Economy · June 23, 2022

Airline tickets set to continue to rise from the bottom of the pandemic: experts

A passenger plane of the Japanese airline All Nippon Airways (ANA) takes off from Tokyo’s Haneda Airport on April 28, 2022. (Photo by Kazuhiro NOGI / AFP)

by Tangi Quemener
Agence France Press

Driven by inflation, air ticket prices have started to take off again after plummeting during the pandemic, a reversal that looks set to intensify due to environmental pressures, experts say.

For members of the International Air Transport Association, gathered in Doha for their annual meeting this week, minds are focused on how much such increases threaten to undermine passenger growth targets.

IATA is also seeking government support to reconcile the long-term commitment to zero net carbon emissions with these ambitious goals.

The aviation industry has just gone through two years of airplanes flying with empty rows of seats, even though they offered much lower fares than before the Covid-19 pandemic.

But with the sector still bogged down in the red despite movement restrictions being largely lifted, the windfall of the deal for passengers is now over.

In the United States, the average price of a domestic flight increased, from $ 202 in October 2021 to $ 336 in May of this year, according to the Federal Reserve Bank of Saint Louis.

In the European Union, the price of a pre-tax return ticket in April returned to that seen in the same month of 2019, after a drop of nearly 20% in 2020, according to aviation research specialists. Cirium.

The oil price shock fueled by the Russian invasion of Ukraine is the most obvious factor in these price increases.

Airlines estimate that fuel prices will represent 24% of their total costs this year, five percentage points higher than last year.

Ticket prices are also fueled by broader inflation – now at a 40-year high in developed markets – as well as stronger-than-expected ticket demand and labor shortages.

– reality check –
But Scott Kirby, chief executive of United Airlines, said that despite the sharply rising trend, prices have yet to surpass historical norms.

“In real terms, prices are back to 2014 levels … and it’s lower than they were essentially every year before,” he said.

“So … I don’t think we’ll see the request for destruction.”

But Vik Krishnan, a partner at McKinsey & Co, is cautious about how long the current strong demand will last.

“Some of the trips we’re seeing right now are a function of all the stimulus governments” put into economies during the pandemic, boosting citizens’ reserve income, he said.

A Qatar Airways Airbus A350 was seen at Los Angeles International Airport (LAX) in Los Angeles, California on June 19, 2022. (Photo by Daniel SLIM / AFP) kets

“The number one discretionary income spend is travel and that’s what people do.

But “how long it will last remains to be seen,” he added.

– Climate crisis versus cheap holidays –

Beyond rising costs and fears that government stimuli will wane, airlines face commitments that are very uncomfortable next to each other.

On the one hand, they aim to carry a total of 10 billion passengers by 2050, up from 4.5 billion in 2019.

Yet, in the same time frame, they are committed to achieving “net zero emissions”.

The total cost of transitioning the industry to “net zero” is estimated by IATA at a staggering $ 1.55 trillion.

“Airlines don’t have the ability to absorb” the cost of that transition, IATA Director General Willie Walsh said this week.

To reduce carbon emissions, the industry’s focus is on sustainable aviation fuels (SAFs), which are currently two to four times more expensive than aviation fossil fuels.

Some governments have already imposed SAF quotas, albeit in small quantities, with the result that airlines in turn impose surcharges.

On Tuesday, IATA urged governments to provide subsidies to ensure SAF production reaches 30 billion liters in 2030, up from 125 million liters in 2021. It also wants to cut prices.

But even if such subsidies are forthcoming, “the net zero crossing will have to be reflected in ticket prices,” Walsh said.

Could this reverse the long-standing global trend of aviation progressively extending beyond the rich?

Krishnan believes that such “democratization” will become “more difficult”.

But he also said that “low cost airlines have sparked a world where people living in Northern Europe assumed they could take cheap holidays in Southern Europe.”

It would be “very difficult for governments to dissolve” such deep-seated expectations, he warned.

© Agence France-Presse