Air travel costs set to rise in 2010

In the wake of the travel chaos caused by last week’s volcanic eruption, new figures from Kelkoo, produced by the Centre for Economics and Business Research (CEBR) reveal that consumers can expect to pay an average of 5.2% more in 2010 for an average plane ticket, costing UK consumers an additional £1.8 billion or £48 each on average.

The disruptions triggered by the eruption of the Icelandic volcano reduced flight activity in European airspace to around 18% of normal activity and cost the airline industry £1.3bn by the end of last week. In addition, it is believed that up to two thirds of the costs will be borne by the European airlines, having a significant impact of their profitability this year. As a consequence, it is expected that this may lead to an increase in airfares as airlines try to mitigate the impact on their already tight profit margins.

Bruce Fair, Managing Director of Kelkoo UK comments: “Most airlines were already struggling prior to the crisis, but this, combined with soaring oil prices will have a knock on effect on consumers as carriers are forced to pass on rising operational costs to passengers. Oil prices – the main cost factor for carriers, and representing 33% of total operating costs – are up by more than 74% in the 1st quarter of 2010 compared to Q1 2009. Additionally, increasing competition and falling demand mean that airline operators have struggled to remain profitable. Profit margins have been under pressure for some time as established carriers had to adjust their business models following the market entry of low cost airlines in the 1990s.

“Operating profit margins turned negative in 2009, with losses reaching 3.4% of revenues and exceeding the slump experienced after September 11th. In 2010, it is expected that profitability will remain negative giving the industry little headroom to adjust prices downward. Based on the impact of oil prices, economic growth, and inflation on air travel it is expected that cost pressures and constraint profitability will lead to an average rise in fares of 5.2% in 2010 across Europe, increasing to 11.5% by 2012.”