Many thought airfares would spike in the age of coronavirus. That’s not happening yet

Business

Earlier this year, social distancing and the cataclysmic drop in demand for air travel was expected to bring a sharp rise in airfare prices. Flying was going to get expensive — a lot more expensive, according to some. Commercial aviation, the conventional wisdom said, would return to its 1950s roots as a luxury available only to the rich.

All that may happen — but not anytime soon, experts say.

Will commercial airfares rise this year?

“I don’t think so,” said Kent Gourdin, professor and director of the Global Logistics and Transportation Program at the College of Charleston. “Airlines are simply trying to put people into seats.”

Gourdin said that until the public can travel — not just fly — with confidence again, he believes fare increases are off the table.

“Business travel is still down as many firms realize virtual meetings can often yield the same benefits as those held face-to-face, at significantly lower cost,” said Gourdin. ”Leisure passengers are simply not yet comfortable booking costly trips to popular destinations not knowing what they will find when they arrive.”

Airlines are expected to forgo airfare increases to attract passenger demand for the remainder of the year.

jun xu | Moment | Getty Images

Dean Headley, co-author of the Airline Quality Rating and an emeritus professor at the W. Frank Barton School of Business at Wichita State University, said that while third- and fourth-quarter airfares are “typically” higher than the first half of the year, “these are not typical times.”

“Airlines sometimes do crazy things that do not seem to make sense,” he said, “but this does not seem like the time to raise fares.”

Increasing passengers, not prices

Headley said raising fares this year would be counterproductive to increasing the number of passengers on planes.

“It would be very difficult for airlines to increase fares for fall travel and still maintain the small volume of passengers they do have flying,” he said. ”Price is still a big factor in choosing to fly. It certainly is not the primary concern at present, but it will never be far behind.”

Raising fares is not some kind of ‘break-glass-in-emergency’ solution for airlines in the current market.

Adam Weiss

head of aviation at 777 Partners

Commercial airlines also stand to generate revenue from passengers beyond airfares alone.

“More and more airline revenue is made up not of the basic fare but of extra charges,” said Adam Weiss, head of aviation at investment firm 777 Partners. “An airline is inclined to offer competitive fare pricing in order to attract more passengers because each passenger is also going to be spending on these extra charges.”

In addition to airfare, airlines can charge passengers for baggage fees, seat assignments and priority boarding privileges, he said.   

“Raising fares is not some kind of ‘break-glass-in-emergency’ solution for airlines in the current market,” said Weiss. “Right now, most people do not want to fly.”

Will eliminated change fees drive up ticket prices?

In the past month, four major U.S. airlines — Alaska, American, Delta and United — have eliminated many ticketing change fees, a widely-disliked group of charges that brought in more than $2.8 billion to U.S. carriers in 2019, according to the U.S. Department of Transportation.

But that isn’t translating to higher fares to make up the difference, said Gourdin, who noted that other costs have fallen, such as fuel and other operating expenses, due to reduced flight schedules.

“A more likely scenario is that more fees will be eliminated in the short term in an effort to draw passengers back,” he said. ”They can always be reinstated once demand increases.”

Has flying become cheaper?

Rather than getting more expensive, some believe commercial airfares may decrease this year.

Given the strong decline in demand, I don’t expect airlines to have the market power to raise prices.

Kerry Tan

associate professor of economics at Loyola University Maryland

That is the position of Kerry Tan, an associate professor of economics at Loyola University Maryland who specializes in the airline industry.

“Given the strong decline in demand, I don’t expect airlines to have the market power to raise prices,” he said. ”Instead, I anticipate airlines to offer steep discounts and sales to promote air travel.”

Tan noted that Southwest Airlines had recently offered one-way flights for as low as $39 out of Baltimore/Washington International Thurgood Marshall Airport.

That’s in line with a report published in July by flight alert subscription service Dollar Flight Club. The report says domestic flights within the U.S. are 41% lower on average — and will be throughout 2020 — as a result of the global pandemic. International flights from the United States are 35% cheaper than last year. 

This price drop, the report says, is greater than those that occurred immediately after the 9/11 terrorist attacks (18%) and during the Great Recession (21%). 

Looking into 2021 and beyond

Wichita State University’s Headley believes fares may increase down the road, starting with the most popular routes.

“The most heavily traveled flights with the fullest airplanes will probably see price bumps first,” he said.

He said reduced flight schedules will result in “a bit of an unknown” regarding pricing, and that fewer flights could eventually result in higher ticket prices too.

A man scans a ticket on a smartphone at an airport check-in counter.

Maskot | Maskot | Getty Images

Dollar Fight Club’s report estimates that, while flights will remain less expensive through 2020, domestic fares in the U.S. will increase 21% on average starting next year. International ticket prices from the United States could climb even more; they may increase by 27% over 2019 levels and remain that way through 2025. 

Weiss of 777 Partners said airlines that were expecting to have to “hold their breath” for three to four months are now realizing it could be up to a year before demand returns to a reasonable fraction of pre-Covid-19 levels. 

“Many airlines will not survive the coming months,” he said. “The determining factor for airline survival will not be whether they put their fares up, but whether they have enough cash in the bank or powerful enough lobbyists to unlock enough government aid to stay afloat.”

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