An interesting topic. I am old enough to remember the 2 airline policy which was a gravy train for TAA & Ansett (or even when it was Ansett-ANA). The stats from the era showed that about 20 percent of the Oz population flew more than once at the time. Following deregulation that figure has increased to 80 percent.
Back then subsidies were everywhere and just about all industries were protected which included aviation. That was totally unsustainable and for anyone who reckons we should be protecting our industries now I suggest you see just what it would cost you via your income tax. I bet you will change your mind.
What is apparent is that economies of scale required to keep the bottom line in the black are increasing. Whereas once we ran regional services with a subsidised F-27 then came Chieftains with deregulation; it crept up to 19 seat Metros and then 35 seat Dash 8 & SAABs'. Rex are already pointing the finger at unviability with what they have. Domestic services (& lets keep it in the jet age) have gone from 100 seat (or thereabouts) B727 up to 180 seat B738 & A320 & already the search is on for larger. The trend would appear to be less flights but bigger aircraft.
Internationally the trend is the same. From 115 seat B707 to gawd alone knows how many A380. QANTAS published an excellent guide to airline economics in 2007 (I think) which put into perspective how economies of scale were at work. Many basic questions were answered such as why there are so few discount seats on regional flights compared to overseas ones. The one constant is that capital expenditure necessary to keep the economies of scale going are increasing rapidly.
At present there is a capacity war going on between QANTAS and Virgin & as a consequence fares are dirt cheap. It can't be sustained and prices will rise as a consequence. Its what damage will be done in the interim that will be an interesting question. Already the QANTAS announcement today is one such example.
The Middle-East airlines do have some advantages but not as much as some have suggested. I do recall that one major advantage for one of them was the absence of company taxation which would normally account for 20 percent of the gross earnings. Another would be that they have draconian legislation to deal with any industrial issues.
The underlying factor is that Australian aviation is undergoing constant change. For those who look back on the halcyon days of the 2 airline policy and long for its return - forget it - its not going to happen. The whole nature of the industry is going to change and the cold winds of retrenchment and/or furlough is going to become a reality.
QANTAS will become an overseas owned airline. QANTAS domestic will service the J-curve and Perth only; the rest will get JetStar and JetLink; the pressure to cut costs will be constant and that includes wages; contracting out will be the norm. The challenge for the pilot groups will be to maintain safety.
Virgin will be glad to see the end of the capacity war as it needs to start putting runs on the board economically as its overseas owners are not going to continue funding its change from a low-cost to full service airline forever. It had to do it, the lo-co model doesn't work in Oz; even JetStar are starting to offer more. This will keep the pressure on the economics side.
The nature of the problem today is that the airlines really didn't undergo the radical reform that was necessary when the government of the day decided that protectionism had to go. QANTAS suffered when nationalistic fervour took hold when it was sold subject to the sale act that tied its hands but it could have still done more than it did. Virgin started out with the wrong business model and its costing heaps to change.
The reality of the future is that aviation is going to be just like any other job - no certainty of a future - constantly changing.