Rising costs and strong demand appear set to push up airfares, with fares in the US rising at a record rate. But fierce competition, led by Ryanair, could squeeze airline margins in Europe outside of peak summer.
Fares in the US rose 19% month on month in April, the largest increase the US consumer price index has recorded since it launched in 1963. US carriers are operating at 93% of 2019 capacity and have found no difficulty passing on price increases up to now. American Airlines chief executive Robert Isom said last month: “Demand is as strong as we’ve ever seen it.”
The value of air bookings through US agents has also soared despite a drop-off in sales last month due to the Easter holiday.
The US Airlines Reporting Corporation, which acts like Iata’s BSP in settling sales through agents and travel management companies, reported the value of air bookings hit a seven-year high of $7.7 billion in April. The average domestic return fare of $585 was 45% up year on year despite a 1% fall in bookings month on month and a 10% fall in passenger numbers.
The price of jet fuel fell almost 12% last week to $149 a barrel in Europe but remained more than double the price a year ago, with the increase exacerbated by the exchange rate of the dollar which has risen from $1.41 to the pound last May to $1.25 this week.
Oil is traded in dollars so that means added pressure to increase fares. Tui reported a 20% rise in average selling price for the summer this month, driven by extended durations, and insisted the extra margin would cover the fuel price.
But easyJet revealed an operating loss of £17.81 on every seat sold in the six months to March last week, despite a 33% increase in average fares during January to March as sales recovered, and despite the carrier’s hedging meaning it paid less for fuel than a year earlier.
Losses through the winter are normal, but easyJet’s loss per seat in the half year to the end of March 2019 was £5.95 and in the same period to March 2018 it was 43p.
Ryanair also reported a loss of more than €5 on every seat sold in the 12 months to March. Yet it intends to carry more passengers than ever this summer, with capacity at 115% of summer 2019 levels despite the carrier noting “pricing continues to need stimulation”.
Ryanair said: “We expect to fill these flights with lower fares and at higher fuel costs.”
The carrier expressed “cautious optimism” that peak summer 2022 fares “will be somewhat ahead” of 2019, but bargain prices outside the peak will hike the pressures elsewhere in the sector and fares must rise sooner or later or trigger failures.