One question we’re being asked a lot at the moment is will flights be more expensive or cheaper when travel starts to return post Covid-19?
It’s a great question and one we at Good Travel Management are always asking ourselves so that we can provide the best value to our customers. To answer it you need to look at the key elements that determine flight pricing which are:
- Demand – Do people want to fly and/or can they afford to fly?
- Capacity – How many seats do the airlines have to fill?
- Other stuff – O.K. “other stuff” isn’t very scientific but hey….
If you take demand first it’s likely that, at first, people will understandably feel less confident about flying due to potential health risks. Additionally, you must account for the fact that some countries will have travel restrictions in place that make it either impossible, or at least very complicated, to enter their country. Another factor influencing demand is if people/companies can afford to fly. In a recent survey of our customers over 60% predicted that their travel budgets would be between 10% and 40% lower in 2020/2021. Finally, the last few months have highlighted that, sometimes, we don’t need to travel for business and that we can achieve a similar outcome via a virtual meeting.
All the above factors, and there are others, should mean that demand for air travel is much lower than normal for the first 4-6 months post Covid-19. Airlines normally try to stimulate demand by lowering prices and data collected by IATA on pricing on Chinese Domestic routes, when they re-opened in April, showed fares were cut by approximately 40%.
All looking good so far then but before you start packing your case let’s look at the 2nd key element – Capacity.
Capacity is basically how many seats the airlines have available to sell. If they have too many available, then they will lower prices as empty seats are very expensive for airlines, so they want them occupied. If they have less seats to sell, then they can raise prices as they believe they will sell them due to high customer demand. As you can appreciate the airline industry has taken a massive hit over the last few months and will continue to do so for the next year or two. As a result some airlines may not be able to survive and the majority will either have to reduce the number of destinations they fly to and/or reduce the number of flights they operate per day on a number of routes. All the above reduces the number of seats available in the market. Another short-term impact on capacity is that nearly all airlines grounded most of their aircraft at the end of March and it will take some time to get them all up and running again. A final, potential, impact on capacity would be if airlines were forced to introduce social distancing on flights, reducing the number of the seats they have available to sell. If this were introduced it would cut seat capacity on an aircraft to an average of 62%. An airline would have to increase fares by approximately 40%-50% to ensure a flight operates at breakeven based on all remaining seats being sold.
With capacity looking to be lower, then that would normally indicate a rise in air fares but let’s look at the “Other Stuff” to see if that tips the scales back towards lower fares. Firstly, one thing that always has influence on Air Ticket pricing is fuel cost and oil costs are currently very low and, should remain so until excess supply is used up. Low fuel costs usually mean lower fares. The only caveat to do this is that many airlines buy their fuel well in advance of when they need it so cannot adapt as well to market changes. The final “other stuff” element is that Low Cost Carriers, EasyJet, Ryanair etc. are likely to get up and running much quicker than the larger legacy airlines. They’re generally smaller, work to tighter budgets and able to adapt quicker to volatile markets. They’re always very competitive on fares and their entrance back into to market ahead of their larger rivals should drive down the average cost of tickets.
That covers just some of the key factors that we at Good Travel Management are always considering, and pro-actively adapting to, so that we make the best use of your travel budget. We have access to data on all the elements we’ve mentioned in this blog so that we can advise customers on when to buy air tickets, which airlines to use etc. Additionally, we carry out automated and manual checks on all air bookings from booking to ticketing, and then from ticketing until departure, to search for cheaper alternative fares that might become available
Taking all of the above elements into account we believe that air ticket prices will be lower in the short-term post Covid-19 due to the airlines desire to stimulate demand and Low Cost Carriers returning earlier with their normal” competitive” pricing. Ultimately, it’s our job to protect you from fare increases and embrace fare decreases or best value options.
We at Good Travel Management (GTM) are presently consulting with many of our clients to support their future planning and budgeting. By proactively working in partnership with our clients we can help them establish a forecast as they get back to business post Covid-19. Please contact your account manager to discuss this topic and the benefits of our solution ‘GTM Consulting’.
We’ll try to answer some other post Covid-19 questions in the next series of blogs.
If the question is how to explain your work-from-home tan to your boss on a Zoom call, we’re still working on that one ourselves….