Discount airfares hit record lows

Thu, 13 Jan 2011 03:51:30 +0000

Index of Airfares

All airfares except discount fares rose in January. Domestic airfares generally rose in January with business fares up 2.9 per cent, full economy fares up 1.1 per cent and restricted economy fares up 0.2 per
cent.
But the discount airfare index hit record lows. An index of discount airfares hit record (18-year) lows in January.

What does it all mean?

Just like anything else, when it comes to airfares it pays to shop around. According to the Government’s monitoring group, BITRE, discount airfares have never been lower and have been consistently falling in annual terms for three years. But by contrast, business and full-economy fares are on the increase. Clearly the advice to shop around doesn’t just go for consumers, but also companies.
No doubt the airlines are testing the waters – lifting some airfares and seeing what the response is. Any smart business operator will clearly be shopping around for the best deal and trying to avoid any slug in travel costs.
With the cost of jet fuel on the rise and upward pressure on wage costs, the airlines will continue to attempt to lift fares to cover costs. As to how successful they will be remains to be seen. Certainly other businesses are facing a lot of difficulties in trying to raise prices in the current environment.

What do the figures show?

Domestic airfares:

According to the Bureau of Infrastructure, Transport and Regional Economics, the discount airfare index hit a record low of 59.4 in January 2011 (July 2003=100). While the index is volatile on a monthly basis, it is notable that the index has been in operation for 18 years.
The smoothed (13-month average) index of discount airfares stood at 73.1 in January, down 5.6 per cent on a year ago. Discount airfares have been consistently falling in annual terms for over three years.
While discount fares are falling in annual terms, business class fares are rising. The index of business class fares rose by 2.9 per cent in January, the biggest increase in five months. And business class fares are 6.9 per cent higher than a year ago, the biggest increase in over two years (since December 2008).
The index of full-economy fares rose by 1.1 per cent in January, the biggest lift in five months. Full economy airfares are up 5.5 per cent on a year ago.
The index of restricted-economy airfares rose by 0.2 per cent in January, the eighth increase in nine months. Restricted economy fares are still 0.7 per cent lower than a year ago and have fallen in annual terms for four months.

What is the importance of the economic data?

The Bureau of Infrastructure, Transport and Regional Economics (BITRE) release data on airfares on a monthly basis. The figures are useful in getting a gauge on airline profitability. The data is also useful in monitoring consumer spending trends.

What are the implications for interest rates and investors?

The latest data on airfares shows highlights the pressures that Corporate Australia is facing at present. Businesses will make every effort to push up prices and recoup costs. But they need to be mindful about the backlash on sales and market share. If consumers quickly shift affections when prices go up, businesses must be quick to review or reverse their decisions.
Investors will be keenly interested in the success or otherwise of attempts by airlines to lift fares. Understandably the economy is in reasonable shape but the question is whether business and consumers are in the mood to accept higher prices. Certainly businesses aren’t keen on borrowing and consumers aren’t keen on spending.
If the lift in business fares can be sustained without a substantial loss in demand, then Qantas has most to benefit. The continued softness in discount airfares highlights the pressures facing Jetstar, Tiger Airways and Virgin Blue.

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