Australia’s Airline Load Factor Falls as Supply Outstrips Demand

CEIC Macro Watch Global - November 28, 2014 Domestic flights across Australian skies have seen an increasing number of unoccupied seats as shown by the airline load factor’s downward trend since the beginning of 2012. Load factor, a ratio of revenue passenger kilometres (representing demand) to available seat kilometres (representing supply or flight capacity), is an important operational performance indicator in the aviation sector. The domestic traffic load factor fell year-on-year (YoY) for 20 months out of the 25 months between July 2012 and July 2014. The load factor fell to 71.6% in May 2014, the lowest since May 2001, from 73.4% in the previous year. Subsequently, it increased to 78.3% in July 2014 followed by a slight descend in August and September 2014, to 76.5% at the end of that period. Australia’s domestic aviation woes are largely attributed to the mismatch in flight capacity to demand growth. For the past two years leading to September 2014, increased competition for domestic routes has seen airlines boost flight capacity to accommodate more passengers. However, the increase in capacity was not met by a similar growth in demand, causing the load factor to decline. The monthly average figure between October 2013 and September 2014 showed that the supply side registered 1.5% YoY growth against demand which only posted 0.6% YoY growth. While from October 2012 to September 2013, the monthly average growth rate of supply was 5.3% YoY, compared to demand which only averaged 3.5% YoY. These over-capacity issues, among others, have seen Australia’s largest domestic airline, Qantas, struggle as its reported profit plunged during 2014. Qantas’ passenger load factor fell to 72.2% in May 2014, the lowest in recorded history dating back to February 2001, before rising moderately to 73.1% the following month. The national carrier’s weaker operational performance for that quarter resulted in a large net loss of AUD 2.8 billion for the second quarter of 2014, which follows a negative operating balance in the first quarter of 2014 of AUD 235.0 million. The largest flight capacity on domestic routes for all airlines includes Melbourne to Perth (MP), Melbourne to Sydney (MS) and Perth to Sydney (PS). With a higher capacity commitment by airline which signifies the routes’ popularity, dampened demand has partly contributed to the decline in the load factor for the three routes. The load factor on the PS route has declined for 10 consecutive months since October 2013, while the load factor for the MP route declined to 70.9% during May 2014, its lowest level since June 2006. Even though the MS route still maintained a healthy load factor of 79.8% in September 2014, it actually represents the fifth consecutive month of YoY decline, illustrating a weaker performance. While the competitive aviation sector bodes well for consumers, low fares and passenger volume place strain on airlines, resulting in declining margins and indeed, mounting losses. This may, in turn, threaten the long-term viability of low volume domestic routes, especially to remote locations. By Claudia Carbonell in Philippines - CEIC Analyst Discuss this post and many other topics in our LinkedIn Group (you must be a LinkedIn member to participate). Request a Free Trial Subscription. Back to Blog
28th November 2014 Australia’s Airline Load Factor Falls as Supply Outstrips Demand

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