Joanna Plucinska, Lisa Barrington and Rajesh Kumar Singh
LONDON/SEOUL/CHICAGO (Reuters) – Airfare prices in Europe and Asia are starting to stabilize or fall, a sign that the long post-COVID travel boom is waning, dealing a blow to airlines struggling with higher costs and limited availability of aircraft.
A global imbalance between flight supply and pent-up demand as air travel reopened after the pandemic drove up ticket prices and passenger yields – a measure of the average fare paid per mile by each passenger.
But industry executives, investors and analysts say the “travel at all costs” trend is balancing out, with some customers becoming more price-sensitive as they grapple with inflation that has driven up the cost of living.
Budget airline Ryanair’s chief executive Michael O’Leary warned this month that ticket prices would rise less than expected, sending shares of European airlines tumbling.
“It’s a little surprising that prices haven’t gone higher and we’re not quite sure whether that’s just down to consumer sentiment or a sense of recession in Europe,” O’Leary said.
In the early months of this year, rates across the bloc remained unchanged compared with 2023, according to research group ForwardKeys.
The picture is starker in the Asia-Pacific region, where tariffs fell the most, down about 16% between January and April compared with the same period last year, the data shows.
Singapore Airlines (OTC:) reported record annual profit last week, but net profit growth has declined over the past three quarters. Asia’s largest carrier said it expects passenger traffic to decline further as airlines expand.
Asia has been slower than other regions in lifting restrictions and increasing the number of flights to overseas destinations.
“We believe supply and demand will rebalance…airfare prices will normalize over the course of 2024,” Ronald Lam, chief executive of Hong Kong-based Cathay Pacific, said in March.
Travel to markets such as Europe, America and Australia from China has not recovered. China’s economy is stagnant, and international flights are still around 70% of pre-pandemic levels – just 16.5% on US-China routes.
Flight Center Travel Group said international air ticket sales in Australia fell 12.8% year on year in the first three months of the year.
However, prices in the Asia-Pacific region are up more than 7% compared to 2019, and tariffs in 2021 are up 70% compared to 2019.
PRICE SENSITIVITY
Economists and investors are not yet pessimistic. Travel remains a spending priority for most consumers, especially in Europe and the United States, economists say.
But economists and analysts say lower airfares in Europe point to lower incomes and savings rates across the continent, forcing consumers to look for cheaper options, especially as hotels and car rentals become more expensive.
“Even though consumers remain interested in travel, European consumers are particularly price sensitive,” said Natalya Lekhmanova of Mastercard (NYSE:).
Cheaper destinations such as Turkey, Romania and the Balkans are becoming increasingly popular among European travelers looking for alternatives to France or Italy, she said.
Data from the European Travel Commission showed consumers will spend 742.8 billion euros ($803 billion) on the continent this year, up 14.3% on last year. But that may be largely driven by wealthier American tourists, according to industry experts.
AMERICA TRAVELS
As Europeans look to save money, US consumer spending remains stagnant, with demand for premium travel particularly strong.
About 16 million Americans traveled abroad in the first quarter of 2024, setting a new record and exceeding pre-pandemic volumes, according to the Mastercard Institute of Economics.
Economists say a strong U.S. labor market is helping consumers maintain higher spending despite dwindling household savings.
Average U.S. single-family travel spending fell just 1.5% year over year in the first five months of the year, but it was 13% higher than 2019, Bank of America credit and debit card data shows.
International airline executives said consumers still want to spend money on travel, prioritizing experiences over products.
“It’s a very cyclical industry that is also very sensitive to macroeconomics,” said Jamie Lindsay (NYSE:), an airline investor at Artemis Funds.
But he doesn’t expect falls in Europe and Asia to lead to a broader downturn in the sector.
“It doesn’t mean rates are falling (everywhere)… it’s more of a normalization.”
($1 = 0.9246 euros)