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Nation booking more flights than ever, but fuel prices set to tame the travel bug

Business

Australians have been frantically booking overseas holidays since international borders were reopened, with spending eclipsing pre-pandemic levels.

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Australia’s two biggest airlines, Qantas and Virgin, have revealed they are operating domestic capacity above pre-pandemic levels as demand rebounds, but Qantas has trimmed some flights for July and August to try to boost fares and could take more action, its chief executive said on the sidelines of an industry conference in Doha on Sunday.

“We are seeing really strong demand internationally across the board and that is helping us recover oil prices in the international market,” Qantas chief executive Alan Joyce told reporters. “In domestic, we may need a little less capacity in the market to get that recovery and we are working through that at the moment.”

Virgin Australia Chief Executive Jayne Hrdlicka said her airline had put through two fare increases, but was warier of cutting capacity before it reached its target of 33 per cent domestic market share, especially when demand was strong.

“Most months we’re 33 per cent revenue share, but not quite 33 per cent capacity share,” she told Reuters in an interview. “We’ll be carefully balancing a combination of capacity management and price increases.”

National Australia Bank data shows their customers spent $46 million in international flights, accommodation, car rentals, cruises, trains and travel agents in May, the largest monthly spend in three years.

In comparison, customers spent $43 million on international travel plans in May 2019.

“For many Australians it has been two years without international holidays, visiting overseas family and celebrating major milestones like weddings,” NAB’s Paul Riley says.

Between January 1 and May 31, NAB customers spent $157 million on overseas travel compared with $23 million in the same period last year.

However, rising cost of living pressures and higher interest rates look set to curb consumers desire to spend, with a separate report predicting a slowdown in retail activity from the second half of this year.

In its quarterly Retail Forecasts report, Deloitte Access Economics believes the majority of retail turnover growth over the next few years is likely to be driven by prices rather than volumes.

It forecasts retail turnover growth slowing from 3.4 per cent in 2022/23 to 0.8 per cent in 2023/24, then slowly recovering to 1.2 per cent and 1.8 per cent in the following two financial years.

Spending on non-discretionary goods and services like fuel, housing and health is less likely to be reduced by households, placing significant pressure on other components of spending.

However Deloitte Access Economics partner David Rumbens says there are encouraging signs in relation to lower shipping costs.

“For now though, businesses may need to look to ways to lower costs and reduce disruptions to operations to avoid losing competitiveness,” Rumbens said.

This could involve diversifying and building more resilient supply chains.

“With wage pressures high, businesses may need to maximise staff retention as much as possible through investment in the likes of training, talent pipelines and automation,” he said.

Overall, Rumbens says the cost of living squeeze, higher interest rates and preference for spending on services are expected to lead to a slowdown in retail momentum through the second half of 2022.

This may result retail spending falling over 2023 and 2024.

“That means the speed of return of net migration will become a significant driver of retail’s future growth prospects,” he said.

Meanwhile, the Australian Institute of Petroleum will release its weekly petrol price report later on Monday.

Last week the Australian Competition and Consumer Commission said the cut in fuel excise in the March budget saw petrol prices fall 39 cents per litre in the nation’s five largest capital cities.

However this will come as little comfort for motorists with prices back around the $2 per litre level again and eating into household budgets

This is due to global oil pressures stemming from the Russia’s war in Ukraine.

The national average for petrol prices rose 2.1 cents in the week ending June 12 to 199 cents per litre but Victoria, South Australia, the Northern Territory, Tasmania and Canberra were all paying above $2.

Virgin Australia,  bought by US private equity firm Bain Capital in 2020 and is no longer listed publicly, had returned to a profit in April and an IPO was likely as early as 2023, but the timing would depend on market conditions.

“Equity markets, as you know, are not in a great place at the moment,” she said. “So it will just depend on when there’s a good opportunity from a market standpoint,” said Hrdlicka.

Qantas and Airbus will invest close to $300 million to accelerate Australia’s sustainable aviation fuel industry.

Biofuels cut greenhouse gas emissions by around 80 per cent compared to traditional kerosene, but Australia is yet to produce its own sustainable fuel.

The country instead exports millions of tons of feedstock every year to be made into biofuels in other countries.

But the new Australian Sustainable Aviation Fuel Partnership will ensure biofuels can be developed and produced here in Australia.

“Without swift action, Australia is at risk of being left behind,” Qantas chief executive Alan Joyce said in a statement.

“This investment will help kickstart a local biofuels industry in Australia and hopefully encourage additional investment from governments and other business, and build more momentum for the industry as a whole.”

Joyce and Airbus chief executive Guillaume Faury signed the partnership agreement on Sunday ahead of the International Air Transport Association’s general meeting.

The partnership, which is initially set for five years, will only support projects that are commercially viable and meet a strict set of criteria around environmental sustainability.

Qantas has already committed to using 10 per cent sustainable fuels in its overall fuel mix by 2030, while Airbus is working to deliver zero-emission aircraft by 2035.

“The increased use of sustainable aviation fuels will be a key driver to achieve net zero emissions by 2050,” Faury said in a statement.

“But we can’t do this without viable industrial systems to produce and commercialise these energy sources at affordable rates and near to key hubs around the world.

“This is especially true for a country like Australia, which is geographically distant and highly reliant on aviation to remain connected both domestically and internationally.”

Driving down the cost of biofuels will also ensure airfares remain affordable to consumers, Mr Joyce said.

“Aviation is an irreplaceable industry, especially for a country the size of Australia,” he said.

 

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