These days, the only thing that’s certain is uncertainty.
The coronavirus pandemic has turned the world upside down. The airline industry and travel as a whole have been pummeled. And this gut-punch came on the heels of the golden age of flight deals, when low fuel prices and airline competition generated several years of the lowest domestic and international flight prices travelers have ever seen.
In the midst of this outbreak, we’ve seen cash-hungry airlines slash prices for flights worldwide through the summer, fall, and winter. But what about when this pandemic ends and life starts to return to normal?
What will the future bring for the new players in the game who were barely scraping by a couple of months ago? What about the empires of the skies that were breaking all-time highs on their balance sheets? And what does that all mean for the flight prices in the future?
Supply and Demand
One thing is clear: Demand for travel has never been lower.
As with all things, one of the biggest factors behind flight prices is the simple law of supply and demand. Demand is currently down, so airlines have cut the supply of flights until that demand returns. Airlines are dropping routes and cutting frequencies left and right. Most major carriers are running at just 20% of their normal operations – or less. It’s the new reality of life and travel during the pandemic.
But as the pandemic fades and the economy (hopefully) gets moving again, that demand will rebound. But how quickly?
It won’t be overnight. It will take months – if not years – for travel to return to its pre-pandemic levels. Business travel has been critical for airlines to churn out record profits, but that may never fully return as businesses permanently adopt the Zoom meetings and phone calls that have become the new normal.
As airlines gauge this recovery, they’ll slowly ramp back up the supply of flights, too. It’s a recipe for some uncertainty of what flight prices may look like on the other side of coronavirus.
Even with a fraction of the flights they had during the travel boom, airlines may struggle to fill seats. They may be eager to show investors they can fill up planes and pull in revenue. And they’ll want to convince travelers who are wary of getting back on a plane to put their doubts aside. Low fares are an easy way to do all that.
As the coronavirus pandemic started, we saw airlines slash fares to get more travelers on planes. It’s safe to assume they’ll do the same once it’s over. And that means some astonishing sales in the future.
If supply and demand is the principle behind airfare, competition between airlines is the gamechanger.
The airline industry is cutthroat. Every year, we see new players enter and exit the game. And in the meantime, airlines are constantly targeting their competitors, offering dirt-cheap prices to undercut each other in hopes of winning more customers. The connection between competition and price is undeniable.
Low-cost airlines are a prime example.
WOW Air came out of the gates hot with some of the lowest pricing to fly between the U.S., with flights under $50 each way. Norwegian Air has made its name with low fares across the Atlantic. The list goes on.
These budget carriers have driven flight prices to Europe down to record lows in recent years– as low as $300 round-trip or less. Sure, you can snag a cheap flight on one of these barebones airlines. But they’ve also forced major airlines like Delta, American, United, and their international partners to compete on price, too. And that’s a win for consumers.
The future of low flight prices hinges on lots of competition between airlines, especially the survival of these low-cost carriers. And they were already struggling before coronavirus.
Norwegian has been struggling with budget problems for more than a year. Long before other airlines started shrinking, Norwegian cut 4,000-plus flights and laid off much of its staff as it entered survival mode.
Some airlines have already fizzled out due to coronavirus, and more are sure to follow. Others are entering bankruptcy and an uncertain future. We can only hope that the vast majority of airlines still have a pulse when the dust settles.
The Price of Oil
Jet fuel is one of the biggest costs for each and every airline. It’s another huge factor in the price of travel. And it’s dropped like a rock.
The price of oil has dropped to lows not seen in more than 20 years. And for the time being, there are no signs of a return to normal.
That’s little comfort to airlines now, who aren’t flying nearly enough to capitalize on the low prices. But if these bottom-of-the-barrel oil prices hold until travel rebounds, it’s a potential catalyst that will pull down airfare with it.
Graphic courtesy of Macrotrends.net
Predicting airfare is more art than science. It can be unpredictable, given the puzzling sales we see from airlines day after day, year after year. Cash grabs, mistake fares, flash sales and fare wars can spring up at any moment.
There are bargains to be had now for future travel. And given all these factors, we’re betting there will be even more bargains at the end of this pandemic. When you’re ready, we’ll be ready to help you see the world for less.