Political and economic uncertainty across the globe will contribute to a continued slowdown in demand growth for air travel in 2020, but airfares globally will remain relatively stable with only minor rise.
This forecast in the Air Monitor 2020 published by American Express Global Business Travel (GBT) notes that despite rising costs for oil, labour and infrastructure, fierce competition in the sector indicates that airlines will have minimal scope to raise fares.
“While uncertainty looks to be a key theme in the coming year, in this report we see several factors likely to affect buyers of business air travel in 2020 such as airline retailing strategies, growing fare segmentation and increased focus on sustainability,” said Joakim Johansson, vice president, global business consulting at GBT.
Findings from the Monitor revealed economic growth in Asia Pacific remains high relative to other economics, but the gradual slowdown predicted in last year’s monitor will continue in 2020. Fares on flights within Asia are expected to rise by 2.9% in business class and 1.8% in economy. The grounding of India’s Jet Airways has removed a significant chunk of capacity from the region, and could push up economy fares by 5%. Political unrest in Hong Kong has reduced some travel to and from the territory, and efforts to modernise the airport have stalled.
In Europe, sluggish growth will see fares remaining flat, with prices rising by less than 1% on flights within the continent. Airlines are under pressure on a number of fronts including concerns about over-capacity, strong competition, high regulatory costs and inefficient infrastructure. The flygskam (flight-shame) phenomenon has been most prevalent in Europe, driving increasing competition from rail routes.
Trade tensions in North America continue to cause drag on economic growth across the continent, which is also impacting the Canadian economy. Airfares within North America are predicted to rise by only 1.5% across both business and economy. Fares to European destinations could also increase due to a reduction in capacity from Norwegian Air. However, Brexit uncertainty has the potential to dampen any rises. Meanwhile, political volatility in South America looks likely to cause a fall in fares of around 1%.
Other key findings:
- In last year’s Air Monitor long-haul low cost carriers (LCCs) looked poised to have a significant impact on travel. However, with the exception of those providing inter-regional services in Asia, long-haul LCCs have largely floundered
- The grounding of the 737 MAX in March 2019 following two fatal crashes has had a significant impact on airlines, compelling many to cancel services or delay the retirement of older aircraft. Timelines for the 737 MAX’s return to service have been repeatedly pushed back, creating uncertainty and putting pressure on airline revenues.
- Sustainability remains growing concern for airlines and travellers, with a growing interest among the latter for sustainable travel. Many of the world’s largest airlines including Lufthansa, Qantas, United and Delta, have introduced or are planning to introduce, carbon emission offsets or biofuel surcharges. Governments, especially in Europe, have introduced proposals to raise taxes on aviation, while reducing tax rates for alternative modes of transportation.
- Fare segmentation (unbundling) continues to grow as a way for carriers to simultaneously meet the different needs and budgets of their passengers and respond to the competitive challenge posed by low-cost carriers (LCCs). This is not limited to economy fares. Emirates recently became the first airline to offer unbundled business class fares, and other carriers may follow suit. “The availability of cheaper business class seats could open up new opportunities for corporations in their negotiations with carriers,” states the report..
The Monitor also includes an overview on building a nimble air programme from the GBT Global Business Consulting air practice team. According to GBT, “nimble air contracting can give corporations the agility they need to manage their air programmes effectively in an unpredictable world.”
Download the full Air Monitor 2020 here.
• Featured image credit: Jag_cz/Getty Images
