Airfares hit maximum altitude as capacity constraints hit the market

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Want to travel overseas? Be prepared to scrape your fingernails on the bottom of the piggy bank.

International airfares have doubled as blistering demand and shrunken capacity has enabled airlines to raise prices to combat higher fuel costs.

Even in the face of a raging new wave in the COVID-19 pandemic, rising interest rates, and recession fears, consumers travelling in business class are shelling out more than $18,000 to get to Europe and the US while those in economy are paying fares of around $5000, according to Flight Centre chief executive Graham Turner.

(And for those passengers sitting on big loyalty points balances, redemptions for airline seats, particularly in business or first class, are virtually impossible to come by and extremely expensive, with customers complaining trips to Europe can cost as much as 1.5 million points.)

And it isn’t just the corporate market – the first to experience a resurgence in demand – that is coming back to life. The international leisure market has begun to take off and moved beyond the initial cohort of those visiting family to regular holidaymakers.

Flight Centre earnings are improving.Credit:Darrian Traynor

The bigger-than-expected bounce in demand is behind Flight Centre’s earnings upgrade on Monday. The travel agent declared it has turned from a loss to earnings positive after interest, tax depreciation and amortisation over the six months to June 2022.

While it will still report a full-year 2022 loss, it is a lower number than the company had previously pencilled in.

The higher airfares helped to push Flight Centre’s total transactional revenue to $10 billion for the 2022 financial year (against $3.95 billion in 2021) but its return to pre-COVID levels requires airlines to increase capacity.

The more optimistic projections mirror those of Qantas, which has recently confirmed underlying earnings before interest, tax, depreciation and amortisation for the second half of the 2022 financial year will come in at $450 million to $550 million, and this is after paying down $1.5 billion in debt during that period.

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