“Kangaroo Route” just got cheaper

Few groups of people enjoy international travel quite as much as Australians do, so the news that the traveling to London on the famous “Kangaroo Route” just got cheaper is likely to please.

It’s true. Fares between major Australian airports and London are down dramatically. According to Flight Centre (ASX: FLT), British Airways’ return economy fares between Sydney and London were nearly $900 cheaper on April 5, 2013, than the same date the previous year, while Cathay Pacific premium economy tickets were about $1,000 cheaper. The decreases also affected fares in premium class cabins as well.

Qantas-Emirates deal pressuring competitors

In part this is due to Qantas Airways (ASX: QAN) forming a global alliance with Emirates. As The Sydney Morning Herald reports, “The revenue sharing agreement between the two airlines… allows them to coordinate capacity and scheduling, and jointly price and sell tickets on each other’s aircraft”.

Qantas has reported that the new relationship has already led to a sixfold increase in sales of fares to Europe over the same period last year. The increased competition has forced fellow oneworld alliance members British Airways, Cathay Pacific and Malaysia airlines to price their own tickets accordingly. Also contributing to the cheaper fares is competition with budget Chinese airlines, an increase in the number of available seats, and more generally, subdued demand across the globe as consumers slowly recover from the GFC.

Who stands to benefit now

As the seesaw tips to greater supply (inevitably leading to greater demand), consumers will enjoy more choice of flights as well as the lower fares, and travel companies like Flight Centre and Webjet (ASX: WEB) should benefit in part from increased activity.

Screen Shot 2013-04-09 at 9.47.56 AMBoth companies have posted impressive returns for investors in recent years, with FLT and WEB shares outperforming the S&P/ASX 200 index (Index: ^AXJO) (ASX: XJO) over the last five years in particularly dramatic fashion, to say nothing of their outperforming QAN shares.

New deals or no, airlines themselves are another matter. Warren Buffett has famously named airline investments among his worst ideas ever, with the billionaire reportedly joking he’d call ‘Air-aholics’ Anonymous the next time the idea struck him. investors seeking big opportunity would be well advised to do the same.

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More reading

The Motley Fool’s purpose is to help the world invest, better.  Click here now  for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Catherine Baab-Muguira does not own shares in any of the companies mentioned in this article.





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