Travellers and sunseekers face higher air fares this year as airline costs rise, demand grows and capacity remains squeezed. Most observers believe that Irish and other northern Europeans will once again flood south this summer while a strong dollar is likely to lure plenty of US tourists across the Atlantic.
This will push fares in one direction: up, says Eddie Wilson, chief executive of Ryanair DAC, the Irish giant’s biggest individual airline. However, in his company’s case, he argues that this will be off a very low base. “With Ryanair, €40 one-way, is our average, I would say that will track up to about €50 over the next three to four years,” he says.
He maintains that rivals are already increasing their asking prices while they continue to offer fewer seats than before the pandemic. Ryanair increased summer 2022 capacity by 15 per cent over 2019, making it the only European carrier to grow. Others aimed for about 90 per cent, but bottlenecks across the region’s airports forced them to trim this.
We have had three years of the very worst recession in the airline industry, the market is supply constrained
— Davy aviation analyst Stephen Furlong
Stephen Furlong, aviation analyst with Dublin stockbroker Davy, says most airlines will remain limited in 2023. “The challenges are basically input costs, whether that’s fuel or labour,” he explains. Those expenses are rising as most airlines bid to recover fully from pandemic restrictions, which grounded the industry for a period in 2020, only slowly releasing their grip over the following year. “We have had three years of the very worst recession in the airline industry, the market is supply constrained.”
The speed at which travel recovered caught many of Europe’s airlines and airports unaware in 2022. Security queues on the last Sunday in May led to about 1,400 passengers missing flights from Dublin Airport. Its operator, State company DAA, admitted that it had miscalculated likely demand for travel.
While DAA ensured that the experience was not repeated, passengers had to arrive up to 2½ hours before short-haul departures and 3½ ahead of long-haul take off, during the summer. Members of the Defence Forces were also put on standby as a contingency, although they were never called upon.
The picture was worse across Europe. Heathrow capped outgoing passenger numbers at 100,000 a day in late July, saying this was the level at which it could avoid the worst impact on holidaymakers, including delays, cancellations and lost bags. This forced airlines, including Aer Lingus, to cancel some services. Amsterdam also limited numbers, while queues, hold-ups and dropped flights became commonplace over the summer.
Added to this, air traffic control strikes, mostly in France, hit services, prompting renewed calls for a Europe-wide system. In mid-September, one dispute led to French authorities asking airlines to cancel half their flights through its air space, hitting Ryanair in particular. The Irish group argues that the EU should give Europe-wide air navigation body Eurocontrol responsibility for overflights. Its chief executive, Michael O’Leary, says this would avoid the need to cancel services when an individual state’s air traffic controllers down tools.
At that point, Aer Lingus said it was dealing with 1,200 missing bags a day throughout its network
On the ground in Dublin, passengers found airlines had mislaid, delayed or lost their baggage. In August, ground handlers told the Joint Oireachtas Committee on Transport that there were 4,200 bags unaccounted for in the airport. These companies argued that in many cases, airlines were not loading luggage in the first place in order to get flights off on time, only sending bags on later services.
[ Christmas travel boom boosts Ryanair’s passenger numbers to 11.5mOpens in new window ]
At that point, Aer Lingus said it was dealing with 1,200 missing bags a day throughout its network. Its chief executive Lynne Embleton said that about 60 per cent of them were the responsibility of other airlines transferring baggage between connecting flights. In many cases, she said the luggage had never entered the Irish carrier’s system, although it had to take the flak when passengers discovered their belongings had not shown up with their flight.
Part of the problem, the airline told politicians at the same committee hearing, was that ground handling companies around Europe had hired large numbers of inexperienced staff, many of whom were unfamiliar with the system for tracking misplaced baggage and redirecting it to its proper destination. This added to the overall confusion.
With demand growing further in 2023, many fear they face a repeat of last summer’s chaos. Furlong believes that networks will remain under pressure but expects that the problems will ease. Airlines, airports and ground handlers have all begun hiring to avoid making the same mistakes again.
Airlines are also likely to structure their schedules to ensure they are better prepared coming into next summer. “I think it will be better, but there will still be issues with air traffic control,” Furlong says.
A look ahead to 2023
If it continues, the war in Ukraine will aggravate the impact of inevitable summer-time air traffic control strikes. The conflict has already limited air space in Europe as flights have to completely avoid a large area in the east of the continent.
An escalation of that war or new Covid-19 variants are seen as key risks for air travel. Either or both could derail a recovery that is not expected to be complete until 2024.
Aside from this, most experts believe a recession is looming. High energy prices, inflation and rising interest rates must take their toll. So far, that has not appeared to have hit 2023′s air travel prospects. Furlong notes that so far, this year looks set to be a good one.
If the end of 2022 is any indication, then the signs are good. Christmas demand prompted Ryanair to up its profit forecast for its current financial year, which ends on March 31st, to between €1.325 billion and €1.425 billion from €1 billion to €1.2 billion originally. It carried 11.5 million passengers in December, a record for that month.
Nevertheless, Furlong concedes that economic reality will have to kick in at some point. Air travel’s growth is generally linked to increases in countries’ overall wealth, so established patterns indicate that a recession should ultimately have an impact.
During the last recession, shoppers switched from their normal supermarket to the discounters, travellers swapped more expensive airlines for Ryanair
— Ryanair DAC chief executive Eddie Wilson
Wilson maintains that a recession will be good for Ryanair. Even while circumstances force up its fares, they will still be lower than those of its rivals, ultimately pushing travellers in the Irish group’s direction. He notes that the carrier did well during the prolonged downturn sparked earlier this century by a banking crisis.
He likens it to an “Aldi-Lidl effect”. In the same way that during the last recession, shoppers switched from their normal supermarket to the discounters, travellers swapped more expensive airlines for Ryanair.
Wilson cautions that the industry is not yet through the fallout from Covid lockdowns. “This is not over,” he maintains, despite what he says appears to be the view in some political and industry quarters here.
A key feature of that fallout is that airlines have less capacity than before the pandemic. Consequently, there is less business for airports, which must work harder to lure carriers. As it is taking delivery of up to 51 new aircraft a year, Wilson argues that Ryanair is the only show in town for those seeking growth.
Airport passenger charges are central to this. Airlines pay them, which means they are a cost, so the higher they are at a given airport, the less profitable a carrier’s operations are likely to be, giving them more incentives to look for cheaper options.
Ryanair has done deals on charges with Cork and Shannon that have enabled it announce new services from both recently. Wilson notes that Spain and Portugal have cut their airport charges by about 3 per cent. Similarly, in Italy, where airports are privately rather than state-owned, those costs have also come down.
Airlines and airports clash regularly over charges. What is different this time is that regulators have green-lighted an increase
Consequently, the airline is allocating more aircraft to these countries, where in most cases it has already grown to be the biggest carrier. Its bugbear though is Dublin, which the Commission for Aviation Regulation (Car), recently ruled could increase its charges.
The increases, starting at a cap of €8.68 per passenger in 2023 from about €8.50 in 2022, and rising to €11.73 by 2026, conditional on Dublin meeting pledges to spend on expanding facilities, are far lower than those sought by airport operator DAA. The company sought hikes that would bring its 2026 price cap to €14.58.
Nevertheless, Car’s announcement on December 23rd prompted Wilson to declare that the regulator was playing Santa to DAA by gifting it a 45 per cent increase in charges. DAA’s argument is that it needs money to expand to cater for growth which will mean passenger numbers hit 40 million by the decade’s end.
Ryanair’s response is that DAA should focus on plans that will benefit passengers and boost the standard of service, and not on what it calls “gold-plated” projects. Both Wilson and O’Leary have singled out a proposed tunnel under one of Dublin’s taxiways that will cost €200 million as a particular example of this.
DAA warned that the ruling itself excluded the cost of 240 extra security officers that the airport would need by 2026, undermining efforts to avoid queues like those of last summer and ignoring lessons learned from Covid-19. That does not preclude Dublin from hiring the staff, but it cannot include the cost in its charges.
There are going to be some interesting negotiations in the Dublin Airport Authority’s offices in 2023
Airlines and airports clash regularly over charges. What is different this time is that regulators have green-lit an increase while the post-Covid recovery is still under way and following a year when Dublin offered about €90 million worth of incentives to carriers to fly from there.
Wilson argues that passengers do not want an “experience” when they go to an airport. “They want to get through security, get a reasonable cup of coffee and a comfortable seat while they wait for their flight,” he says.
This row has blown up as Kenny Jacobs, Ryanair’s former marketing head, takes over as DAA chief executive. Following the Car’s announcement, Wilson called on his one-time colleague to review his predecessors’ plans for Dublin and sideline projects that do not benefit passengers or improve service.
No doubt Jacobs will listen to his former colleagues when they meet, but as head of the company responsible for Dublin and Cork airports, he will have to juggle many other interests as well. Either way, there are going to be some interesting negotiations in the DAA’s offices in 2023.
