Industry insiders worry about rising airline prices

High air fare levels may persist for some time to come despite the recent drop in oil prices, according to professionals and experts in the airline industry.

After the Covid-19-related travel restrictions were lifted last year, demand for travel gradually resumed. This signalled the need for higher fares.

However, prices have really risen this year, just as the airlines are anticipating a nearly pre-crisis level of passenger traffic.

According to the French Civil Aviation Authority, the average price of a plane ticket in April was 32.6 percent higher than it had been four years earlier.

For travel to the Asia-Pacific region, this increase reached 51%.

According to the St. Louis Federal Reserve’s index of airline ticket prices, the cost of airline tickets in the United States increased by 11% between April 2019 and April 2023.

The price of oil has decreased since peaking in the wake of Russia’s invasion of Ukraine in early 2022, despite this.

According to the International Air Transport Association (IATA), they will average $98.5 per barrel this year as opposed to $135.6 last year.

Fuel typically has a significant impact on ticket costs, accounting for between 25 and 30 percent of airline expenses.

However, IATA’s chief economist Marie Owens Thomsen stated earlier this week in Istanbul that “labour costs and other costs associated with the supply chain… seem to be higher or rising.”

“Airlines will have to find a way to cover those costs or they will start making losses again,” she said at the general meeting of her association, which brings together 300 airlines from around the world. This is at a time when they are barely back in the black and have to pay off the enormous debts incurred due to Covid-19.

The primary issue is now “less about oil prices and more about the fact that there are too few seats chasing too many people who want to be in them,” according to Vik Krishnan, a strategy consultant at McKinsey who specialises in the airline industry.

Despite order books that are occasionally full all the way through the end of the decade, aircraft manufacturers are having trouble meeting their delivery deadlines due to supplier shortages of parts or materials.

The complex issue of labour costs is another.

“Many airlines were forced to renegotiate contracts with their flight and cabin crews… but also every supplier, ground handler, and maintenance shop, they all had to pay noticeably higher wages coming out of Covid,” said Geoffrey Weston from the consulting firm Bain & Company.

Pascal Fabre, an expert in the aviation sector at AlixPartners, concurred that there aren’t many factors that will cause ticket prices to decrease.

IATA’s Owens Thomsen sees no relief for consumers any time soon given that the airline industry will need to invest hundreds, if not thousands, of billions of dollars in new aircraft and renewable fuels if it hopes to meet its 2050 decarbonization target.

Until all of these solutions are produced at scale and are commercially viable, costs are likely to rise.

“When that fortunate time comes, we can begin to consider that these costs might decrease once more. Although I am unable to say with certainty when that will occur, I am tempted to say 2040.