International airfares soar as airlines capitalise on demand

Travellers are forking out more for their adventures.

Travellers are forking out more for their adventures. Photo: TND

If the prospect of taking an overseas holiday seems more expensive lately, you’re not imagining things; international airfares have soared over the past three years.

Data from travel search engine Kayak shows return economy international airfares are up 51 per cent compared to pre-COVID, with the average price now sitting at $1826.

But Australians are still keen to travel, with searches on Kayak for international flights in the latter half of 2023 increasing by about 68 per cent on 2019 levels.

Tony Webber, Airline Intelligence and Research CEO and former Qantas chief economist, told The New Daily that insufficient supply for the demand out there is one of the factors contributing to the steep price hike, with airlines offering up to 40 per cent less seats than pre-COVID.

He said the reluctance to return to full capacity is because of the time it takes to bring planes out of storage and to retrain pilots for particular aircraft types, along with airlines playing it safe as they wait to make sure there’s enough demand for more seats.

Airlines are also feeling the effects of inflation, and the ongoing Russia–Ukraine war is keeping fuel prices high.

Meanwhile, Kayak data shows domestic flight prices have risen just 10 per cent since 2019, with an average price of $400.

Dr Webber said the small hike is due to domestic flights servicing at pre-COVID level capacity.

Huge losses

While costs are certainly up, so are airline profits; Qantas said on Tuesday it forecasts a record $2.475 billion underlying profit before tax in 2022-23.

Dr Webber said while airlines are exploiting strong demand in order to make more money, they are also still trying to claw back huge losses incurred when the travel industry effectively shut down for two years during the pandemic.

In particular, Qantas’ debt hit a high of $6.4 billion in February 2021, which was brought down to $3.9 billion by the end of the 2022 financial year.

“It makes sense that they’ve got to recoup that money somehow,” Dr Webber said.

“What matters is, what are they going to do over the next 12 to 24 months? Are they going to bring that supply back into the market so that they can keep airfares down?

“That’s what Alan Joyce has come out and said that he’s going to do, so we look forward to seeing whether that happens.”

Qantas expects its international flight capacity to reach about 100 per cent of pre-COVID levels by March 2024, which the airline believes will bring prices down.

Dr Webber said international airfares may not return to normal until mid-2024 – and that’s only if airlines start to return to pre-COVID capacity, and the Russia-Ukraine conflict dies down enough to lessen pressure on fuel prices.

Sydney Airport boss Geoff Culbert recently told AFR Weekend he expects airfares should start to fall soon, because demand for tickets will fall amid the rising cost of living.

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