The post-COVID travel surge may finally slow in the face of a weaker Australian dollar and share market losses, in a follow-on effect from a brewing global trade war.
The dollar has fallen in response to the volatility spurred by US President Donald Trump’s tariff frenzy, while share market plunges have taken their toll on superannuation accounts.
Will the tariffs and the weaker dollar quash travel? Credit: Louie Douvis
The combined effect may force the public to rethink travel plans, cooling a period of robust demand in place since the pandemic lockdowns ended.
Data from the Australian Bureau of Statistics shows that after the COVID lockdown period ended in 2022, consumers prioritising post-lockdown overseas travel notched up 2.38 million departures in January. The figure fell to an estimated 1.69 million in March – in line with the historical trend.
“That was always likely to fade at some point,” said HSBC economist Paul Bloxham. “And this factor will be one that may see it fade a bit faster.”
Bloxham said consumer confidence is weakening and people are watching their superannuation balances. “So it’s possible that it will discourage people from wanting to do as much discretionary spending.”
Withholding guidance: Delta Air Lines Credit: Boarding1Now
In the latest turn of events, Trump has backtracked on tariffs on a slew of Chinese-made electronics, phones and computers, creating more uncertainty.
The Australian dollar has weakened since Trump won the US presidential election in November, slumping from US66.4¢ to US62.8¢ on Sunday. It’s dipped as low as US59.9¢ on April 9, as markets digested the chaotic trade war news.
Bloxham says the dollar’s fall offers a form of protection for the broader economy, if not frustration for travellers.
“You may see a redirection away from international travel towards domestic travel in large part because the Aussie dollar has fallen.”
The Trump White House has not discussed tariffs affecting airlines or travel, however, US carriers are marking down growth estimates amid the uncertainty generated by the Trump White House’s trade position.
On Thursday AEST, US carrier Delta Air Lines withdrew full-year financial guidance because of the uncertainty in global trade.
“With the level of uncertainty we’re seeing and the amount of changes happening on a daily basis in global trade, it’s very difficult to predict what policies may look like over the course of the year,” CEO Ed Bastian said, according to Bloomberg.
Air France-KLM on Thursday (AEST) indicated it would cut prices to keep its transatlantic economy cabins full, amid signs of weakening appetite for international travel.
Prime Minister Anthony Albanese says Australian businesses will be ‘front of the queue’.Credit: Alex Ellinghausen
The US-China trade war unleashing economic nationalism across the world also brings questions about the impact of support the local aviation sector may receive.
Speaking in response to Trump’s mass imposition of tariffs, Prime Minister Anthony Albanese pledged on April 3 that “just as we are already encouraging more people to Buy Australian – our Labor government will buy Australian too.
“This means Australian businesses will be front of the queue for government procurement and contracts,” he said.
How much an explicitly pro-Australian business policy could benefit Australian majority-owned Qantas remains unclear.
During the pandemic, the government provided $2.7 billion in government subsidies and funding to Qantas for lockdown repatriation flights, all of which let the airline further entrench its place in the market.
Moody’s senior credit officer, Ian Chitterer, said he didn’t “anticipate a significant impact on earnings as I think that historically most government employees would have chosen Qantas anyway given its product and network advantages.”
Another analyst said Qantas would benefit “marginally” because it already has a reasonable amount of breadth and depth of network. The real lift for Qantas may come from weakening oil prices, which will make fuel cheaper. “Even if there is dollar pain, there is an offset effect with oil,” he said.
Dr Tony Webber, managing director of Airline Intelligence & Research and a former chief economist for Qantas, said that publicly, Albanese is trying to distance himself from Qantas “because he’s taken heat” for his relationship with controversial former Qantas chief executive Alan Joyce in the past.
Qantas is the domestically owned airline.Credit: Jenny Evans/Getty Images
Joyce resigned early in 2023 amid scandals over selling tickets for cancelled flights, replaced by Vanessa Hudson as CEO.
Webber said that despite sensitivities over the government’s historical ties with Qantas, “I think behind the scenes, politicians [from both Labor and Coalition] would prefer Qantas as it has a [more upmarket] product than Virgin,” in a reference to Qantas lounges and premium offerings.
Virgin Australia is Qantas’ largest domestic competitor. The company is majority owned by US-based Bain Capital and Qatar Airways, its long-haul travel partner.
The company, which went into administration briefly in 2020 after a period of bruising losses, is now in stronger financial health and is preparing for a public listing.
In July 2023, the federal government blocked a plan by Qatar Airways to add 21 extra flights per week to capital cities. After an ensuring outrage, the deal to allow Qatar to offer long-haul flights to Australia received regulatory approval last month.
The Albanese campaign has been contacted for comment. Qantas declined to comment.
“The extent to which Qantas is favoured already is astounding,” said University of Wollongong associate law professor Andy Schmulow, who studies regulation. He cited the billions of dollars in support received by Qantas from government during the COVID-19 pandemic.
“I don’t see how the government can support Qantas any more.”
Schmulow is running in the current election as Citizens Party senate candidate from NSW.
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