Chart of the Week #6: How much of an impact did open skies have on Australia-US travel? Part 1

This week’s “chart of the week” looks at the Australia-United States open skies agreement, asking what impact did it have on the market?

The Australia-US open skies agreement entered into force in October 2008. This agreement removed limitations on air services between the countries and effectively allowed Australian and American airlines to operate an unlimited number of flights without any limitations on cities, frequencies, aircraft sizes, etc. The previous architecture was a complex mix of measures designed for an era before non-stop flights between Australia and the US, limiting capacity and capacity growth.

The pre-open skies Bilateral Air Services Agreement (BASA) between Australia and the US was designed for an era before non-stop flights were possible between Australia and the US mainland. It divided flights into three route groups: North Pacific (e.g. via Japan), South Pacific (e.g. via New Zealand, Tahiti, Fiji and Hawaii), and US territories in the Pacific (e.g. Guam).

Different limitations applied to each “route”. Historically, flights between Australia and the US mainland operated via the South Pacific route although at times some operated via the North Pacific route. Only two carriers from each country were allowed to operate via the North Pacific route but there were no limitations on the number of carriers on the South Pacific route.

The BASA didn’t limit city pairs, frequencies, aircraft size, etc, however carrier specific capacity limits existed. Incumbent carriers were limited to increasing capacity “within ceilings, on a year by year basis when nominated average load factors are met”. This was a significant constraint on new entrants whose initial capacity would be limited. Their ability to grow capacity was severely limited as it could take years to reach a competitive level. A new entrant may struggle to meet the required load factors to grow as they could offer four weekly flights upon entry making it difficult to achieve a competitive product without a daily service.

Using BITRE data we can examine passenger numbers on direct flights between Australia and the US since 1990. Following the implementation of opes skies in 2008, a rapid surge in passenger numbers is immediately observed. Passenger numbers in 2009 increasing by a whopping 17% compared to 2008, an increase of 291,000 passengers!

Between 2008 and 2019, passenger numbers nearly doubled from 1.7 to 3.3 million passengers annually (an increase of 1.6 million or 96%). Between 1990 and 2008, passenger numbers increased from 1.0 to 1.7 million, an increase of 66%.

Let’s just reflect on that: it took 18 years to increase from 1.0 to 1.7 million (700,000 increase) before open skies, and just 11 years to increase from 1.7 to 3.3 million (1.6 million increase) after open skies.

The open skies agreement is a clear structural break leading to a surge in passenger flows between Australia and the US. But how did it change the game? The previously restrictive BASA made it difficult for new entrants to gain a foothold in the market and entrenched the dominance of incumbent carriers. This becomes more apparent when examining the passenger numbers by airline before and after open skies which encouraged a range of airlines to enter the route.

We’ll look at that in next week’s “chart of the week”, highlighting several interesting trends related to the evolution of non-stop flights and fifth freedom carriers, in addition to the surge in new entrants as a result of open skies. Until then we hope you found this week’s “chart of the week” interesting and just in case you missed last week’s you can find it here: