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Domestic airfares up 56% and could climb higher

·5-min read
Compilation image of stock image of plane pile of cash, a plane taking off, two women in an airport walking with luggage and a pile of A$100 notes
A surge in demand for travel combined with airline staffing issues is pushing the cost of domestic airfares through the roof. (Source: Getty)

Australians are continually getting hit in the hip pocket, with petrol, rental payments and even food prices all increasing in recent months, as the cost-of-living crisis continues to bite into our disposal incomes.

And now domestic travel is back on the agenda for many with COVID restrictions having been lifted, new data suggests that the cost of flights is soaring too.

A recent report by Australia’s competition watchdog ACCC found that domestic airfares rose a massive 56 per cent in the last quarter to August , with the rising cost of jet fuel and reduced capacity due to airline staff shortages both contributing factors.

Combined with inflation running at 6.1 per cent and household budgets significantly stretched, will such a rise in airfares mean Australians will turn their back on the domestic travel industry, just as it is recovering from the pandemic?

No sign of falling demand for domestic travel

Yahoo Finance spoke with Hadyn Long from leading Australian travel operator Flight Centre, to get his views on the current market.

“Demand has been very strong since domestic and international borders reopened,” said Long, going on to comment that the reduction in the number of flights available due to many airlines’ continued staffing struggles was driving recent price rises.

Long indicated that higher prices had not yet impacted the volume of bookings, with pent-up demand after two years of travel restrictions still driving the domestic market.

As Aussies schedule long overdue catch ups with friends and family after the pandemic, and face to face business meetings back on the agenda, interstate travel seems likely to be in demand in the coming months.

Yet it’s questionable how long Australians can keep pace with increasing airfares without reducing their desire to travel.

Are more price rises on the horizon?

Prices “will take time” to come down

According to Long, while further rises can’t be ruled out, prices should start to normalise over time.

“It will take time for things to normalise, but we expect a gradual return to pre-COVID fare levels domestically in the medium term. Supply and demand obviously drive pricing - so as capacity increases, prices should start to come normalise both domestically and internationally," he said.

The news that prices may be coming down further down the track will be welcomed by both leisure and business travellers.

However, given that it was the Australian Competitor and Consumer Commission (ACCC) that highlighted the rise in domestic airfares, is there enough competition in the Australian travel market to drive airfares lower any sooner?

“There is a decent level of competition now through the incumbents - Qantas, Virgin and Jetstar - and Rex, which is expanding its services on the major routes and offering highly attractive fares,” Long said, believing that the global rise in fuel prices being a much more significant factor than domestic competition in keeping airfares at their currently inflated levels.

People travel at Sydney domestic airport in Sydney Australia.
With travel restrictions over, demand for domestic air travel has rocketed in recent months. (Source: Getty Images)

How to minimise travel costs

In the meantime, what can consumers do to minimise the cost of travelling within Australia?

“The best advice is to book as early as you can. Airlines very rarely - if ever - offer last-minute specials on domestic flights. This is particularly relevant if you're travelling at peak times, such as the Christmas/New Year period, Easter and school holidays,” said Long.

Booking early has traditionally been the Australian way when it comes to travel, as the local market has yet to see the type of last-minute deals so common overseas, particularly in Europe.

One factor that travellers across the globe are experiencing however is an increase in delays, with many airlines cancelling flights due to not having the staff available to operate them.

The ACCC report indicates that Australia is not immune to this trend, with more than 19,000 flights failing to leave on time in July alone.

Cancellations coupled with flights that are fuller than ever is resulting in ongoing frustrations for customers, with Qantas recently offering $50 flight vouchers to appease angry travellers.

As Long explains, The industry is still bouncing back after being virtually shut-down for two years as a result of government-imposed travel restrictions.”

The pandemic undoubtedly crippled the travel industry, and many airlines reacted by cutting staffing levels to the bare bones just to survive.

Those same airlines are now struggling to handle the increased demand now that restrictions have been lifted, with staffing levels a major problem.

Given the challenges in the local job market , it seems likely they will take a while to ramp up further, resulting in more frustration for consumers in the short term.

Australians should be relieved that recent price hikes in airfares are likely to be a short-term phenomenon, especially with many more essential items becoming more expensive.

Planning ahead to secure the best deals, as well as expecting more cancellations and delays when finally making it to the airport, will be the way to navigate the domestic travel market in the meantime.

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