Affordable fares crucial to ensure accessibility to air travel; support broader economic vitality

Airfares remain more than 10% higher in several markets as international air traffic rebounds and seat capacity is expected to surpass pre-pandemic levels by the end of the year.

A recent study covering 60,000 routes in some 19 countries showed that several key markets experienced significant airfare increases on both domestic and international routes. The airfare study was undertaken by ACI APAC & MID in partnership with Flare Aviation Consulting.

Several markets experienced significant airfare increases. The study showed a sharp rise in domestic airfares during the first half of 2024 compared to 2019 levels. Notable increases were seen in key domestic markets such as India (+43%), Vietnam (+63%), Malaysia (+36%), Thailand (+26%), and Australia (+21%), all of which heavily rely on domestic air travel.

Despite the anticipated recovery in international seat supply in these countries, airfares remain elevated compared to pre-pandemic levels.

In India and Vietnam, international fares rose by 16%, Malaysia by 21%, Australia by 14%, and Thailand by 7%, with low-cost carriers (LCCs) contributing to the sharpest increases.

The study also notes that low-cost carriers (LCCs) in the Asia-Pacific region have demonstrated greater resilience to the Covid-19 pandemic, increasing their market share and bargaining power, further influencing airfare trends.

In the Middle East, traffic volumes have surpassed pre-pandemic levels in most countries by second quarter (Q2) 2024. Countries such as Bahrain (+24%), Qatar (+27%), Saudi Arabia (+30%), and the United Arab Emirates (+39%) have experienced robust traffic growth.

Market analysts say rising airfares can indeed become a barrier for potential customers, especially for price-sensitive travellers. They include leisure travellers, students, and lower-income groups.

Even among business travellers, where demand has traditionally been more inelastic, shifts are being seen in behaviour as companies adapt to cost-cutting measures and increased acceptance of virtual meetings, post-pandemic.

For many passengers, especially those travelling for leisure, the demand is relatively elastic. As fares rise, these customers may reduce the frequency of their trips, switch to more budget-friendly options, or choose alternative travel modes.

Increased fares for full-service airlines tend to drive travellers toward budget airlines, which continue to focus on leaner operational models and ancillary revenue (fees for extras like seat selection or checked bags) to keep fares relatively low.

Another challenge, analysts say, is that higher costs might prompt more businesses to replace some trips with virtual meetings. Although in-person interactions are sometimes essential, many businesses have realised that video conferencing can effectively substitute for face-to-face meetings in a number of scenarios.

Commenting on the study, Emmanuel Menanteau, President of ACI Asia-Pacific & Middle East and Regional Director, VINCI Airports, said: “Affordable airfares is crucial not only for ensuring accessibility to air travel but also for supporting the economic vitality of our communities. Excessive fare increases can discourage passengers, hinder connectivity, and ultimately impact the growth of our sector. It is critical to keep air travel within reach for all, allowing our airports and local economies to thrive together.”

Stefano Baronci, Director General, ACI Asia-Pacific & Middle East, said: “While passenger numbers in Asia-Pacific are returning to pre-pandemic levels this year, many travellers are paying significantly more, especially on domestic routes. This indicates that the demand for air travel is likely higher than in 2019.

“We must ensure that rising airfares do not become a barrier for potential customers. Passengers deserve transparency about these costs. Airfares result from a complex pricing system set by airlines, influenced by demand and supply, price elasticity, competition on any given route. For example, routes that are reliant on a single airline saw fare increases of over 25%, while those with steady competition experienced only about a 10% rise.”

Baronci added: “It is important to note that the increase in airfares is not related to airport charges. Considering the airlines' cost structure, fuel prices and inflation have a much greater impact than airport charges. For a long time, airport charges have represented a stable component of airlines' operating costs, averaging around 4%. From 2019-2024, airport charges have decreased by 7% for domestic flights and increased by only 6% for international flights, making their influence on the recent spike in airfares in the region negligible”.

In the long term, if airfares continue to rise without accompanying increases in income or economic growth, they could limit consumer access to air travel, particularly for discretionary trips.