Airfares can only keep rising due to supply chain problems

Passengers will see little respite from soaring airfares as carriers face a shortage of planes, labor, and spare parts that will prevent them from meeting booming travel demand.

In a report on the outlook for global aviation, ING Bank NV depicted an industry hamstrung on several fronts by lingering supply-chain constraints. Air travel is likely to exceed pre-pandemic levels this year, though manufacturing woes at Boeing Co. and defects on Pratt & Whitney engines are limiting the availability of aircraft and taking the shine off the recovery.

There’s a record backlog of orders at Airbus SE and Boeing, and demand for second-hand aircraft is also rising, ING said. That’s driving up leasing rates for planes, especially workhorses like Boeing 737s and Airbus A321s. Meanwhile, a shortage of qualified workers means retrofits or refurbishments of older aircraft are also being delayed, the bank said.

Airlines across the world are rethinking growth plans, and even cutting flights, due to the ongoing supply chain problems. In the Asia-Pacific region alone, Singapore Airlines Ltd., Qantas Airways Ltd. and Air New Zealand Ltd. have been hit by aircraft delivery delays, unplanned engine maintenance and other snarls. 

“The global airline fleet hasn’t managed to keep up with demand and that’s not over yet,” ING sector economist Rico Luman and credit strategist Oleksiy Soroka wrote in the report. “Against the backdrop of capacity constraints, pricing power remains with carriers.” 

So far, passengers seem willing to foot the bill. Globally, fares are likely to remain elevated and in Europe ticket prices outpaced inflation by 15% in early 2024, the report said. 

“People across the world are seemingly keen to travel and prioritize their trips despite more expensive tickets,” it said.

Other key takeaways from the report:

• Delivery delays, extra maintenance, extreme weather, geopolitics and labor tensions will weigh on airlines’ profitability this year.
• Industry’s emissions will likely end up close to pre-pandemic levels this year. Despite increased awareness of aviation’s emissions, few people want to give up flying, especially among the younger generation.
• India’s growing population and rising wealth will make the country a “powerhouse for future airline growth”.