When Australians can fly to the US and back for as little as $904, despite the Australian dollar trading at just US 71 cents, outbound travel growth looks set to continue.
That's great news for ASX-listed travel agents like Flight Centre Travel Group Ltd (ASX: FLT), Helloworld Limited (ASX: HLO) and Webjet Limited (ASX: WEB). But it's not so great news for airlines Qantas Airways Limited (ASX: QAN) and Virgin Australia Holdings Ltd (ASX: VAH).
Analysts and commentators continue to make the same mistake – a falling Australian dollar exchange rate will curb Aussies travelling abroad. The reality is more likely that it's the price of airfares that would limit Australians travelling offshore. With airfares under $1,000 for a return flights to the US, outbound travel should increase and provide a boost to revenues for the travel agents.
Virgin Australia is offering return flights from Sydney to Los Angeles from $979 while Fiji Airways has an even lower price of $939. Air New Zealand – AIR N.Z. FPO NZ (ASX: AIZ) takes the cake though with an astonishing $904 return fare from Melbourne and the cheapest airfares from most Australian capital cities, according to a recent search on Webjet. And yes, the flights do include baggage.
US carrier Delta is also offering return cheap fares from as low as $902 from Brisbane.
When you consider that you can fly to the US for less than $500, you can see why Aussie travellers aren't staying at home.
Competition increasing
The airfare war is heating up as American Airlines begins flights between Sydney and Los Angeles next month, allowing its alliance partner Qantas to compete on the Sydney to San Francisco route with United Airlines. Qantas dropped the San Fran route in 2011 when it decides to fly into American's large hub in Dallas. It will also allow Qantas to retire more aging and fuel-hungry Boeing 747 flights.
Several airlines are also reportedly looking at flying via New Zealand to the US, where Air New Zealand currently has a monopoly, allowing it to charge the same airfares as longer flights between Australia and the US.
The cheap fares could also spur a flood of American tourists coming to Australia, benefitting from the cheap Australian dollar, which is also good news for our tourism industry.
Foolish takeaway
With such cheap flights, the airlines are going to have to fill every plane to the US and back, and watch their expenses to ensure the routes are profitable. Newer, more efficient planes will help, but I can't help wondering how profitable flights to the US will be at just over $900 return.
