The aviation industry is facing a significant setback as airfares continue to skyrocket while airport charges remain unchanged since the pandemic.
A study conducted by ACI Asia-Pacific and Flare Aviation Consulting revealed a disturbing trend of international airfares increasing by up to 50 per cent and domestic fares rising by less than 10 per cent across the top 10 aviation markets in the Asia-Pacific, on around 36,000 routes.
Notably, India has witnessed a substantial 41 per cent surge in airfares, as per the ACI study. The other markets that saw the highest airfare increase are the United Arab Emirates which stood at 34 per cent, Singapore at 30 per cent and Australia at 23 per cent.
This surge, driven by major airlines capitalising on low competition and pent-up demand, is impeding the industry’s recovery efforts and raising concerns among experts, stated ACI.
Factors driving airfare increases
The surge in airfares can be attributed to rising fuel prices and inflation. Fuel costs have spiked by 76 per cent compared to pre-pandemic levels in 2019, significantly impacting airlines’ operational expenses. Moreover, the Consumer Price Index has experienced an average increase of 10 per cent during the same period, further contributing to airlines’ rising costs.
Despite some international airlines reporting record profits in 2022, airport operators have been grappling with negative EBITDA margins, particularly in China, Japan, Thailand, and India, the study mentioned.
The sharp surge in airfares, particularly in markets like India, poses a severe threat to the aviation industry’s recovery. As airlines capitalise on low competition and pent-up demand, the burden falls on travellers and may hinder the industry’s long-term growth.
This increase signifies the growing demand for air travel within the country, said Jyotiraditya M. Scindia, the Union Minister of Civil Aviation, adding India is now the third-largest domestic aviation market. The minister was presenting a report card on the achievements by the ministry in the nine years led by PM Modi.
Airport Charges versus Airfares
Despite facing a decline in passenger numbers and enduring financial losses, airports have made commendable efforts to support airline partners throughout the crisis. They have frozen or reduced airport charges, including landing, parking, and passenger fees, and provided incentives during the peak of the pandemic.The ACI study also said that despite investments in capital expansion and technology to enhance the airport experience, airport charges account for less than four per cent of the airline cost base.
It also reveals no correlation between airport charges and airfares. Airport charges are determined based on objective items of the airport’s cost base, covering operations, maintenance, and infrastructure development. In contrast, airlines have the freedom to adjust pricing based on their operational costs, ACI claimed.
Stefano Baronci, Director General of ACI Asia-Pacific, expressed concerns about the excessive airfares and their impact on the industry’s long-term recovery. He emphasised the need for airlines to exercise fair pricing that supports recovery efforts and safeguards consumer interests.
Baronci urged airlines to carefully consider the long-term consequences of their pricing decisions, especially regarding international capacity, which is crucial for social and economic growth and generates significant revenues for the airport sector. Additionally, governments should consider liberalising markets through policies such as open skies, promoting competition while keeping airfares under control, stated Baronci.
“Unlike airlines, airport operators do not have the privilege to set airport charges capable of covering the full cost of the service. And this is not only because their prices are heavily regulated, but also because market driven factors, such as competition and/or a dominant buyer power exerted by airlines prevent them from doing so,” he added.
