Air fares may stay sky-high, say industry experts

Despite the recent fall in oil prices, high air fares may stay in place for some time to come, say airline industry professionals and experts.

The gradual return of demand for travel last year following the lifting of Covid-19-related travel restrictions, had already given the signal for higher fares.

But this year, just as the airlines are expecting to see passenger numbers almost back to pre-crisis levels, prices have really taken off.

In France in April, the average cost of an air ticket was 32.6% higher than four years earlier, according to the French Civil Aviation Authority.

That increase was as much as 51% for flights to the Asia-Pacific region.

In the US, the air ticket price index published by the St Louis Federal Reserve showed an 11% increase in air ticket prices between April 2019 and April 2023.

This is despite the fact that oil prices have eased since peaking in the wake of Russia's invasion of Ukraine in early 2022.

The International Air Transport Association (Iata) estimates that they will fall to an average of US$98.50 (RM454.48) a barrel this year, compared with US$135.6 last year.

Representing between 25% and 30% of airline costs, fuel normally has a significant effect on ticket prices.

However "labour costs and other costs associated with the supply chain... seem to be higher or rising," Marie Owens Thomsen, Iata's chief economist said earlier this week in Istanbul.

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

'Too few seats' 

For Vik Krishnan, a specialist in the airline sector at strategy consultancy McKinsey, the main 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".

Despite order books that are sometimes full right up to the end of the decade, aircraft manufacturers are struggling to meet their delivery targets because of shortages of parts or materials from their suppliers.

There is also the thorny issue of labour costs.

"Many airlines had to recut their deals with their flight and cabin crews... but also all of the supply, the ground handlers, the maintenance shops, they all had to pay considerably higher wages coming out of Covid," said Geoffrey Weston, from the consultancy firm Bain & Company.

"There aren't many factors that are going to bring ticket prices down," echoed Pascal Fabre, aviation sector specialist at AlixPartners.

And given that the airline industry will have to invest hundreds, if not thousands, of billions of dollars in new aircraft and renewable fuels if it hopes to meet its 2050 decarbonisation target, Iata's Owens Thomsen sees no respite for consumers any time soon.

"Costs are likely to increase until such a point when all of these solutions have become commercially viable and produced at scale.

"When we reach that lucky moment, we can start thinking that these costs can decline again. I cannot pinpoint necessarily when that's going to happen but I'm tempted to say 2040".