COMMSEC: It's the end of discount airfares in Australia

Photo: Marianna Massey/AFP/Getty Images

Don’t expect to find a great deal on flights, if the latest data on discount airfares is anything to go by.

Commsec economist Savanth Sebastian has collated the latest figures from the Bureau of Infrastructure, Transport and Regional Economics (BITRE) which show rises across multiple airfare classes.

Most glaring, though, is a rise in the price of discount airfares – up 17.8% from a year ago based on a 13 month moving average:

Source: Commsec

Business class airfares also rose, with BITRE recording a 3.7% annual increase, while restricted economy airfares were up 3.5%.

Sebastian said that discount airfares rose by 8.3% in May after falling by 26.8% in April. Despite recent volatility, the data suggests that discount airfares are on the rise.

They’ve climbed by almost 20% over the past year, reduced to 17.8% in smoothed terms when the moving average is applied.

A moving average adds the latest closing price and removes the oldest closing price, while the set time period (in this case, 13 months) remains constant.

It’s a pretty steep climb, and higher fares are probably here to stay for the foreseeable future.

Sebastian said that the recent fall in oil prices was unlikely to be passed onto consumers as cheaper tickets.

He said that despite a recent 11% drop on over-supply concerns, oil prices were still up 10% on a year ago and that airlines would look to take advantage of recent falls to increase profit margins.

“In addition with demand for air travel strong, airlines may have less incentive to discount fares,” Sebastian said.

That’s not ideal as concerns grow about the durability of Aussie consumers, with threats to domestic consumption high on the agenda amid low wage growth and high mortgage repayments.

Although bargain hunters are having a hard time getting cheaper flights, Sebastian suggested that demand for airfares is a sign of strength in the economy.

“If more people are flying, then it suggests businesses are more active and/or consumers are more confident,” he said.

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