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Mon, Dec 08, 2008 - Page 10 News List

Experts predict drop in price of air tickets

SINKING FEELINGRyanair chief executive Michael O’Leary forecast a reduction on an average ticket of between 15 percent and 20 percent by the end of March


The price of air tickets should start coming down soon because of the world financial crisis, experts are predicting, while ruling out a plunge that would endanger the health of airlines.

“If you keep prices too high you’re going to lose more passengers,” said Geoff van Klaveren of Exane BNP Paribas, against a background of both companies and tourists cutting back on air travel.

Cut price airline Ryanair’s chief executive Michael O’Leary forecast a reduction on an average ticket of between 15 percent and 20 percent by the end of March, and claimed to be attracting passengers from more conventional companies like British Airways.

Most airlines use the yield management system, whereby prices are adjusted by computer on an almost daily basis in line with demand, starting relatively and then rising if a particular flight fills up, or falling if it does not.

“However, company profit margins are narrow and they cannot really engage in a price war,” said Didier Brechemier, a consultant with Roland Berger.

Few airlines have yet adopted an aggressive pricing strategy, as they try to recover from the massive cost of fuel, which neared US$150 a barrel in mid-July, forcing them to slap surcharges on tickets.

While oil has now fallen to one- third of this level, companies have held back from price-cutting at the same rate, while from time to time announcing a reduction in the surcharges since September.

At the same time they have adopted other tricks to keep the money coming in, such as the introduction by the leading European airline, Air France-KLM, of a 50 euro (US$63) charge on economy class seats located near the emergency exits, where passengers enjoy more legroom.

The same company is also introducing an extra class between business and economy toward the end of next year and Brechemier predicted that others would follow suit.

“This project is perfectly matched to the crisis and we are in a hurry to put it into effect,” said Air France-KLM deputy CEO Pierre-Henri Gourgeon, adding that it would allow businesspeople to continue traveling in reasonable comfort while saving money.

The global airline industry — forecast to lose US$4.1 billion this year by industry body IATA — is also fast consolidating in a bid to reduce costs by achieving economies of scale.

Last week, German airline Lufthansa announced a takeover offer for loss-making rival Austrian Airlines (AUA) and Irish low-cost airline Ryanair made a 748 million euro cash offer for national rival Aer Lingus.

British Airways said on Tuesday it was “exploring a potential merger” with Australian rival Qantas as part of a broad tie-up.

It is also in talks with Iberia and American Airlines.

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