business plan ( eco friendly airplanes)

business plan ( eco friendly airplanes)

Individual Business Plan I have been asked to provide business plan My idea is to write about eco friendly air planes You’ll find attached pdf file with a lot of statistics and information The fowling pages has all the information how to write it Headings Title page Executive Summary Table of Contents Section headings References Appendix Market Feasibility 1. What is the size of the market? 2. What is the growth rate of the industry? 3. Is the market at full capacity? 4. Where are customers getting the product now? 5. Where are the customers? 6. How many would purchase from you? 7. What external factors come to bear? Government, Industry Dynamics 8. How long will this opportunity last in the market? (Window of Opportunity) 9. What keeps new competition from entering this market? (Barriers to Entry) Technical Feasibility Questions to Answer 1. What are the options for developing the technology (customer, off the shelf, design yourself, subcontract)? 2. What are the options for producing the product or service? • In House • Subcontract • License • Joint Venture or Partnership • Combination 3.What are the options for Sales and Distribution? • In House • Whole Sale • Distributors or Sales Representatives • License • Joint Venture or Partnership • Combination 4.What resources are required for development and are they available to you (skills, raw materials, components, suppliers, facilities & equipment)? 5. What are the laws and regulation relating to the business? • Industry Standards or Regulations (Dangerous Goods, (Canadian Standards Association – CSA), ISO • Personal Certifications • Intellectual Property (Patents, trademarks, copyrights) • Environmental Liability 6. Has the research discovered any moral or ethical issues that you are uncomfortable with? 7. What technological changes are changing or emerging that may affect the business? Financial Feasibility 1 What are the projected Revenues from the sale of your product or service? • From the Market Research, what is the projected sales volume in “units sold?” and in “dollars sold”? • From the Market Research, what is the selling price per unit? • What is the total expected revenue? 2. What are the financial dynamics and opportunities? • Costs Structure (per unit basis) – Price per unit minus – Variable Costs (Cost of Goods Sold & Controllable Costs) per Unit equal – Gross Margin per Unit minus – Fixed Costs per Unit equal – Net Margin per Unit 3. Is it worthwhile financially? • 1 Year Monthly Cash Flow Statement. (Completed in a spread sheet format so it can be built upon with new information) • Ensure that you clearly show all assumptions for this statement. 4. How much investment is required? • One Time Assets and Startup Expenses – Plant & Equipment – Leasehold Improvements – Initial Inventories – Research & Development – Legal – Experts • Operating expenses prior to break even 5. What are the financial risks? • Break Even Analysis Units to break even. (Total fixed costs from Income statement divided by Gross margin per unit) Figure out on a monthly basis. • Payback (Investment required divided by net margin per unit – Date when units calculated above are sold & collected.) • Return on Investment (Yearly Net Profit divided by Total Investment required) • Risk vs. Reward (Personal feelings of the risks and rewards) • Opportunity Costs (Can you get a better return somewhere else?) • Personal Financial Risk (What will you have to give up. Sign over mortgage etc.) 6. What are the possible sources of financing? • Chances of getting the money? • What will you have to give up? 7. General Financial Numbers that would indicate attractiveness of Venture • Gross Margin 20 – 30% plus • Net Profit Margin – 10 to 15%. Plus • Return on Investment – 15% plus • Payback – 3 years or less. • Break even – 2 years or less • Note: These numbers must not be looked at in isolation over a one year period. You need to look at the numbers over a 3 year period and as a whole, not just individually. Industry averages can be quite different. Human Resource Feasibility Questions: 1. What technical and management experience is required? 2. Who are the owners and what are their roles? (Entrepreneur, Manager, Tech. Expert) 3. What is the ownership structure? 4. What are the manpower requirements? – How will you find the right employees? – How will you compensate employees (pay for time, for production, for knowledge, or a combination)? – How will you motivate employees? – What training will they need on an ongoing basis? 5.What is the company’s growth strategy? – How will quality be managed and maintained÷ – How will organizational structures change with growth? – What career paths will employees have available? Appendix A Start-up Expenditures and Expenses Worksheet Item Total Cost Cash Required Land __________ __________ Capital Equipment __________ __________ Computer __________ __________ ___________ __________ __________ ___________ __________ __________ Beginning Inventory __________ __________ Start up Supplies __________ __________ Licenses and Permits __________ __________ Leasehold Improvements __________ __________ Utility hookups & Installation __________ __________ Advertising (Preopening) __________ __________ Insurance __________ __________ Other __________ __________ _______________ __________ __________ Total Estimated One-Time Cash Requirements __________ __________ Start-up Operating Expenses Estimate No. of Months Total Cash Item Monthly Expense X Before Break even = Required Owners Salary __________ __________ __________ Employee’s salary, wages, benefits __________ __________ __________ Rent __________ __________ __________ Promotion expenses __________ __________ __________ Supplies and postage __________ __________ __________ Vehicle Expenses __________ __________ __________ Telephone __________ __________ __________ Travel __________ __________ __________ Interest __________ __________ __________ Maintenance __________ __________ __________ Other __________ __________ __________ ____________ __________ __________ __________ Total Cash Required to Cover Operating Expenses _________ Plus: Total One-Time Cash Requirements (Previous Table) __________ Add 10% Safety Factor __________ Total Cash Required for Start-up _________
2 About this Industry 2 Industry Definition 2 Main Activities 2 Similar Industries 2 Additional Resources 3 Industry at a Glance 4 Industry Performance 4 Executive Summary 4 Key External Drivers 5 Current Performance 7 Industry Outlook 10 Industry Life Cycle 12 Products & Markets 12 Supply Chains 12 Products & Services 13 Demand Determinants 14 Major Markets 15 International Trade 17 Business Locations 19 Competitive Landscape 19 Market Share Concentration 19 Key Success Factors 20 Cost Structure Benchmarks 22 Basis of Competition 22 Barriers to Entry 23 Industry Globalisation 24 Major Companies 24 Qantas Airways Limited 25 Virgin Australia Holdings Limited 28 Operating Conditions 28 Capital Intensity 29 Technology & Systems 30 Revenue Volatility 30 Regulation & Policy 31 Industry Assistance 32 Key Statistics 32 Industry Data 32 Annual Change 32 KeyRatios 33 Jargon & Glossary IBISWorld Industry Report I4902 Domestic Airlines in Australia June 2015 Ryan Lin Profit progress: Cost-saving initiatives by major carriers have kept margins positive | (03) 9655 3881 | WWW.IBISWORLD.COM.AU Domestic Airlines in Australia June 2015 2 Domestic airlines operate aircraft on scheduled domestic routes, for the transportation of passengers and freight. The primary activities of this industry are Scheduled domestic passenger air transportation Scheduled domestic freight air transportation Chartered air transportation with crew on scheduled domestic flights Air transport terminal operation (except airports) Industry Definition Main Activities Similar Industries Additional Resources The major products and services in this industry are Freight Full-fare and business passenger transport Low-fare passenger transport About this Industry C2394 Aircraft Manufacturing and Repair Services in Australia Companies in this industry manufacture aircraft and parts, and undertake maintenance, repair and overhaul of aircraft. I4901 International Airlines in Australia Businesses in this industry operate aircraft on scheduled routes for the transportation of passengers or freight between Australian and foreign ports. I4903 Non-Scheduled Air Transport in Australia Firms in this industry operate aircraft on a non-scheduled basis for the transportation of passengers or freight domestically. I5220 Airport Operations in Australia Businesses in this industry provide civil airport and spaceport facilities, aerospace navigation and other services to air or space transport units. I5292b Rail, Air and Sea Freight Forwarding in Australia Companies in this industry transport goods for other enterprises, using one or more different enterprises to perform the contracted services by way of rail, air or sea freight transport. For additional information on this industry Bureau of Infrastructure, Transport and Regional Economics Civil Aviation Safety Authority International Air Transport Association WWW.IBISWORLD.COM.AU Domestic Airlines in Australia June 2015 3 Market Share Qantas Airways Limited 60.3% Virgin Australia Holdings Limited 21.5% Key External Drivers Domestic trips by tourists Real household discretionary income World price of crude oil International travel to Australia Consumer sentiment index Key Statistics Snapshot Industry at a Glance Domestic Airlines in 2014-15 Revenue $15.1bn Profit $392.7m Wages $2.6bn Businesses 106 Annual Growth 15-20 2.3% Annual Growth 10-15 2.5% Industry Structure Life Cycle Stage Mature Revenue Volatility Medium Capital Intensity High Industry Assistance Low Concentration Level High Regulation Level Heavy Technology Change High Barriers to Entry High Industry Globalisation Medium Competition Level High FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIX ON PAGE 32 % change 10 -10 -5 0 5 Year 09 11 13 15 17 19 21 Domestic trips by tourists SOURCE: WWW.IBISWORLD.COM.AU % change 15 -10 -5 0 5 10 Year 07 09 11 13 15 17 19 21 Revenue Employment Revenue vs. employment growth Enterprises 23% VIC 6% TAS 22% QLD 3% NT 20% NSW 17% WA 9% SA SOURCE: WWW.IBISWORLD.COM.AU p. 24 p. 4 SOURCE: WWW.IBISWORLD.COM.AU WWW.IBISWORLD.COM.AU Domestic Airlines in Australia June 2015 4 Key External Drivers Domestic trips by tourists The number of domestic overnight trips taken affects industry demand. Given the generally large distances between major cities and tourist attractions, any increase in the number of domestic trips increases Executive Summary At the beginning of the five-year period, domestic airlines faced tough challenges, with deteriorating global economic conditions causing a drop in industry revenue in 2008-09 and 2009-10. A high Australian dollar for part of this period prompted travellers to make international travel plans instead of travelling domestically, as locations abroad gained greater appeal compared with traditional domestic tourism regions. At the same time, some business travellers abandoned air travel in favour of teleconferences and other forms of electronic communication. In response to declining demand and rising competition, operators slashed prices. The heavy discounting and reductions in the fuel excise resulted in passenger numbers stabilising in 2009- 10 and 2010-11. As a result, IBISWorld expects industry revenue to grow at an annualised 2.5% over the five years through 2014-15, to reach $15.1 billion. Passenger traffic is expected to continue its upward trend in 2014-15, due to a steady rise in discretionary incomes since 2009-10. Industry revenue is forecast to grow by 2.5% in 2014-15 as the Australian dollar continues to weaken, spurring domestic travel demand. Operating profit margins dropped from high pre-crisis levels to a low 0.9% in 2009-10. Domestic airlines have reduced capacity, cut underperforming routes and discounted prices to align supply with demand and attract more passengers. In late 2014, the price of oil plummeted due to a global oversupply, aiding industry operators’ underlying profit margins. As a result, operating profit has improved to reach an estimated 2.6% in 2014-15. Strong price competition from low-cost airlines has prevented a major recovery in profit margins. However, as Qantas and Virgin relax their competitive stance, profit margins are expected to recover. Over the next five years, domestic airlines are expected to grow as demand for air travel rises, especially from the high-growth Asian region, with Asian tourists demanding domestic flights while travelling. However, higher fuel prices will lift airfares and constrain potential industry revenue growth. The level of competition is expected to remain high. Strong competition and growing demand for air travel are expected to spur industry revenue, with forecast growth of an annualised 2.3% to reach $17.0 billion in 2019-20. Industry Performance Executive Summary | Key External Drivers | Current Performance Industry Outlook | Life Cycle Stage US$ per barrel 120 40 60 80 100 Year 07 09 11 13 15 17 19 21 World price of crude oil SOURCE: WWW.IBISWORLD.COM.AU % change 10 -10 -5 0 5 Year 09 11 13 15 17 19 21 Domestic trips by tourists WWW.IBISWORLD.COM.AU Domestic Airlines in Australia June 2015 5 Industry Performance Price competition Fuel prices were relatively low in 2008-09 and 2009-10, but the industry was still battling lacklustre travel demand despite Australia avoiding a recession during the global financial crisis. Amid the economic uncertainty, consumers were unwilling to spend money on travel and holidays, and Current Performance Conditions in the Domestic Airlines industry have recovered over the past five years. At the beginning of the period, the effects of the global economic downturn caused a decrease in the number of air passengers. Many Australians shelved non-essential travel plans in favour of stabilising their finances. Although air passenger kilometres continued to grow year on year, the rate of growth was slower than the long-term trend, reflecting tough operating conditions. Airlines were burdened with excess capacity. This was particularly true for the higher profit market of business travel. As a result, airlines entered
a price war, heavily discounting routes and offering specials on a regular basis. Business and consumer confidence have been positive for the majority of the past five years, driving industry revenue growth of 2.5% annualised as demand for domestic air travel recovers. Industry revenue is expected to grow by 2.5% over 2014-15, to reach $15.1 billion. The continued weakening of the Australian dollar over the year is expected to constrain demand for international travel in favour of domestic travel. Key External Drivers continued demand for domestic air travel. In 2014-15, the number of domestic trips by tourists is expected to rise, providing an opportunity for the industry. Real household discretionary income The level of real household discretionary income mainly affects demand for personal air transport. When income growth is strong, households and individuals tend to increase spending on discretionary items like aircraft transport, tourism, holidays and similar activities. Discretionary income levels are forecast to increase in 2014-15. World price of crude oil Fuel is a significant cost for airlines. Fuel costs can amount to 20.0% of industry revenue and are therefore a major concern for the industry. When the price of crude oil increases, industry costs rise and profitability drops. Most operators are unable to pass on the full increase in the cost of fuel. As a result, increases in crude oil prices have a negative effect on the industry. The world price of crude oil is anticipated to decrease significantly in 2014-15, due to a global oversupply. International travel to Australia International travel to Australia represents the number of arrivals in Australia by foreigners and Australian residents. International arrivals are an important source of demand for industry services. Most players have aligned themselves with international airlines to provide seamless transfer from international flights to domestic flights. International travel to Australia is expected to increase in 2014-15. Consumer sentiment index Consumer sentiment affects demand for domestic travel. Consumers are less likely to go on holiday when sentiment is low. Moreover, those that do go on holiday tend to stay close to home to avoid airfares. Conversely, when sentiment is high, consumers are more likely to take holidays and use the industry’s services to travel. Consumer sentiment is expected to decrease in 2014-15, threatening industry growth. WWW.IBISWORLD.COM.AU Domestic Airlines in Australia June 2015 6 Industry Performance Price competition continued businesses cut their travel budgets. However, price competition between Virgin Australia and Qantas partially offset lower demand for air transport. Low fares and value-driven offers from these airlines stimulated demand for domestic air travel. While passenger kilometres (a measure of revenue-paying passenger traffic) grew over 2009-10, the average airfare fell. The combination of lowerthan-expected volumes and lower prices resulted in a fall in industry revenue, and profit margins decreased to a meagre 0.9%. To counter the effects of fare slashing, operators implemented efficiency measures to improve lean profit margins. The highly competitive market claimed a victim in February 2012, when Air Australia (formerly Strategic Airlines) entered into administration due to mounting competition and weak airline performance. The airline began operating in the early 1990s and started offering passenger movements in 2002. Since its incorporation, Air Australia has expanded through acquisitions and extended its routes to include Melbourne, Brisbane and Honolulu, with its expanding routes bringing the airline into direct competition with industry giants. As a result, high costs and growing competition sank the airline. Over the past five years, IBISWorld expects that industry participation has been relatively stagnant as high costs have discouraged the entrance of other smaller aircraft operators. As a result, enterprise numbers remain largely unchanged. Price competition has continued through 2014-15, as Virgin competes aggressively with Qantas for business passengers. The Bureau of Infrastructure, Transport and Regional Economics’ index of real business class airfares is expected to be substantially lower in 2014-15 than 2009-10, both in terms of spot prices and the 13-month moving average of fare prices. Virgin’s rebranding in 2011 has resulted in an increase in standard economy fares as the company shifted its focus towards full-service and business class. The number of discount fares has also decreased over the past year. The related subsidiaries of the two airline giants have competed heavily. Qantas’s Jetstar has offered two-for-one airfare deals, while Virgin’s Tiger Airways Australia has offered cheaper fares in the hope of winning customers. However, in mid-2014 both Qantas and Virgin backed down from their capacity war, and both airlines cut capacity. Domestic airline passenger traffi c and capacity Year Revenue passenger kilometres (million) (% change) Available seat kilometres (million) (% change) 2009-10 57.7 N/C 72.4 N/C 2010-11 63.2 9.5 78.5 8.4 2011-12 64.3 1.7 81.6 3.9 2012-13 67.2 4.5 87.6 7.4 2013-14 68.1 1.3 89.5 2.2 2014-15* 69.2 1.6 91.0 1.7 *Estimate SOURCE: BITRE AND IBISWORLD WWW.IBISWORLD.COM.AU Domestic Airlines in Australia June 2015 7 Industry Performance Industry Outlook New fuel-efficient planes and growth in domestic trips will provide a tailwind for domestic airlines over the next five years. Rising incomes and the continued promotion of Australia as a tourism destination will boost the number of international visitors travelling domestically. Improving business confidence will also lead to a rise in business-related demand. However, the industry will struggle with ongoing competitive pressures from price wars. As a result, industry revenue is forecast to grow by 1.2% in 2015-16. Demand for air travel is expected to remain strong as a result of low airfares caused by intense competition between major airlines. Furthermore, the increasing number of international visitors over the next five years, supported by a fall in the value of the Australian dollar, will aid demand for domestic air travel. As a result of low airfares and increasing demand, industry revenue is forecast to grow at an annualised 2.3% over the five years Industry takes flight The Domestic Airlines industry has regained some strength over the past five years. Although prices remain low, consumers are returning to air travel and passenger traffic growth is recovering. In an environment with better-thanexpected economic performance, business travel is also improving. Traffic for domestic flights recovered strongly in the years following the global economic downturn. Revenue passenger kilometres (RPKs) on domestic flights are expected to increase consistently over the five years through 2014-15. This rise in passenger traffic has partly been due to changes in consumer behaviour. The desire to travel has flourished as real household discretionary income has grown, boosting industry revenue. Increased passenger traffic has also partly been due to an increase in the number of flights offered. Available seat kilometres (a measure of passenger capacity) have increased slightly faster than RPKs over the past five years. The increase in available seats reflects the increased availability of different routes, which has helped attract passengers wishing to fly to those destinations. Growth in regional aviation has been stronger than growth in established capital city routes, reflecting the increase in scheduled services to regional growth areas, such as Karratha, WA, as a result of the earlier resources boom throughout the region. Profit margins Industry profit has risen slightly over the past five years, to reach an estimated 2.6% of revenue in 2014-15. Continual cost cuts, including downgrading labour requirements and reducing employee numbers, have driven this rise in profit. The growth of low-cost airlines such as Tiger Airways and Jetstar has also left little room to bump up margins. As a precaution against rising fuel
costs, cost-saving initiatives by the major carriers have helped keep margins positive. Volatile fuel prices have hindered profit growth. Major airlines hedged a large proportion of their fuel supplies, paying over US$100 a barrel in an attempt to stabilise fuel costs in an environment with skyrocketing fuel prices in 2009-10 and 2010-11. However, when fuel prices unexpectedly collapsed following the financial crisis, airlines were left with contracts to purchase fuel at the previous high prices. A similar drop in late 2014 has also affected the industry, although profit is expected to fare better this time around as demand is higher. Profit has since recovered as airlines, most notably Qantas and Virgin, have been cutting capacity to align with demand levels since mid-2014. Wage costs are expected to account for 17.0% of revenue in 2014-15, down from 19.1% in 2009-10 as airlines have cut back on labour costs. WWW.IBISWORLD.COM.AU Domestic Airlines in Australia June 2015 8 Industry Performance Industry Outlook continued through 2019-20, to reach $17.0 billion. Domestic airlines are forecast to keep capacity steady over 2015-16, despite increasing demand for air travel. Rampant price wars by the industry’s two largest players have resulted in weak profit results over the past five years. Short-term capacity cuts by Qantas and Virgin are expected to help them return to more robust financial positions over the next five years. However, as airlines equip themselves with the newest fuelefficient aircraft, airline capacity is expected to grow in the medium to long-term. Opportunities Domestic airlines are expected to continue to implement sustainability programs aimed at reducing greenhouse gas emissions. Qantas and Virgin Australia currently offer customers the opportunity to pay extra for the company to offset the gas emissions generated by their contribution to the flight. The airlines are likely to become more environmentally friendly through the introduction of new fuel-efficient planes. Regional airlines have potential opportunities to operate as specialist airlines that fly niche tourist routes between major population areas and popular tourist destinations. By flying specialist routes, regional airlines avoid encroaching on prime routes where they Profit conditions Following the drop in the price of crude oil in late 2014, IBISWorld anticipates that oil prices will again climb to historic highs in the long term. Although demand for oil is slowing in developed economies, the rapid growth in demand worldwide, coupled with a finite supply, will inevitably push prices upward. Elevated oil prices will keep the industry’s purchase costs high over the next five years. Over the past five years, airlines were able to mitigate the impact of high fuel costs on ticket prices. However, their scope to do so in the next five years is limited. Increased fuel costs will therefore threaten industry profitability. Airlines are expected to implement fuel surcharges to minimise the effects of higher fuel costs on industry revenue and profit. As airlines respond more quickly to changing fuel costs, domestic airline profitability will increase. The improved earnings will reflect the fuel efficiency of new aircraft and equipment as operators upgrade their fleets. In addition, employment numbers are forecast to fall as industry operators seek to reduce costs. However, a looming pilot shortage may curb any ambitious fleet expansions and renewals. Pilots that are qualified to fly new aircraft are expected to become increasingly scarce. Demand for qualified pilots is rising, while training schools struggle to attract enough students. The pilot shortage means airlines will offer higher average wages as they compete for a smaller number of qualified graduates. Service cancellations and capacity constraints are expected to threaten firms that cannot attract or maintain sufficient pilot numbers. % change 10 -15 -10 -5 0 5 Year 07 09 11 13 15 17 19 21 Industry revenue SOURCE: WWW.IBISWORLD.COM.AU WWW.IBISWORLD.COM.AU Domestic Airlines in Australia June 2015 9 Industry Performance Opportunities continued face direct competition from major airlines. Operators such as Rex have been able to grow quickly by filling this niche. In the long term, regional airlines may benefit from subcontracting arrangements with major airlines, while the major airlines concentrate on competing for the main passenger routes. Regional commuter operators may move further into regional services previously operated by the major airlines or their subsidiaries. Lower capacity commuter aircraft could offer services better suited to the needs of the public in small to medium-size communities. Competition Following Virgin’s acquisition of Tiger Airways, the Domestic Airlines industry became a duopoly. This is not expected to change over the next five years, with Virgin and Qantas forecast to maintain their shares of the market. The two airlines have stronger financial support and the expertise, and the capital to sustain long-term operations, compared with potential entrants. Any new entrant would cause volatility in prices and services in the market. Long-term fare wars are inevitable, because airlines prefer to sell a seat at any price than to take off with the seat empty. As a result of this duopoly, IBISWorld expects that continual price wars will help sustain demand for air travel. Despite this, demand gains from low airfares may be short-lived unless airlines can sustain the low fares through new operational methods involving lower overheads and better yield management. The airlines’ low-cost structure will help sustain their position. For example, low-cost airlines will use only one aircraft type to reduce maintenance and training costs. These conditions are expected to prevent growth in industry enterprise numbers over the next five years. WWW.IBISWORLD.COM.AU Domestic Airlines in Australia June 2015 10 Industry Performance The industry’s contribution to the economy has been flat over the past five years Strong industry competition will lead to consolidation over the next five years There are limited geographic expansion opportunities There has been wholehearted market acceptance of the services offered by the industry Life Cycle Stage SOURCE: WWW.IBISWORLD.COM.AU 20 15 10 5 0 -5 -10 % Growth in share of economy % Growth in number of establishments -10 -5 0 5 10 15 20 Decline Shrinking economic importance Quality Growth High growth in economic importance; weaker companies close down; developed technology and markets Maturity Company consolidation; level of economic importance stable Quantity Growth Many new companies; minor growth in economic importance; substantial technology change 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 Aircraft Manufacturing and Repair Services Mining Petroleum Product Wholesaling International Airlines Catering Services Domestic Airlines WWW.IBISWORLD.COM.AU Domestic Airlines in Australia June 2015 11 Industry Performance Industry Life Cycle The Domestic Airlines industry is in the mature phase of its life cycle. Industry value added (IVA) is expected to grow at an annualised 2.0% over the 10 years through 2019-20. As a result, the industry is underperforming the economy as a whole, with GDP expected to grow at 2.7% annualised. The industry grew rapidly in the 1990s and early 2000s, despite the bankruptcy of Ansett. After Ansett’s demise, domestic airlines received a boost with the introduction of new low-cost airlines, including Virgin Blue (now Virgin Australia) and Jetstar. These operators attracted more passengers to Australian skies, with their low fares and numerous destinations. However, Jetstar is expected to have cannibalised Qantas’s customer base, despite having the same parent company. Competition has swayed consumers from one company to another as opposed to increasing numbers overall. The shift in consumer airline preferences indicat
es that the market is near the point of saturation. Virgin Australia, Jetstar and Tiger Airways have all increased their share of passenger numbers over the past five years, while Qantas has lost out on its share. While all major players have expanded their services to some extent over the past five years, any further increases in routes are limited due to the wide network of flights to metropolitan areas currently in operation. Competition in the industry is expected to increase again over the next five years as Qantas and Virgin fight to win air passengers. While the major airlines will have the capital to participate in the competition, some smaller providers are likely to leave the industry or consolidate. This industry is Mature WWW.IBISWORLD.COM.AU Domestic Airlines in Australia June 2015 12 Products & Services The industry’s main business is the transportation of passengers on scheduled routes within Australia, either between main cities or across regional destinations. Generally, the majority of industry revenue is generated by ticket sales. However, this share has declined over the past five years due to the heavy discounting of fares across the aviation sector and a reduction in fuel surcharges. Full-fare and business passenger transport Business travellers generally prefer full-fare services due to the flexible nature of the tickets, which enables them to change flights with minimal costs and allows access to business lounges. In contrast, domestic tourists and families often favour low-cost airlines. The global financial crisis resulted in a fall in business traveller numbers, reducing revenue from the sale of full-fare tickets. However, since 2009-10, the number of business travellers has improved and has now reached pre-global financial crisis levels. Despite the business travel recovery, the number of full-fare passengers has fallen due to competition from low-fare tickets. As a result, this segment has declined marginally as a share of the industry over the past five years, with the drop in full-pare passengers weighing down growth in business travellers. IBISWorld expects that this segment will grow slowly over the next five years, as the economy improves and consumers and business travellers alike look towards full-service domestic trips. At the same time, price competition between Qantas and Virgin will slow, providing an opportunity to boost revenue generated from this segment. KEY BUYING INDUSTRIES B Mining in Australia Mining operations are located in regional areas and are frequent users of domestic air transport. I5292b Rail, Air and Sea Freight Forwarding in Australia Airfreight forwarders use domestic airline services. J7110 Postal and Courier Services in Australia Mail services in Australia use domestic airlines to deliver interstate mail. K6200 Finance in Australia The Finance subdivision is a prominent business user of domestic air transport between major capital cities. X0003 Tourism in Australia Domestic tourism is a major market for domestic airlines. KEY SELLING INDUSTRIES C2394 Aircraft Manufacturing and Repair Services in Australia Manufacturers supply aircraft to airline operators. F3321 Petroleum Product Wholesaling in Australia Petroleum wholesalers provide jet fuel for aircraft. H4513 Catering Services in Australia This industry provides catering services to airlines for in-flight meals. I4903 Non-Scheduled Air Transport in Australia The Non-Scheduled Air Transport industry supports the Domestic Airlines industry by testing the market prior to offering a full service. I5220 Airport Operations in Australia Services such as refuelling, passenger screening, airport operations and aircraft maintenance provide support to the Domestic Airlines industry. Products & Markets Supply Chain | Products & Services | Demand Determinants Major Markets | International Trade | Business Locations Supply Chain WWW.IBISWORLD.COM.AU Domestic Airlines in Australia June 2015 13 Products & Markets Demand Determinants Air travel in Australia is often a necessity, given the vast size of the country and the low density of its population. As such, movements in air transport demand usually correlate with demand for travel across the country for both business and leisure. Demand for air transport also correlates with demand for the movement of timesensitive freight. Products & Services continued Low-fare passenger transport Low-fare passenger transport has been one of the fastest growing segments over the five years through 2014-15, as travellers have shifted towards cheaper alternatives in the aftermath of the financial crisis. The indexed price of lower cost tickets is expected to be lower in 2014-15 than it was in 2009-10. Ticket discounting by many carriers, especially the low-cost segments of Qantas and Virgin, has led to significantly lower airfares from this segment compared with the industry’s other services. However, carriers are increasingly competing in both low- and high-service segments, slightly halting the focus of price competition on low-cost airfares. Freight Over the majority of the past five years, strong fuel prices and a slowdown in merchandise trade during 2008-09 and 2009-10 have constrained demand for freight services offered by domestic carriers. Airlines have increased additional charges to recover some of the losses made on heavily discounted ticket prices. However, overall demand for airfreight has increased, as Australians have flocked to the internet for fast, efficient and cheap shopping. This has largely benefited international airlines due to the slow adoption of online operations by domestic retailers and the heavy competition from global online retailers. Despite this, the share of revenue earned through the movement of freight has increased significantly over the past five years, especially in 2014-15, despite airfreight being one of the most expensive modes of transport. Other Domestic airlines generate revenue from a number of other sources such as charges on excess baggage, late fees, luggage charges, cancellation fees and booking change fees. This segment is expected to be relatively small, and largely stable as a share of the industry. Over the next five years, airlines are expected to seek to boost booking and administration efficiencies, reducing the need to further process booking changes. Products and services segmentation (2014-15) Total $15.1bn 54.6% Full-fare and business passenger transport 32.9% Low-fare passenger transport 7.2% Freight 5.3% Other SOURCE: WWW.IBISWORLD.COM.AU WWW.IBISWORLD.COM.AU Domestic Airlines in Australia June 2015 14 Products & Markets Major Markets Domestic airlines provide services for individuals, businesses and logistics companies. While the majority of revenue is earned from sales of airline tickets for scheduled air transport, revenue also comes from the transport of timesensitive freight via air haulage. Passengers for domestic airlines can be either Australians leisure or business travellers, or international tourists flying across the country. Domestic leisure travellers Domestic leisure travellers are expected to account for just over half of industry revenue in 2014-15. This market segment comprises of domestic travellers that make occasional trips to take a vacation or visit family and friends. Price is an important factor for this market and is normally the first issue considered when planning a trip. Other factors taken into account include baggage allowance, route Demand Determinants continued Passenger movement Movements in airfares greatly determine demand for leisure-related air travel. This is because consumers can either postpone or exclude air travel from their holidays during periods of high airfares. However, the need for cross-country time-sensitive transport provides a steady avenue of demand. This includes transport to reach sporting events, private occasions, concerts, conventions or other such events occurring in a different city. For the business traveller, airfares are not such an important factor as they are part of the cost of running a business. Demand determinants for business travel include in
ternational trade activity, corporate profitability and the availability of substitutes for air travel such as video conferencing. During periods of weak corporate profitability, firms may restrict business travel or downgrade travel class for cheaper airfares. Freight Demand for airfreight services is influenced by the level of high-value time-sensitive imports and exports, and airfreight rates. Operating costs, capacity and innovation in shipping and packaging technology can influence airfreight rates. It is more efficient to transport timesensitive and high value-to-weight products via air. Electronics and highvalue products are usually transported by air. This is because these products need to reach their markets quickly due to rapid technological change making the products obsolete. Time to market is important, as it can influence demand for these products. Major market segmentation (2014-15) Total $15.1bn 51.5% Domestic leisure travellers 28.4% Domestic business travellers 12.9% International travellers 7.2% Logistics companies SOURCE: WWW.IBISWORLD.COM.AU WWW.IBISWORLD.COM.AU Domestic Airlines in Australia June 2015 15 Products & Markets International Trade There is no data available on international trade in the industry as there are no material merchandise transactions in the operation of domestic airlines. However, IBISWorld expects that the industry engages in international service trade via the nationality of carriers operating in Australia. Service exports relate to Australian carriers carrying nonresident passengers across the country, whereas service imports relate to Major Markets continued of travel and service levels. For example, airline routes that travel through multiple airports will charge more taxes and fees, pushing up the total fare. The emergence of discount carriers such as Jetstar and Tiger Airways and intense price-based competition have made air travel more affordable. The increased affordability has promoted growth in the domestic passenger market over the past five years. Over the next five years, this trend is expected to continue, especially as competition between Tiger Airways and Jetstar increases. Domestic business travellers The business segment includes travel where airlines may charge a premium for tickets (business class), facilitating greater flexibility with flying dates and times. Sometimes bookings are made at short notice and consequently attract a higher price. Therefore, the value of sales per passenger is significantly higher for business customers than for leisure travellers. Despite strong competition from Virgin, Qantas dominates the business traveller market due to the breadth of its network, large number of flights and provision of the Qantas Club, which is a business lounge. Over the past five years, demand for business travel has grown, but at a weak pace compared with demand for leisure travel, with this segment remaining relatively stable as a share of revenue. This is mainly due to weak conditions in 2009-10 as business expenses and budgets were slashed. Although business travellers have returned to Australian skies, many businesses are still cautious about the economic outlook. As a result, travel budgets are expected to remain below pre-crisis levels. International travellers Demand from international travellers has grown over the past five years to account for 12.9% of industry revenue in 2014-15. For much of the past five years, demand from international travellers was relatively weaker due to the strength of the Australian dollar. The strong Australian dollar made travel to Australia more expensive. As a result, demand from the United States and other western countries fell significantly from 2008-09. However, since mid- 2013, this trend was overturned as the Australian dollar plummeted in value. At the same time, demand from developing Asian countries has grown over the past five years. IBISWorld anticipates that this market will continue to grow over the next five years as the Australian dollar weakens, making travel to and within Australia cheaper for foreign travellers. Logistics companies Domestic airfreight logistics companies are typically smaller in scale than their international counterparts. Over much of the past five years, demand for domestic freight services declined due to high world oil prices. This has reduced this market segment’s share of industry revenue. Domestically, logistics companies may favour other methods of domestic freight transport such as road or rail. However, falling oil prices have offered some respite in 2014-15, with airfreight now more affordable due to weaker world crude oil prices. Regardless of price, international airfreight is expected to remain relatively steady, as the only other method of transport – by sea – is significantly slower. WWW.IBISWORLD.COM.AU Domestic Airlines in Australia June 2015 16 Products & Markets International Trade continued foreign carriers carrying Australian residents within Australia. IBISWorld expects that import competition in the industry has declined over the past five years, as previously foreignowned carriers such as Tiger Airways and Skywest Airlines were acquired by Virgin. WWW.IBISWORLD.COM.AU Domestic Airlines in Australia June 2015 17 Products & Markets SOURCE: WWW.IBISWORLD.COM.AU TAS 6.0 WA 17.0 QLD 22.0 VIC 23.0 NSW 20.0 NT 3.0 SA 9.0 ACT 0.0 Enterprises (%) Cold Zone (<10) <25 <50 Hot Zone (<100) Not applicable Business Locations 2014-15 WWW.IBISWORLD.COM.AU Domestic Airlines in Australia June 2015 18 Products & Markets Business Locations The majority of airlines have their headquarters located in the main capital cities, particularly Sydney, Melbourne and Brisbane. Despite New South Wales being home to the busiest airport, Sydney Airport, IBISWorld expects that the state is more significant as a hub for international transport, with domestic airlines preferring to locate their hubs in Victoria and Queensland. Queensland has a significant number of operators due to its status as a major tourist destination, with numerous smaller companies providing transport to islands off the coast. Queensland and Western Australia have low population densities, with a growing need to use air transport. Over the past five years, many of the newer entrants have chosen Melbourne Airport as their hubs due to the flexible landing structure and lower traffic volume compared with Sydney Airport. This trend is anticipated to continue over the coming years as Sydney Airport continues to face capacity issues. Percentage 40 0 10 20 30 ACT WA NSW NT QLD SA TAS VIC Enterprises Population Distribution of enterprises vs. population SOURCE: WWW.IBISWORLD.COM.AU WWW.IBISWORLD.COM.AU Domestic Airlines in Australia June 2015 19 Key Success Factors Optimum aircraft capacity utilisation Airlines need to select appropriate aircraft to match various routes. This enables airlines to regulate capacity on specific routes and enhance profitability across their network. Having an integrated operation To operate effectively in the industry, companies need to have the infrastructure to support engineering requirements, sales distribution and a website to sell tickets. Ability to expand and curtail aircraft capacity rapidly Airlines must be able to expand and contract capacity in line with market demand to maximise revenue and profitability. This is important in ensuring load factors remain high on all domestic routes. Links with travel agents and other suppliers Airlines are required to have good relations with travel agents and other suppliers. Travel agents are important in attracting high-margin business and encouraging repeat customers. Economies of scale Larger airlines are able to capitalise on the benefits of size by leveraging cost efficiencies available in labour, purchases, infrastructure and other aspects of the airline. Access to the latest available and most efficient technology The use of technology such as the internet and loading facilities can improve airline efficiency. The internet is also one of the primary booking methods in the industry. Market Share Concentration The industry
is essentially a duopoly dominated by two major companies: Qantas Airways and Virgin. In practice, Qantas, Jetstar, Virgin Australia and to a lesser extent Tiger Airways – compete on most routes. Qantas Airways owns both Qantas and Jetstar, with both airlines competing with each other and with Virgin Australia for passengers. The competition between Qantas and Jetstar means that industry competition is higher than normal for a duopoly. As such, the industry operates much like an oligopoly with a high level of concentration. The temporary suspension of Tiger Airways flights in 2011 and Air Australia entering administration in 2012 have assisted the larger operators in consolidating their position in the industry. In mid-2013, the acquisition of Tiger Airways by Virgin further boosted market share concentration. In 2014-15, IBISWorld anticipates that the top three businesses will maintain their hold on more than 80.0% of the market. The air transport sector has a high level of market share concentration in almost every country. The fixed costs required to operate a particular route determine an operator’s decision to fly to a destination. Airlines incur fixed costs prior to the delivery of a service and these costs are independent of output. Therefore, airlines will only provide a service if there is a sufficient market, especially as airport landing costs eat into the profitability of airline operation. Over the next five years, IBISWorld does not expect the level of concentration to change significantly due to the industry’s high barriers to entry, making it difficult for new players to enter. The dominance of Qantas and Virgin will prevent new industry operators from emerging, especially as the two aviation giants relax their competitive stance, with a stronger focus toward internal development and the recovering finances. Competitive Landscape Market Share Concentration | Key Success Factors | Cost Structure Benchmarks Basis of Competition | Barriers to Entry | Industry Globalisation Level Concentration in this industry is High IBISWorld identifies 250 Key Success Factors for a business. The most important for this industry are: WWW.IBISWORLD.COM.AU Domestic Airlines in Australia June 2015 20 Competitive Landscape Cost Structure Benchmarks The Domestic Airlines industry exhibits a largely static cost structure, with similar costs exhibited by Virgin and Qantas. While smaller industry operators may lease aircraft and other core operating assets, the two large airlines own the majority of their planes. Profit Over the past five years, the industry’s profitability has been increasing slowly from a low base. Profit fell significantly during the financial crisis, to just 0.9% of revenue in 2009-10. Unlike their counterparts in the United States and Europe, Australian domestic airlines were able to reduce capacity, cut underperforming routes and offer heavily discounted prices to align demand with supply and attract more passengers. As a result, profit remained positive. Industry profit margins have improved since then, to an estimated 2.6% in 2014-15. This rise has been assisted by falling purchasing costs for fuel since late 2014. However, price competition has undermined the extent of the recovery over much of the past five years, with conditions only improving since 2014. Purchases Purchases are a major industry expense and include aviation fuel and other materials used in the everyday running of the airline. As these costs are relatively large, the industry is vulnerable to fluctuations in the prices of materials and supplies. Aviation fuel is one of the most significant expenses for an airline, often accounting for 10.0% to 20.0% of total expenses for industry firms. Increasing crude oil prices pushed up purchase costs over most of the past five years. However, prices plunged in late 2014, which is anticipated to lower overall purchasing costs for 2014-15. At the same time, the purchase of more fuel-efficient aircraft, such as the Boeing 787 Dreamliner, will help stabilise operators’ fuel bills, as will the continual hedging of fuel contracts. Wages Labour costs have declined as a share of revenue over the past five years, as Sector vs. Industry Costs n Profi t n Rent n Utilities n Depreciation n Other n Wages n Purchases Average Costs of all Industries in sector (2014-15) Industry Costs (2014-15) 0 20 40 60 Percentage of revenue 80 100 SOURCE: WWW.IBISWORLD.COM.AU 10.8 2.6 45.2 17.0 18.4 8.4 2.2 6.2 29.1 25.5 20.7 6.4 2.5 5.0 WWW.IBISWORLD.COM.AU Domestic Airlines in Australia June 2015 21 Competitive Landscape Cost Structure Benchmarks continued domestic airlines have restructured operations to reduce costs. Such reductions have included the introduction of automated check-in booths and mobile check-in, reducing the need for staff. 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 include the cost of air transportation, hotels and reimbursements for costs incurred when crews operate away from home. Wages have fallen to 17.0% of revenue in 2014-15, as higher purchase costs and profitability pressures have caused operators to reduce other costs and increase productivity. Wage costs are expected to continue to decline as a percentage of revenue over the next five years, as airlines strive to improve productivity and reduce employment. Depreciation Depreciation costs include the depreciation of aircraft, aircraft parts, loading and unloading equipment, communication equipment, office equipment, technology and software. Depreciation expenses have increased over the past five years to account for 8.4% of industry revenue in 2014-15. This is largely due to the ongoing need to service and maintain older aircraft. All major companies have either replaced some older planes or refurbished older aircraft to boost fuel efficiency. Depreciation costs are expected to remain high over the next five years. Airlines will continue their fleet renewal programs in the face of high fuel prices and stricter emissions regulations. Maintenance Maintenance costs have increased as a percentage of revenue over the past five years, to account for 6.4% in 2014-15. This is mainly due to the increased focus on safety, in line with the ageing fleet of aircraft operated by Qantas and Virgin. Over the next five years, maintenance costs are expected to fall as newer aircraft, particularly the Boeing 787, makes their way into airline fleets. Rent Rental costs include operational rent for buildings and infrastructure, and aircraft rent for airlines that do not fully own all of their aircraft. Over the past five years, this cost segment has remained largely stable as a share of industry revenue. Rental costs are anticipated to be much lower for larger airlines due to the majority of the assets being owned rather than leased. Other expenses Other expenses include landing fees, ground handling, insurance, utilities, administration, sales and legal expenses, marketing and advertising costs. Over the past five years, airlines have cut administration costs through online booking and ticketing and other technologically advanced operations. The growing use of electronic ticket distribution systems provides the industry with an opportunity to lower its distribution costs. However, prevalent consumer use of the internet has increased price transparency. The greater price transparency has enabled priceconscious customers to easily obtain the lowest fare on any given route. As a result, the effect of price discrimination strategies to increase revenue has diminished over the past five years. WWW.IBISWORLD.COM.AU Domestic Airlines in Australia June 2015 22 Competitive Landscape Barriers to Entry The Domestic Airlines industry exhibits high barriers to entry. Starting up a domestic airline that offers transport along scheduled routes is difficult. The cost of doing so depends greatly on the size and scope of operations. For instance, entering the more lucrative commercial routes involves the operation of timely flight schedules to suit the travel
plans for passengers. This requires a large aircraft fleet and passenger coordination to avoid aircraft downtime and achieve a profitable passenger load. Regional routes are expected to be less capacity-intensive as there are often fewer passengers and a low aircraft fleet requirement. For a jet fleet, there is a critical mass of six aircraft. Below six aircraft, it is not economic to build a maintenance base. Start-up costs to service a major commercial route run into the tens or hundreds of millions of dollars depending on scale, which creates a significant entry barrier. Tiger Airways entered the market in 2007 with six Basis of Competition The industry has a high level of competition. The majority of competition comes from within the industry, as airlines fight for market share. To a lesser degree, competition also comes from alternative transport methods, although air travel is often a necessity for travel across large distances. Internal competition The majority of the industry’s competition is concentrated between the two largest airlines: Qantas and Virgin. The strongest competition in the industry is predominantly between low-cost discount airlines where competition is largely based on price, simple fare schemes and fast turnaround times at the lowest operating cost. Service is not a large determinant of demand. For example, customers are willing to pay less in exchange for no personal service or fewer services such as free luggage and free in-flight entertainment. The higher price end of the market is much less competitive. Customers who are willing to pay more for better service mainly turn to Qantas. Qantas is the largest industry participant and the main provider of business class travel and full-service economy travel, with Virgin Australia its main competitor. However, Virgin Australia also has a strong focus on the cheaper end of the market and, unlike Qantas, does not have separate businesses to differentiate its full-service and low-cost airlines. Virgin’s purchase of Tiger Airways in 2013-14 increased the overall level of direct competition between the two airlines. Despite this, Qantas holds the reputation as the main business travel provider, with Virgin Australia its closest threat in winning customers in this market. Competition is less intense in the regional market. Regional Express Holdings, a major player in this market, has more than 35 monopolistic routes across Australia. This indicates that major companies are more focused on covering the main routes while smaller companies focus on the regional connections. Qantas operates in the regional market through QantasLink, but does not hold a major market share. External competition Substitute modes of transport such as road, rail or sea can also affect the industry. However, due to Australia’s large size and low population density, air travel is almost a necessity. The extent of Australia’s landmass and the distance to travel were two of the main reasons for the birth of commercial aviation in Australia. Queensland and Northern Territory Aerial Services (Qantas) was formed in 1920, making it the world’s third-oldest airline. Competition with other types of transport is generally steady and stems from factors other than price. These include comfort, sightseeing and fear of flying. Level & Trend Competition in this industry is High and the trend is Increasing Level & Trend Barriers to Entry in this industry are High and Steady WWW.IBISWORLD.COM.AU Domestic Airlines in Australia June 2015 23 Competitive Landscape Industry Globalisation The Domestic Airlines industry exhibits medium levels of globalisation. Although they are a small market, inbound tourists travelling by air domestically are a crucial component of the industry. Australian international airlines are subject to ownership rules limiting foreign ownership to 49.0%. In addition, access to domestic routes is still closely controlled, primarily through the Foreign Investment Review Board. The level of foreign ownership is medium, with Virgin’s acquisition of Tiger Airways reducing the number of foreign operators in the industry. Domestic airlines have alliances and codesharing arrangements with international carriers, especially with the increasing instance of Asian airlines flying to Australia. Domestic airlines often carry passengers on the final leg of their journey from interconnecting international flights. Over the next five years, new alliances are expected to form as domestic airlines try to keep pace with rapid global consolidation by major airline groups. Consolidation enables cost cutting through marketing and scheduling synergies, and greater pricing power through slashing capacity on overlapping routes. Globalisation is expected to increase in the world aviation markets. Globalisation will increase as governments increase market access by removing carrier restrictions and permitting increased service levels. Less regulation allows new and existing carriers to improve their networks, create new business models and pursue different strategies. Barriers to Entry continued aircraft, confirming that this number is beneficial to aircraft operators. Due to this large initial capital investment, an operator needs some sort of route security before investing in aircraft and other capital outlays. Financiers in Australia may find it too risky to lend money to a new entrant without a firm business model. Given that competition in the industry is increasing, finance may become increasingly difficult to secure. Industry regulation is also significant, which represents additional costs and time restraints on a possible entrant. Airlines operating in Australia are required to hold an Air Operators Certificate under the Civil Aviation Act 1988. This certificate is issued by the Civil Aviation Safety Authority on behalf of the Federal Government. All domestic airlines need to meet the operating standards set out in Civil Aviation Safety Authority legislation, which includes safety, maintenance, flight staff qualifications and other operating conditions. Securing terminal space at the airports is one of the most formidable barriers new entrants face in servicing the more lucrative commercial routes. Many owners have leased out these terminals, especially those in Sydney and Melbourne, on long-term leases to Qantas and Virgin. In addition, the land adjacent to these terminals is leased out to the major airlines to provide aircraft hangars and service bays. On the other hand, there have been some moves by the airport owners to introduce multiple airline check-ins and gateways to attract other entrants. Barriers to Entry checklist Competition High Concentration High Life Cycle Stage Mature Capital Intensity High Technology Change High Regulation & Policy Heavy Industry Assistance Low SOURCE: WWW.IBISWORLD.COM.AU Level & Trend Globalisation in this industry is Medium and the trend is Increasing WWW.IBISWORLD.COM.AU Domestic Airlines in Australia June 2015 24 Player Performance Qantas Airways Limited (Qantas Group) is an Australian-owned and publicly listed airline that generates the majority of its revenue from the provision of air transport and freight services. The airline operates an extensive domestic and international network through its brands Qantas, Jetstar and QantasLink. It also offers services across a network covered by codeshare partners in the Asia-Pacific, the Americas, Europe and Africa. The group operates in the industry through its domestic flights. This includes passenger and freight air transportation through Qantas, Jetstar and QantasLink. Jetstar represents Qantas Group’s low-cost segment, with Australian operations commencing in 2004. QantasLink is the agglomeration of several smaller regional carriers including Sunstate Airlines, Eastern Airlines and National Jet Systems. Qantas is a founding member of Oneworld Alliance, an airline alliance aimed at catering to the needs of the world’s frequent flyers. The Oneworld Alliance provides the company’s customers with access to hundreds of destinations and airport lounges around the world. Qantas Group has placed
an increasing focus on Jetstar to bulk up its market share in the growing budget airline segment, in response to strong competition from foreign international airlines that operate with lower costs. To support the lower cost strategy, in 2011 the group planned to launch a new airline based in Asia. The new subsidiary was expected to reduce Qantas Group’s costs due to cheaper labour sourced in the region. However, the planned shift to Asia sparked fierce industrial action from the group’s employees, which culminated in a grounding of the Qantas fleet in late 2011. The industrial action resulted in hundreds of flights being cancelled and the loss of an estimated $194.0 million in revenue. The Fair Work Commission intervened to terminate the industrial action and get passengers back in the air. Qantas Group resolved negotiations with the Australian Licensed Aircraft Engineers’ Association in January 2012 and with the Transport Workers’ Union in August 2012, with the Fair Work Commission giving the company the green light to operate without union intervention. The group has since abandoned the planned expansion and refocused on the Australian market. In 2014-15, the end to a fierce capacity war between Qantas and Virgin in the domestic aviation market is expected to assist the company. After posting significant losses in 2013-14, Qantas and Virgin have both relaxed their competitive stances in maintaining flight capacity targets. Major Companies Qantas Airways Limited | Virgin Australia Holdings Limited | Other Companies 18.2% Other Qantas Airways Limited 60.3% Virgin Australia Holdings Limited 21.5% SOURCE: WWW.IBISWORLD.COM.AU Major players (Market share) Qantas Airways Limited Market share: 60.3% Industry Brand Names Qantas Jetstar QantasLink Qantas Airways Limited – industry segment performance* Year Revenue ($ billion) (% change) 2009-10 9.08 N/C 2010-11 9.23 1.7 2011-12 9.05 -2.0 2012-13 9.31 2.9 2013-14 9.14 -1.8 2014-15 9.11 -0.3 *Estimate SOURCE: IBISWORLD WWW.IBISWORLD.COM.AU Domestic Airlines in Australia June 2015 25 Major Companies Player Performance Virgin Australia Holdings Limited is an Australian publicly listed airline. Operations started in Australia in 2000, offering no-frills, cheap air travel between capital cities. The company had support from federal, state and local governments, which provided incentives for Virgin to service routes that would otherwise be subject to high price monopoly. Formerly Virgin Blue Airlines, in 2011 the company combined the operations of all its Australia-based carriers – Virgin Blue, Pacific Blue, Polynesian Blue and V Australia – into a single brand, named Virgin Australia. In 2013, Virgin acquired low-cost airline Tiger Airways in a bid to boost the competitiveness of its low-cost air travel services. The company now participates in the industry through its domestic flights and Tiger Airways. After its successful float on the ASX in 2005, Virgin Australia’s immediate focus was on winning a greater share of Player Performance continued Financial performance Over the five years through 2014-15, Qantas Group’s industry segment revenue is expected to remain largely stagnant, growing at an annualised 0.1%. The group has underperformed the overall industry and therefore lost market share over the past five years. This is largely due to competitive pressures from no-frills airlines and key rival Virgin, which have caused a host of capacity cuts for the beleaguered airline. The group has responded to falling demand from households and businesses by cutting routes within its Qantas subsidiary. In contrast, Jetstar’s capacity has grown and it has outperformed the group as a whole. During 2012-13 and early 2013-14, Qantas began to exhibit signs of struggle, culminating in capacity cuts in mid-2014. This difficulty was due to the airline’s insistence on holding its market share and flight capacity firm over much of the past five years, along with rising competitive pressure and costs. In 2014, Qantas backed down from its hardline 65.0% capacity in the domestic market as a result of its worsening financial performance. This decrease in competition is anticipated to assist the company in returning to a robust financial position over the next few years. Total revenue received from Jetstar is expected to increase in the five years through 2014-15. Jetstar’s profit margins have been more resilient than Qantas Group’s, but have also declined due to strong competition. Even though they are owned by the same company, competition between Jetstar and Qantas is strong. Both businesses fly passengers, but concentrate on different markets. Qantas targets business travellers and up-market passengers, while Jetstar is a low-cost carrier. Qantas Airways Limited – fi nancial performance Year Revenue ($ billion) (% change) EBIT ($ million) 2009-10 13.79 N/C 272 2010-11 14.91 8.1 452 2011-12 15.91 6.7 -101 2012-13 16.04 0.8 233 2013-14 15.50 -3.4 -3,775 SOURCE: ANNUAL REPORT Virgin Australia Holdings Limited Market share: 21.5% Industry Brand Names Tiger Airways Virgin Australia WWW.IBISWORLD.COM.AU Domestic Airlines in Australia June 2015 26 Major Companies Player Performance continued the lucrative corporate market. The company introduced a new frequent flyer program and internet check-in services to lure business travellers. It unveiled radically transformed airport lounges in May 2006. The new lounges offered an enhanced range of business facilities and services. Virgin Australia’s focus on the corporate market came at a good time, as the company had underestimated the number of leisure travellers migrating to Jetstar. In 2010-11, the airline obtained ACCC approval for an alliance with Etihad Airways. The alliance is part of Virgin Australia’s strategy to build an international network that complements its domestic business. Additionally, Air New Zealand purchased 14.9% of Virgin Australia in 2010-11, strengthening its ties with the company. The newly cemented alliance solidified plans to coordinate prices, schedules, and capacity along key routes. Virgin Australia’s market share increased in late 2012, following its successful takeover of Skywest. This move has positioned Virgin for fasttracked expansion in the domestic aviation sector. With the acquisition of Skywest, Virgin gained control of a significant number of regional routes on top of its already large range of domestic commercial routes. The purchase was also a competitive move to win market share from QantasLink, Qantas Group’s regional operator. Financial performance Virgin’s domestic revenue is expected to increase at an annualised 6.4% over the five years through 2014-15, outperforming the industry as a whole. However, domestic operations have declined as a proportion of the company’s total revenue. Domestic operations are expected to account for about 75.0% of total revenue in 2014-15, down from almost 80.0% in 2009-10. The company’s reduced reliance on domestic operations is due to the expansion of its international air transport business. In addition to passenger transport, the airline generates revenue from freight, holiday bookings, frequent flyer programs, fees and charges. The company’s fast growth has led to a rapid increase in market share over the past five years. In 2011-12, Virgin benefited from favourable conditions as industrial disputes broke out between unions and Qantas Group, leading to the grounding of Qantas flights. This provided an opportunity for Virgin, as then-rival Tiger Airways was also grounded in 2011-12 due to safety concerns. Total company revenue jumped by 19.6% for the year, with continued growth in 2012-13 due to the takeover of Skywest. IBISWorld expects that much of Virgin’s growth in 2013-14 came from the Tiger Airways takeover, which brought increased capacity to compete and win market share from Qantas. In 2014-15, the Virgin Australia Holdings Limited – industry segment performance Year Revenue ($ billion) (% change) EBIT ($ million) 2009-10 2.38 N/C 111.6 2010-11 2.40 0.8 -40.8 2011-12 2.95 22.9 115.6 2012-13 2.90 -1.7 -44.4 2013-14 3.16 9.0 -86.9 2014-15* 3.25
2.8 N/A *Estimate SOURCE: ANNUAL REPORT AND IBISWORLD WWW.IBISWORLD.COM.AU Domestic Airlines in Australia June 2015 27 Major Companies Other Companies While the Domestic Airlines industry is dominated by the major airlines, there are a number of smaller players. The majority of industry enterprises are small charter airlines that perform scheduled flights for a variety of purposes, including passenger transport and freight and cargo transport. A number of these smaller airlines also operate scheduled corporate travel and short-term labour transport. Regional Express Holdings Limited Estimated market share: 1.8% In August 2002, Regional Express (Rex) was formed by a pilot-led consortium under the company Australiawide Airlines. Rex represents the merger of former Ansett country carriers Kendell and Hazelton, which were acquired by Australiawide Airlines in April 2002. Rex provides regional air services in country Australia. Interconnection with Virgin Australia, Qantas and Singapore Airlines has made its success possible. The company operates in the industry through its scheduled regional air transportation operations. Charter services expanded considerably due to the acquisitions of Air Link and Pel-Air, making Rex a major player in the Non-Scheduled Air Transport industry. IBISWorld expects that Rex has not increased its market share substantially over the past five years, as the airline has been caught up in the Qantas-Virgin rivalry. In 2013-14, Regional Express Holdings generated $254.8 million in revenue. Alliance Aviation Services Limited Estimated market share: 1.5% Alliance Airlines in an air charter company based in Brisbane International Airport that generates the majority of its revenue from providing fly-in-fly-out (FIFO) transport for the mining and energy sector across Australia. The airline was established in 2002 when the liquidated assets of Flight West Airlines was acquired by Queensland Airline Holdings, now Alliance Aviation Services. Today, the airline has a fleet size of 35 aircraft, servicing 42 destinations. IBISWorld anticipates that the airline is likely to continue expanding its FIFO contracts, especially with a five year deal with BHP commencing in 2014. Player Performance continued crippling intensity of the competition between the industry’s two largest players has culminated in a temporary ceasefire, as both companies scale back their aggressive competition. IBISWorld anticipates that the company’s industry segment revenue will grow for the year, as the competitive pressure eases, with both Tiger and Virgin beginning to record more favourable profit margins. Virgin Australia Holdings Limited – fi nancial performance Year Revenue ($ billion) (% change) EBIT ($ million) 2009-10 3.01 N/C 90.5 2010-11 3.31 10.0 -37.9 2011-12 3.96 19.6 66.9 2012-13 4.04 2.0 -99.0 2013-14 4.32 6.9 -377.7 SOURCE: ANNUAL REPORT WWW.IBISWORLD.COM.AU Domestic Airlines in Australia June 2015 28 Capital Intensity The industry has a high level of capital intensity, with the majority of industry operations being carried out with highly capital-intensive assets such as aircraft. IBISWorld estimates that for every dollar spent on wages, $0.49 is required for capital investment. Nonetheless, wages account for a moderately high proportion of revenue, at 17.0% in 2014-15. The industry has a high level of capital intensity due to the large capital investment required to operate and maintain aircraft. Airlines can lease planes to reduce capital requirements, although larger airlines prefer to own planes as depreciable assets. Over the longer term, capital investment in the industry should increase as competition becomes more intense and there is greater demand for high-quality, safe and environmentally sound air travel options. Efficient communications equipment, newer aircraft, computer assisted booking, strong and flexible packing equipment and route planning facilities can reduce the need for non-flying and maintenance labour. However, many labour functions in the industry require a high knowledge base, such as piloting, safety requirements and customer service, Operating Conditions Capital Intensity | Technology & Systems | Revenue Volatility Regulation & Policy | Industry Assistance Tools of the Trade: Growth Strategies for Success SOURCE: WWW.IBISWORLD.COM.AU Labour Intensive Capital Intensive Change in Share of the Economy New Age Economy Recreation, Personal Services, Health and Education. Firms benefi t from personal wealth so stable macroeconomic conditions are imperative. Brand awareness and niche labour skills are key to product differentiation. Traditional Service Economy Wholesale and Retail. Reliant on labour rather than capital to sell goods. Functions cannot be outsourced therefore fi rms must use new technology or improve staff training to increase revenue growth. Old Economy Agriculture and Manufacturing. Traded goods can be produced using cheap labour abroad. To expand fi rms must merge or acquire others to exploit economies of scale, or specialise in niche, high-value products. Investment Economy Information, Communications, Mining, Finance and Real Estate. To increase revenue fi rms need superior debt management, a stable macroeconomic environment and a sound investment plan. Aircraft Manufacturing and Repair Services Mining Petroleum Product Wholesaling International Airlines Catering Services Domestic Airlines Capital intensity 1.0 0.0 0.2 0.4 0.6 0.8 SOURCE: WWW.IBISWORLD.COM.AU Dotted line shows a high level of capital intensity Capital units per labour unit Domestic Airlines Transport, Postal and Warehousing Economy Level The level of capital intensity is High WWW.IBISWORLD.COM.AU Domestic Airlines in Australia June 2015 29 Operating Conditions Technology & Systems Domestic airlines incorporate a high level of technology in their services. Most of these technologies are imported from the United States, Europe and major global associations such as the International Air Transport Association and International Civil Aviation Organization. Fields of technological advancement include manufacturing more fuel-efficient and higher capacity aircraft, online booking and check-in, self-serve kiosks at airports and e-ticketing. Aircraft efficiency Over the past decade, airlines have turned their focus to reducing greenhouse gas emissions, given the rising environmental awareness among individuals, businesses and governments. The most important tool for combating this issue is aircraft manufacturing technology and combustion technology, which allows for more efficient fuel consumption. Major aircraft manufacturer Boeing’s 787 Dreamliner is expected to be the most fuel-efficient aircraft ever made. Boeing initially scheduled the plane for delivery in 2011 but was three years behind schedule as a host of technical difficulties forced the grounding of the entire 787 fleet in late 2012. Boeing designed the 787 to provide airlines with greater fuel efficiency, with the plane consuming up to 20.0% less fuel than the similar-size Boeing 767. The 787 also incorporates health-monitoring systems that allow the plane to self-monitor and report maintenance requirements to ground-based computer systems. The development of fuel-efficient aircraft is in line with other advancements in similar technology. These include the production of fuelefficient engines, the creation of lighter aircraft materials and more aerodynamic designs. Aircraft efficiency will progressively improve over the next five years and lower the industry’s fuel purchase costs. Airline efficiency Technological improvements, particularly in administration, have streamlined the operational efficiency of airlines over the past five years. These include online booking, payment, scheduling, check-in and other functions that are highly automated allowing passengers to perform for themselves. This has eliminated costs related to paper and other administration. Other technological advancements include check-in self-serve kiosks, barcoded boarding passes and e-freight. The increase in smartphone penetration has allowed for mobile check-in and live monitoring of
aircraft arrival and departure times. Technology has allowed for higher competition among airlines. Over the past five years, airlines have upgraded their entertainment systems to meet consumers’ expectations for electronic entertainment. Technological advancements include a wider range entertainment options for each passenger and internet access. Capital Intensity continued all of which cannot be readily replaced. Labour costs are also traditionally high due to union influences promoting greater wages for members. Over the coming years, labour input into the industry is expected to decline as employee numbers are reduced in a bid to cut costs, remain competitive and boost profit margins. The earlier introduction of low-cost carriers also reduced some reliance on labour, with airlines focusing more on efficiency and productivity. Level The level of Technology Change is High WWW.IBISWORLD.COM.AU Domestic Airlines in Australia June 2015 30 Operating Conditions Regulation & Policy The Domestic Airlines industry exhibits high levels of regulation and policy. Domestic airlines are not required to gain approval from the Foreign Investment Review Board to operate in Australia. However, the Federal Government regulates the level of foreign ownership for domestic airlines. Until recently, domestic airlines were only allowed 25.0% individual foreign ownership and 35.0% total foreign ownership. In December 2009, the Government eased these restrictions to allow up to 100% foreign ownership of domestic airlines, subject to wider foreign investment rules. For international airlines, including Qantas, the limit remains at 49.0% foreign ownership. Airlines are increasingly looking for shared agreements and joint-venture deals with foreign airlines, as opposed to foreign ownership, to improve revenue and profit. Airline alliances are subject to ACCC approval since many monopolistic routes could occur, especially those connecting to international flights operated by the proposed partner airline given the limited number of approved air routes in and out of Australia. Australian regulators There are a number of aviation regulators that police the operations of domestic airlines to ensure safety and efficiency of airport operations. Airservices Australia is a governmentowned corporation set up to provide safe and environmentally friendly management of air traffic control and related airside services to the aviation Revenue Volatility The Domestic Airlines industry exhibits a medium level of volatility. Changes in demand and prices of inputs are the main contributors to revenue volatility, with more fluctuations expected in times of unstable economic conditions. Prior to the past five years, revenue received a large shock when the economy went into a downturn in 2008-09. At that time, the average domestic airfare was also highly volatile, with major airlines participating in price wars on popular routes. Prior to these tumultuous events, volatility was significantly lower. Volatile world oil prices have contributed to revenue volatility over the past five years. As oil prices are a key cost variable for airlines, prices for air travel can increase when fuel costs are high as airlines pass on these costs to consumers to remain profitable. However, airlines do not always reduce airfares when fuel prices drop, with price drops more closely associated to airfare price competition. SOURCE: WWW.IBISWORLD.COM.AU Volatility vs Growth Revenue volatility* (%) 1000 100 10 1 0.1 Five year annualised revenue growth (%) –30 –10 10 30 50 70 Hazardous Stagnant Rollercoaster Blue Chip * Axis is in logarithmic scale 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 fi rm makes poor investment decisions it may face underutilised capacity if demand suddenly falls, or capacity constraints if it rises quickly. Domestic Airlines Level The level of Volatility is Medium Level & Trend The level of Regulation is Heavy and the trend is Decreasing WWW.IBISWORLD.COM.AU Domestic Airlines in Australia June 2015 31 Operating Conditions Industry Assistance Domestic airlines do not receive any direct assistance in the form of subsidies or grants from the government. However, initiatives taken by the Federal Government and state governments to promote tourism in Australia have boosted demand for domestic air travel both from domestic tourists, and international tourists travelling in Australia. In addition, the level of government regulation in regards to foreign ownership assists domestic investors in maintaining control over domestic airlines. However, these regulations have eased over the past five years, and are likely to ease further in the future as the industry becomes increasingly globalised. The major domestic airlines are members of the International Air Transport Association, which assists global airlines in cost savings, technology implementation, formulation of regulation and policy and promoting aviation safety. Regulation & Policy continued sector. The air traffic operation covers all of Australia’s airspace and international airspace within the Pacific and Indian oceans. The regulator operates over 600 sites with about 3,000 employees. The Civil Aviation Safety Authority 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 the industry to deliver high standards of safety. Its primary function is the safety regulation of civil air operations in Australia and the operation of Australian aircraft overseas. The organisation also provides safety education and training programmes. Level & Trend The level of Industry Assistance is Low and the trend is Steady WWW.IBISWORLD.COM.AU Domestic Airlines in Australia June 2015 32 Key Statistics Revenue ($m) Industry Value Added ($m) Establishments Enterprises Employment Exports Imports Wages ($m) Domestic Demand 2005-06 13,482.8 4,009.0 320 111 25,332 — — 2,526.9 N/A 2006-07 14,450.0 4,338.7 304 106 24,092 — — 2,417.1 N/A 2007-08 15,331.2 4,507.8 304 105 26,557 — — 2,471.3 N/A 2008-09 13,905.5 3,971.0 302 104 27,363 — — 2,523.9 N/A 2009-10 13,363.7 3,786.6 306 106 26,141 — — 2,548.2 N/A 2010-11 13,860.9 4,030.3 312 108 26,436 — — 2,621.5 N/A 2011-12 14,015.7 3,980.2 318 108 28,053 — — 2,605.1 N/A 2012-13 14,564.1 4,068.3 319 107 28,060 — — 2,655.6 N/A 2013-14 14,742.1 4,114.7 319 106 27,681 — — 2,646.8 N/A 2014-15 15,105.3 4,225.2 318 106 26,432 — — 2,565.8 N/A 2015-16 15,284.2 4,312.0 306 106 25,576 — — 2,439.2 N/A 2016-17 15,678.2 4,389.6 307 105 25,136 — — 2,456.0 N/A 2017-18 16,227.0 4,485.2 308 105 24,367 — — 2,466.3 N/A 2018-19 16,544.1 4,523.2 307 105 24,239 — — 2,506.0 N/A 2019-20 16,956.3 4,593.8 307 105 24,366 — — 2,503.8 N/A Sector Rank 3/33 3/33 21/33 23/33 8/33 N/A N/A 6/33 N/A Economy Rank 86/777 87/776 534/777 601/776 130/776 N/A N/A 84/776 N/A IVA/Revenue (%) Imports/Demand (%) Exports/Revenue (%) Revenue per Employee ($’000) Wages/Revenue (%) Employees per Est. Average Wage ($) Share of the Economy (%) 2005-06 29.73 N/A N/A 532.24 18.74 79.16 99,751.30 0.32 2006-07 30.03 N/A N/A 599.78 16.73 79.25 100,327.91 0.33 2007-08 29.40 N/A N/A 577.29 16.12 87.36 93,056.44 0.33 2008-09 28.56 N/A N/A 508.19 18.15 90.61 92,237.69 0.29 2009-10 28.33 N/A N/A 511.22 19.07 85.43 97,479.06 0.27 2010-11 29.08 N/A N/A 524.32 18.91 84.73 99,164.02 0.28 2011-12 28.40 N/A N/A 499.62 18.59 88.22 92,863.51 0.27 2012-13 27.93 N/A N/A 519.03 18.23 87.96 94,640.06 0.27 2013-14 27.91 N/A N/A 532.57 17.95 86.77 95,617.93 0.26 2014-15 27.97 N/A N/A 571.48 16.99 83.12 97,071.73 0.26 2015-16 28.21 N/A N/A 597.60 15.96 83.58 95,370.66 0.26 2016-17 28.00 N/A N/A 623.73 15.67 81.88 97,708.47 0.26 2017-18 27.64 N/A N/A 665.94 15.20 79.11 101,214.76 0.26 2018-19 27.34 N/A N/A 682.54 15.15 78.95 103,387.10 0.26 2019-20 27.09 N/A N/A 695.90 14.77 79.37 102,757.94 0.25 Sector Rank 24/33 N/A N/A
11/33 20/33 3/33 8/33 3/33 Economy Rank 492/776 N/A N/A 175/776 434/776 34/776 99/776 87/776 Figures are in inflation-adjusted 2015 dollars. Rank refers to 2015 data. Revenue (%) Industry Value Added (%) Establishments (%) Enterprises (%) Employment (%) Exports (%) Imports (%) Wages (%) Domestic Demand (%) 2006-07 7.2 8.2 -5.0 -4.5 -4.9 N/A N/A -4.3 N/A 2007-08 6.1 3.9 0.0 -0.9 10.2 N/A N/A 2.2 N/A 2008-09 -9.3 -11.9 -0.7 -1.0 3.0 N/A N/A 2.1 N/A 2009-10 -3.9 -4.6 1.3 1.9 -4.5 N/A N/A 1.0 N/A 2010-11 3.7 6.4 2.0 1.9 1.1 N/A N/A 2.9 N/A 2011-12 1.1 -1.2 1.9 0.0 6.1 N/A N/A -0.6 N/A 2012-13 3.9 2.2 0.3 -0.9 0.0 N/A N/A 1.9 N/A 2013-14 1.2 1.1 0.0 -0.9 -1.4 N/A N/A -0.3 N/A 2014-15 2.5 2.7 -0.3 0.0 -4.5 N/A N/A -3.1 N/A 2015-16 1.2 2.1 -3.8 0.0 -3.2 N/A N/A -4.9 N/A 2016-17 2.6 1.8 0.3 -0.9 -1.7 N/A N/A 0.7 N/A 2017-18 3.5 2.2 0.3 0.0 -3.1 N/A N/A 0.4 N/A 2018-19 2.0 0.8 -0.3 0.0 -0.5 N/A N/A 1.6 N/A 2019-20 2.5 1.6 0.0 0.0 0.5 N/A N/A -0.1 N/A Sector Rank 14/33 17/33 25/33 15/33 32/33 N/A N/A 31/33 N/A Economy Rank 321/777 320/776 497/777 391/776 721/776 N/A N/A 699/776 N/A Annual Change Key Ratios Industry Data SOURCE: WWW.IBISWORLD.COM.AU WWW.IBISWORLD.COM.AU Domestic Airlines in Australia June 2015 33 Jargon & Glossary BARRIERS TO ENTRY High barriers to entry mean that new companies struggle to enter an industry, while low barriers mean it is easy for new companies to enter an industry. CAPITAL INTENSITY Compares the amount of money spent on capital (plant, machinery and equipment) with that spent on labour. IBISWorld uses the ratio of depreciation to wages as a proxy for capital intensity. High capital intensity is more than $0.333 of capital to $1 of labour; medium is $0.125 to $0.333 of capital to $1 of labour; low is less than $0.125 of capital for every $1 of labour. CONSTANT PRICES The dollar figures in the Key Statistics table, including forecasts, are adjusted for inflation using the current year (i.e. year published) 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 IBISWorld’s reports are made using the Australian Bureau of Statistics’ implicit GDP price deflator. DOMESTIC DEMAND Spending on industry goods and services within Australia, regardless of their country of origin. It is derived by adding imports to industry revenue, and then subtracting exports. EMPLOYMENT The number of permanent, part-time, temporary and casual employees, working proprietors, partners, managers and executives within the industry. ENTERPRISE A division that is separately managed and keeps management accounts. Each enterprise consists of one or more establishments that are under common ownership or control. ESTABLISHMENT The smallest type of accounting unit within an enterprise, an establishment is a single physical location where business is conducted or where services or industrial operations are performed. Multiple establishments under common control make up an enterprise. EXPORTS Total value of industry goods and services sold by Australian companies to customers abroad. IMPORTS Total value of industry goods and services brought in from foreign countries to be sold in Australia. INDUSTRY CONCENTRATION An indicator of the dominance of the top four players in an industry. Concentration is considered high if the top players account for more than 70% of industry revenue. Medium is 40% to 70% of industry revenue. Low is less than 40%. INDUSTRY REVENUE The total sales of industry goods and services (exclusive of excise and sales tax); subsidies on production; all other operating income from outside the firm (such as commission income, repair and service income, and rent, leasing and hiring income); and capital work done by rental or lease. Receipts from interest royalties, dividends and the sale of fixed tangible assets are excluded. INDUSTRY VALUE ADDED (IVA) The market value of goods and services produced by the industry minus the cost of goods and services used in production. IVA is also described as the industry’s contribution to GDP, or profit plus wages and depreciation. INTERNATIONAL TRADE The level of international trade is determined by ratios of exports to revenue and imports to domestic demand. For exports/revenue: low is less than 5%; medium is 5% to 20%; and high is more than 20%. Imports/domestic demand: low is less than 5%; medium is 5% to 35%; and high is more than 35%. LIFE CYCLE All industries go through periods of growth, maturity and decline. IBISWorld determines an industry’s life cycle by considering its growth rate (measured by IVA) compared with GDP; the growth rate of the number of establishments; the amount of change the industry’s products are undergoing; the rate of technological change; and the level of customer acceptance of industry products and services. NONEMPLOYING ESTABLISHMENT Businesses with no paid employment or payroll, also known as nonemployers. These are mostly set up by self-employed individuals. PROFIT IBISWorld uses earnings before interest and tax (EBIT) as an indicator of a company’s profitability. It is calculated as revenue minus expenses, excluding interest and tax. VOLATILITY The level of volatility is determined by averaging the absolute change in revenue in each of the past five years. Volatility levels: very high is more than ±20%; high volatility is ±10% to ±20%; moderate volatility is ±3% to ±10%; and low volatility is less than ±3%. WAGES The gross total wages and salaries of all employees in the industry. Benefits and on-costs are included in this figure. Industry Jargon IBISWorld Glossary AVAILABLE SEAT KILOMETRES A measure of airline capacity obtained by multiplying the number of seats available on each flight by the flight’s distance. INTERNATIONAL AIR TRANSPORT AUTHORITY Assists global airlines with cost savings, technology implementation and regulatory pressures. REVENUE PASSENGER KILOMETRES A measure of airline passenger traffic obtained by multiplying the number of paying passengers carried on each flight by the flight’s distance. Disclaimer This product has been supplied by IBISWorld Pty Ltd. (‘IBISWorld’) solely for use by its authorised licensees strictly in accordance with their license agreements with IBISWorld. IBISWorld makes no representation to any other person with regard to the completeness or accuracy of the data or information contained herein, and it accepts no responsibility and disclaims all liability (save for liability which cannot be lawfully disclaimed) for loss or damage whatsoever suffered or incurred by any other person resulting from the use of, or reliance upon, the data or information contained herein. Copyright in this publication is owned by IBISWorld Pty Ltd. The publication is sold on the basis that the purchaser agrees not to copy the material contained within it for other than the purchasers own purposes. In the event that the purchaser uses or quotes from the material in this publication – in papers, reports, or opinions prepared for any other person – it is agreed that it will be sourced to: IBISWorld Pty Ltd At IBISWorld we know that industry intelligence is more than assembling facts It is combining data with analysis to answer the questions that successful businesses ask Identify high growth, emerging & shrinking markets Arm yourself with the latest industry intelligence Assess competitive threats from existing & new entrants Benchmark your performance against the competition Make speedy market-ready, profit-maximising decisions Who is IBISWorld? We are strategists, analysts, researchers, and marketers. We provide answers to information-hungry, time-poor businesses. Our goal is to provide real world answers that matter to your business in our 500 Australian industry reports. When tough strategic, budget, sales and marketing decisions need to be made, our suite of Industry and Risk intelligence products give you deeply-researched answers quickly. IBISWorld Membership IBISWorld offers tailored membership packages to meet your needs. Copyright 2015 IBISWorld Pty Ltd www.ibiswo | (03) 9655 3881 |

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