The oil price rise and lower A$ cannot be helping

[Melburnian1]

With the oil price having risen up to 20 per cent in recent months and the Australian dollar buying less at about 76 cents to the US$, this must be starting to eat into airline margins, especially those carriers that receive little revenue in USD but a much higher percentage in 'weaker' currencies. (Yes, some or all may hedge - but perhaps not to 100 per cent, and that has an annual cost to it.)

While relatively soft leisure travel demand from Australian residents may be a factor stopping fare rises (as might the heavy competition on many international routes to and from Oz), one wonders if QF and VA will (re)introduce higher fuel surcharges in time internationally, or on domestic routes try to increase average fares, or the fares most often purchased by businessmen.

Airlines such as CX that have been performing below their owners' expectations won't welcome the oil price rise. If I recall, CX in at least one recent year bet the wrong way with its hedging and suffered financially due to that - but I'm not an accountant.

Higher fuel surcharges can also increase the cost of FF redemption tickets.

Reports from passengers as to whether any of this is occurring would be great, particularly the JOhnKs of the world who travel week in, week out and hence can closely monitor average fares even down to the micro level of an individual BNE - SYD QF or VA flight over time.

 

[RooFlyer]

Qantas never eradicated its fuel surcharge - it was merely incorporated into the base price - its not so hard to make a profit when you are charging a fuel surcharge and pocketing nearly all of it.

I guess what we'll see next is a new 'fuel surcharge' from Qantas on top of the base price, which already has one!

 

[Melburnian1]

RooFlyer, are these the sort of announcements that QF and VA (among others) will make at say 0001 hours on 25 December when minds are preoccupied with Father Christmas and his sleigh, going to Mass in the morning, preparing Christmas lunch or going to a restaurant to save on cooking on so on?

Or will they be a bit more upfront about it?

Which operator do you believe will jump first?

 

[JohnK]

I can see SYD-BNE airfares passing the $200 mark.

A last minute domestic trip SYD-BNE is almost as expensive as an overseas trip. I'd hate to think what other longer leisure routes cost. That cannot be a good thing for domestic travel.

 

[RooFlyer]

RooFlyer, are these the sort of announcements that QF and VA (among others) will make at say 0001 hours on 25 December when minds are preoccupied with Father Christmas and his sleigh, going to Mass in the morning, preparing Christmas lunch or going to a restaurant to save on cooking on so on?

Or will they be a bit more upfront about it?

Which operator do you believe will jump first?

Oh, no! Qantas for one will proudly make an announcement that's all about sustainability; how Qantas is a leading global airline and therefore must lead (witness Marriage Equality); how its about being Simpler and Fairer (TM), blah, blah blah.

In summing up, it’s the constitution, it’s Mabo, it’s justice, it’s law, it’s the vibe and aah no that’s it, it’s the vibe. I rest my case. #

# The Castle

 

[BAM1748]

Here come he fuel surcharges as others have said. They never seem to quite get removed once the fuel price drops.

 

[Melburnian1]

BAM1748, the travel and aviation writers seem very slow to pick up on this. Yet the level of fares is critical for small business travellers and leisure users alike.

There is a lot of air travel that will occur whatever fares are charged, but there's a percentage of travellers who will either make fewer trips, use another mode where possible (SYD - CAN, MEL - CBR and even MEL - ADL are examples) or not travel at all if fares rise substantially.

It will be really interesting to see if there's at least a slight dropoff in domestic air travel next year (2018) should interest rates rise. So many Australians have high levels of debt, even if the media loves to sensationalise and exaggerate.

I'm with JohnK - I don't think many domestic air fares are cheap, particularly if one has to travel on Fridays after 1200 hours or Sunday arvo, Monday morning and so on. Even booking 10 weeks in advance still results in high fares, and sales such as VA's weekly effort often have fares promoted for several months in advance that are impractical for many because we don't know what our plans are.

JohnK is accurate when he refers to some long distance international flights being a heck of a lot cheaper per kilometre than domestic fares.

The only things that would bring domestic air fares significantly down are either a third airline (which realistically isn't going to occur given the numerous failures in the past), a dramatic decline in air travel demand (when it's more likely to be a slowish decline, or stagnant demand) or best of all, the government constructing high speed rail (which isn't an overnight task, and which eventually might see drastic reductions in frequency by airlines on affected routes.)

 

[moa999]

And the QAN share price has started pulling back.

Sudden jumps in oil prices are very bad for airlines, as once the public are used to lower prices, it's hard to shift them to accept higher ones so booking suffer.

 

[JohnK]

The last 4 flights of the night last night SYD-BNE were 5:30pm, 6:30pm, 8:00pm and 9:30pm. I was on the 7:00pm flight originally and that was cancelled.

Yes it's a Monday night but from memory Qantas used to have quite a few more flights SYD-BNE after 5:00pm. A lot of my forward bookings have had flights cancelled months in advance and moved onto other flights due to lower than usual demand.

I'm not sure this is a great strategy for the long run.

 

[Melburnian1]

JohnK, so far the official BITRE figures (overall - taking every route around Australia as a whole, although routes are shown individually provided there are two or more airlines plying each one) are not showing a percentage decline in the number of trips taken domestically. However the growth is not great.

There is a lag effect with the statistics though.

AJ said that 'every' mainland Chinese tourist who comes here takes two or three domestic flights (presumably on average.) The numbers of these inbound tourists have been rising: overall (not just mainland Chinese), foreign visitor numbers have increased at seven to eight per cent during the past year.

So that tells me that those of us who are resident here are, again overall, taking fewer trips, perhaps three - four per cent fewer. This doesn't sound much, but the resident population is increasing at more than 1.5 per cent per annum so in theory flights taken should at least be rising in line with that latter figure.

And that's before interest rates (or energy prices - forecast annual rise of almost $500 per household in Victoria in 2018) have started to rise, so it certainly doesn't look a buoyant outlook for domestic air travel.

I agree that timetabling more flights than actually operate creates annoyed passengers, but it's not like a government-subsidised bus, ferry, train or tram where the service frequencies are either run by the government's employees or are contracted and operate no matter what.

That said, the airlines should be subject to a compensation regime to reduce the numbers of these cancellations, because they're making a promise to travellers that they don't fulfil, and there's no legitimate excuse such as extremely bad weather. AFF member moa999 is big on this point if I recall.