Why Airline Ticket Prices Are Expected to Continue Rising Despite Drop in Oil Prices: Aviation Experts

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Airfare prices are likely to continue to rise in the long term despite the recent drop in oil prices, according to aviation experts.

In 2022, the gradual return of travel demand after the lifting of COVID-19 restrictions prompted several regions of the world to raise ticket prices.

Poll.. The global travel and tourism sector will not fully recover by the end of 2023

But this year, as airlines seek to regain pre-COVID-19 passenger numbers, price volatility has reached its peak.

In France in April, travelers had to pay an average of 32.6% more than they did four years ago for the same flight. This increase reached up to 51% for flights from France to the Asia-Pacific region.

In the United States, the price index for travel tickets published by the Federal Reserve of Saint-Louis shows an increase of 11% between April 2019 and April 2023.

fuel prices

These increases are recorded despite the stability of kerosene prices, after reaching a peak after the start of the Russian invasion of Ukraine in February 2022.

The International Air Transport Association estimates that prices will fall this year to $98.5 per barrel, compared to $135.5 per barrel last year.

Fuel represents between 25 and 30% of airlines’ costs and usually has a significant impact on ticket prices. However, the decline in prices is long overdue.

In addition to fuel, “labor costs and other costs associated with the supply chain (…) are either higher or going up,” says Air Transport Association chief economist Mary Owens Thomsen.

“The companies need to find a way to cover these costs, otherwise they will start losing money again,” she said at the beginning of this week in Istanbul during the general assembly of her organization that includes 300 airlines around the world. COVID-19 crisis.

shortage and hypertrophy

And the expert in the aviation sector at the Center for Strategic Consulting “McKinsey” Vic Krishnan considers that the main issue does not lie “in oil prices as much as it lies in the lack of sufficient seats in aircraft with a large number of passengers.”

Although their order books are sometimes full until the end of the contract, aircraft manufacturers struggle to meet their delivery targets because of parts or material shortages from their suppliers.

There is also the issue of “the cost of labor, and many companies have had to negotiate higher wages for pilots and cabin crew,” according to Geoffrey Weston, a consultant at Bain & Company.

This is also the case for ground operations companies that have had to “pay much higher salaries out of covid-19” to porters and mechanics, he says.

“There are not many factors that can reduce ticket prices,” says Pascal Fabre, an expert in the aviation sector at Alex Partners.

The head of the Spanish low-cost airline Bolotea, Carlos Muñoz, confirms that these high prices have not affected the demand for travel so far, explaining, “With my counterparts, we all have the same impression, demand is still very strong despite (headwinds) in the macro economy.”

But even though aviation will have to invest trillions of dollars to try to decarbonize by 2050 in new planes and renewable fuels, Mary Owens Thompson sees no respite for consumers.

“The costs will go up until we have commercially viable solutions that are mass-produced (…) by 2040 perhaps,” she says.

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