Here's Why Flights Are So Expensive Right Now - Executive Traveller

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