The Airport Industry Outlook, a report by the Airports Council International (ACI) Asia-Pacific in partnership with Mott MacDonald, highlights a significant surge in airfares in the Asia-Pacific and Middle East regions as countries emerge from pandemic-related restrictions. Airfares in these regions rose by 53% (nominal terms) or 35% (real terms) in 2022 compared to 2019, surpassing the global average. However, airfares began trending downward towards the end of the year as traffic recovered.
Stefano Baronci, Director General of ACI Asia-Pacific, explained the factors contributing to the increase in airfares: “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.” Despite airports’ efforts to freeze or lower charges in 2022, the financial stability of the industry remains in question. The imbalance poses a threat to the sector’s full recovery in 2023, as airport operators continue to struggle with 10 consecutive quarters of negative EBITDA and net profit margins.
Impact on Top International Routes and Fuel Prices
An analysis of the world’s Top 15 busiest international routes in 2019, 14 of which are in the Asia-Pacific and Middle East regions, reveals that in July 2022, passenger numbers were down 66% while average airfares were up 77%. Airfare increases were mainly driven by fluctuations in airline operating costs, such as fuel prices and wage inflation, reduced seat capacity relative to demand, and decreased airline competition on some routes. Efforts to recover losses incurred during the pandemic and increased debt and interest rates also contributed to the rise in airfares.
Routes with strict travel restrictions and limited frequencies and airline competition, like those connecting Hong Kong with Manila and Shanghai, experienced the largest airfare increases. However, on the London Heathrow to New York JFK route, which had already recovered to 89% of 2019 passenger levels in July 2019, airfares increased by a more modest 21%.
Fuel prices, a major driver of airline costs and airfares, have been highly variable in recent years. Jet fuel was 41% cheaper in 2020 compared to the 2019 average price but jumped 79% higher in 2022 due to oil supply restrictions caused by Russian sanctions and increasing air travel demand.
Challenges for Airport Recovery and Financial Health
Elevated airfares represent a downside factor for full recovery, as they may suppress demand and reduce the number of passengers. Airports, on the other hand, need to return to pre-pandemic traffic volumes to restore their economic equilibrium after a prolonged period of operating in the red. The financial health of airports remains a concern, as regional EBITDA margin and net profit margins remain negative for the tenth consecutive quarter. However, some improvement has been seen with the opening up of major cities from lockdown in China, resulting in a gradual increase in revenues.
First love never dies. I fell in love with airplanes and aviation when I was a kid. My dream was to become a pilot, but destiny led me to another path: to be an aviation digital media content creator and a small business owner. My passion for aviation inspires me to bring you quality content through my website and social accounts. Aviation is indeed in my blood and blog!
