With the cost of living skyrocketing, why are we still spending big on travel?

A string of studies this month has found that many Australians are still prioritising holidays, even as household budgets get tighter. Most respondents in one survey ranked an overseas trip as a bigger priority than eating out or shopping for clothes, while another one found that the majority of those surveyed weren't changing their travel plans for financial reasons.

Other research found that, although Aussies were still heading on holidays, many of us are looking at ways to cut costs once we're there, such as preparing some meals from the supermarket and not buying any souvenirs. That same study also says that younger people are more likely to look for ways to save, but Boomers and Gen X were the least likely age groups to cut down on costs.

In general, travelling has become more expensive across the world in recent years because of a range of factors, including inflation, a spike in oil prices from the invasion of Ukraine, and a post-pandemic demand often outstripping supply. But there's one area that really stands out as a pain point, and it's something that affects Australians more than most travellers - the soaring price of flights!

If you tried to book a ticket to Europe for this summer, you already know how crazy things have become. In fact, if you're a regular traveller and have tried to go anywhere overseas this year, you would've noticed the big increase in price. On average, figures show international air fares from Australia are about 60 per cent more than before the pandemic.

At the higher end, it hasn't been uncommon to see return flights to Europe at about $4000 for the peak summer period. But even at the lower end, have a look at the difference in the cheapest prices between a Qantas sale in 2019 compared to 2023: From Sydney, return economy flights to London went up from $1209 to $1699; for Los Angeles they went from $919 to $1299, and for Tokyo from $699 to $1499.

Demand has increased around the world, and so have global airfare prices. But Australia has seen a much larger hike than international flights from the US or the UK. Why? Well, because our supply of flights is still more restricted, with the latest official figures showing the number of international seats at about 75 per cent of pre-pandemic numbers.

It makes last month's decision by the federal government to block more Qatar Airways flights seem even more ridiculous. The Middle Eastern carrier had wanted to add 21 new weekly flights between Doha and Australia, which would have been a big jump in the number of seats available for Aussies heading to Europe (and some of the other 150 destinations the airline covers). Logic suggests that would've brought prices down a bit, at least outside of peak holiday periods.

What makes it worse is that the Transport Minister, Catherine King, has avoided giving a straight explanation for her decision. Is it punishment for the invasive searches of some Australian women at Doha Airport in 2020? Is it to protect the profits or jobs at Qantas? Is it part of a broader foreign policy battle with Qatar?

I'm not sure that forcing Australians to pay more for airfares is the right tactic to deal with any of those issues, and I think the federal government should still come clean about its reasoning. Especially as the criticism of the decision has increased this week from organisations such as Flight Centre, Virgin Australia, and the Australian Chamber of Commerce and Industry.

In the coming months, there will be more decisions to make about whether to approve additional flights. Singapore Airlines has a plan to add almost 5000 weekly seats from March next year, increasing capacity to six cities. Cathay Pacific and Vietnam Airlines are pushing for more slots here. Turkish Airlines has flagged a plan to enter the Australian market with an eye to eventually offering direct flights to Istanbul from Sydney and Melbourne. And even Qantas this week announced an extra 5000 seats a week, mainly by putting larger planes on some international routes, as new Boeing 787s arrive and more Airbus A380s return to service.

If the Transport Minister approves all these flights (which would again raise questions of why Qatar Airways was denied), will it have an impact on prices in 2024? Is there relief on the way?

If you look at the peak July holiday period next year, Qantas is currently selling return economy tickets to London for about $3500, with the average for many other airlines about $2500 on the same dates.

But a month earlier, in June 2024, you can get to Heathrow and back for about $2500 on Qantas, and $2000 on many other airlines.

That's certainly starting to look a bit better, and that's without much of the new capacity that we're expecting next year available yet. If some of these airlines want to make a mark, they may even start a bit of a price war with some good sale prices for the off-peak months.

Although I talked earlier about a series of recent research showing Australians are still spending on travel, there is conflicting data suggesting financial worries are having an effect on plenty of people. A new report from NAB found two-thirds of respondents have cancelled or postponed trips over the next year because of the cost.

If those statistics are right, that means there is still a huge pent-up demand of people wanting to travel when the price is right. As long as there are people willing to buy the tickets, any increase in supply may only go so far to address the cost of flights next year.