Boosted by inflation and the cost of fuel, fares are rising after two years of Covid-19, a trend that is likely to increase in the long term.
The 78th Annual General Meeting (AGM) of the International Air Transport Association (IATA) and World Air Transport Summit (WATS) has just concluded in Doha, Qatar. In addition to the economic outlook for air transport in the post-Covid period, key topics to be discussed included: the war in Ukraine and its implications for the globalized world; the challenges of achieving sustainability, and therefore net zero carbon emissions by 2050, reducing the use of single-use plastics, limiting airport capacity around the world, and the safe transport of lithium batteries. And for the participants, the question was also whether the increase in airfares will have consequences on access to this mode of transport, and its ambitious plans for growth despite the climate crisis.
In France, an increase of almost 20% in ticket prices
Taking a plane will cost more and more, and it’s here to stay. While prices were relatively low during the two years of the health crisis, the lifting of most travel restrictions and the return of accompanying traffic are causing fares to rise sharply. To United States, the average price for a domestic ride skyrocketed in six months, from $202 in October 2021 to $336 in May 2022, according to statistics from the St. Louis Federal Reserve branch. In L’European Union, the average fare excluding taxes for a one-way ticket returned in April to the level of the same month of 2019, after having fallen by more than 20% in 2020, according to data from Cirium, a company specializing in the study of the sector. And in France, the prices of flights departing from the territory, for all types of journeys, increased by 19.4% in May compared to the same month of 2021, according to the Directorate General of Civil Aviation. For example, the company Air Caraïbes indicated on June 17 in a press release that faced with “a sharp increase in the price of kerosene of more than 15%”, it proceeded to increase the price of its tickets, ranging from 3 to 30 euros. In this press release released Thursday evening, the company highlighted “the increase, with retroactive effect to June 3, of around 15% in the price of kerosene in all the French departments of the West Indies”.
Other causes of this increase are known: demand reinvigorated faster than expected, supply still constrained by organizational difficulties and labor shortages, inflation unprecedented for 40 years… Airlines expect to spend 24% of their costs on fuel this year, compared to 19% in 2021. And, while they must replenish their cash drained by the health crisis, they are forced to transfer these increases to customers. However, “we don’t see a reduction in demand, and I don’t think we will“, assures the general manager of the American giant United Airlines, Scott Kirby, putting the current increases in perspective: “in real terms, prices are back to 2014 levels, and lower than before that time“.
Are we heading towards the end of the democratization of air transport?
“The trips currently taking place are the result of governments’ stimulus packages, which have become disposable incomefor individuals, notes Vik Krishnan, partner at McKinsey and air transport specialist. “The number one discretionary spending item is travel, and that’s what people do. It remains to be seen how long it will lasthe asks himself. Beyond these challenges, plane on air transport a sword of Damocles: the need to no longer contribute to global warming by 2050, as it has committed to, while transporting 10 billion people a year against 4.5 billion in 2019.
To decarbonize, companies are two-thirds competent on sustainable aviation fuels (SAF) which are currently two to four times more expensive than fossil-based kerosene. Some governments are beginning to mandate small amounts, which has already forced companies to impose surcharges. On Tuesday, Iata urged subsidizing SAF production to achieve 30 billion liters available in 2030 from 125 million in 2021, obsessed with driving down prices. The total cost of the transition to “net zero emissions»? According to Iata, 1550 billion dollars over 30 years. “Companies would not be able to absorb these cost increases (…), the transition will have to be passed on to ticket prices, and this could slow down some of the growth”, a conceded on Tuesday the general manager of the organization, Willie Walsh. What can reverse the long-standing trend to democratize the sector? For Mr. Krishnan, indeed, “democratization will be more difficult to achieve“. Corn “it will be very complicated for governments to go back” on the access of the greatest number to air travelhe warns.
ON VIDEO – The director of IATA “optimistic” on the resumption of aviation despite the challenges