Aussie travellers ahead in new Global Airfares Index

Global price comparisons

• The Centre of Asia Pacific Aviation has released new airfares data covering routes across the globe: http://www.centreforaviation.com/profiles/airports/ (select airport, then click Fares and select route).
• CommSec has compared the price of domestic air routes against international peers. And it appears that Aussie travellers have reason to celebrate. But New York-Washington is still cheaper than Sydney- Melbourne.

What does it all mean?

• Aussie air travellers now have a wonderful tool to compare prices – not just domestic routes, but right the way across the globe. And not only has Australia some of the busiest air routes in the world, namely the Sydney to Melbourne and Sydney to Brisbane routes, they are also amongst the cheapest. Certainly Australian airfares are not the cheapest across the globe, but travellers haven’t got much to complain about.
• Foreign tourists to Australia also have a reason to celebrate with fares between major cities competitively priced compared with journeys of similar flight times across the globe. One thing that tends to be forgotten is that when tourists travel to Australia, they are unlikely to stay in just one city. That is, the cost of travel within the country must be taken into account. And while the time taken getting to Australia is significant, the cost of travel from state to state appears to compare well against similar journeys overseas.
• Analysis on airfares was done in US dollar terms, comparing flights with similar travel times across the globe. No doubt the fact that the Aussie dollar has lifted sharply against the US dollar in recent years also helps support the view that Aussie travel is cheaper. It may give a totally different picture if the Aussie was at US70 cents, and maybe on that basis domestic airfares should be even cheaper. But in general Aussies and foreign tourists would be well pleased with the cost of domestic flights.
• The Sydney-Melbourne route is regarded as the fourth busiest in the world but interestingly the fare for the busiest route in the world – Tokyo to Fukuoka – is almost four times higher. Australia only has four discount airlines, but each appears to be doing their part in keeping airfares competitively priced. No doubt the high number of passengers on routes such as Sydney-Melbourne also helps to keep airfares down. That is, it is demand for air services as well as competition across airlines that work to keep fares down.

• It could actually be argued that Australian air routes are even higher up the list of world’s busiest routes. The latest data was compiled as at July 2010, and passenger traffic has been rising solidly in Australia since that time.
• With the cost of jet fuel on the rise and upward pressure on wage costs, airlines across the globe will continue to attempt to lift fares to cover costs. Just how successful they will be remains to be seen.
• Certainly on the domestic front other businesses are facing a lot of difficulties in trying to raise prices in the current environment. And it is likely that on domestic routes discount fares will remain cheaply priced to entice travel. No doubt travellers need to shop around but bargains are certainly available.

What do the figures show?

• Over the past 30 days, the average economy class airfare on the Sydney-Melbourne route was US$225.76. By comparison, the airfare
  on the world’s busiest route between Tokyo and Sapporo was US$834.65.
• But while Sydney-Melbourne proved cheaper than many domestic Japanese routes, it was still dearer than New York (JFK) to Washington (Dulles) that had a 30-day average airfare of US$212.60.

What is the importance of the economic data?

• The Centre of Asia Pacific Aviation, in conjunction with ITA Software, provides data on global airfares at their website: http://www.centreforaviation.com/profiles/airports/ (select airport, then click Fares and select route)
• The data is useful in comparing Australian airfares with routes of similar travelling times across the globe. The data also can highlight the potential for cost savings, margin improvements for Australian airlines.

What are the implications for investors?

• The latest data on airfares adds a further perspective on the pressures facing Corporate Australia at present. 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 at present businesses aren’t keen on borrowing and consumers aren’t keen on spending.
• Going forward it is likely that discount fares remain attractively priced, while premium economy and business fares are raised incrementally to ensure no substantial loss in demand. Our CBA equity analysts indicate that Qantas (QAN) is likely to benefit if such a scenario takes place. “QAN provides good leverage to improving consumer and business environment… In particular, corporate travel appears to be picking up from previously depressed levels. Excess capacity in the domestic market presents a risk to yield recovery but traditionally Qantas fares have been more driven by demand than capacity. We expect demand to continue to improve.” Our analysts have recommended a Buy rating for Qantas
• Of other stocks in the sector the analysts note: Virgin Blue (VBA) “We retain a Hold recommendation on VBA. Expect strong earnings recovery over medium term. However excess capacity in the leisure market will slow yield recovery… Virgin Blue’s core market of domestic leisure travel remains highly competitive with excess capacity, and rising fuel prices are more difficult to pass on to its price-sensitive customers. We see valuation support but few short-term catalysts other than general improvements to consumer confidence.”