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Air Transportation

As an island continent geographically isolated from major international markets, Australia is more reliant on international aviation than any other country. International air services provide vital connections to global markets for Australian businesses and the tourism industry, generating billions of dollars for the Australian economy. Australia has been at the forefront of aviation liberalisation since the late 1980s when the then government embarked upon a series of reforms to open up access on international routes, involving moving away from a policy based almost exclusively on protecting the interests of national airlines to negotiations based on promoting broader trade, consumer and tourism benefits.

Until 1990, Australia's domestic, interstate airline industry was developed and operated under the so-called 'Two-Airlines Policy', which was formally established under the 1957 Civil Aviation Agreement. Under this policy, activity in the industry was subject to a prescriptive range of constraints with importation of aircraft, determination of capacity, service levels and air fares controlled by the government. Market entry was restricted to the two incumbent airlines. In October 1987 the then government gave notice it would terminate the Airlines Agreement in October 1990 and allow the market to operate within the constraints of the established competition policy controls applicable to industry generally. Within five years of the abolition of the two airlines policy air fares had fallen by 22 per cent. Consumer benefits have continued to flow, with the best discount fares in 2009 a further 40 per cent cheaper, in real terms, than equivalent fares in 1995.

A major factor in the growth in recent years has been an increase in competition from the entry of low cost airlines such as Virgin Blue, Jetstar and Tiger Airways. These low-cost carriers have not only contributed to growth on trunk routes, but have introduced low fare jet services to many regional centers for the first time. As well as benefiting passengers, this has resulted in a significant boost to regional tourism and to local economies. This competition has been further increased by the removal of limits on foreign ownership of domestic airlines.

The regional airline industry has gone through a major rationalisation since deregulation. While there has been substantial growth in regional air traffic and overall capacity, there has been a decrease in the number of regional airports served and in the number of airlines serving them, and a decline in the number of flights to regional airports as a result of a trend towards the use of larger, more cost efficient aircraft. Over the period 1984 to 2008 the number of regional airports served by scheduled airlines fell from 278 to 138, with the steepest decline on low density routes. The number of airlines serving regional airports fell from 53 to 27. There has also been a high attrition rate and turnover in the industry.

General aviation refers to a range of aviation-related activities and businesses, primarily using smaller aircraft and using secondary airports. The term general aviation is sometimes used to describe all aviation activity other than that involved in scheduled public transport air services. General aviation performs an essential role within the broader aviation industry and in providing air services such as charter flights, aerial agriculture, aeromedical services, search and rescue, fire-fighting, surveying and aerial photography, pilot training, aircraft maintenance and repair work. It also includes private and recreational flying. The industry contributed $279.3 million in gross domestic product and employed almost 3,000 people in 2008-09.

The performance of general aviation sub-sectors shows considerable variation. Growth in business and private flying has been relatively flat while the recreational sector and helicopter fleet has grown strongly in recent times. Training activity is at record levels while aerial agricultural activity such as crop-dusting and mustering continues to show variation reflecting the broader agricultural economy. The general aviation industry has experienced intense competition for people's leisure time and financial resources over recent decades. Improvements in roads, modern cars and airline services have made small aeroplanes a less attractive option for short distance travel.