Chart of the week #8: How much does aircraft size matter in the Australian domestic market?

In the last few months we’ve heard the usual rumblings about airport slots and their impact on competition. Something lost in between attention seeking accusations is how airlines have adapted to slot scarcity. Based on the rhetoric one could be left with the narrative that they’ve done nothing and exploited scarcity to increase prices.

This week’s chart of the week considers how airlines have responded, albeit at an aggregate level. The data shows how airlines have introduced progressively larger aircraft on domestic services to increase capacity utilising a similar number of slots.

Using BITRE data on domestic airline passengers and movements (i.e. number of flights) we estimate the average number of passengers per flight in each month, going all the way back to the mid-1980s.

Data are presented using a 12 month rolling average to smooth the data, removing much of the seasonal variation. An incontrovertible observation is that there’s been a dramatic increase in the average number of passengers per flight over time, from 33 passenger per flight in January 1985 to 95 per flight in June 2024.

Much of this increase occurred during a surge in the early 2000s: between January 2000 and December 2009, the average passengers per flight increased from 50 to 90! So what drove this increase?

This period saw dramatic changes in the domestic airline market, including the demise of Ansett Australia in 2002 and the entry of Virgin Blue and Jetstar in 2000 and 2004, respectively. We’re not arguing that these events were causative of the change in gauge, but they are part of the puzzle. Let’s consider this in more detail:

• Virgin initially flew several B737-400s but these were quickly replaced by a substantial fleet of B737-700 and -800. Virgin Blue was succeeded by Virgin Australia and their growth in the early 2000s ostensibly replaced Ansett Australia’s capacity.

• Virgin’s B737-700 and -800 seated 144 and 180 passengers, respectively. These were considerably larger than Ansett’s domestic mainline fleet of 106 and 134 seat B737-300s and A320s.

• Jetstar initially operated B717s seating 117 or 125 passengers, however these were rapidly replaced by larger A320s seating 180 passengers. Newer A320s now seat 186 passengers and are supported by a small number of larger A321s seating 230 passengers.

• In the early 2000s Qantas’s mainline domestic fleet comprised of B737-300s and 400s, seating 116 and 150 passengers, respectively. Starting in 2002, these were progressively replaced with larger B737-800s, originally seating 168 passengers but now seating 174 passengers. Deliveries continued through 2014 coinciding with the retirements of B737 classics. The last B737-300s was retired in 2009 - notably, some of these were taken over from Ansett.

Why is aircraft size so important?

Slot constraints are fixed, at least in the short run! Without increasing the number of slots they have access to airlines can’t operate more flights. This constraint is particularly acute during peak times. By operating larger aircraft they can carry more passengers on the same number of flights.

In fact, they’ve actually carried more passengers on fewer flights! In the 12 months to January 2000, domestic airlines carried an average of 2.5 million passengers each month on 48,885 flights (average of 50 passengers per flight). In the 12 months to December 2009, domestic airlines carried an average of 4.1 million passengers each month on only 46,276 flights (average of 90 passengers per flight).

The next evolution

One of the attention seeking arguments - that we’re seen making the rounds again in recent months - is the suggestion that redistributing airport slots to smaller or new airlines will increase competition.

We’ve argued that this is short sighted as smaller or new airlines will operate smaller aircraft. While you’ll have more choice, it’ll be more choice of fewer available seats! This is because incumbent airlines are continuing the increase in aircraft size.

Next year Qantas will start taking delivery of A321 XLRs to replace the B737-800s. The A321s will seat 200 passengers, 26 more than the B737-800s. Virgin will introduce the B737 MAX 10 from 2026, seating approximately 204 passengers, more than the 182 seat configuration on their largest B737-800s.

Jetstar are already underway, introducing the 232 passenger A321LR. While these have been primarily deployed on international routes they will likely take up a significant portion of domestic flying over the coming years as more are delivered.

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In case you missed it, last week’s “chart of the week” looked at the impact of an open skies agreement between Australia and United States that entered into force in 2008, leading to dramatic growth in passenger traffic between Australia and the US.