Technology also allowed for higher levels of competition among airlines. 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.
33
revenue Volatility
Level
The level of Volatility is Medium
International air travel is dependent on the performance of economies in various countries the industry serves. Industry output is affected by economic activity, as measured by world GDP. As world economic growth is more stable than the GDP growth of any individual country, it is therefore less volatile. The level of international trade will influence the demand for airfreight logistics. Movements in
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 firm makes poor investment decisions it may face underutilised capacity if demand suddenly falls, or capacity constraints if it rises quickly.
airfares contribute to the volatility level, with higher airfares dampening demand for international air travel. Exogenous shocks such as the September 11 attacks and the rise in crude oil prices can have significant consequences on this industry. The emergence of budget carriers has 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
The level of Regulation is Heavy and the trend is Steady
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, and the ICAO would be formed to supervise the provisions of the convention.
The ICAO, with its assembly and council arms, is geared to develop better techniques of navigation and other technical matters. Recently it has involved itself in capacity controls and fare setting. The IATA is an organisation of international airlines. It involves itself in 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
34
regulation & Policy continued
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 US-based 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
The level of Industry Assistance is Low and the trend is Steady
This industry is not directly affected by tariffs. Prior to February 1992, 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. However, Australian carriers seeking
designation to operate scheduled international air services under Australias bilateral air services agreements must demonstrate that they are substantially owned and effectively controlled by Australian nationals. For instance, with Toll Holdings owning 63% of Virgin Blue, the airline is now able to compete in the international market through Australia.
35
Key Statistics
Industry Data
2002-03 2003-04 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 Sector rank Economy rank revenue ($m) 9,742.9 11,242.4 12,654.1 12,787.5 13,180.4 13,204.6 12,857.1 13,296.7 14,487.2 14,923.7 15,473.0 15,992.7 16,797.6 16,881.5 17,088.6 2/29 73/495 Industry Value Added ($m) 3,312.5 3,552.6 3,648.4 3,660.3 3,809.1 3,840.8 2,874.6 3,254.9 3,638.7 3,981.1 4,285.7 4,358.7 3,788.7 3,605.1 3,520.2 4/29 89/495 Establishments 310 324 328 320 310 304 292 290 291 293 292 291 290 291 290 20/29 362/495 Enterprises Employment 85 17,490 84 17,510 93 17,480 93 17,200 92 17,120 89 16,892 88 16,141 88 16,006 88 16,032 88 16,046 88 15,964 88 15,905 88 15,889 88 15,969 88 15,937 22/29 11/29 401/495 177/495 Exports ---------------N/A N/A Imports ---------------N/A N/A wages ($m) 1,955.2 1,991.0 2,064.2 2,102.6 2,109.6 2,051.1 1,969.2 1,962.6 1,871.2 1,817.2 1,810.0 1,799.9 1,789.8 1,798.8 1,795.2 4/29 90/495 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 Passengers Carried 16,108,417 18,131,286 20,309,733 21,096,951 22,137,767 23,264,573 23,486,506 25,626,406 27,597,077 28,559,789 n/A n/A n/A n/A n/A N/A N/A
Annual Change
2003-04 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 Sector rank Economy rank revenue (%) 15.4 12.6 1.1 3.1 0.2 -2.6 3.4 9.0 3.0 3.7 3.4 5.0 0.5 1.2 17/29 187/495
Industry Value Added (%) 7.2 2.7 0.3 4.1 0.8 -25.2 13.2 11.8 9.4 7.7 1.7 -13.1 -4.8 -2.4 3/29 39/495
Establishments (%) 4.5 1.2 -2.4 -3.1 -1.9 -3.9 -0.7 0.3 0.7 -0.3 -0.3 -0.3 0.3 -0.3 15/29 206/495
Enterprises Employment (%) (%) -1.2 0.1 10.7 -0.2 0.0 -1.6 -1.1 -0.5 -3.3 -1.3 -1.1 -4.4 0.0 -0.8 0.0 0.2 0.0 0.1 0.0 -0.5 0.0 -0.4 0.0 -0.1 0.0 0.5 0.0 -0.2 22/29 26/29 231/495 324/495
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 (%) 1.8 3.7 1.9 0.3 -2.8 -4.0 -0.3 -4.7 -2.9 -0.4 -0.6 -0.6 0.5 -0.2 26/29 452/495
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
Passengers Carried (%) 12.6 12.0 3.9 4.9 5.1 1.0 9.1 7.7 3.5 n/A n/A n/A n/A n/A N/A N/A
Key ratios
2002-03 2003-04 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 Sector rank Economy rank IVA/revenue (%) 34.00 31.60 28.83 28.62 28.90 29.09 22.36 24.48 25.12 26.68 27.70 27.25 22.56 21.36 20.60 25/29 316/495 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 ($000) 557.06 642.06 723.92 743.46 769.88 781.71 796.55 830.73 903.64 930.06 969.24 1,005.51 1,057.18 1,057.14 1,072.26 4/29 78/495
wages/revenue (%) 20.07 17.71 16.31 16.44 16.01 15.53 15.32 14.76 12.92 12.18 11.70 11.25 10.66 10.66 10.51 22/29 325/495
Employees per Est. 56.42 54.04 53.29 53.75 55.23 55.57 55.28 55.19 55.09 54.76 54.67 54.66 54.79 54.88 54.96 6/29 60/495
Average wage ($) 111,789.59 113,706.45 118,089.24 122,244.19 123,224.30 121,424.34 121,999.88 122,616.52 116,716.57 113,249.41 113,380.11 113,165.67 112,643.97 112,643.25 112,643.53 2/29 28/495
Share of the Economy (%) 0.32 0.33 0.33 0.32 0.32 0.31 0.23 0.25 0.28 0.29 0.30 0.30 0.25 0.23 n/A 4/29 89/495
Figures are inflation-adjusted 2012 dollars. Rank refers to 2012 data.
36
Jargon & Glossary
Industry Jargon
APrON PArKING Areas for parking and maintenance. CIVIL AVIATION SAFETy AuTHOrITy An independent statutory authority that manages this industry.
IATA Stands for the International Air Transport Association, an organisation of international airlines. rEVENuE PASSENGEr A passenger that earns revenue for the airline.
IbISworld Glossary
bArrIErS TO ENTry Barriers to entry can be High, Medium or Low. High means new companies struggle to enter an industry, while Low means it is easy for a firm to enter an industry. CAPITAL/LAbOur INTENSITy An indicator of how much capital is used in production as opposed to labour. Level is stated as High, Medium or Low. High is a ratio of less than $3 of wage costs for every $1 of depreciation; Medium is $3-$8 of wage costs to $1 of depreciation; Low is greater than $8 of wage costs for every $1 of depreciation. CONSTANT PrICES The dollar figures in the Key Statistics table, including forecasts, are adjusted for inflation using 2011-12 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 inflation adjustments in IBISWorlds reports are made using the Australian Bureau of Statistics implicit GDP price deflator. DOMESTIC DEMAND The use of goods and services within Australia; the sum of imports and domestic production minus exports. EArNINGS bEFOrE INTErEST AND TAX (EbIT) IBISWorld uses EBIT as an indicator of a companys profitability. It is calculated as revenue minus expenses, excluding tax and interest. EMPLOyMENT The number of working proprietors, partners, permanent, part-time, temporary and casual employees, and managerial and executive employees. ENTErPrISE A division that is separately managed and keeps management accounts. The most relevant measure of the number of firms in an industry. ESTAbLISHMENT The smallest type of accounting unit within an Enterprise; usually consists of one or more locations in a state or territory of the country in which it operates. EXPOrTS The total sales and transfers of goods produced by an industry that are exported. IMPOrTS The value of goods and services imported with the amount payable to non-residents.
INDuSTry CONCENTrATION IBISWorld bases concentration on the top four firms. Concentration is identified as High, Medium or Low. High means the top four players account for over 70% of revenue; Medium is 40 70% of revenue; Low is less than 40%. INDuSTry rEVENuE The total sales revenue of the industry, including sales (exclusive of excise and sales tax) of goods and services; plus transfers to other firms of the same business; plus subsidies on production; plus all other operating income from outside the firm (such as commission income, repair and service income, and rent, leasing and hiring income); plus capital work done by rental or lease. Receipts from interest royalties, dividends and the sale of fixed tangible assets are excluded. INDuSTry VALuE ADDED The market value of goods and services produced by an industry minus the cost of goods and services used in the production process, which leaves the gross product of the industry (also called its Value Added). INTErNATIONAL TrADE The level is determined by: Exports/Revenue: Low is 0-5%; Medium is 5-20%; High is over 20%. Imports/Domestic Demand: Low is 0-5%; Medium is 5-35%; and High is over 35%. LIFE CyCLE All industries go through periods of Growth, Maturity and Decline. An average life cycle lasts 70 years. Maturity is the longest stage at 40 years with Growth and Decline at 15 years each. NON-EMPLOyING ESTAbLISHMENT Businesses with no paid employment and payroll are known as non-employing establishments. These are mostly set-up by self employed individuals. VOLATILITy The level of volatility is determined by the percentage change in revenue over the past five years. Volatility levels: Very High is greater than 20%; High Volatility is between 10% and 20%; Moderate Volatility is between 3% and 10%; and Low Volatility is less than 3%. wAGES The gross total wages and salaries of all employees of the establishment.
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Flight to success: Solid passenger numbers are fuelling strong revenue growth

IBISWorld Industry Report I6401

International Airlines in Australia

About this Industry

36 Jargon & Glossary

Industry at a Glance Industry Performance

11 Industry Life Cycle

13 Products & Markets

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

International Airlines in Australia December 2011

About this Industry

International Airlines in Australia December 2011

Annual Growth 07-12

Annual Growth 12-17

International travel to Australia

Qantas Airways Limited 23.4%

Singapore Airlines Ltd 6.8% Virgin Blue Holdings Limited 6.8%

Key External Drivers

Mature Medium High Low Medium

Heavy High High Medium High

International Airlines in Australia December 2011

Key External Drivers

International Airlines in Australia December 2011

Key External Drivers continued

Passenger numbers soar

International Airlines in Australia December 2011

Passenger numbers soar continued

Open Skies opens opportunities

Profit under pressure

Skyrocketing fuel prices resulted in weak earnings for airlines

International Airlines in Australia December 2011

Profit under pressure continued

Airline numbers fall

Declining industry establishment numbers reflect strong cost pressures

Airlines forge alliances

International Airlines in Australia December 2011

Airlines forge alliances continued

revenue regains altitude

International Airlines in Australia December 2011

revenue regains altitude continued

High fuel prices and carbon pricing

International Airlines in Australia December 2011

High fuel prices and carbon pricing continued

International Airlines in Australia December 2011

Company consolidation; level of economic importance stable

Petroleum wholesaling Non-Scheduled Air and Space Transport

Potential Hidden Gems

International Airlines in Australia December 2011

Industry Life Cycle This industry is Mature

International Airlines in Australia December 2011

Products & Markets

KEy SELLING INDuSTrIES

Products & Services

Products and services segmentation (2011-12)

5.4% 4.5% Other

International Airlines in Australia December 2011

Products & Markets

Products & Services continued

International Airlines in Australia December 2011

Products & Markets

Demand Determinants continued

Consumers visiting friends

International Airlines in Australia December 2011