As airlines sink deeper in debt because of the Covid-19 pandemic, they will be unable to avoid raising fares after the crisis. A recent report published by the European Travel Commission (ETC) predicts the likely drop of low-cost travel, based on an average spending per international trips, which has fallen 17% over the past decades. Moreover, ETC found that borrowing and the increased share of short-haul leisure eat into profits and may leave airlines little choice but to raise prices.
1. Increasing costs
It’s undeniable, Covid-19 hit passenger demand in an unprecedented fashion. While larger airlines tended to receive state intervention, some smaller operators have no other option than borrowing. But in many cases even flag carriers will have to repay state loans. This is seen by some as a sign that air fares must increase as operators seek to recoup losses in order to repay loans. Adding to the soaring costs, the airline industry is also facing challenges from increasing jet fuel costs and the pursuit of sustainable aviation fuels.
2. Low-cost airlines connecting cultures
The costs of travel have been falling for decades and lower air fares have played a critical part in this. Instant travelling became incredibly popular over the past decade or so, with cheap flights connecting cultures both inside Europe and beyond. Market liberalisation also played an increasingly important role in passenger growth in the most recent growth cycle.
According to the CAPA Center for Aviation report published in March 2020, at the peak of mass flight cancellation globally, most airlines would not survive the catastrophe of the paralysis afflicting aviation in most of its markets. Unless governments would step in to rescue civil airlines. In Europe, that was the case for France, Germany, Portugal, Greece, Spain and the United Kingdom. Still, in light of the several constraints felt by airlines in general, raising fares will risk dampening the recovery in demand for air travel. However, while there are plenty of reasons why travel prices may increase, evidence of this is not yet definitive, according to ETC
Experts across the globe have predicted that it would take the civil aviation industry many months after the virus passed to recover. After nearly two years of living with the Covid-19 pandemic, some of the predictions have indeed become reality, including that battered airlines have not resumed their full schedules and timetables. Following mass layoffs, their staff became smaller, and the resumption of their activity has been gradual and hesitant. The civil aviation sector, which was prosperous before the crisis, seems to be moving in the direction of what it was many years ago, both in the size of companies and the extent of passenger traffic.