Air transport services in regional Australia: Demand pattern, frequency choice and airport entry

In this study, we investigate the development of the aviation market at Australia's top 50 regional airports during the 2005-2013 period. Our demand estimation results suggest that a higher commodity price increases the traffic volume in markets where the local economy is heavily reliant on mineral resources and that appreciation of the Australian dollar decreases the passenger flow in tourism-dependent areas. The presence of leading airlines and low-cost carriers and the availability of international services all contribute positively to market growth. Airport entry analysis reveals that the major carriers engage in clear strategic interactions. The Qantas airline group uses Jetstar as a fighting brand, such that Jetstar flies to a destination if and only if the regional airport is also served by Virgin Australia, the group's major competitor. Unlike the routes connected to major airports, the demand at regional airports is not sensitive to flight frequency. Our empirical results support the introduction of a consistent aviation policy across Australia, especially for issues related to airline competition and demand stimulation. However, special consideration needs to be paid to regional airports to help them deal with economic shocks and cover fixed costs.