Air fares set to rise amid ‘stubbornly high’ fuel prices, Willie Walsh says

Global air travel faces “obvious and evident headwinds” despite a recovery in passenger numbers, with fares likely to increase in 2023, Willie Walsh, director general of the International Air Transport Association (IATA), told the Oireachtas Joint Committee on Transport and Communications on Wednesday.

Mr Walsh said the Irish market was “recovering strongly” from the pandemic, with passenger traffic growing in line with, if not slightly faster than, the rest of Europe. The second half of 2022 has seen strong growth on routes to and from Europe and North America, with Ireland-Britain traffic “gathering momentum”.

Passenger numbers in the Irish market are likely to reach pre-pandemic levels “probably in 2023, given the pace of recovery, but certainly by 2024″, he added.

The global market is expected to complete its rebound from the Covid-19 crisis in 2024, despite headwinds including economic slowdown and “very high” fuel prices. International airline traffic was at 70 per cent of 2019 levels in September, while domestic markets globally were at 81 per cent of where they were in the same month in 2019, with this figure heavily impacted by restrictions in China.

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Prices for jet fuel have remained “stubbornly high” even as oil prices have fallen, however. In the first 10 months of 2022, Brent crude averaged $104 a barrel but jet fuel averaged $141 a barrel, Mr Walsh said. The price difference between the two has widened to 36 per cent on average this year, double the traditional spread.

Fuel is the highest single cost for airlines. Many carriers hedged their 2022 fuel requirements but “some if not all” of this hedging will start to unwind in 2023, exposing more airlines to the high spot prices.

“Ultimately it will find its way through to ticket pricing. There’s no way airlines can absorb the significant increase that they’ve witnessed particularly on the back of two years, three years, of very significant losses.”

‘Every single drop’

Ryanair boss Michael O’Leary said in August that Europe’s biggest airline was unlikely to run fare promotions as low as €9.99 in the next couple of years and that its average fare of €40 in 2021 would “edge up towards maybe €50″ over the next five years.

On carbon emissions, Mr Walsh said the industry used “every single drop” of sustainable aviation fuel available to it in 2021 and was doing the same this year despite a “significant premium” on such fuel.

“In my opinion, there will always be a premium for sustainable fuel until we get widespread production and at the moment we are seeing low levels of production.”

Disruption at Dublin and other airports in the early part of the summer had a “very marginal impact” on the post-pandemic recovery in aviation, Mr Walsh also said.

Four members of the committee are travelling to Schiphol Airport in Amsterdam on Thursday to discuss Dutch aviation policy with authorities in the Netherlands, where the government has recently sought to use the cap at Schiphol to encourage traffic to regional airports.

“That’s a model that enthuses a lot of us here,” said Fianna Fáil TD Cathal Crowe.

‘Blunt instrument’

But Mr Walsh said he didn’t necessarily agree that the Dutch policy would drive traffic to regional airports and governments needed to be “careful” about such an approach to regional growth.

“What we have seen when issues like this have happened before is that it tends to drive traffic away from the country,” he said.

“It’s a very blunt instrument they’re using. I don’t think they have thought it through carefully.”

Mr Walsh, who took up the aviation industry role last year and now represents some 290 airlines, said there were “opportunities” to increase visitor numbers into an airport such as Shannon, principally through tourism.

“I wouldn’t in any way try to inhibit ambition because I think ambition is important, but I think we would need to be realistic that the potential for growth at Shannon is somewhat limited.”

The former chief executive of Aer Lingus, British Airways and most recently International Airlines Group – the owner of both carriers – said airlines were guaranteed to operate where markets exist and where they are supported.

“But I’ve got to be blunt, you’re not going to be able to recreate what you have in Dublin at the other airports. That’s just not going to happen.”