Air fares are set to rise as airline capacity in Europe fails to recover to pre-Covid levels and carriers consolidate to cut costs.
That is according to Ryanair chief Michael O’Leary, who reported the carrier is seeing “double-digit increases” in fares this summer despite operating 15% more capacity than in 2019.
O’Leary noted: “Normally, if we added 15% in capacity we would be seeing a double-digit fall in price. But prices are rising. We’re seeing double-digit growth.”
He added: “I never thought we could deliver 15% capacity growth and see double-digit increases in fares. Some of that is pent-up demand, but we’re also seeing significant passenger transfers from other airlines.”
O’Leary said fares from some regional airports were being driven higher by demand switching from busier airports, arguing: “We’ve seen significant strengthening of air fares at regional airports. Fares on close-in bookings are moving upward because of disruption [to flights].”
He forecast most carriers would make further capacity reductions in winter schedules, saying: “We’ll see material cutbacks this winter. There are going to be significant cuts in capacity.”
Speaking as Ryanair reported a profit of €170 million for the three months to the end of June, O’Leary forecast “a three-to-four-year period of fares growth”.
He said: “We’ll see a medium-term upturn in short-haul fares, particularly where capacity is taken out and is never going to return.
“Capacity growth in Europe is going to be flat or downward for the next two to three years because of capacity that has already been taken out and won’t come back and competitors taking out more capacity.
“Air fares will rise over the next four to five years and Ryanair will take market share.”
O’Leary added: “There will be considerable consolidation in Europe. By 2025 there will be just four major airlines – Lufthansa, Air France-KLM, [British Airways owner] IAG and Ryanair. You’ll have three expensive legacy carriers and Ryanair.”
He suggested: “Somebody is going to take out easyJet, TAP, [Italian carrier] ITA and probably SAS.”
O’Leary added: “We’ve locked in significant airport cost reductions over the medium term. There is no country in Europe where airports are not desperately beating a path to our door.
“We’ve taken remarkable costs out of the system when there is so much cost pressure on our competitors.”