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Indebta > News > Air fares soar above inflation as carriers cash in on travel demand
News

Air fares soar above inflation as carriers cash in on travel demand

News Room
Last updated: 2023/05/07 at 2:42 AM
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Air fares are rising at more than twice the rate of inflation, as carriers cash in on soaring demand for travel that has defied broader economic headwinds.

Average ticket prices on more than 600 of the world’s most popular routes rose at an annual rate of 27.4 per cent in February, the latest month for which data is available, marking the fifteenth consecutive month of double-digit growth, according to a Financial Times analysis of data from aviation company Cirium.

By contrast, US inflation, a proxy for global inflation in developed economies, has grown at less than half that over the same period.

The data analysed prices on popular routes flown across the world and used average one-way fares in economy, excluding taxes and fees.

It found significant price rises across many routes this year, compared to pre-pandemic levels.

The average one-way economy class transatlantic flight from London Heathrow to New York’s JFK was $343 in February this year, 23 per cent higher than in the same month in 2019.

Fares between New York and Singapore were 45 per cent higher at $887, while Dubai to Frankfurt tickets were 51 per cent up at $360.

Sixty routes with at least one leg in North America out of a total of more than 300 routes have set new highs in the past 12-months, including seven setting a new peak in February.

Fares between Miami and Bridgetown, Barbados grew 126 per cent in the year to February and ticket prices between Los Angeles to Mexico City International almost doubled — the highest year on year changes in air fares since at least 2014, the first year for which data is available.

Passengers’ willingness to pay high fares underlines the furious rebound in demand for flying over the past year, and how airlines are enjoying a sharp turnaround in fortunes following the pandemic.

“Airlines are running out of hyperbole to describe demand strength,” Bernstein analyst Alex Irving said.

American Airlines reported record first-quarter revenue in its most recent results, while Lufthansa said it expects adjusted earnings to surpass 2019 levels this spring. British Airways owner IAG and Air France both also predicted bumper summer seasons this week.

The high demand for travel comes at a time when airlines are passing on elevated costs to customers, including fuel, labour and the strong dollar for non-US carriers.

Prices have also risen because many carriers have been slow in rebuilding their pre-pandemic flight schedules, in part because of a global shortage of aircraft.

Analysts said the comparatively restricted supply of seats at a time of high demand has helped support prices, and stopped a glut of new capacity flooding the market and driving down fares.

Luis Gallego, chief executive of IAG, said “it is in our interest to offer competitive pricing”. But he added that airlines needed to pass on rising costs in the “high inflation” environment.

Airlines typically forecast demand with “incredible accuracy”, meaning they know a year in advance which flights will be full, and can charge high fares from when tickets are first put on sale in response, said Oliver Ranson, managing director of consultancy Airline Revenue Economics.

But he said the pandemic has complicated this model as demand patterns are still in flux, meaning airlines have often gone back to a cruder model of raising prices in line with sales, and raising prices for people booking at the last minute.

Airlines were one of the worst hit sectors during the pandemic and are rebuilding their finances after losing a combined nearly $200bn between 2020 and 2022, according to industry body Iata.

The high ticket prices come amid growing scrutiny of companies using high inflation as cover to raise prices opportunistically, a phenomenon dubbed “greedflation”.

Rory Bolland, travel editor of UK consumer rights group Which?, said passengers must not suffer from a rerun of the widespread travel disruption seen last year.

“Prices and profits at many airlines are soaring, so the least passengers should receive in return is a competent service,” he said.

However, Hugh Aitken, vice-president for strategic flights and industry partnerships at price comparison website Skyscanner, said there were still “deals” to be had, as fares are not rising uniformly.

“Even during busy travel periods like summer, prices are not rising on all routes, nor at the same rate,” he said.

Read the full article here

News Room May 7, 2023 May 7, 2023
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