If capacity is up, why are prices still so high this summer?
Gary NoakesMore flights and holidays are on sale this summer despite a supposed dip in demand this year, but costs remain steep for those booking an escape. Gary Noakes reports.
With last summer’s post-pandemic demand now a faded – if warm – memory, agents are struggling to explain to clients why holiday and flight prices appear to remain so stubbornly high this year.
Price-gouging was understandable last year; capacity hadn’t been restored, and operators and airlines were keen to make up for their pandemic losses.
Consumers, meanwhile, were desperate to travel again. In theory, demand this year should be more normal, and now supply has been increased, travel should be cheaper.
On the package side, Atol capacity is at its highest level ever with 33 million authorisations for the full year – five million more than in 2019.
Similarly, in March, Iata said airlines were now operating at 99.5% of pre-pandemic levels, while flight schedule guide OAG predicted global airline capacity to be almost 3% ahead of 2019 levels during the first quarter of 2024.
It all points to a more standard market. In a year when capacity has soared and demand dipped, high pricing doesn’t make sense, but you don’t have to look far to spot some eyebrow-raising rates.
One reason, in early 2024 at least, was operators with their own airlines appearing to push flight-only customers towards more lucrative packages. Jet2.com flights from Manchester to Palma departing 25 May and returning 1 June – flight and hand luggage only – came in at an astonishing £1,630 for two, with a full package priced around the same.
TTG found evidence of easyJet and Tui employing the same tactic. One example is a Gatwick-Alicante fare with easyJet during the May half-term week, priced at £1,236 for two, with a half-board easyJet holidays package to Benidorm on sale for less than £1,000 for a couple. During the same week, a flight-only Glasgow-Corfu fare with Tui was £598 for two, with packages starting from around the same price.
Another, perhaps more legitimate reason to explain high prices is global inflationary pressure. Jet2 chief Steve Heapy alluded to this in March when he said the UK was living “in inflationary times”. “We’ve seen prices increase throughout the supply mechanism,” he said. “Unfortunately, that comes through in the final cost.”
In the package market, there are no signs yet of a late sales panic from operators, but in early June, Tui posted 7,000 late deals for departures until October with the accommodation price reduced by more than 50% in some cases.
Tui’s promotional material said these rates were the “online saving on our in-store price, plus any applicable further reduction against this holiday’s launch price”.
Elsewhere, in the nearer future, Jet2 is offering £60pp off summer departures book through independent agents, while easyJet holidays has discounts of “up to” £200 on peak bookings worth more than £2,000.
No lates free-for-all
Kelly Cookes, Advantage Travel Partnership chief commercial officer, said there had undoubtedly been capacity increases, but added: “It’s in patches in certain places and in certain destinations. And some is for future seasons – we’ve seen quite a bit more for winter, for example, as operators react to geopolitics.”
Demand, she believes, is keeping pace. “The only piece of the market we’ve not seen come in is that lower-end family customer,” Cookes continued.
“They seem absent so far – it could be that they’re holding out for an attractive price, or they want to see what their discretionary income is like closer to when the full balance is due.”
Consequently, Cookes doesn’t predict a late sales free-for-all. “We’re now seeing members and suppliers push more share into future seasons than lates,” she said.
“There’s always going to be last-minute deals to be had, but from what we’re hearing from the market, members feel under less pressure to do a lot of the big reductions than in previous years.”
However, Cookes said the post-pandemic trend towards late bookings was enduring. “We’re probably doing about 5% more bookings within 12 weeks of departure than we were pre-pandemic, but the margin and the costs are higher, partially driven by the supply chain.”
Mainstream discounting picking up
Vim Vithaldas, Travel Network Group chief commercial officer, sees no cause for alarm. “In 2023, we had two wars, record inflation and record energy costs – and yet the travel industry had a record year,” he said.
“This year, inflation is coming down and prices have stopped rising as quickly. We had a very good peaks, same as last year, and March to May did not fall off.”
He said almost 20% of summer bookings were for departures within six weeks. “We’ve seen discounting pick up from the mainstream operators,” he added.
“People are waiting for lates. Last year, I think people ate into their savings. This year, we need to see the macro-economic conditions improve and pricing normalise.”
What else is at play?
One key driver of package pricing is the air fare, and data shows an upward trend for some popular destinations. On behalf of TTG, the aviation analytics company Cirium looked at fares for travel in March 2019 versus March 2024, the latest comparisons available.
It found the average one-way Glasgow-Antalya fare, without taxes and charges, had soared from £113 in 2019 to £163 in 2024. Similarly, the average Manchester-Palma fare had risen from £62 in 2019 to £83 this year.
Besides rising supply costs, several factors are forcing up air fares. One is aircraft delivery, paused during Covid and not yet recovered. Issues with Boeing 737 Max production have affected Ryanair in particular, which will be 17 aircraft – and five million passengers – short this summer, with a ripple effect on pricing. Aircraft leasing company Avolon predicted: “The under-supply of aircraft will take years to unwind."
Engine issues, meanwhile, are affecting some carriers with Airbus fleets, including Wizz Air. Wizz grounded 45 aircraft in January while modifications are completed, although it has said it will increase capacity by 20% in the second half of 2024.
Other problems abound. British Airways retired the last 31 of its Boeing 747s during the pandemic, only for replacements to be delayed because of manufacturing issues. Then there is the lack of any major independent UK charter airline, such as Monarch, to compete on leisure routes.
Combine this with carriers’ ambitions to make up for revenue lost during the pandemic and it all adds up to tighter supply and higher prices. JLS Consulting’s John Strickland said in April he was seeing “quite stunning levels of pricing” but with 2023’s high load factors continuing into 2024.
In June, Iata forecast 2024 global airline revenue would reach 119% of 2019 revenue, compared with 108% last year, and record global profits of £24 billion. However, net profit per passenger is forecast to be just £4.77 – the same as last year – which perhaps bears out claims of inflationary pressures.
We'll have to wait for airlines and operators’ summer financials to see if the pricing really is right. But the signs so far are that consumers seem willing to pay up.
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Gary Noakes
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