Here’s why flights are so expensive right now

Demand for travel is sky-high, but so are the airfares…

By Bloomberg News, June 8 2022
Here’s why flights are so expensive right now

For more than two years, the main topic of conversation pretty much everywhere has been about the impact of Covid-19.

Now that the worst of the pandemic seems to be over and people are traveling more freely again, another hot topic is on the tips of everyone’s tongues: expensive plane tickets. 

People are looking for flights – sometimes their first in years – in a rush of what’s been termed “revenge travel.”

Internet searches show sky-high airfares for many routes, yet travelers with wanderlust are opting to stomach the higher costs after being grounded for so long.

Airline CEOs all agree that demand is off the charts, driven by successive waves of families and relatives reconnecting, holidays and business travel.

And there’s a notably higher uptake of the more expensive seats at the front of the plane – first and business class, along with premium economy.

It’s not uncommon to see airfares today at anywhere from double to five times their pre-pandemic levels; and 2019 is an especially unforgiving baseline, as it represented an era of peak competition between airlines.

A Mastercard Economics Institute study found the cost of flying from Singapore was on average 27% higher in April 2022 than in 2019, while flights from Australia were 20% more. 

By the end of April, global leisure flight bookings had surpassed 2019 levels by 25%, while business travel bookings exceeded pre-pandemic levels for the first time in March.

Increasingly, travelers are booking tickets months in advance as they’re worried about the cost of buying at the last minute, said David Mann, chief economist for Asia Pacific, Middle East and Africa at the institute.  

And if you’re thinking of avoiding the price crush by booking with frequent flyers points, you’re out of luck: this ‘perfect storm’ has also seen the supply of points-based award seats falling well short of rocketing demand.

There are several reasons for the higher fares, not all of which are within the control of airlines.

Giant jets parked 

Carriers are cautious about bringing back all their idled jets, even though most countries have eased cross-border restrictions.

That’s particularly true for giant aircraft like Airbus A380 superjumbos and Boeing’s older 747-8s, as airlines turn to more fuel-efficient models like Airbus A350s and Boeing 787 Dreamliners.

The pinch is most acute in Asia, which was the slowest to ease restrictions, and as China, the biggest market in the region, remains essentially closed. 

After navigating varied and changing government policies for the past two years, it will take time for airlines to rebuild fleets given that many restrictions only eased in May, said Subhas Menon, director general of the Association of Asia Pacific Airlines. “It’s still early days,” he said. “We’re just in June, so it’s not like turning on the tap.”

Carriers also scaled down their networks during Covid, none more so than Cathay Pacific, which has been hemmed in by Hong Kong’s onerous travel and quarantine rules.

That’s left people considering lengthy journeys with one or more stopovers, whereas before they might have flown direct.

With fewer planes in the skies, there are fewer seats to meet the recovery in demand, which in turn has pushed up fares.

Skyrocketing fuel prices

Russia’s invasion of Ukraine has exacerbated a steady rise in crude oil prices over the past 18 months.

At US$120 per barrel, jet fuel now represents as much as 38% of an average airline’s costs, up from 27% in the years leading to 2019. For some budget airlines, it can be as high as 50%.

Qantas CEO Alan Joyce predicted this in March, when he warned that global oil prices at around $US120 a barrel would see the cost of an airline ticket rise about 7%.

Some investors believe airlines may seek to boost fuel surcharges as a way to cope, analysts at Citigroup said in March.

Deep-pocketed travelers 

Higher ticket costs don’t seem to be dissuading people from making trips now that many travel restrictions have eased.

Some consumers are tapping dormant holiday budgets and upgrading to more expensive aircraft cabins for leisure trips, the International Air Transport Association’s Director General Willie Walsh said last month. 

The so-called revenge traveler is “an individual that has been emotionally affected by the lockdowns and has craved travel over the last two years and they’ve dreamt about it,” said Hermione Joye, sector lead for travel in Asia Pacific at Google. “They are very spontaneous.” 

Lack of staff

Hundreds of thousands of pilots, flight attendants, ground handlers and other aviation workers lost their jobs over the past couple of years.

With travel picking up, the industry now finds itself unable to hire fast enough to allow for seamless operations at its pre-pandemic levels. 

Singapore’s Changi Airport – regularly voted the world’s best – is looking to recruit more than 6,600 people.

Many workers who were let go have found other, less volatile careers, and aren’t willing to come back to a cyclical industry. An operator at Changi is offering a joining bonus of S$25,000 to auxiliary police officers, a job that pays a maximum of S$3,700 a month.

In the US, smaller regional airlines can’t fly at full capacity because bigger carriers have hired away too many pilots.

Hundreds of flights have been canceled in the UK, scuppering holiday plans and leading to long delays and scenes of passengers sleeping at airports.

In Europe, major airports have faced delays and cancellations after failing to hire adequate staff. That has disrupted airline schedules and added to costs. 

Meanwhile, Qantas has made a fresh appeal to head-office employees to help the airline’s overworked ground handling staff.

Workers at the headquarters of Sydney-based Qantas and its Melbourne-based low-cost airline Jetstar have been asked to step in and assist during the peak July holiday period, according to an internal email sent by Jetstar’s airport operations.

“We need your help,” the note says, describing the operation as the “Airports Peak Contingency Plan.”

Operations in Melbourne, Sydney and Brisbane are the most stretched, though office staff could be deployed anywhere, according to the memo. Workers might have to track down lost baggage, hand out water to queuing passengers or speed travelers through security if they’re running late.

Repairing balance sheets 

Aviation is a capital-intensive industry with historically wafer-thin margins. Covid has made that operating climate even more challenging: globally, airlines lost more than US$200 billion in the three years to 2022. 

Elevated fares provide carriers with a path to recover from losses and return to the black.

“We’ve never seen a revenue environment like this, led by domestic leisure,” American Airlines CEO Robert Isom said at an industry conference last week.

“On top of that, we see large corporates coming back in. Small- and medium-sized businesses have been really off the charts for a number of months now.”

It’s unclear how long these high prices will persist, even as many travelers seem willing to pay up.

“The rise in prices is a short-term phenomenon,” estimates Stephen Tracy, chief operating officer at Milieu Insight, a Singapore-based consumer insight and analytics firm.

“Let’s all just hope that once these things equalize again, the prices come back down. I am fairly confident that they will.”  

Additional reporting by David Flynn

This article is published under license from Bloomberg Media: the original article can be viewed here

QF

11 Jul 2014

Total posts 786

Lack of Staff seems to be the number one issue right around the world, where has everyone gone. New staff aren't as well trained and on the ball, it's like the economy has lost it's MoJo.

DCW
DCW

Qantas - Qantas Frequent Flyer

19 May 2014

Total posts 20

The lack of staff is due to people seeking roles or jobs in other industries that are more secure and robust to weather financial or pandemic storms. I have been in Aviation Engineering for 20 years. Many of my ex colleagues took redundancy and sought greener pastures. Many now  work Monday to Friday and have reconnected with normalcy. Rather than being on shift, working nights/ weekends / public holidays, missing kids and wives birthdays notwithstanding working 14 of the last Easter and Xmas. You never appreciate how much you miss until you revert to a ‘normal’ M-F role. Yes the pay is fantastic, however at what cost?!?! Not to mention aircraft engineers never receive any respect in aviation. The aircraft will not and cannot depart without the CRS signature yet all articles focus on the Pilots and cabin crew.

I love my job and very lucky to do what I do, however thought to share my realistic and accurate info.

Qantas - Qantas Frequent Flyer

11 Oct 2014

Total posts 684

and 'thank you Bloomberg for one side of the story. This article also omits significant facts that don't seem to aid their need to place blame for high airfares into neat little boxes. Consider the following:

  1. Sure there have been massive price hikes for aviation fuel - however, any  reasonably sized carrier not employing a fuel hedging strategy deserves whatever it gets. This time around, the cyclical benefit is being reaped by airlines, rather than insurance / hedging providers.
  2. This leads to the second major point ~ airlines today are almost exclusively operating far, far more efficient planes and fleets, compared to what was flown 5-7 years ago. The race towards greater efficiency is being driven by numerous groups apart from airlines. Engine manufacturers, governments, climate change activists and the general public have all presented additional 'power' to force the industry to do better
  3. Great strides in technology has produced far greater awareness in regard to yield management (pricing of fare buckets), cost and revenue analysis, not to mention the ability to accurately predict loads at any given day of the year.
  4. The internet has also played a significant part over the past 5-7 years in that the general public has moved towards direct booking of travel. This is still a mix of direct with an airline or via OTA's (online travel agents). This eliminates a lot of costs for airlines : when did you last see an airline office in the city (a CTO - City Ticket Office) or one in major suburbs? Further, the power of the internet has allowed airlines to use it's power to directly address the business market  (hence the emphasis on corporate accounts and the smaller SME (small-medium enterprise) market to be absorbed by airlines. Hence, many OTA's being paid NO commission by airlines for domestic travel (unless you are an OTA the size of Expedia, booking.com or Google etc). Commission rates for international travel 15 years ago were nominally 10% - now, thy are lucky if they receive 5%.

To be honest, no-one can blame carriers for trying on the 'rort' system, using all the arguments cited in the Bloomberg article. After all, in 2.5 years of limited / extremely limited operation, the attraction to try and recover some additional profit is always there. 

But one has to ask a lot of questions to justify the current price disparity for Australia-USA airfares, which have climbed more than 50% over their pre-COVID pricing. Two cities make great examples - PRE COVID, you could easily find QF SYD-LAX return Red e-Deals for $1,000-1,100 and SYD-DFW for $1,200-1,350 return. Have a look at current pricing and you'll find LAX  at $1,800 and DFW at $2,350 minimum. Now, both routes were A380's pre-COVID. LAX has returned to A380 ex SYD with excess demand - and you guessed it, a sizeable price hike. DFW on the other hand, has now become a B787-9 route ie: a more efficient aircraft with far better CASM. It is also able to carry exactly half the number of passengers  that the previous A380 could. However, on the return DFW-SYD sector, a variable number of seats were blocked (depending on the time of year) and remained unsold. So, QF - who is intending to supplement DFW with a MEL route, obtains greater efficiency / profit by using 2 x B787-9's to DFW and 2 x on return via 2 destinations.   And yet, the price of this route has risen incrementally.

Doesn't seem to be happening on the SYD-SIN-LHR or connecting MEL flights, as far as I can see. Current Y sale fare to LHR ex SYD / MEL is around $1,650. Hmm, longer flight, same equipment as LAX  ... and substantially lower fares.

So yep ~ we can see some justification for slightly higher fares to claw back some of the lost COVID revenue, but that doesn't justify a 50%+ rie for the most basic fare levels. If you'd care to check J (Bus) and F (First) fares, you'll find a similar set of throat-wrenching price 'rises'. And like carriers elsewhere around the world, its not as if QF didn't receive any government funding (read tax-payer funds) to supplement their wages bill. Somehow, while being able to outsource almost all their airport facing staff ? 

Fair is fair .. but apparently 'fare is fair' also ? 

12 Jun 2022

Total posts 1

easy solution, don't pay outragious fares & don't book online. Plenty of cheap package holidays around esp at xmas time. Looking right now at return flights to San Francisco January 3, San Francisco home January 21 for $1680 return.

25 Jun 2018

Total posts 25

Kimshep has written a long ‘explanation’, but overall the reason for increased / higher air fares is quite simple - BECAUSE THEY CAN GET AWAY WITH IT.

Airlines are in the game to make a profit.  When things are bad - get rid of staff, park aircraft, reduce costs as far as possible.      When demand is high - charge what the market will bear.    

but not all airfares are high. USA-plenty of great airfares in xmas school holidays from $1499 return (from BNE, SYD, MEL, ADL to LAX or SFO) & not talking late Nov/early Dec when school holidays start but rather late Dec/early Jan, when most people want to go & be back before schools start back.

Stayed at Noosa last year. We got a mid stay apartment clean & our cleaner was an ex Dragonair A330 pilot

there are plenty of great airfares around, if you know where to look (not online search engines)

eg. return SYD/LAX direct late December, back mid January, 12 nights on snow in major resort in Colorado (which has the worlds best skiing), with all lift tickets. total for family of 4 (2 adults & 2 kids) $9999. Only extra if if pay by credit card. Even get a ski bag included at no extra cost.

seems many complain but still pay the fares.

Have heard of many people booking accommodation in USA or Canadian ski resorts before they found out the fares & the payments for snow accom are totally non-refundable. So they either fly 1 stop to USA (not talking via NZ) at reasonable cost or nonstop for $3500 to $4000 in economy.


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