According to Bloomberg Opinion, unless there are significant changes in the global airline industry, travelers should brace themselves for escalating airfares and crowded flights, with little relief in sight.
The surge in air travel demand, which has now surpassed pre-pandemic levels according to the International Air Transport Association’s recent report, coupled with a shortage of new aircraft production, is leading to a reduction in seat capacity for airlines. Consequently, airlines are compelled to increase airfares to compensate for higher operational costs associated with older aircraft.
The current situation reflects basic economic principles: as demand for flights rises and supply struggles to keep pace, prices inevitably rise. Boeing’s production challenges, compounded by limitations imposed by the Federal Aviation Administration on the 737 Max, contribute to the supply crunch. Similarly, Airbus is facing production constraints due to supply chain issues, such as the recall of hundreds of A320neo aircraft for engine repairs.
The urgency among airlines to expand their fleets is evident in the leasing market, where rates for popular models like the 737 Max and A321-200 have risen significantly. Airlines are also extending the service life of existing aircraft due to delays in receiving new orders from manufacturers.
Operating older planes is costlier due to increased maintenance requirements and difficulties in sourcing spare parts. Additionally, there is a shortage of aircraft mechanics, leading to longer downtime for maintenance. In response, airlines are likely to raise airfares to offset these rising costs.
Despite the challenges, passenger demand continues to surge, with global revenue per mile flown by passengers increasing substantially. While the industry has shown resilience in recovering from the pandemic, there is still room for growth, indicating a sustained upward trajectory in air travel demand.
Given the imbalance between supply and demand, consumers are likely to bear the brunt of higher ticket prices as airlines seek to maintain profitability amidst operational challenges.
