The number of passengers flying between Sydney and Melbourne rose 7.5 per cent in July from the previous year, at a time when airfares are also rising, in a potential sign of rising business and consumer confidence, CommSec chief economist Craig James says.
"If more business people are flying inter and intrastate it suggests companies are keen to chase new opportunities and prepared to spend money," he said. "And if more people are flying to holiday destinations it could signify either lower fares, higher incomes [or] increased confidence."
Qantas Airways, Virgin Australia and airport operators like Sydney Airport are among the direct beneficiaries of the improving travel market. Government data released last week showed the number of domestic passengers carried in July rose by 1.8 per cent from a year earlier. That compares with a 0.9 per cent fall in the financial year ended June 30, driven largely by decreases in traffic on routes linked to the resources industry.
However, the July figures also showed signs of a rebound in transcontinental travel, with the number of passengers flying between Melbourne and Perth up 6.7 per cent and those flying between Sydney and Perth up 2.5 per cent, following declines on those routes in the last financial year.
Overall, the percentage of seats filled by the airlines, also known as "load factors", rose to 79.4 per cent in July, up from 78.3 per cent in the same month a year earlier, making it the highest July result in four years. The capacity increase added to the market in that period was just 1.1 per cent, as Qantas and Virgin boosted the amount of flights only when merited by demand.
SIGN OF BETTER CONDITIONS
The airlines have been able to raise fare prices while filling more seats, in another sign of better market conditions. The Bureau of Infrastructure, Transport and Regional Economics' latest domestic airfare index for September found business class fares were up 3.4 per cent from a year ago, restricted economy fares were up by 7.2 per cent and "best discount" fares were up by 11.7 per cent.
"Over time there has been a good link between changes in aircraft load factors and economic activity," Mr James said. "Load factors are improving despite higher airfares, suggesting a modest improvement in the tone of the economy."
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However, Mr James cautioned that in real terms discount fares remained 30 to 35 per cent lower than the base level of the index set 12 years ago and all airfares were cheaper in nominal terms than seven years ago.
HSBC chief economist Australia and New Zealand Paul Bloxham said there were signs the falling Australian dollar was helping to support economic growth, with tourism and education exports rising strongly, particularly supported by visitors and students from China.
Qantas and Virgin have both told investors they stand to benefit from the lower dollar because international tourists use air travel to fly between cities once they arrive and because Australians are more inclined to travel domestically when the dollar is weaker.
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