The time of cheap plane tickets is over. The CEO of the Ryanair group, Michael O'Leary, has repeated since the pandemic ended that ten-euro tickets are history, alluding to its specific and successful business model. But beyond particularities, the ruling condenses many of the challenges that air transport faces. The winds that drive prices blow from all directions and have a reason to transform the way we fly.
John Grant, director of analysis at OAG, one of the main aviation consultancies, points to problems in the supply chain as the biggest challenge facing the airline industry at the moment, with reverberations in all its links that end up in the passenger. through the figure that appears on the ticket. “There are delays in spare parts for airplanes or with GE engines, with the consequent impact on the productivity and utilization of airlines,” he maintains. Those supply chain disruptions “won't go away anytime soon and will extend throughout 2024,” Grant adds, impacting industry performance in multiple ways. Once again O'Leary has ironically stated that, at this point of continuous delays, the future of aviation lies in flying standing up. Simply because there are not enough seats made on the market.
Jokes aside, the average time to receive a plane from when airlines sign the order reaches up to nine years, emphasizes Pere Suau-Sanchez, an expert in the airline industry at the UOC and Cranfield University. The delay is preventing airlines from renewing their fleets at the desired rate, and without these much more efficient aircraft they cannot save the costs that are coming their way or increase capacity, IATA highlights.
The urgent need to find capacity while orders come in – Grant continues – is leading some operators to pay unusually high rents to fill the fleet with leased aircraft. “The structural costs of airlines are increasing and will continue to impact user prices,” concludes Suau-Sanchez. Added to this is inflation in Europe and the United States, which is leading to upward negotiation of agreements in companies. Another rising cost.
Apart from delays in supplies, the environmental front appears as another point of pressure on airlines' scales. With new monetary consequences for passengers. At IATA they identify it as the number one challenge in aviation. The industry is at the center of the public debate over the pollution it generates and faces a legislative battery, especially in Europe, to reduce its emissions. “Alternative energies exist to replace fossil fuels, although they are not remotely close to the required scale,” notes a recent IATA analysis on the matter.
But obligations are around the corner. The European Union will require airlines to reduce their polluting emissions and use a specific percentage of sustainable fuel (SAF) within the ReFuelEU Aviation strategy, to be deployed progressively between 2025 and 2050. According to the standard, companies must use a 2% of SAF in 2025 with increases every five years until reaching 70% in 2050. But as with airplanes, there is not enough SAF either. This fuel is nowadays scarce and expensive, between three and five times more expensive than kerosene. Today it only represents 0.05% of total aviation fuel consumption. In the sector they assume that this new regulation will make their activity more expensive.
All in all, the industry has a great margin to reduce its emissions without having to spend more or impact on the passenger, Grant points out. “There are many efficiencies to be developed, such as more efficient use of European airspace, as airlines often spend more time than would be necessary,” he says. Regarding the balance between demand and emissions levels, this expert points out that next-generation aircraft will produce up to 20% less emissions per flight, which could neutralize part of the SAF price increase.
The saturation of certain large airports in Europe, with problems to grow further, such as Heathrow, Amsterdam or El Prat, could also put pressure on ticket prices in cases of imbalance between supply and demand, says Suau-Sanchez.
All these background currents that upset the airline industry end up converging in the price of the ticket, which between January and November of last year already increased by 10% in real terms, according to Eurocontrol calculations. And the trend seems to continue this year.
Is flying a thing for the rich? Despite all the challenges, the airline industry remains optimistic and calculates very well how far it can raise prices. Its objective is none other than to continue filling planes and that means not becoming a luxury service.
