Industry Monitor 189 for November-December 2016 - Downward pressure on fares

19 December 2016

In 2016, ticket prices in Europe fell compared with the previous year; on average, they were 2.7% lower.  This trend was most visible during the period July-September; for example, in August ticket prices were 4.2% lower than in 2015.  In order to understand this trend, we need to look at the context.

Chart of ticket proces in Europe. Source - Eurostat. Analysis: STATFOR.

The fall in fares is linked to several macroeconomic factors, most notably the oil price, which has been extremely low, comparable to the levels seen after the financial crisis. On average, during the first three quarters of 2016, it was 20% lower than in the same period of 2015, and even though the latest movements have been upwards, the oil price remains historically low. In 2014 IATA estimated that fuel and oil prices made up around 30% of airline costs – the single largest portion – and so they have a strong influence on process. The airlines’ management of their exposure to the oil price is a major factor in their pricing structure and profitability.

Chart displaying crude oil and fuel proces. Source: EIA, Eurostat and IATA.

Traffic patterns have also affected fares; while traffic has been increasing across Europe in general, political turmoil and terrorist incidents have negatively influenced some of the traditional holiday destinations such as Turkey, Egypt and Tunisia.  As a result, during the 2016 summer holiday period, people turned to other destinations, such as Spain, Portugal and Greece.

Chart displaying main changes of traffic on the European network. Source: STATFOR

Lastly, the downward pressure on fares also reflected the impact of low-cost airlines, which are substituting the traditional scheduled flights. Low-cost airlines have increased their market share to 30% of all flights – much more than the 20% registered in 2008, when the number of flights was similar to 2016.

Chart displaying all IFR traffic in 2016. Source: STATFOR

Find out more interesting facts and figures in our latest (and last) Industry Monitor of 2016 – the EUROCONTROL bulleting on air transport trends! Subscribe if you wish to receive the Industry Monitor every month in your mailbox.

STATFOR’s Industry Monitor is a regular email briefing for subscribers on air transport matters, forecasts and trends. It is produced regularly, generally every month.


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