Effect of any recession on airlines

[Melburnian1]

House prices in Sydney and Melbourne, 55 per cent of the total value of Australia's housing stock, are declining at least back to 2017 levels with some economists claiming we ain't seen 'nuffin' yet. Consumer confidence is variable but retail sales are patchy, and the housing construction boom may be moderating or about to fall off a cliff depending to whom one talks.

Housing loans are harder (and slower) to arrange for owner occupiers given regulatory changes and the banking Royal Commission effects and probably even more difficult for some investors. The banks have allegedly become risk averse in lending to small and other businesses.

The prospect of a change of government (Federally) may see retiree and superannuation fund incomes hit by mooted changes to the treatment of franking credits. Given age distribution of Australians, retirees are increasingly important as a percentage of leisure travellers.

According to BITRE, the number of international airline users last dropped in March 2011. Since then, passenger numbers have risen in an unbroken trend.

With around half of all international air travel into and out of Oz by locals, what would be the effect of any major or mini recession on international airlines (Oz based and foreign) that fly to and from Australia?

Would a slowdown in discretionary spending (and hence less international travel) be hardest on locally based airlines like JQ, QF and VA because they have nowhere else to redeploy aircraft except domestically?

Would we see airlines like Donghai (highlighted by Mattg as an example that has low load factors) pulling our, or big foreign owned airlines like CX, EK, EY and SQ reducing frequencies to all Oz destinations or pulling out of smaller markets like ADL (and even BNE) if they serve them now?

Or is international travel bullet proof with Australians preferring instead to cut spending on restaurants and other local expenses and still do the same amount of international travel?

 

[MEL_Traveller]

We've had several recessions before - inlcuding the 'one we had to have'. I don't recall there being any hugely inconvenient reduction in airline services.

Airlines still have to pay the leases on their planes (or the bank if they are buying). So they still have to fly them and at least try to break even.

 

[williamsf1]

You only need to see what happened 10 years ago in the GFC what happened to airlines.
Taking the US as an example, they were able to use it as a positive to trim a lot of fat, consolidate and come back bigger and better than ever.

The airline industry is always one of the first indicators of worldwide financial difficulties and can be affected by random things on the other side of the world (eg Volcanoes ). The first thing to look at is the business/ first class travel loads ... soft numbers here are a sure sign of companies and individuals tightening the belt ( they still might travel but in Y ) .. the second is Hotels occupancy rates (especially 5*)

For all the doom a gloom stories you hear, I bet there are just as many positive stories you do not hear about.

If things get worse, airlines have many triggers to pull... the fastest is to retire old aircraft earlier and pull routes or reduce services.

As for the future.... who knows what will happen!

 

[dajop]

So many factors, some interdependent . Is it just a recession in Australia, or is it global? What is happening to AUD? What is oil pricing doing? What’s the Chinese economy doing? Just to name a few.

International services are obviously driven by many factors, a lot external. However one certainty - a significant slowdown in the Australian economy will see a reduction in domestic capacity.

 

[JohnK]

I don't mind the crisis we had 10 years ago with airfares almost a third of todays prices.

 

[Forg]

Where was that to?
I’ve not seen much change in prices to Europe, Asia or North America in the 20-ish years since I’ve been wanting to go to those places; which is a net fall when you take inflation into account.
SYD-MEL doesn’t seem as cheap as it was a decade ago; well, the actual full fares are similar but $100 each way de riguer then & it’s not been when I’ve flown down there in the last 2 years or so.
SYD-PER seems not to have moved much (again - this is when I’ve been looking, happy to be corrected).

 

[MEL_Traveller]

I don't mind the crisis we had 10 years ago with airfares almost a third of todays prices.

Domestic maybe. But international is at its cheapest now than ever before I think. With the possible exception of business class. $690 full service return to Europe from Australia is as low as it's ever been.

 

[JohnK]

Domestic maybe. But international is at its cheapest now than ever before I think. With the possible exception of business class. $690 full service return to Europe from Australia is as low as it's ever been.

I think there were also cheap international airfares in 2007-2009. I remember taling advantage of quite a few airfares.

 

[Melburnian1]

In January 2019, there are reports of consumer confidence having declined (at least one index) and 'the worst retail environment for 20 years' (although a bit of this may be that the percentage who shop online has risen a little further, it was at seven per cent) but Roy Morgan is recording an increase in consumer confidence.

The weight of opinion does however seem to be towards a downturn.

Not good for sectors that benefit from discretionary spending, including airlines.

 

[JohnK]

More than likely unrelated but I have been commuting since July 2008 and I've seen quite a few ups and downs but not to the extent I have been seeing that past 12-24 months.

I mainly travel BNE-SYD Friday night and then SYD-BNE Sunday night. I remember there used to be half hourly flights from around 3:00pm Sunday until 8:00pm and then a later flight.

The pattern recently and what I'm seeing this Sunday is there is no 5:30pm flight, there is a 6:00pm flight and then there is a 9:30pm flight.

I'm stunned that Qantas have removed so many flights. Where have the other flights gone? Where have the passengers gone? All this may well be due to excellent yield nanagement but I also think the genuine demand for travel is lower as airfares spiral out of control towards $200 one-way.

If airfares drop due to a recession the passengers may return.

 

[Melburnian1]

More than likely unrelated but I have been commuting since July 2008 and I've seen quite a few ups and downs but not to the extent I have been seeing that past 12-24 months.

I mainly travel BNE-SYD Friday night and then SYD-BNE Sunday night. I remember there used to be half hourly flights from around 3:00pm Sunday until 8:00pm and then a later flight.

The pattern recently and what I'm seeing this Sunday is there is no 5:30pm flight, there is a 6:00pm flight and then there is a 9:30pm flight....

That's an extremely large gap of three and a half hours on Australia's third busiest intercapital air route. I'd have guessed QF would still be at least hourly on a Sunday night from SYD at 1800, 1900, 2000 and then perhaps 2130 to BNE.

 

[dajop]

The pattern recently and what I'm seeing this Sunday is there is no 5:30pm flight, there is a 6:00pm flight and then there is a 9:30pm flight.

Seasonal reduction? EF still showing 1730, 1800, 1830, 1900, 2000, 2130 during Feb.

 

[JohnK]

That's an extremely large gap of three and a half hours on Australia's third busiest intercapital air route. I'd have guessed QF would still be at least hourly on a Sunday night from SYD at 1800, 1900, 2000 and then perhaps 2130 to BNE.

I think they cut flights. I've been moved a number of times from the the 7:00pm to earlier.

Next week is a quite Sunday and they are hourly from 9:00am until 8:00pm.

The week after there's a 6:00pm, 6:30pm, 7:00pm and 9:30pm.

The week after that there's 6:00pm, 6:30pm, 7:00pm, 8:00pm and 9:30pm.

The week after that there's 6:00pm, 6:30pm, 7:00pm, 7:30pm, 8:00pm and 9:30pm.

I would hazard a guess they are cutting flights closer to travel and moving people around. I'll check again as I need return flight for most of those weeks as I've only booked outbound flights.

 

[Melburnian1]

Seasonal reduction? EF still showing 1730, 1800, 1830, 1900, 2000, 2130 during Feb.

Good point, because for surface and air travel alike in Oz, February, May and November are the quietest months.

 

[dajop]

Good point, because for surface and air travel alike in Oz, February, May and November are the quietest months.

Actually, I think JohnK was referring to the schedule for this coming Sunday. The Feb schedule is back to normal it seems. One suspects SYD-BNE is a business traffic heavy route (particularly for QF), and as such mid Jan might well be a quieter period for business travel, thus the cuts to schedule.

 

[jb747]

I've had a chat to load control John, and they're specifically cancelling your flights....

 

[JohnK]

Seasonal reduction? EF still showing 1730, 1800, 1830, 1900, 2000, 2130 during Feb.

Perhaps seasonal although I've seen similar recently.

 

[jb747]

Whilst all airlines are badly affected by recessions, the LCCs seemed to be the worst hit last time around.

JohnK's wish for cheaper fares in a recession isn't the most likely outcome though. The airlines will simply not fly, returning aircraft to leasing companies, and laying staff off.

 

[JohnK]

JohnK's wish for cheaper fares in a recession isn't the most likely outcome though. The airlines will simply not fly, returning aircraft to leasing companies, and laying staff off.

My wish for cheaper airfares is for them to be available always not just during a recession.

Fuel prices have been low for a long time and executive salaries continue ro rise beyond reality and airfares are out of control.

If a recession comes around I suspect people won't be flying as much so airlines will cut the schedules even more yet executive salaries will remain at current unrealistic levels, if not increase, against much lower revenue. And yeah lets get rid of some ground staff, cut support channels and take out a benefit or 2 from frequent flyer program and we'll weather the storm.

 

[jb747]

I doubt that anyone will disagree with your comments about executive salaries. I wouldn't expect that they make a great deal of difference to an individual airfare though.

I'm actually waiting for the recession driven, cheap Aston Martins....