Can you save 100’s of EUR if you book now?
We believe the answer to both questions could be ”YES”.
In aviation prices are regulated by supply and demand and some that think prices of plane tickets are going to go down, uses that to support their claim. More airlines are going to go bust, grounded airplanes will be bought by competitors – but overall there will be a situation where there will less people that will travel and that will drive prices down. We don’t think that, and here is why.
What we must not forget is the fact that travelling will not be as before Covid-19. At least for a while.
We are likely to see more airlines go bust and other airlines will take over. This can create a situation where there is lack of competition on certain routes or areas. Historically what tend to happen when there is little or no competition on a route due to a monopoly, prices on that route go up. Of course if a low cost airline that practices social dumping takes over, we might see lower prices. It is unlikely that local governments will allow this to happen. The social economic consequences are just too big for them to allow that.
When travelling again will be possible, it is likely that there will be new restrictions on how we go through airports and how we travel onboard an aeroplane. These restrictions are likely to cost money to implement and it is also likely that travelling will be a little less straight forward. You, as a traveller, might be subject to health screenings and planes might have to undergo disinfection and strict cleaning after every flight. This article from the BBC mentions some likely scenarios of what travelling will be like https://www.bbc.co.uk/news/world-52450038
Who is going to pay for all this new procedures? If it is the airport, then most likely the bill will be passed onto the airlines in form of airport taxes. The airline is likely to pass the bill on to passengers.
Historically airlines have made a fair bit of revenue on ”in-flight-sales”. This could be from drink and food sales, but also duty free, lotteries, theatre-tickets, transport tickets etc. It is likely that new restrictions will make it difficult for the cabin-crew to generate the same revenue as before Covid-19. If the airlines suffer a loss in this area, it is likely (or they may have to) they will make up for that income loss somewhere else. Our guess is that it will be by increasing ticket prices.
Huge loans will have to be repaid by the airlines
Airlines have almost with no exception made use of the opportunity to go through Covid-19 by taking up huge loans. Airlines will have to repay those loans. This is why the operating cost, when flying starts again, will be higher. Of course initially the prices needs to be attractive when there’s no vaccine and Covid-19 is affecting all over the world.
If the airlines have a higher operating cost and they keep the pre Covid-19 ticket prices, it is logic that they will end up with less profit. What does not make sense is how less profit can be a recovery plan for an industry which at the moment is on its knees. The airlines will have to make a profit. Most likely cutting cost can come from not operating certain routes so often while ensuring that when they fly flights are full.
Airlines can of course try to make savings. For example cutting pay to employees and trying to re-negotiate contracts with sub-contractors.
A lower price on fuel will help a lot of airlines, but as most airlines enter agreements where they lock the price of fuel, it is not until such contracts can be re-negotiated that they can start making fuel savings.
Then there is passenger tax, which with political help can be lowered for a period of time. Unless they get removed completed, then airlines cannot expect huge savings here. Ask yourself how likely it is for passenger tax to go away completely?
All in all, it is not that much that airlines can do to make any further cuts. That is why it makes good sense to predict that ticket prices will go up. What other alternatives do Airlines have, if they want to survive?
Can you save 100’s of EUR if you book now?
Prices on flight tickets (and holidays) are relatively low at the moment. This is because many companies are trying to survive and are desperate to have a cashflow. It is better to sell a cheap ticket now and then survive. So yes, if you do book now you can get a good deal. If you are likely to save 100’s of EUR, it will of course vary depending on which route you are looking at and how much prices will go up.
If you are booking a flight due to depart within the next few weeks, there is a high risk that your flight will be cancel. It varies from airline to airline what options you are given in this case. In particular airlines that, in case of cancellation, offer a free transfer (without having to pay any fare difference) offers a deal that could be very lucrative for you as a passenger. Even though you could save a lot of money, we are not suggesting you to buy tickets in bad faith and take advantage of the flexibility some airlines offer at the moment. You should, in our view, only book a ticket if you plan to travel. Of course it makes sense to also check that you can get travel insurance for your flight. Also, you would have to be prepared that there will be some travel restrictions, in the foreseeable future, but then again someone once wrote ”to travel is to live”.
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