Cyprus Mail
Guest ColumnistOpinion

‘Flyers still ready to fork out sky-high fares’

file photo: a ryanair aircraft taxis behind an easyjet aircraft at manchester airport in manchester
Budget airlines Ryanair and EasyJet have said summer bookings are very strong
Airlines are testing fliers’ tolerance for high prices to bolster profits

By Joanna Plucinska and Rajesh Kumar Singh

US and European airlines will aim to boost profits again this year with higher ticket prices as they try to squeeze what they can from the post-Covid travel boom and mitigate higher costs amid persistent plane shortages, investors and executives say.

Major carriers are straining to lay on more flights to meet demand but are struggling due to delays in new plane deliveries from Airbus and Boeing and the grounding of jets using some RTX engines over potential defects.

Tight supplies, in turn, are keeping air fares high, allowing carriers to pass on higher jet fuel, labour and maintenance costs.

That has sent average revenues per passenger – known in the industry as yields and a proxy for airline pricing power – to 6.2 per cent last year, its fourth straight year of growth, according to data from global trade body IATA.

Yields are set to rise further in 2024, albeit at a slower pace, by around 1.8 per cent, IATA has predicted.

European airlines’ yields this summer – the busiest time of year – will exceed last year’s levels, hitting as high as 8.5 per cent, and increase even more in 2025 as travel demand continues and plane delivery delays persist, according to Bernstein forecasts.

Bernstein analyst Tobias Fromme estimates demand will have grown about 15-20 per cent this summer since 2019, while capacity has barely budged.

“Higher fares this summer will keep driving profits. Airlines will make more money because customers are still willing to pay more,” said Jamie Lindsay, an airline investor at Artemis Investment.

Interviews with half a dozen analysts, executives and investors and fare data show airlines’ resilience as they recover from the pandemic when planes were grounded, borders were shut and they took on billions in debt to stay afloat.

They also underscore consumers’ renewed focus on travel and experiences following the months of pandemic restrictions, known as “revenge travel”.

Take Wizz Air: yields will rise this summer by the same amount as 2023 even though capacity will remain flat, UK managing director Marion Geoffroy told Reuters.

“If there is constrained capacity, then the pricing environment goes up,” she said, without giving more details on the size of the increases.

Air tickets sold through US travel agencies in January were the highest for the month, data from Airlines Reporting Corp (ARC) shows, with average ticket prices up 3 per cent from a year ago.

Since 2019, fares to North America have gone up 30 per cent, while fares to Europe have risen 25 per cent, according to travel data firm ForwardKeys.

Summer bookings will be a hot topic when British Airways-owner IAG and Air France-KLM release 2023 results on Feb. 29. They are expected to report higher operating profits, according to an LSEG analysis.

European budget airlines Ryanair and EasyJet have said summer bookings are very strong, although Ryanair was more subdued due to issues with sales via online travel agents.

Delta’s operating profits are projected to rise 3 per cent to $6.5 billion in 2024, according to an LSEG consensus, while United Airlines’ profits are seen flat at $5.1 billion.

So far, soaring fares have not dented demand. United has said bookings and yields on transatlantic routes are expected to stay strong this year.

Travel in China, one of the last markets to emerge from lockdowns, has also rebounded, with tourism revenues soaring above pre-pandemic levels during the Lunar New Year break this year.

“Talk to any airline at the moment, and they’ll tell you, their forward bookings are looking good for this summer,” said Paul Charles, the founder of the PC agency.

As long as the economic outlook remains stable, consumers may continue tolerating high prices, investors and analysts said.

But some worry that trend might wane, particularly with recent recessions in Japan, Britain and Germany.

Hotel operators Hilton Worldwide and Marriott International and online travel agency Expedia have already signaled an end to “revenge travel.”

“If you would see labour markets deteriorate further, that could start to impact demand,” said Madeleine Ronner, a portfolio manager at DWS Smart Industrial Technologies, which invests in Lufthansa and TUI.

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