Why did airline ticket prices increase significantly post-pandemic?
Airline ticket prices sky-rocketed in 2022 once COVID-19 was subdued and travel restrictions were lifted. In the US, for example, according to the U.S. Bureau of Labor Statistics1, airfares rose 28.5% in 2022 over the previous year, while the Consumer Price Index, the most common measure of inflation, rose by only 6.5% for the same period.
Several factors contributed to this significant increase in airline ticket prices, including:
- Escalating fuel prices: The price of jet fuel, which accounts for a significant portion of airline costs (c30%), rose sharply in 2022 (+82%2) largely due to the war in Ukraine.
- Pent-up demand for travel: After two years of travel restrictions, people were eager to travel again in 2022, which resulted in a surge of demand for flights.
- Limited airline seat capacity: Airlines had retired or grounded aircraft during the pandemic, and they were slow to bring them back into service as demand recovered largely due to staff shortages. This led to a shortage of seats (seat capacity in 2022 was still 18% below 2019 levels3), which drove up prices as demand took off.
Have airfares stabilised in 2023?
Though airfares are still above pre-pandemic levels, airline ticket price increases in 2023 have so far been moderate (e.g., +2.5% year-on-year in the US1). This lower inflation rate has been due to:
- Lower fuel prices: Jet fuel spot prices have fallen to $121 per barrel by early October 2023 from their peak of $178 per barrel mid-June 20224.
- Increase in airline seat capacity: Airlines have been bringing more aircraft back into service in 2023, which has helped to increase seat capacity to 96% of 2019 levels3.
Will airline ticket prices ever come back down or is this the new normal?
It is difficult to say when or if airfares will come back down to pre-pandemic levels. With the sustained recovery in travel demand, aircraft manufacturers such as Boeing and Airbus are reporting full order books as airlines are set to expand their fleets beyond 2019 levels. The global in-service aircraft fleet is expected to more than double from its 2019 pre-pandemic level of 29,900 aircraft to 69,090 aircraft by 20505. More seats to sell should exert downward pressure on airline ticket pricing.
However, there are some factors that suggest that airfares may not come back down to pre-pandemic levels for some time. One is the potential for fuel price increases due to supply disruptions from ongoing conflicts in Ukraine and the Middle East and, conversely, from a possible quickening of global economic growth and demand increases especially in China.
There is also the increasing cost of sustainable aviation fuels. Airlines are under pressure to reduce their carbon emissions, and sustainable aviation fuels are more expensive than traditional jet fuel. This could lead to higher airfares in the future.
Another factor is the possibility of government intervention to address climate change. Some governments are considering imposing taxes or other restrictions on flying in an effort to reduce carbon emissions. This could also lead to higher airfares.
Another driver for higher pricing is that airlines are adopting more sophisticated pricing strategies. Airlines have already moved beyond price discrimination between price-sensitive leisure travellers and relatively price inelastic business travellers. They have been using dynamic pricing algorithms to vary pricing by contextual information available at the time of shopping such as booking days left before flight departure and remaining capacity to sell. The objective is to yield manage their seat capacity and maximise revenue per available seat. Airlines are now increasingly shifting to continuous pricing whereby seats are priced differently by individual according to how interested they seem to be in a particular flight and adapting to supply and demand conditions at each moment in time. This focus on extracting the maximum willingness to pay from each customer for a flight seat may result in a permanent unit price uplift.
What Key Travel is doing to help customers through a challenging airline ticket pricing landscape
Key Travel is an international travel management company that helps non-profits to reduce their travel costs so they can dedicate more of their resources on delivering their missions. We offer a number of cost-busting services, including:
- An extensive range of unique rates: Key Travel has the largest portfolio of exclusive air and hotel fares designed for non-profits that are not publicly available. These fares save travellers up to 80% vs. their published equivalents.
- A one-stop shop for travel services: Key Travel provides a complete range of travel services, including flights, accommodation, and ground transportation. This allows travellers to satisfy all their travel needs in one place, saving time and money.
- Efficiency through automation: Key Travel offers automated tools that help travellers to reduce cost. For example, our award-winning online booking tool allows travellers to compare prices and book travel quickly and easily. We also automate approval and invoicing workflows diminishing the need for costly manual work.
- Systematic focus on the lowest fares: Key Travel uses a variety of methods to find the lowest fares for customers. For example, our search engines are set as a default to return the lowest logical fares. We also have a specialised ticketing bot that continuously searches for reductions in ticket prices up to the day of departure.
- Pro-active identification of cost saving opportunities: Our reporting and analytics suite, KT Insights, not only provides comprehensive reporting on a client’s travel activity but it also identifies areas where savings can be further delivered such as travel patterns, suppliers, and destinations that are costly. It also tracks negotiated or specialist programme utilisation. In addition, it provides savings predictions from changes in booking behaviour e.g. booking flights earlier.
Summary
Airline ticket prices have increased significantly post-pandemic due to escalating fuel prices, pent-up demand for travel, and limited airline seat capacity. While price increases have been more moderate in 2023, airfares are still above pre-pandemic levels. It is difficult to say when or if they will come back down to pre-pandemic levels, but there are some factors that suggest that they may not for some time. Key Travel is a travel management company that helps non-profits to reduce their travel costs through a wide variety of unique products and services.
1 https://data.bls.gov/timeseries/CUUR0000SETG01?output_view=data
4 https://www.iata.org/en/publications/economics/fuel-monitor/
5 https://www.ati.org.uk/wp-content/uploads/2022/03/FZO-CST-REP-0043-Market-Forecasts-and-Strategy.pdf