Competition among low-cost carriers drives down airfares

"The low-cost carriers are forcing the traditional airlines to adjust their pricing" ... Webjet's managing director John Guscic.

FIERCE competition between airlines on international routes is giving passengers an early Christmas present in the form of cheaper fares to most destinations than at the same time last year.

The largest online and traditional travel companies say the discounted fares are the main reason people are traveling abroad in record numbers - not the strength of the dollar.

Flight Centre said economy fares for flights to destinations overseas were in most cases less or similar to those on sale this time last year. The cheapest destinations include New Zealand, Britain and Bali.

While economy fares have been at or near historical lows for the past two years, Flight Centre said the significant increase in flights by large Chinese airlines had led to even tougher competition between carriers.

The cheapest business-class fares for return flights to Europe are now less than $4000, compared with between $6000 and $7000 previously.

However, travel companies say the heavy discounting of international fares has not been replicated to the same degree in the domestic market.

While historically low fares are good news for passengers, they leave airlines struggling to make money on international routes in the face of higher fuel bills.

Although fares to the US have risen, they are still below historical averages due to strong competition between Qantas, United Airlines, Virgin Australia and Delta Airlines. The trans-Pacific route has been Qantas's best performer on its international network this year but it is still barely profitable.

Webjet's managing director, John Guscic, said international fares this year had been cheaper than last year because a larger percentage of Australians were travelling on low-cost carriers, forcing established airlines to reduce their ticket prices.

''The cheaper airfares are the continuing driver of Australians travelling overseas rather than the strong Australian dollar,'' he said. ''The low-cost carriers are forcing the traditional airlines to adjust their pricing.''

Mr Guscic said he expected international fares to remain low next year because of the strong competition. In contrast, domestic fares had risen by between 3 per cent and 5 per cent over the past two months.

When it released earnings guidance two weeks ago, Qantas was reasonably bullish about forward bookings. The airline expects yield - a measure of the value of ticket sales - to be 3 per cent to 5 per cent higher in the second half, compared with the same period last financial year.

To ease its exposure to ailing economies in Europe, Qantas will reduce flights on the ''kangaroo'' route from five to three a day from April. Flights from Hong Kong and Bangkok to London will be filled by its joint venture partner on the routes, British Airways.

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