Volatile airfares: It pays to watch the oil price

Domestic Airfares

Airfares: Discount airfares fell by 15.6 per cent in October after spiking 27.4 per cent higher in September In smoothed terms discount fares are up 5.2 per cent on a year ago – the fastest pace in 13 months.

Airfares have proved volatile in recent months. According to Government data, discount fares rose by more than 27 per cent in September before falling almost 16 per cent in October. While airlines are attempting to lift prices to boost margins and cover higher jet fuel prices, competitive forces are restraining efforts.
Business class airfares have been less volatile, and on average annual growth remain modest. In fact annualised growth of business class airfares has only been 1.2 per cent over the past six months. On the same basis, “restricted economy” airfares grew at a 1.7 per cent annual pace.
The bottom-line is that it pays to shop around. Costs are rising for airlines but competition is strong, making for more volatile times.

The Bureau of Infrastructure, Transport and Regional Economics (BITRE) reports that business class airfares fell by 0.5 per cent in October to stand 6.5 per cent higher than a year ago. In smoothed terms, business class airfares are up 6.1 per cent on the year but annualised growth over the last six months was just 1.2 per cent.
“Restricted economy” airfares fell by 0.4 per cent in October after rising by 1.6 per cent in September. Restricted economy airfares are up just 1.5 per cent on a year ago. In smoothed terms restricted economy fares were higher by 1.9 per cent, up from 1.5 per cent in September and 0.8 per cent in August – the latter being the slowest pace in four years.
Discount fares fell by 15.6 per cent in October after spiking 27.4 per cent higher in September – the biggest gain in almost 3 years. Discount fares were just 1.1 per cent higher than a year ago. In smoothed terms, discount airfares were up by 5.2 per cent on a year ago after falling in annual terms for 10 months up to July this year.

The Bureau of Infrastructure, Transport and Regional Economics (BITRE) releases regular aviation data. The BITRE releases the Australian Domestic Airline Activity publication each month as well as the Domestic Air Fares publication. The data provides insights on airline activity as well as trends in the broader Australian economy. If more people are flying, then it suggests businesses are more active and/or consumers are more confident.

If inflation starts lifting globally, oil prices will have a lot to do with it. So it pays to watch sectors where costs are highly influenced by transport or energy costs.
Travellers are still doing well with airfares historically-low. So purchasing power of consumers remains good, underpinning good prospects for retailers.