Is this the end of cheap flights?
Flying to a European country for less than ten euros is a thing of the past. And so it will continue for at least the next five years. This was stated by the CEO of Ryanair, Michael O’Leary, the main promoter of this low-cost business model in Europe. In his opinion, it is “absurd” that a plane trip costs less than by train, as well as “not very sustainable” in a context of rising prices and greater environmental demands. “We will not see them again for several years,” warned the manager, referring to the prices of between 1 and 10 euros per trip that the company popularized during the last two decades.
The announcement occurs in the midst of a perfect storm at airports. Airlines do not have enough workers to meet the high demand for travelers, already close to 2019 levels, and airports have been forced to adopt restrictions, in order to avoid the bottlenecks of the last few weeks. Added to the lack of personnel are the strikes of workers in some airlines, including Ryanair, and an unprecedented increase in costs after the war in Ukraine. An explosive cocktail that generates uncertainty in tourism and could end up weighing down a season where the sector has pinned all its hopes.
Given this context, is the end of so-called cheap flights feasible? In the opinion of the professor of the Faculty of Business and Communication of UNIR Luis Cerdá Suárez, when O’Leary makes these statements, “he does it trying to discount possible repercussions on prices that may be generated in the coming months”, in a context of high costs. “Specifically, Ryanair’s prices have been rising for a few weeks, so I would say that it tries to send that message so that it is clear to all of us that the price increase is taking place and will continue over time”, added to RTVE.es.
As announced by the Irish airline, the average price of tickets will increase by about 10 euros in five yearsfrom 40 euros last year to 50 euros in 2027. “We will not see our really cheap promotional offers again for several years, tickets at 1 euro, 99 cents or 9.99 euros,” insisted the CEO.
The rise in fuel prices, among the main reasons
Thus, Ryanair is going to join the general trend that marks an increase in fares in the coming years. One of the main reasons for this adjustment in their rates is the increase in fuel prices: “Fuel is one of the most important components of the cost of an airline, which can be around 20 to 40%, and this obviously it is very difficult not to be able to transfer it to the final consumer”, points out to RTVE.es the professor of the Open University of Catalonia and of Cranfield University (UK) Pere Suau-Sánchez.
Furthermore, it is a cost that is very difficult to control, as it is linked to market fluctuations. “In the case of airlines, there are policies called coverage that make a kind of price lock for the following year,” explains the expert. In the case of Ryanair, the negotiated price is guaranteed until March 2023. “That way you are not affected by short-term fluctuations, although, if the rise in prices is sustained over time, when it comes time to renew the coverage, it will be at a higher price than you had before,” he says.
Another factor to take into account is the evolution of the aeronautical sector, an industry currently at the forefront of sustainable investments. Without going further, the Aerospace PERTE plans to mobilize around 4,533 million euros in Spain until 2025 to, among other things, promote the ecological and digital transition. “Obviously this innovation has a cost and, somehow, will affect or be distributed throughout the value chain between all the actors”, emphasizes the professor.
and exists a third element in the evolution of prices, which would be the regulatory. “In the framework of the so-called Green Deal European directives are being reviewed to align them with emission reduction targets,” he explains. Thus, one of the big changes that is going to take place in the medium term is in the EU energy directive, the so-called Refuel-EU, which “introduces a new tax on fuels for the aviation sector and the maritime sector”, which until now moment they were exempt.
In Suau-Sánchez’s opinion, this will mean an important change in the industry since, beyond the fluctuations that the market has regarding price increases or decreases, this added tax will be added to the final price of the fuel. “In this sense, what the industry is asking for is that this money that is collected through fuel can be used for R&D in order to help in this way the transformation of the industry and that in 2050 it will be net in terms of CO emissions.two”, he concludes.
But how high will prices go?
Given this context, the experts consulted by RTVE.es agree that users will appreciate this price increase, although they believe that It will be done progressively., so they will continue to use these companies. “It must be recognized that for many consumers it has been an important opportunity. We are thinking of young people who like to travel and who, thanks to these companies that offer affordable prices, have been able to do so throughout Europe and at a very affordable price”.
Along the same lines, the CEO of Ryanair is confident that consumers will still “flock” to the company low cost. “I think users will be much more price-conscious and consequently millions of consumers will switch to low-cost airlines,” she stressed.
The truth is that airlines low cost year after year they are gaining ground on the traditional ones, while the available supply continues to grow. According to data from the International Air Transport Association (IATA), corresponding to 2018, the capacity offered by low-cost carriers grew by 13.4%, almost double the 6.9% of the global industry. With these data, the sector already represents 29% of the seats offered globally.
Thus, companies such as Ryanair or EasyJet have taken over the short haul, others such as Norwegian have embarked on transoceanic flights, while traditional companies try to stand up to them with the launch of your own brands in low cost version.
“Although the price of the flights is very low, we must not forget that the surcharges applied by these companies for checking a suitcase, per seat, etc., in the end it is almost at a price very similar to that of the flag carriers”, emphasizes Cerdá, who believes that, given this rise in prices, the model will finally trigger a hybrid solution between low cost and traditional “that sustainability will prevail over cost”.
With an eye on sustainability
Precisely one of the arguments used by O’Leary to justify this change in its business model is that low-cost flights “are no longer sustainable”. “It seems absurd to me every time I fly to Stansted, the train journey to central London is more expensive than the plane ticket,” she declared.
“Train travel to central London is more expensive than a plane ticket“
According to the UNIR professor, this affirmation also has as its objective “connect with that environmental concern and sustainability that the groups of their target (its target audience) such as young people”. “He immediately argues the price increase with greater protection of the environment and everyone is going to buy the environmental argument,” he stresses.
And it is that everything indicates that the sector will also have to face in the short term to a growing environmental awareness, that has put this type of company in the spotlight. Social movements like the Swedish Flygskam (shame of flying) want to make people aware that flying is much more polluting than traveling by train or car. While some countries have already got down to business: in 2021, France took the step of ban domestic flights that could be made by train in less than two and a half hours; and recently the Netherlands announced that Schiphol airport will end cheap connecting flights from 2023 to “cope with climate change”.
“Despite the fact that they tend to use more modern fleets, this very cheap price model often means increasing the frequency of very short flights, which in turn increases emissions. Added to this is that tourism model supported by frequent weekend trips, with the negative impact that it entails on certain cities, which they are already starting to ban it like Venice”, adds Cerdá, who thus believes that the medium-term model “could be sustained”but that “environmental justification will gain ground in the coming years.”