Cost of airfares in Australia up and climbing

There's no sign of the rising cost of domestic airfares leveling out despite the increased competition between Qantas and Virgin Australia.

American Express says its Business Travel Monitor study shows prices for domestic business class flights are up 12 percent for the second quarter of 2011, and 19 percent higher compared to last year.

The credit card and travel management giant said that alongside rising oil prices, higher demand for business travel is also giving airlines the ability to name their price.

“The Australian market is particularly strong, largely a result of the booming resources sector” says Carl Jones, Head of American Express Advisory Services Asia Pacific.

“The major airlines in Australia are competing vigorously for business travel spending, but they aren’t doing it by getting into a price war.

"For example, business discount fares have increased 12 percent from the first quarter," he said.

Airlines are instead competing by differentiating the services they provide (through improved business class offerings) and by expanding flight operations along routes vital to the resources sector.

Economy fares are also up substantially from the first quarter (9 percent) and those fares have increased an even greater amount compared to last year (13 percent for full fares and 12 percent for discount fares).

This upward trend is likely to continue, according to Jones.

Although business travellers don't typically fly Tiger Airways, its grounding has caused fewer economy class seats to be on offer in general, pushing leisure travellers into Qantas and Virgin seats, and pushing prices up.

Fares to USA have also rebounded to 2007 levels, which Amex blames on the strong Australian dollar pushing prices four per cent higher than last year.

“Australians are looking to take advantage of the relatively strong dollar, which increases demand. However, another contributor to higher fares to the Americas is Qantas’ decision to close San Francisco as a hub. This has pushed demand up significantly on demand on routes from Australia to Los Angeles and that is feeding into higher prices overall,” said Jones.

American Express says larger companies should negotiate long term price contracts with airlines through a professional travel management firm to avoid being slugged with quarterly price rises.