Chart - Domestic passenger traffic Jan 2005 to Jan 2010Do the math and it’s hard to argue against the run of record low Australian domestic airfares continuing throughout 2010. The equation is simple: supply is set to increase while demand is at best flat. Latest government stats show that January domestic passenger numbers fell 1.5% year on year while airline loads slipped from 81% to 79%. More aircraft (and routes) are due for Jetstar, Virgin Blue and Tiger Airways over the coming months, ensuring further aggressive discounting for these carriers to just maintain market share. That’s certainly what’s happening right now.

According to research from CommSec, airfares are the lowest since official tracking began 17 years ago and 13.2% less than they were a year ago. Full economy and business airfares have been rising of late but are still well down on 2008, says CommSec. For me the big thing out of all this is domestic passenger growth, or lack of it. Just check out the chart above.

After years of incredible growth, is has levelled off. Some may argues that the GFC is to blame but I’m not going there. I reckon growth had to level out at some point and that’s simply what’s occurred. As a result I don’t see further significant  increases, which puts suppliers under a lot of pressure to maintain the high loads they require to ensure profitability when fares are so heavily discounted. Someone must lose, but who?

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