Air Transport Services in Regional Australia – Demand pattern, frequency choice and airport entry

Abstract

This study investigates the development of the aviation market at Australia’s top 50 regional airports during 2005-2013. Demand estimation results suggest that a higher commodity price increases traffic volume in markets where the local economy heavily relies on mineral resources and that an appreciation of the Australian dollar decreases passenger flows in tourism-dependent areas. The presence of leading airlines and low-cost carriers, and the availability of international services all contribute positively to market growth. Airport entry analysis reveals that major carriers engage in clear strategic interactions. The Qantas airline group has used Jetstar as a fighting brand, thus that Jetstar flies to a destination if and only if the regional airport is also served by Virgin Australia, the group’s major competitor. Unlike routes connected to major airports, demands in regional airports are not sensitive to flight frequency, but seem to be positively influenced by national fare levels. Our empirical results support a consistent aviation policy across Australia, especially for issues related to airline competition and demand stimulation. However, special considerations need be made for regional airports to help them to deal with economic shocks and cover fixed costs.