Will airline tickets become massively more expensive?

Will airline tickets become massively more expensive?

The airline industry is suffering billions in losses during the CoViD-19 pandemic. But what does the future of flying look like now? Experts expect a rise in prices triggered by the lack of business travellers, as the Financial Times (FT) wrote in this article for example. According to the International Air Transport Association (IATA), the airlines will lose more than 100 billion euros in 2020, a drop in revenue of more than 60%, as IATA writes on its website.

According to IATA figures from December, only 1.8 billion people worldwide travelled by airlines in 2020 - down from 4.5 billion the year before, or just only 40%. This is a massive drop never seen before during any aviation crisis. Advance bookings for the current quarter were more than 80% lower than a year ago, IATA added. "The outlook is bleak," IATA CEO Alexandre de Juniac said recently. It is largely unclear when the market will recover and how well.

Although many in the travel industry are predicting a recovery in holiday flights once borders are reopened to free travel, business flights are not looking good. There is unlikely to be a return to big business. Due to the pandemic, many trips have simply been replaced by video conferencing via Zoom, Teams and co. A far less expensive alternative to business flights. But this could also have an impact on private air travel, especially in terms of price.

Around a third of airlines' turnover from business class tickets

Because the business travel business is not to be underestimated in terms of turnover. According to the consulting firm PricewaterhouseCooper (PwC), business travel can account for up to 75 per cent of some international flights, as the FT wrote. A seat in business or 1st class is about five times more expensive than in economy, the FT cited IATA figures. According to the global airline association, these premium seats account for up to 30% of airlines' revenue.

Replacing business flights with video conferencing could also have a long-term impact. Many in the industry have already accepted that a weighty chunk of business travel has been lost, the FT adds. It is unclear, however, for how long or when and even if there will be a reversal of the trend in business travel.

Varying estimations

Jeffrey Goh, head of Star Alliance, the world's largest airline group, sees a structural change in business flights and expects the market to shrink by up to 30 per cent. Carsten Spohr, head of Lufthansa, sees things differently. He assumes that the business travel business will quickly return. There is a grey area and still many unknowns when it comes to business travellers, according to Martin Ferguson, Vice President at American Express Global Business Travel, one of the largest corporate travel groups. Currently, even if you wanted to, you couldn't travel. But what we don't know is how many people would choose not to travel if they could again, Ferguson summarised the industry's dilemma in the FT.

Vaccination should change everything

When it comes to private flights, the management of the ailing US airline Delta, for example, expects demand for air travel to recover only unevenly at the beginning of the year and bookings to remain rather weak. However, as soon as larger parts of the population are vaccinated, offices reopen and consumer confidence grows, management expects demand to continue to pick up. And they are not alone in this assessment. Whether these expectations will be met, however, is another matter. The situation worsened again towards the end of the year, de Juniac went on to explain. "The slow progress in the crisis is so frustrating. The industry is still in a dangerous situation." he said.

Short- and long-haul routes severely affected

Nearly three-quarters of intra-European routes are currently under travel restrictions, according to UBS Research estimates - a higher proportion than at the height of the first pandemic wave in spring 2020. Barclays estimates that capacity on offer on European routes this month is 76% below January 2020, a deterioration from December. The recovery on long-haul routes has stalled with capacity down 68 per cent on the same month last year, industry expert Rishika Savjani of Barclays wrote. "Demand is probably still well below that level." In other words, many aircraft seats remain empty. In view of the uncertain situation, flight schedules could be cut further.

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All hopes lie on the summer

On average, half of the flight capacity of the pre-crisis year 2019 will be offered this year, Spohr said at the end of December, although the first quarter will still be significantly below this, and in the summer and autumn it will then be up to 70%, according to Lufthansa. Barclays also expects a recovery to 70% in the summer if the vaccination campaign is successful. Europe's largest tourism group TUI expects a "largely normal summer" despite the CoV crisis in travel. However, TUI will only offer around 80% as many flights as in previous years in order to achieve optimal capacity utilisation, CEO Fritz Joussen told the Rheinische Post at the beginning of January.

Private jet Olbia

Against forced vaccination

And then there is the further question for the industry of how to deal with possible future CoV measures: The Forum of the International Tourism Industry, for example, is against compulsory vaccination for air travellers. The president of the World Travel and Tourism Council (WTTC), Gloria Guevara Manzo, recently emphasised at the digital summit ´Reuters Next´ that the best way is to isolate those infected with the coronavirus. In previous outbreaks of serious infectious diseases such as Ebola, SARS and MERS, it has been shown that travel was possible even without a vaccine because those infected could be isolated. In the current pandemic situation, rapid tests are suitable for this purpose, which can also be done at relatively low cost before boarding the plane, for example, said Guevara.

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Will ad hoc private jet charter see a boost?

Researchers and macroeconomics experts expect the global economy to gradually recover as vaccination coverage progresses. Accordingly, this will also mean more business travel activity. In 2020 managers have learned to use digital tools as a substitute for face-to-face meetings in a more and more meaningful and efficient way as travelling was not possible. Personal meetings can never provide the same environment and emotional interaction as those digital tools, but due to efficiency and cost pressures, many of the onsite meetings will be replaced by the tools mentioned. This trend will be sustainable and therefore business travel will no longer lead to pre-Corona levels and will be permanently less. The legacy airliners need to respond to this development and reduce their network. On the other hand there will be a strong need for personal and high-quality meetings on premise. Global leaders of industry and business need to meet to develop deals and close deals to accelerate the much-needed economic recovery. C-levels, top executives and decision makers need to meet and therefore travel. Driven by the need for time efficiency and the need for bio-security, these business trips will be predominantly made by entry level private jets, away from luxury. The lack of supply from the well-known providers of business travel in the EU will reinforce this trend. In this respect, private aviation will be used by more companies and will not only be reserved for the CEO and Chairman, but also for other levels of management and executives. The light jet segment will certainly grow again, as it did in 2020. At GlobeAir, we expect additional business travel growth of +20% YoY mainly in Western Europe. Business aviation insiders expect more activity in the European business capitals such as London, Paris, Geneva, Zurich, Munich, Hamburg, Frankfurt, Vienna, Milan and Düsseldorf while Eastern European capitals will remain at their usual low level in terms of business travel.

Private jet charter autumn demand

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