Airlines unlikely to lower fares this year — report

WITH OIL PRICES expected to rise this year, airlines are unlikely to lower fares, which in turn may dent passenger demand, according to an aviation market intelligence provider said.

“Rising oil costs will stall fare decreases, dulling demand in what has become a highly price sensitive market,” CAPA said on its Web site for its outlook for 2018.

CAPA said that 2017 has “arguably been the sweetest spot for combined airline profitability and traffic growth ever experienced,” but this is unlikely to be maintained for 2018.

CAPA said the growth of the aviation industry can be attributed to both the “typical economic forces” and shortterm forces.

While typical economic forces like gross domestic product (GDP) growth, business confidence, and trade flows all expectedly impact the aviation industry, these are not enough to determine the growth of the industry.

For the relationship between GDP growth and air traffic for example, a fair expectation would be passenger growth around two times the GDP growth, but growth has been at five times, not just 1.5 or two times GDP growth. Short-term influences particularly affect the aviation industry.

“Most recently, one of the biggest short- term influences has been the large fall in the price of oil. When oil prices were around $ 80 per barrel and above, airlines had adjusted their models to allow for that input cost. Capacity decisions, including aircraft retirement (or not); route planning; pricing, and staff hiring, were all influenced by the input cost of fuel, when oil prices dropped as low as the mid-$ 20s per barrel,” CAPA said. —