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

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.

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.

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.

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

12-month US Jets ETF performance vs. Flight Centre (blue) and Qantas (orange)