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Commentary: Travellers are hoping for a fare shake-up as airlines reap record profits

While it may be tempting to hope for lower air ticket prices, consumers might need to brace themselves for sustained high airfares until 2025, says NUS Business School’s Nitin Pangarkar.

Commentary: Travellers are hoping for a fare shake-up as airlines reap record profits

A Singapore Airlines plane is parked beside Scoot aircraft on the tarmac at Singapore's Changi Airport on Mar 15, 2021. (File photo: AFP/Roslan Rahman)

SINGAPORE: The last decade has been a mixed bag for the airline industry. Before the eruption of the COVID-19 pandemic, the industry recorded an average net profit margin of about 4.2 per cent from 2015 to 2019, according to the International Air Transport Association (IATA), because of a boom in travel as well as low oil prices.

When the pandemic hit, the global aviation industry took a nosedive almost immediately. Global travel ground to an abrupt halt as governments implemented unprecedented movement restrictions to contain the virus. This turbulence led to staggering losses, with airlines haemorrhaging US$183.3 billion from 2020 to 2022.

But post-pandemic, the industry is again surging. For 2023, IATA expects airlines to log net profits of US$9.8 billion, and while the expected 1.2 per cent net profit margin is nowhere near the record before the pandemic, they are good by the industry’s historic standards.

Nearer home, Singapore Airlines (SIA) has followed a similar trajectory. During the pandemic, it incurred the largest losses in its history and received support from the government.

But its traffic and profits have bounced back nicely post-pandemic. In fact, during the latest quarter it logged a record quarterly net profit of S$734 million (US$540 million), due in part to robust demand for air travel during the mid-year school holidays.

SIA wasn’t the only airline to enjoy a resurgence in travel. Dubai's Emirates Group recorded its most profitable year with 10.9 billion dirhams (US$2.9 billion) for the 12 months ended March. Delta Air Lines raked in a record US$1.8 billion profit for the quarter ended June as summer vacationers packed planes.

Despite a slow reopening, Hong Kong’s Cathay Pacific recorded its first half-year profit since the pandemic, earning HK$4.26 billion (US$543 million) in the first six months of 2023. All Nippon Airways too achieved its first full-year profitability of ¥89.4 billion (US$606 million) in FY2022, after inbound travel rose strongly in the fourth quarter.


Airline profits post-pandemic have been driven by strong demand for air services coupled with the delay in rebuilding capacity to pre-pandemic levels. The high ticket prices arising from these two factors have hurt consumers’ pockets as they look to travel for leisure or work.

According to the Airports Council International, airfares in Asia-Pacific and the Middle East have soared 53 per cent (nominal terms) or 35 per cent (real terms) in 2022 versus 2019, above the global average.

Some consumers are crying foul over expensive airfares, so much so that Thai airlines will be holding a seminar this week to clarify airfare structures and price regulations following consumer complaints. In Italy, the government has proposed a plan to cap sky-high airfares to the islands of Sicily and Sardinia, to the ire of airlines.

As the peak year-end holiday season beckons, will airlines respond to the festive spirit by offering more affordable fares? Or will high ticket prices persist even in the face of rising profits?

My guess is that consumers may have to continue paying more for airfares possibly until 2025 by which time the capacity may adjust to demand. As would be expected, it took airlines and airports some time to ramp up capacity and this process is still not complete.

As capacity increases, however, airline pricing power and fares might moderate. Demand too might moderate, as pent-up desire for revenge travel subsides.

Additionally, budget airlines which were hit hard during the pandemic because of their shallower pockets and weaker association with national pride (few are so-called national carriers) are surging in many parts of the world and likely to be the big winners post-pandemic. This may also contribute to lower airfares over time.


High airline fares also fly in the face of some longer term trends. As I have noted in other columns, it is a matter of time before technological alternatives such as video conferencing have a significant impact on the demand for air travel by business travellers.

The near-term risk of recession has receded, but the world continues to grapple with significant political and economic uncertainty.

While corporate profits in the recent past might have been buoyed up by the extremely low interest rates and easy money, that is unlikely to be the case going forward. When corporate profits are negatively impacted, discretionary expenses such as travel are likely to be cut significantly.

The airline industry also faces questions about its impact on the climate. While the movement against air travel is in its infancy, it could gather steam and more and more travellers may reduce their use of air travel substantially.

Uncontrollable factors have always impacted the fortunes of the airline industry. Between 2020 and 2022, it was the pandemic. High oil prices may also negatively impact airline profits, in the short run.

Geopolitics could be another salient factor. While the impact of the war in Ukraine is quite visible, trade conflicts and political tensions between the United States and Europe on the one hand, and China on the other hand, could have a significant impact on global economic performance and consequently the demand for air travel. The Chinese economy is already showing signs of a slowdown.


It's important to understand that airlines operate in an environment of fierce competition, and pricing strategies are influenced by a multitude of factors. While record profits may suggest that airlines are raking in cash, it's crucial to recognise that these profits often come from a combination of factors beyond ticket sales.

Ultimately, the airline industry is a delicate balancing act between maximising profitability and staying competitive.

Full-service carriers such as Singapore Airlines and Emirates, which enjoy good reputations and have a loyal customer base, are indeed going to benefit from the rebound in travel and high fares, but they also face threats, especially in the long term. Budget airlines are resurgent and may capture a good proportion of leisure travel demand.

Full-service airlines can use the high profits over the next couple of years to fine-tune their strategies and fortify their balance sheets, without going overboard on expensive undertakings such as an ambitious fleet renewal. But they should prepare themselves for moderation in fares in the medium- and the long-term, and possibly lower profits.

Nitin Pangarkar is Associate Professor in the Department of Strategy and Policy at the National University of Singapore Business School. The opinions expressed are those of the writer and do not represent the views and opinions of NUS.

Source: CNA/aj


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