Airfares are sky-high — is that a good thing? – DW – 11/09/2023

Life has gotten more expensive since the pandemic but few things have risen as much as the price of flying.

Anyone who has bought a flight in 2023 will know it already but the EU confirmed last month that average airfares across Europe were between 20% and 30% higher in summer 2023 compared with 2019.

It’s a global issue that has been building since early 2022. In February 2023, data from aviation analytics company Cirium revealed that average ticket prices for hundreds of the world’s most popular routes had risen by 27.4% from early 2022, when prices were low as pandemic-hit airlines looked to entice travelers back to the skies.

Although inflation has soared in many countries since then, the increase in airfares when compared with the pre-pandemic period comfortably exceeds national rates of inflation during that time.

This week, EU Commissioner for Transport Adina Valean told the Financial Times that Brussels was now looking into the issue to find out, “what is exactly going on in the market and why.”

Lots of reasons have been given by airlines, from surging demand for travel, to disrupted supply chains for everything from planes themselves to the seats that fill them.

Yet many say high prices for flights are here to stay and that in itself need not be a bad thing, given the industry’s major carbon footprint.

The old price drivers — supply and demand

There are two major reasons behind the dramatic rise in the price of flights: increased demand and disrupted supply.

For two years, the COVID-19 pandemic wreaked havoc on the industry. With planes grounded around the world, the sector’s combined losses in 2020 and 2021 were at least $200 billion (€187 billion) according to the International Air Transport Association (IATA), a trade body.

Just as the pandemic brought flights to a dramatic halt, the return to normality has driven a remarkable travel boom. Throughout 2023, practically all of the world’s major airlines have been posting record profits as they rush to keep up with huge demand.

Ryanair, Europe’s biggest carrier by passenger numbers, said this week it expects to make a record profit of up to €2 billion ($2.1 billion) in the current financial year. Lufthansa, Singapore Airlines, IAG, Air-France-KLM, Emirates and American Airlines are among those who have been posting stellar results this year.

IATA said in June it expects the airline industry’s total revenues to top $800 billion for the first time since 2019. 

Airlines say that while the demand is helping them score record profits, their own lack of capacity has forced them to ramp up prices. Supply chain snarls in the sector have led to delays at Airbus and Boeing, who are struggling to meet airlines’ demands for new planes and parts.

Ryanair CEO Michael O’Leary said this week the delays at the two major aircraft makers are a major cause of higher prices. He told investors on a call this week that he expected some airlines to be forced to slash capacity in 2024 due to supply issues. He expects prices to continue to rise as a result.

It’s not just supply chain troubles either. Airlines are grappling with their own increased costs amid staffing problems at airports that have also increased since the pandemic, prompting airport operators to cut capacity.

However, according to Karolina Wojtal from the EU’s European Consumer Centres Network, airlines are themselves allowing prices to rise higher than the rate of inflation.

“The airlines are also automatically pushing up prices with their booking systems because people really want to travel again after the coronavirus,” she told DW.

The question of price-gouging has been leveled at airlines, with some accusing them of trying to offset the huge losses they suffered during the pandemic by overcharging now. Airlines deny it, saying prices are an accurate reflection of the current state of the industry.

Will airfares ever fall?

With the supply chain problems expected to persist for some time, and the travel boom showing little sign of abating, prices are not going to fall any time soon.

Another issue that could further drive up prices in the years ahead is the potential costs for airlines as they turn to costly sustainable aviation fuels. The aviation industry has a major carbon footprint and is under pressure to reduce it as soon as possible.

Willie Walsh, the director-general of IATA, said earlier this year that he expected fares to keep rising over the next 15 years due to the higher costs of more sustainable fuels. “It will mean higher fares because sustainable aviation fuel is more expensive than your traditional jet kerosene. And as we transition to net zero, it is going to cost some money,” he said.

Should airfares be regulated?

Environmental groups have argued that higher air travel costs could help cut the growth of air traffic and would help to both fund the green transition and reduce emissions in the shorter term.

Jon Worth, a railway transport analyst based in Germany, says the travel boom of 2023 has also seen a huge increase in people opting for less polluting methods of transport, such as rail, but he says something needs to be done with prices to discourage excessive travel by plane.

“We have to ask what sort of price structure would make sense with regard to trying to discourage those extremely frequent flyers who make up an enormous amount of your airline passengers,” he told DW. 

For him, that means a range of things, from increased taxes on kerosene fuel for airplanes to a frequent flyer tax and from increased landing charges for airlines at airports to less direct government support for the sector.

“We all have to fly less and flights have got to be more expensive in the medium to long term because that should act as a way of discouraging people from flying so much,” he said.

In her interview with the Financial Times, EU Commissioner Valean said she had no plans to intervene in the aviation market but would seek a “detailed explanation” from airlines about rising airfares.

Some governments have sought to intervene though. The Italian government announced plans in early September to cap airfares between mainland Italy and the islands of Sicily and Sardinia after prices soared in the summer. However, after a fierce backlash from airlines, led by Ryanair, the government pulled back.

France is looking to set an opposite course. The country’s transport minister said recently he is seeking support from other EU nations to set minimum prices on flights within the EU, to try and help curb emissions. He says a debate is needed on the “social and environmental price of a flight ticket.”

Edited by: Ashutosh Pandey