Airfares ‘must rise’ as airlines face rising costs, rating agency warns

The agency pointed out that ticket prices for some routes and airlines have already rocketed 20pc so far this year compared to 2022.

They’ve climbed off a low base in 2021, when airlines started to emerge from the aftermath of the pandemic.

Fuel and labour costs typically account for about half of an airline’s cost base.

And while jet fuel prices have softened considerably since last year, upward pressure remains on wages. Continuing French air traffic control strikes are also likely to hamper the recovery.

Fitch said that while the airline recovery will continue this year, especially for their narrowbody short-haul services, it will be at a slower than expected pace.

Seat supply remains constrained by aircraft delivery delays at Boeing and Airbus, a situation that lessors including AerCap and Air Lease expect to last for years.

“We expect the recovery to continue to be slowed by global supply chain constraints,” noted Fitche. “However, cost inflation related to energy and personnel expenses is likely to result in only some pressure on operating margins in 2023.”

Fitch reckons that passenger traffic in Europe this year could be close to 90pc of 2019 levels. Some lessors expect global traffic to reach pre-pandemic levels this summer.

“The near-term strength is driven by consumers’ increased focus on experiences rather than material goods, the slower ramp-up in business travel and the opening up of Asia,” noted Fitch. “While not apparent yet, some impact from macro weakness could be felt after September. Operational disruptions, such as the French air traffic control industrial action, could also temper the recovery this year.”

It added: However, airlines will face increasing wage bills both as a result of the reversal of pandemic-related salary cuts and to support the ramp-up of operations. In addition, airport, handling, catering and navigational charges will also increase on a unit cost basis this year. Fuel prices and currency exposures also add to profitability risk.”

The International Air Transport Association (IATA) said on Thursday that global air traffic continued to recovery in March.

It said that total traffic in the month, measured by revenue passenger kilometres, jumped almost 53pc year-on-year. Globally, IATA said that air traffic is now at 88pc of March 2019 levels.

IATA director general Willie Walsh said that domestic markets across the world have been near their pre-pandemic levels “for months”.

He added that for international travellers, two key milestones were achieved in March.

“First, demand increased by 3.5 percentage points compared to the previous month’s growth, to reach 81.6pc of pre-Covid levels,” he explained. “This was led by a near-tripling of demand for Asia-Pacific carriers as China’s re-opening took hold. And efficiency is improving as international load factors reached 81.3pc.”

“Even more importantly, ticket sales for both domestic and international travel give every indication that strong growth will continue into the peak northern hemisphere summer travel season,” he added.