Airfares spike as travelers in Europe and Asia look for savings, BA

5 Min Read

110492497Representative image.

“>

Representative image.

Airfares in Europe and Asia are starting to stagnate or fall, a sign that the long-lasting travel boom following the COVID-19 crisis is waning, dealing a setback for airlines struggling with higher costs and limited aircraft availability.

A global imbalance between the supply of flights and pent-up demand as air travel resumed after the pandemic sent ticket prices soaring and passenger yields — a measure of the average fare each passenger pays per mile.

But industry executives, investors and analysts say the “travel at any price” trend is teetering, with some customers becoming more sensitive to prices as they struggle with inflation that has driven up the cost of living.

Budget airline Ryanair’s CEO Michael O’Leary warned this month that ticket prices would rise less than expected, sending shares of European airlines tumbling.

“It’s a bit surprising that prices haven’t been stronger and we’re not quite sure if that’s just consumer confidence or a recessionary feeling across Europe,” O’Leary said.

Fares were flat across the bloc in the first months of this year, compared to 2023, according to data from travel research group ForwardKeys.

The picture is grimmer in Asia-Pacific, where rates have fallen the most, down about 16 percent in the January-April period on a year-on-year basis, the data show.

Singapore Airlines posted a record annual profit last week, but net profit growth has fallen over the past three quarters. The Asian airline said it expects passenger revenues to moderate further as airlines expand capacity. Asia has been slower than other regions in lifting restrictions and increasing flights to overseas destinations.

“We believe supply and demand will rebalance themselves… airfares will continue to normalize in 2024,” Ronald Lam, CEO of Hong Kong-based Cathay Pacific, said in March.

Travel to markets such as Europe, America and Australia from China has not recovered. China’s economy is sluggish and international flights are still at about 70 percent of pre-pandemic levels — just 16.5 percent on U.S.-China routes.

Flight Center Travel Group said international airline tickets sold in Australia fell 12.8 percent year-on-year in the first three months of the year.

Still, prices in Asia Pacific are more than 7 percent higher than in 2019, while rates in 2021 are 70 percent higher than in 2019.

PRICE SENSITIVITY

Economists and investors are not yet pessimistic. Travel is still a spending priority for most consumers, especially in Europe and the United States, economists said.

But economists and analysts say flatter European airfares point to lower profit and savings rates across the continent, causing consumers to look for cheaper options, especially as hotels and car rentals become more expensive.

“Although consumers are still interested in traveling, European consumers in particular are very price sensitive,” says Natalia Lechmanova of Mastercard.

Cheaper destinations such as Turkey, Romania and the Balkans are becoming increasingly popular among European travelers looking for alternatives to France or Italy, she said.

Data from the European Travel Commission shows that consumers are expected to spend 742.8 billion euros ($803 billion) on the continent this year, a 14.3 percent increase from last year. But that could largely be driven by wealthier American tourists, industry experts say.

While Europeans try to save, US consumer spending is holding up, with demand for premium travel particularly strong.

According to the Mastercard Economics Institute, approximately 16 million Americans traveled abroad in the first quarter of 2024, setting a new record and surpassing pre-pandemic volumes.

Economists say a strong U.S. labor market is helping consumers maintain higher spending despite reduced household savings.

Average travel spending per U.S. household fell just 1.5 percent year-over-year in the first five months of the year, but was up 13 percent compared to 2019, Bank of America credit and debit card data show.

Global airline executives say consumers still want to spend money on travel, prioritizing experiences over goods.

“This is a very cyclical sector that is also very sensitive to the macroeconomy,” said Jamie Lindsay, an aviation investor at Artemis Funds.

But he doesn’t expect the decline in Europe and Asia to lead to a broader downturn in the sector.

“It’s not that rates are going down (everywhere)… it’s more of a normalization.” (USD 1 = 0.9246 euros)

  • Published on May 28, 2024 1:49 PM IST

See also  Warner Bros Discovery buys 'The Crimson Rivers' for Max in Europe
Share This Article
Leave a comment

Leave a Reply

Your email address will not be published. Required fields are marked *