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Airfares at record lows

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Published on: Tuesday, June 22, 2010

New figures released today show that discount airfares hit fresh record lows in June – the smoothed reading plunged by a record 21.5 per cent on a year earlier. But while business class airfares are also lower than a year ago, full economy fares are up modestly.

The data on domestic airfares stretches back over 17 years so it is clear that air travellers are getting a good deal from the competition between airlines.

What does it all mean?

The ultra conservative attitudes of consumers have resulted in retailers in an array of industries discounting heavily, and that trend is clearly evident in the latest airfares data. It has never been a better time to be jetting across the state or across the nation. Not only are discount airfares at record lows, they are also plunging at a record annual rate. Aussie consumers love a bargain, and air travellers have plenty of bargains to choose from at present.

Australia’s key tourist regions have been doing it tough over the past year, hit not just by more Aussies travelling abroad in response to the strong dollar, but less foreigners travelling to our shores. In fact, in trend terms, the gap between arrivals and departures stands at the biggest deficit in 34 years. It’s clear that our key tourist regions should be working harder to get Aussies travelling locally and more often. Aussie travellers may be tempted to travel abroad, but low domestic airfares increase the attraction of people taking short-break holidays, visiting friend’s interstate and for businesses to hold retreats and conferences.

While discount airfares are plunging the same cannot be said for full economy fares. Full economy fares are holding at 29-month highs and are up almost three per cent on a year ago. Given the weak retail-trading environment, clearly the message for consumers is that it pays to shop around.

What do the figures show?

According to figures from the Bureau of Infrastructure, Transport and Regional Economics (BITRE), discount airfares hit record lows in June. The BITRE smoothed (13-month average) series of discount airfares, which removes seasonal volatility, hit a record (17-year) low of 64.9 in June, down a record 21.5 per cent on a year ago. The CPI-adjusted series showed that real airfares hit a record low of 53.5 in June, down 31.2 per cent on a year earlier.

The BITRE maintains “smoothed” (13-month average) series of airfares as price changes can occur irregularly, making the raw figures harder to analyse. However, the raw or unadjusted index of discount airfares rose from record lows in June – the reading of 75.1 was down 20.9 per cent on a year ago.

The smoothed index of business class airfares fell to an eight-month low of 115.9 in June, down 1.7 per cent on a year ago. The smoothed CPI-adjusted measure of business class airfares was 4.4 per cent down on a year ago.

The smoothed index of restricted economy airfares hit a 26-month low in June, down 0.2 per cent on a year ago.

While discount, business and restricted economy class fares are lower than a year ago, full economy fares are higher. The smoothed index of full-economy airfares stood at a 29-month high of 109.7 in June, up 2.8 per cent on a year ago.

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?

Strong competition between airlines may serve to constrain pricing margins and profitability. But if the airlines are successful in making the pie bigger – increasing the number of Aussies travelling and filling up planes – then the consequences may prove more positive than negative. It is definitely a situation that bears watching.

The Reserve Bank has indicated that it may wait on the June quarter inflation data before moving on interest rates. And the heavy discounting that is taking place by major retailers along with the stronger Aussie dollar will support a low inflation environment.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.


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