That’s why your plane tickets are so expensive right now
People are seeking robberies – sometimes their first in years – in a rush known as the “revenge trip”. Internet searches show exorbitant airfares for many routes, but travelers with a desire to travel are choosing to bear the higher costs after being grounded for so long.
“The demand is out of this world,” Delta Air Lines Inc. chief executive Ed Bastian told an industry conference last week, noting fares this summer could be 30% higher. higher than pre-pandemic levels. “It comes with leisure, it comes with premium customers, it comes with business, it comes with international. The category doesn’t matter. »
The trend is across geographies, although some locations are in more of a rush than others. Searches for a return economy class ticket between Hong Kong and London on Cathay Pacific Airways Ltd. end of June drive prices up to HK$42,051 ($5,360), more than five times the typical pre-pandemic cost. Direct flights between New York and London around the same time cost over $2,000 in economy class.
“Ticket prices are really expensive these days,” said Jacqueline Khoo, who works in tourism. His company paid S$5,000 ($3,632) for a colleague’s round trip with Singapore Airlines Ltd. in Hamburg later this month. It cost around S$2,000, she said. “It’s really unbelievable that an economy class ticket costs you so much.”
A study by the Mastercard Economics Institute found that the cost of flights from Singapore was on average 27% higher in April than in 2019, while flights from Australia were 20% higher. Travelers are increasingly booking tickets months in advance as they worry about the cost of last-minute purchases, said David Mann, chief economist for Asia-Pacific, the Middle East. and Africa at the institute.
The higher fares have several reasons, not all of which are within the control of the airlines.
Carriers are cautious about returning all their inactive jets, even though most countries have eased cross-border restrictions. This is especially true for giant planes like Airbus SE’s A380 superjumbos and Boeing Co.’s older 747-8s, as airlines shift to more fuel-efficient models like A350s and 787 Dreamliners. The pinch is most acute in Asia, which has been the slowest to ease restrictions, and like China, the region’s biggest market, remains essentially closed.
After navigating varied and changing government policies over the past two years, it will take time for airlines to rebuild their fleets given that many restrictions were only eased in May, said Subhas Menon, director General of the Association of Asia Pacific Airlines. “It’s still early days,” he said. “It’s only June, so it’s not like turning on the tap.”
Carriers have also reduced their networks during Covid, neither has Cathay, which has been hampered by Hong Kong’s onerous travel and quarantine rules. This left people considering long journeys with one or more stopovers, where before they might have flown straight. British Airways Plc doesn’t even fly to Hong Kong at the moment.
With fewer planes in the sky, there are fewer seats to meet the recovery in demand, which in turn has driven up fares.
Russia’s invasion of Ukraine has exacerbated the steady rise in crude oil prices over the past 18 months. Jet fuel now accounts for up to 38% of an airline’s average costs, up from 27% in the years leading up to 2019. For some low-cost airlines, it can be as high as 50%.
Spot kerosene prices in New York have soared more than 80% this year, although prices vary from region to region depending on refining costs and local taxes. So far, many US carriers have been able to cover rising fuel costs, but only by passing them on to travelers in the form of higher fares.
Some investors believe airlines may seek to increase fuel surcharges to cope, Citigroup Inc. analysts said in March. Most Asian airlines do not hedge jet fuel, which means they are more vulnerable to price increases.
Higher ticket prices don’t seem to be deterring people from taking trips now that many travel restrictions have eased. Some consumers are tapping dormant vacation budgets and switching to more expensive plane cabins for leisure travel, International Air Transport Association chief executive Willie Walsh said last month.
The so-called revenge traveler is “someone who has been emotionally affected by the closures and has been craving travel for the past couple of years and she’s been dreaming about it,” said Hermione Joye, travel industry manager in Asia-Pacific at Alphabet Inc.’s Google. “They are very spontaneous.”
Hundreds of thousands of pilots, flight attendants, ground handlers and other aviation workers have lost their jobs over the past two years. With travel resuming, the industry now finds itself unable to hire fast enough to enable seamless operations at its pre-pandemic levels.
Read more: Fewer pilots will lead to a summer of flight cancellations
Singapore’s Changi Airport, regularly voted the best in the world, is looking to recruit more than 6,600 people. Many workers who have been laid off have found other careers less volatile and are unwilling to return to a cyclical industry. An operator in Changi is offering an entry bonus of S$25,000 to auxiliary police officers, a job that pays a maximum of S$3,700 a month.
In the United States, small regional airlines cannot fly at full capacity because the big carriers have hired too many pilots. Hundreds of flights have been canceled in the UK, undermining holiday plans and leading to long delays and scenes of passengers sleeping in airports. In Europe, major airports have had to deal with delays and cancellations because they did not hire the right staff. This disrupted airline schedules and increased costs.
Fix the balance sheets
Aviation is a capital-intensive industry with historically very thin margins. Covid has made this operating climate even more difficult: globally, airlines have lost more than $200 billion in the three years to 2022.
High tariffs offer carriers a way to recoup losses and get back to black.
Read more: US airlines face crucial summer test in quest for profitability
“We’ve never seen a revenue environment like this, led by national recreation,” American Airlines Group Inc. chief executive Robert Isom told an industry conference the week last. “On top of that, we’re seeing big business come back. Small and medium-sized businesses have really been off the charts for several months now.”
It’s unclear how long these high prices will persist, although many travelers seem willing to pay.
“Rising prices are a short-term thing,” said Stephen Tracy, chief operating officer at Milieu Insight, a Singapore-based consumer insights and analytics firm. “Let’s all hope that once these things even out again, prices will come back down. I’m pretty confident they will.
In a few cases fares are actually lower than pre-pandemic levels, according to Michael O’Leary, chief executive of Ryanair Holdings Plc. Although there is a prospect of more tariffs returning to pre-Covid levels, the war in Ukraine and virus outbreaks are still risks, he said.
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