Overview of the Australian Airline Industry

Australian airline industry is one of the largest airline service provider in the world and the duopoly structure of the same has enabled it to gain much amount of revenue generation through controlled competition. As per the report, it is estimated around 43.54 billon dollar revenue has been earned by the airline industry of Australia during the last year and it has contributed 15.91 billion dollar to the Australian economy during 2017 (Park and Chung 2018). There are more than 88,000 people across Australia who are associated with the airline industry of the same and it has produced 4.12 billion dollar of revenue during the year 2017 (Sun et al. 2017). On the other hand average income of Australian airline industry employee was as high as 81,708 dollar annually. Employment growth of the industry was 11.5% annually, one of the highest among all the Australian industries (Park and Chung 2018). Under this situation it can be considered as one of the most potential industry in the state.

As per xxx, it can be seen that Australian airline industry has faced much amount of growth during the present year due to its economies of scale. Besides this, increasing demand of the tourism industry in the state has enabled the Australian airline industry to become a prominent industry in the state eventually. As per the 2017 stats, there were more than 61.65 million of domestic passengers and 38,661 of international passengers during the same year showcasing a good amount of growth from the previous year’s figures (Huang and Du 2017). Now, it is good to know that the Australian airline industry has been growing at a moderate rate, however the growth in the ticket pricing has been a problematic situation for the same.

As per the International Air Transport Association in Sydney, due to the skyrocketing price of the oil, there will be rise in the price of the airline tickets. Pitlik and Kouba (2015) has argued that due to rise in the fuel cost of the airline by 25%, airline service providers are forced to enhance the price of their services. It is the easiest way to pass the rise if the price of the fuel cost to the passengers through the increment in the ticket price, however, should it be done! There is much amount of debate regarding the same and many airline experts argue that it would hamper the mammoth growth of the airline industry by a large extent. Rise in the price of the airline tickets will lead to fall in the demand of the same because if the prices are enhanced people may shift to the other services like bus or train leading to fall in the demand of air tickets in domestic environment. On the other hand it has become essential for the airline service provider to continue their service even if there is rise in price of the fuel because it will enable them to enhance their marketing strategies. Under this situation many has argued in favour of the governmental intervention that can help the airline service providers and the passengers to get rid of the present problematic situation (Zhang et al. 2017).

Rise in Ticket Prices Due to Fuel Costs

One of the key issues in the economic of the present date is whether government should intervene in the market or not. Under the growth of the free market economy there has been a wide amount of reduction in the government intervention in the market as compared to the five decades back. With the rise in the globalisation, there has been rise in the argument that free trade is beneficial for the growth of the economy because economies under the government protection become weak eventually. They fails to sustain under the extreme aggression of the foreign firms in terms of marketing and the pricing policies. However, there are many people who suggest that government intervention is essential for the proper functioning of the different organ of the economy (Bond and Goldstein 2015). It provides much amount of support to the same in order to deal with the international bodies. With the protection it allow the domestic industries to flourish and evolve so as to become potent enough to deal with the international firm’s aggressive pricing and marketing strategy. Besides this it enable the firms to achieve equal playing ground where the amount of opportunity is same and the risk of market failure is limited. With the much amount of fairness in the event of the marketing strategy and policy implementation government intervention aids the firms to have high amount of profit under the controlled environment (Sun et al. 2017). In addition to this it can also be seen that moderate amount of government intervention enable the firm to take risks in terms of business that enhance their competitive advantage. On the other hand from the perspective of the society there are various factors that influence the government to bring in governmental intervention in the market. For instance, if there is rise in the disequilibrium in the market between supply and demand and if it lead to the price rise and inflation, then government is forced to intervene the market. With the proper policy implementation government can ease out the supply and demand crunches effectively leading to fall in the gap and reduce the pricing crunch eventually. As the government intervene in the market, there will be backing to the consumer or to the producer in terms of subsidy that will allow the gap to curb out. For instance, if there is rise in the price due to the supply crunch, then government can provide subsidy to the producers so as to enhance the production and reduce the supply-demand gap (Anginer and Warburton 2014). It will allow the price to fall and the market to have equilibrium again. On the other hand if the there is demand gap, then government cap provide subsidy to the consumers so as to enable them to buy more amount of goods at a high price and the excess amount of will be subsidised by the government allowing the market to become in equilibrium again. On the other hand it can also be seen that if there is no supply and demand equilibrium in the market, then by giving subsidy or implicating the effective policies government intervene into the market to reduce the supply-demand gap and allowing the market to operate smoothly again.

Debate on the Need for Government Intervention

Considering the present case of the Australian airline industry, it can be seen that there is rise in the price due to the rise in the oil price and thus it would be ideal for the government to intervene in the market. With the government intervention there will be control in the oil price because under the free market economy, with rise in the barrel price of the oil, price of the tickets is supposed to be rise as per the prediction of the IATA (Zhang et al. 2017). As the price of the oil rises, cost of services will also rise and this will lead the airline service providers to enhance their ticket costs in order to save their respective airline from the large amount of loss. Now, if the government intervene the market in this situation, then the price of the oil can be controlled through the price fixation process (Pitlok and Kouba 2015). On other hand, even if the government fails to control the price directly, then it can provide subsidy to the producers in order to reduce the cost of selling so that the airlines can buy their jet fuel at a lower cost allowing the price of the tickets to remain unaltered. This price controlling mechanism need to be remain within the market until the world oil price market comes into equilibrium condition again. Moreover, it can also be seen that if the government intervene into the market, then it will allow the small domestic airline service providers to sustain under the competitive environment as well because, with the high price of the oil, there profit margin has been reduced by a large extent. Along with these under the competitive pricing strategy by the Qantas and Virgin, they are facing severe loss (Markham et al. 2018). Thus government intervention can enhance their potential to deal with the present market situation. It will enable the small airline service providers to enhance their capability of providing service and sestina in the long run. However, it is also true that if the small firms operate under the government control, then there may be a fear of the loss in business in future condition once the government control is over. Because as per the infant industry argument firms fails to operate freely in absence of the government control because their operation framework fails to build itself properly to tackle with the external aggressive market situation (Huang and Du 2017). To conclude it can be states that though there may be issues in case of the governmental control with the small firms in long run, however, considering the present situation, government should intervene the market to control the prices of the airline tickets.

Reference:

Anginer, D. and Warburton, A.J., 2014. The Chrysler effect economics: The impact of government intervention on borrowing costs. Journal of Banking & Finance, 40, pp.62-79.

Bond, P. and Goldstein, I., 2015. Government intervention and information aggregation by prices. The Journal of Finance, 70(6), pp.2777-2812.

Huang, Z. and Du, X., 2017. Government intervention and land misallocation: Evidence from China. Cities, 60, pp.323-332.

Markham, F., Young, M., Reis, A. and Higham, J., 2018. Does carbon pricing reduce air travel? Evidence from the Australian ‘Clean Energy Future’policy, July 2012 to June 2014. Journal of Transport Geography, 70, pp.206-214.

Park, R.J. and Chung, C.K., 2018. Policy Resistance Case Study Focused on Government’s Intervention in the Conflict Between Big-Box Stores and Traditional Market in Korea Based on Systems Thinking Approach. Journal of Systems Science and Information, 6(2), pp.152-164.

Pitlik, H. and Kouba, L., 2015. Does social distrust always lead to a stronger support for government intervention?. Public Choice, 163(3-4), pp.355-377.

Sun, Q., Dong, J. and Tang, Y., 2017. Heterogeneous Demand, Government Intervention and Housing Price: Chaos Analysis Perspective. Eurasia Journal of Mathematics, Science and Technology Education, 13(12), pp.8177-8184.

Zhang, Y., Wang, K. and Fu, X., 2017. Air transport services in regional Australia: Demand pattern, frequency choice and airport entry. Transportation Research Part A: Policy and Practice, 103, pp.472-489.