Are Airlines Approaching the Threshold of Passenger Acceptance for Expensive Fares?

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The Paris Air Show recently experienced the highest number of firm aircraft orders in 15 years, primarily from two Indian airlines with delivery plans over the next decade. Despite soaring airfares, inflation, and concerns about recession, passengers around the world continue to book flights for their vacations.

Airline executives are celebrating the surge in bookings and passengers’ willingness to pay higher fares after a challenging three years.

However, this trend may not last much longer. May data from the Airports Council International Europe shows that global airfares are approximately 36% higher than in 2019. Hopper, a US travel app, estimates that fares from the US to Europe have increased by 23% compared to 2019. Virgin Atlantic reports a 35% increase in north Atlantic fares during the same period.

Despite these rising costs, passenger traffic is projected to surpass 2019 levels next year, according to the International Air Transport Association. Delta Air Lines CEO Ed Bastian believes this recovery goes beyond revenge travel and is more significant than anticipated.

A lack of capacity, coupled with supply chain challenges affecting aircraft deliveries and maintenance, contributes to the higher fares. Additionally, the overall costs of travel, including accommodations, are rising. It would be risky to assume that passengers have become immune to price increases.

Predicting consumer behavior has become more complex post-pandemic. Previous forecasts depended on decades of data on price elasticity of demand and the relationship between airfare, economic conditions, and travel propensity. However, these assumptions were based on the expectation that tickets would continue to become cheaper, which is no longer the case.

Aviation planners acknowledge the uncertainty surrounding consumer behavior as pandemic-related savings diminish and unemployment potentially rises. Airlines have also taken advantage of the supply-demand imbalance post-Covid to increase revenue while offering fewer services and amenities, making the true cost of flying less transparent and travel more burdensome.

Government scrutiny of drip pricing, a tactic used in the leisure industry, indicates that consumers may be reaching their limit. Hopper reports a significant increase in price checks before booking and a growing preference for flying on weekdays when fares tend to be lower.

While airlines may be enjoying a period of high demand, they are aware of the potential risks. Delta has already reduced its planned capacity on transatlantic routes as a precaution, which could help maintain fares. Virgin Atlantic’s Chief Commercial Officer Juha Järvinen claims not to have seen any signs of slowing demand but acknowledges the need to adjust if there is a growing cost of living crisis.

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