The airfares in Asia-Pacific and Middle East surged as nations emerged from pandemic-related restrictions, according to the Airports Council International (ACI) Asia-Pacific’s latest Airport Industry Outlook.
The airfares in Asia-Pacific and Middle East were above the global average up 53% (nominal terms) or 35% (real terms) in 2022 vs 2019, although fares were trending down towards the end of the year as air traffic recovered.
Commenting on the surge in airfares, Stefano Baronci, Director General, ACI Asia-Pacific said: “Despite a consolidated recovery of domestic traffic as compared to 2019 levels, and a progressive improvement of international traffic, with peak performances in Middle East and South Asia, the financial health of airport operators continued to be in distress, with 10 consecutive quarters in the red both in terms of EBITDA and net profit margin. Despite substantial efforts by airports to freeze or lower airport charges in 2022, the average 53% increase in airfares throughout 2022, compared to 2019, reveals a fundamental imbalance in the financial stability of the industry as well as pose a threat to the sector's full recovery in 2023. Fuel prices, wage inflation, insufficient seat capacity relative to demand and a lack of airline competition on specific routes, are the major determinants in the increase in airfares."
The report highlights that increase in airfares were significantly above the global average with airline yields (revenue per RPK) that were 29% higher in 2022 than in 2019 in nominal terms. This is in sharp contrast to the financial health of airports, which are still losing money, with regional EBITDA and Net Profit margins being negative for the tenth consecutive quarter since 2020.
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The largest increases in percentage and absolute terms were reported in areas which applied stringent and long-lasting COVID-19-related travel restrictions[/caption]
The largest increases in percentage and absolute terms were reported in areas which applied stringent and long-lasting COVID-19-related travel restrictions, including the Emerging East Asia mainly China, where yields increased 90% in 2022 over 2019 levels followed by Developed East Asia with yields up 67%.
Airfares increases were mainly driven by variations in airline operating costs e.g., fuel price, wage inflation, reduced seat capacity relative to demand; less airline competition on some routes; efforts to recover losses incurred during the pandemic and increased debt and interest rates.
The largest airfare increase was reported on routes with strict travel restrictions and scarce frequencies and airlines competition, such as the ones connecting Hong Kong with Manila and Shanghai.
Fuel price also served as a major driver of airline costs and air fares. In recent years, fuel costs have been unusually variable. Jet fuel was 41% cheaper in 2020 compared to the 2019 average price, but 79% higher in 2022 due to oil supply restrictions caused by Russian sanctions and increasing air travel demand.
The report concluded by stating that elevated airfares represent a downside factor for full recovery as these may suppress demand and therefore reduce the number of passengers. Airports, on the other hand, need to get back to pre-pandemic traffic volumes in order to restore their economic equilibrium after a prolonged period of operating in the red.