Airfares in Australia hit an all-time low during January, according to the Bureau of Infrastructure, Transport and Regional Economics, prompting the question: are airlines now facing their “Easy Al” Greenspan moment of truth? As Chairman of the US Federal Reserve, Greenspan cut interest rates to stimulate demand until they were so low there was nowhere to go. The economy, not by chance, then collapsed under a mountain of toxic debt. Australia’s major airlines – Qantas, Virgin Blue, Jetstar, Tiger Airways – are now in a similar position to Greenspan, whose reputation is in tatters.
Fares appear to have hit rock bottom yet domestic capacity continues increasing faster than faltering demand, now being hit by natural disasters such as Cyclone Yasi. So there are no more levers to pull to stimulate demand – where can the airlines go from here? Unlike Greenspan, resignation is not an option.