IATA tips ticket prices to fall in 2015 amid lower fuel prices

written by australianaviation.com.au | December 10, 2014
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IATA predicts lower fuel prices will translate into lower airline ticket prices. (Rob Finlayson)

Air travel looks set to be more affordable in 2015 as the recent fall in fuel prices leads to lower ticket prices, the International Air Transport Association (IATA) says.

IATA’s Global Economic Outlook report, released on Wednesday, says average return air fares, which exclude surcharges and taxes, are tipped to fall by 5.1 per cent to US$458 in 2015, after adjusting for inflation.

IATA chief economist Brian Pearce says lower fuel prices are “unambiguously good” for the travelling public.

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“There is going to be a major benefit for consumers,” Pearce told reporters at IATA’s media day in Geneva on Wednesday.

However, Pearce cautioned that the recent reduction in the price of fuel may take some time to flow through to airfares given the hedging contracts in place at many carriers.

But history showed that airfares and cargo rates “ultimately reflected the cost of providing those services”, Pearce said.

“It is a very competitive market, airlines compete on the total travel cost to passengers so you should expect that total travel cost including surcharges to come down in line with what we are saying here about the underlying fare,” Pearce said.

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Oil prices have fallen about 40 per cent since June, and were sitting at close to five-year lows at about $US66 per barrel. But despite the recent slide, both Australia’s two major carriers Qantas and Virgin Australia had no plans to reduce their fuel surcharges on ticket prices for certain international destinations.

Qantas chief executive Alan Joyce told reporters on Monday the airline needed to see a sustained level of lower fuel costs before it would consider changes to its fuel surcharge.

“We are long way away from seeing sustainable fuel price reductions that would allow us to start alleviating and pulling back on the surcharges,” Joyce said.

Virgin chief executive John Borghetti said on November 19 it was “a little bit early for people to jump to conclusions that the world has changed dramatically on fuel”.

IATA chief executive Tony Tyler said fuel surcharges imposed by airlines often did not cover the full impact of any increases in the cost of fuel.

“The mechanism of the fuel surcharge has been an effective one for the airlines obviously to help cover the increase in fuel cost although it hasn’t by any means covered all of it,” Tyler said.

“But also, it does make fares flexible to costs in the relatively short term.”

IATA said passenger traffic was expected to increase seven per cent in 2015, above the 5.5 per cent trend growth rate of the past two decades. Meanwhile, capacity was forecast to rise an even higher 7.3 per cent in 2015.

The rise in air travel was reflected in the number of city-pair connections rising above 16,000 for the first time in 2014, having nearly doubled over the previous 10 years.

IATA, which represents the world’s airlines, has about 250 carriers as members covering about 84 per cent of global air traffic.

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