It’s good news and bad news for the travel sector in Australia, as the country heads off into a summery Christmas holiday. Some tailwinds are lifting the sector while other headwinds are buffeting it.
A report on Friday from John O’Shea, a senior research analyst on the Ord Minnett research team, highlighted a couple of telling charts.
International Airline Capacity Australia Is Growing But Remains Constrained
Presently, airfares are above average because demand is exceeding supply. Airlines have left some money on the table by not having enough capacity. But they’re increasing seats and routes.
- As one looks at the planned capacity increase out to March 2023, Ord Minnett expects it to reach about 75 percent of March 2019 levels.
- “That is why when one looks further out to airfares quoted at or past the middle of next year airfares offered have come down dramatically,” O’Shea writes.
- The firm expects a return to pre-Covid levels of flight volume by the end of 2024.
Another chart shows that surging interest in outdoor domestic tourism has so far been more than a pandemic fad. During the Australian winter, the domestic tourism spot of Tropical North Queensland and Newcastle saw the highest visitation in five years.
“Many have discovered the quality and depth of local destinations/attractions for the first time, and they are liking what they see,” O’Shea writes.
What about rising interest rates? O’Shea offers the following take, emphasizing the potential for industry consolidation. He writes:
- Many listed and unlisted travel corporates have “survived the pandemic but are unable to thrive due to a shortage of capital.”
- For those with strong balance sheets that recapitalized during the pandemic, this means they are likely to be shown some incredible opportunities.
- The larger Australian listed travel stocks have relatively strong balance sheets compared to their global peers (excluding Booking.com and Airbnb, of course)
- Expect consolidation to accelerate at some point with some transformational opportunities.