Air fares set to rise sharply following ash fiasco
April 27th, 2010 by elisa

It’s forecast that airfares are set to rise by more than five per cent this year in the wake of the Icelandic volcanic ash crisis and increasing oil prices.

UK travellers can expect to pay £48 each on average, according to figures from the Centre for Economics and Business Research for the shopping and price comparison website Kelkoo. The study warns that fares are set to rise by 11.5% by 2012. To give an example, this would add £62 to the cost of an average economy flight from London to New York – from £518 to almost £580.

These rises are predicted as carriers will be attempting to regain an estimated £1.3 billion in costs after the ash cloud disruption which caused most of UK airspace to be shut down. It’s believed that up to two thirds of the costs will be borne by European airlines.

Bruce Fair, managing director of Kelkoo, said: “Most airlines were already struggling prior to the crisis, but this, combined with soaring oil prices, will have a knock-on effect on consumers as carriers are forced to pass on rising operational costs to passengers.

“Oil prices – the main cost factor for carriers and representing 33% of total operating costs – are up by more than 74% in the first quarter of 2010 compared to Q1 2009. Additionally, increasing competition and falling demand mean that airline operators have struggled to remain profitable. Profit margins have been under pressure for some time as established carriers had to adjust their business models following the market entry of low cost airlines in the 1980s.”

He added: “Operating profits turned negative in 2009, with losses reaching 3.4% of revenues and exceeding the slump experienced after September 11. In 2010 it is expected that profitability will remain negative, giving the industry little headroom to adjust prices downward.

“Based on the impact of oil prices, economic growth, and inflation on air travel, it is expected that cost pressures and constraint profitability will lead to an average rise in fares of 5.2% across Europe, increasing to 11.5% by 2012.”

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