Advito revises airfare forecast for 2011, upward by two percentage points
Global airfares will rise in 2011 by between 6-9 percent over 2010 levels, according to Advito, BCD Travel’s consulting arm.
Published: 14 Feb 2011
Global airfares will rise in 2011 by between 6-9 percent over 2010 levels, according to Advito, BCD Travel’s consulting arm.
The price of oil is the primary factor behind Advito’s upward revision of its airfare forecast across all regions.
Year-over-year increases in fares will move up from the 4-7 percent range, to the 6-9 percent range.
In its 1Q update to the 2011 Industry Forecast, Advito cites the International Monetary Fund’s late-January revised forecast for crude oil prices upward from $79 per barrel to $90 per barrel. In addition to rising airfares, Advito’s 1Q update also finds that rapidly climbing fuel surcharges are adding significantly to the total cost of air travel—especially for long-haul flights and economy class travel. Moreover, the worst may be yet to come.
Advito market analysis reveals that current fuel surcharges on long-haul business class ticket can represent 6 percent to 12 percent of the actual fare, and 20 to 30 percent of the actual fare on a long-haul economy class ticket.
“Corporations should note that fuel surcharges are exempt from discounts obtained on corporate negotiated fares—so the proportional impact of these surcharges is greater than on published fares,” says Bob Brindley, vice president for Advito.
“Although we anticipate that the current upward movement in price will not be offset by a decrease in demand, buyers should be also be prepared for a “second-level” scenario, in which oil prices climb above $100 per barrel,” says Brindley.
“Such a scenario could potentially lead to double-digit fare increases—and would almost certainly engender a significant drop-off in corporate travel demand, as buyers and travel managers seek to remain within the budget parameters set at the end of last year,” stated the company.
Distribution debates continue to heat up
It also highlighted that a number of airline-GDS contracts will expire in 2011, and airlines are looking for ways to leverage preferable future GDS agreements by experimenting with ways to reduce their distribution costs and implementing new channels.
AA is the only major U..S. carrier for whom all “Big Three” GDS contracts are expiring in 2011.. Continental/United and US Airways both have at least one GDS contract expiring in 2011 as well.
Resulting legal and commercial battles center around issues including full-content agreements, GDS economics, the sale of ancillary services and direct connections. Some of these issues have recently drawn sharp attention, including:
-
- Direct Connect – This service allows customers to purchase airline tickets and ancillary services from an airline through a direct channel, bypassing the GDS.
- American Airlines/ Travelport – AA removed its content after Orbitz refused to implement AA’s Direct Connect program. In retaliation, Travelport levied higher fees on AA, resulting in an additional cost for Travelport users booking AA flights outside of the U.S. and Caribbean.
- AA / Sabre – Following a series of moves and countermoves that included Sabre making changes in its system to alter the order in which some of American Airlines’ flights appear in availability and shopping displays, and AA’s filing of a temporary restraining order against Sabre to reverse those changes, in late January the airline and the GDS agreed to put the litigation between the two companies on hold until June 1, 2011.
- Merchant fees –Within the past 18 months, major airlines such as KLM, Brussels Airlines and Finnair have imposed merchant fee surcharges on tickets booked in certain European markets. In late 2010, British Airways announced that beginning March 1, 2011, it will introduce a merchant fee surcharge of GBP£4.50 (US$7.02) on all non-premium tickets bought by credit card through British travel agents.
-
- Direct Connect – This service allows customers to purchase airline tickets and ancillary services from an airline through a direct channel, bypassing the GDS.
- American Airlines/ Travelport – AA removed its content after Orbitz refused to implement AA’s Direct Connect program. In retaliation, Travelport levied higher fees on AA, resulting in an additional cost for Travelport users booking AA flights outside of the U.S. and Caribbean.
- AA / Sabre – Following a series of moves and countermoves that included Sabre making changes in its system to alter the order in which some of American Airlines’ flights appear in availability and shopping displays, and AA’s filing of a temporary restraining order against Sabre to reverse those changes, in late January the airline and the GDS agreed to put the litigation between the two companies on hold until June 1, 2011.
- Merchant fees –Within the past 18 months, major airlines such as KLM, Brussels Airlines and Finnair have imposed merchant fee surcharges on tickets booked in certain European markets. In late 2010, British Airways announced that beginning March 1, 2011, it will introduce a merchant fee surcharge of GBP£4.50 (US$7.02) on all non-premium tickets bought by credit card through British travel agents.
In the hotel category, Advito is keeping its forecast unchanged for average daily rates, with moderate increases in most markets, Key markets like New York and Hong Kong could still see double-digit increases in ADR.