Consumer Discretionary

ASX travel stocks so far sheltered from rising oil prices; still struggling for upside

Tue 14 Jun 22, 12:50pm (AEST)
Qantas Travel Plane Flight
Source: iStock

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Key Points

  • Australian airfares have remained stable despite oil soaring to more than US$120 a barrel
  • US airfares rose 37.8% in May but airlines have no trouble passing on higher prices
  • A pilot shortage, staffing costs and lower capacity could be factors weighing on travel stocks

ASX-listed travel stocks like Qantas (ASX: QAN) and Flight Centre (ASX: FLT) fell sharply on Tuesday as interest rate and recession fears sweep the market.

The US Global Jets ETF, which tracks the performance of global airline operators and manufacturers dipped -6.9% overnight to a 19-month low overnight.

The ETF has not seen such levels since November 2020, when covid vaccines were still undergoing preliminary trials.

Note: the ETF invests in mostly US-listed airlines. It has small allocations in international airlines, including Qantas.

Inflation yet to hit domestic airfares

Australian airfares have remained relatively unchanged, even in the face of surging oil prices, according to the Department of Infrastructure.

The below graph depicts the cheapest inflation adjusted airfares from Melbourne to Sydney (return) since 2010. Current prices are trending in-line with historic averages.

2022-06-14 11 37 07-Domestic Air Fares Bureau of Infrastructure and Transport Research Economics
Source: Department of Infrastructure

Interestingly, prices (for Melbourne to Sydney return) picked up slightly in May 2022 to $165. But still slightly below historic average price levels.

2022-06-14 12 07 13-Domestic Air Fares Bureau of Infrastructure and Transport Research Economics
Source: Department of Infrastructure

US tickets are soaring

Its a completely different story in the US, where airfares rose 37.8% in May, compared to a year ago, according to the US Bureau of Labour Statistics.

Higher airfares should be a positive for airlines, potentially translating to higher earnings and offsetting any inflationary pressures. Though, US-listed airline stocks have struggled for any meaningful upside.

FVIJj4PXoAEmxQc
Source: Bloomberg

On Tuesday, United Airlines said that searches for international travel increased after the US ended a 17-month long rule that required air travellers arriving in the country to test negative for covid, according to Reuters.

United said it observed more than 2.4m searches for international travel in the past 72 hours, up 7% compared to last week.

What's holding airlines back?

Beyond broad concerns about the global economy, airlines have been subject to a number of industry specific headwinds, including:

  • Pandemic-related staffing shortages, which has slowed down training, hiring and resulting in early retirements

  • A pilot shortage has resulted in several capacity downgrades

  • Higher oil prices and staffing costs weighing on margins

JETS 2022-06-14 12-21-24
12-month US Jets ETF performance vs. Flight Centre (blue) and Qantas (orange)

 

Written By

Kerry Sun

Finance Writer & Social Media

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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