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Supply chain disruptions have sent energy costs soaring.
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Air travel has struggled to rebound following the global pandemic.
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RyanAir CEO Michael O’Leary warns that the days of cheap air travel may be a thing of the past.
Expensive flights are likely here to stay as we leave budget flying in the past. As we see rising oil and gas prices around the world, as well as facing energy shortages, the times of low-cost flying may well be left in the past as airlines worldwide put their prices up in line with rising costs and post-pandemic challenges. Almost every industry has struggled to bounce back in a post-pandemic world, facing supply chain disruptions, rising energy costs, and fewer staff numbers. As companies fight to get back on track, none has been hit so hard, perhaps, as the aviation industry. There have been several failures this year from airlines trying to meet the growing consumer demand, with fewer employees than pre-pandemic and rising costs – from fuel to aviation equipment. So, while the consumer demand for flights may be growing, budget airlines are quickly realizing the need to readdress their stance on cheap flights, as they may no longer be viable.
This month, Michael O’Leary, CEO of the Irish low-cost airline RyanAir, said he believes cheap flights may be a thing of the past. He explained, on a British radio show, “I don’t think there are going to be 10 euro [$10.33] flights anymore because oil prices are significantly higher as a result of the Russian invasion of Ukraine.”
Ryanair has been able to maintain its low prices until now, with the average cost of a flight equating to just over $40 last year, but these fares are set to rise as airlines battle with rising fuel costs. O’Leary stated, “We think that 40 euros needs to edge up towards maybe 50 euros over the next five years. So the £35 average fare in the U.K. will rise to maybe £42 or £43.” He added, “There’s no doubt that at the lower end of the marketplace, our really cheap promotional fares, the one-euro fares, the 99-cent fares, even the 9.99 fares, I think you will not see those fares for the next number of years.”
While Ryanair intends to maintain lower costs than several other airlines, the days of ultra-low-cost tickets are over. In addition, fears of uncertainty over the Russian invasion of Ukraine and the impact that will have to travel to Eastern Europe, as well as the larger picture of energy shortages and supply chain disruptions, have airlines hedging their bets to ensure they can face any challenges that come their way.
In July, the International Air Transport Association (IATA) stated the inevitability of rising flight costs as airlines had to contend with rapidly increasing fuel prices with no end in sight. Director General of the IATA, Willie Walsh, explained: “Flights are getting more expensive because of the high price of oil and it’s becoming clear to everybody that that will be reflected in higher ticket prices.” At that point, jet fuel prices had risen around 82 percent from the previous year.
Some airlines have temporarily avoided raising their prices substantially thanks to opting for fuel hedging arrangements, where they agree to buy a specific amount of fuel at an agreed-upon price in advance. But many companies moved away from these types of arrangements due to market uncertainties following the pandemic and the high up-front costs of hedging.
In June, several news outlets reported that rising flight prices were already outpacing inflation, with airline tickets increasing by around 25 percent over the last year. As consumers looking to travel in the summer months continued to buy flights at a higher cost, airlines were able to keep raising their prices for the peak months. Despite the high cost, Scott Kirby, CEO of United Airlines, said that travel demand was the “strongest” it had been in his 30 years in the industry. Several other airlines announced their highest booking numbers on record this year.
And it’s not just normal flight prices that are increasing, with many airlines introducing additional surcharges on flights booked with air miles in the face of rising fuel costs. Virgin surcharges on business class flights between the U.K. and the U.S. have gone up by over $360 since the beginning of the year, totaling $846. This is even higher if flying to the West Coast. Meanwhile, British Airways business class surcharges have increased from $480 to $665, with higher fees of over $1020 on longer flights. Although surcharges on economy flights have risen by around just $30.
And the high cost of business travel is expected to extend well into 2023. With growing demand from companies looking to recommence business trips, airlines are looking to win big in the high-end travel sector. Business travel prices are expected to rise by around 50 percent, compared to 2021, according to the Global Business Travel Association. And this could increase by a further 8 percent in 2023. While companies are hoping to get business travel started again, this may make some reconsider the need for many trips.
Rising fuel costs and post-pandemic uncertainties are driving up the prices of budget, standard and high-end travel worldwide. And with demand growing for both business and leisure travel, this trend is set to continue well into the next year.
NB: Felicity Bradstock wrote this article for Oilprice.com
