Europe aviation pricing: Ryanair lowers fare outlook, but inflation persists
When Ryanair Group Chief Executive Michael O'Leary said that the airline's summer fares would not increase as much as previously expected, airline share prices fell.
Nevertheless, Ryanair's new expectation of a low single digit percentage increase just brought the ultra-LCC more in line with other LCCs' commentary on the outlook for yields this northern summer.
Official data for passenger air travel price inflation show that EU fare increases have settled in the single digits for many months, after an extended period of double digits in the initial post-pandemic recovery. UK air fare inflation turned negative in Mar-2024, which is the most recent month for which figures are available.
Nevertheless, prices in the UK in Mar-2024 were still 57% higher than they had been in Mar-2019. In the EU they were 45% higher.
Given the strength of these increases, a more consistent weakening seems likely at some point. However, with supply chain-induced capacity constraints enduring, it is still too early to call the end of positive inflation rates for air travel in Europe.
- Passenger air travel price inflation in the EU has been single digit for nine months, but rising since Nov-2023. UK air fare inflation turned negative in Mar-2024.
- The EU's domestic market is still in double digit inflation. For EU international flights, inflation is lower but rising again.
- Ryanair has lowered its expectations on summer fares to be more in line with other LCCs' expectations. It expects 20%-30% growth in fares over the next five years.
- The legacy groups have been more circumspect on the unit revenue outlook.
- Prices in Mar-2024 vs Mar-2019 were up by 57% in the UK and 45% in the EU.
Passenger air travel price inflation in the EU has been single digit for nine months…
Official inflation data for the EU shows that the price of passenger air travel grew by 8.7% year-on-year in Mar-2024.
This was the ninth month of increases below the double digit rates that persisted for 15 months from Apr-2022 to Jun-2023. The rate peaked at 41.5% in Jul-2022, before following a declining trend until late 2023.
…but has been rising since Nov-2023
Nevertheless, the trend has been broadly upwards since reaching a low of -1.1% in Nov-2023.
The 8.7% rate of Mar-2024 was the highest since Jun-2023, when passenger air travel last grew at a double digit rate (it was then 12.4%).
UK air fare inflation turned negative in Mar-2024
UK passenger air transport prices have followed a broadly similar pattern as for the EU, although the UK trend has not turned upwards once more in the most recent months of 2024.
The UK's passenger air transport inflation rate was negative in Mar-2024 - it was -1.1% - after falling from a peak of 44.1% in Dec-2022.
Moreover, this reversed what had been a brief upward trend in Jan-2024 and Feb-2024.
EU-27 and UK: year-on-year percentage change in monthly index of prices for passenger transport by air, 2019-2024
The EU's domestic market is still in double digit inflation
Data for the EU-27 show that price increases for domestic flights have consistently outpaced inflation for international flights since Nov-2022, as the overall trend has fallen.
This is in contrast to much of 2022, when the overall surge in prices for air transport was driven more strongly by international flights, after the loosening of international travel restrictions as Europe emerged from the COVID-19 pandemic.
In Mar-2024 prices for domestic flights in the EU increased by 16.2% year-on-year; Mar-2024 was the 19th straight month of double digit growth and very similar to the level of the previous two months.
For EU international flights, inflation is lower but rising again
For international flights, inflation was 9.0% in Mar-2024.
This was the sixth consecutive month of single digit or negative price growth (after 15 months of double digit increases before that). However, it represents a significant uptick since Nov-2023, when it was -8.6%.
EU-27: year-on-year percentage change in monthly index of prices for domestic and international flights, 2019-2023
Ryanair has lowered its expectations on summer fare hikes,…
These most recent inflation rates for air travel in the EU and in the UK are, of course, backward looking. For some indication of the outlook into the European summer, recent statements from leading airlines are fairly informative.
There remains a broad consensus in European aviation that ticket prices will continue to rise, as a result of capacity constraints caused by supply chain challenges and aircraft delivery delays.
However, on 7-May-2024 Ryanair Group CEO Michael O'Leary said that fares would likely rise by 0-5% this summer, below its previous expectation of a 5%-10% increase.
In Ryanair's case, delays to its Boeing 737 MAX deliveries have caused it to trim its capacity growth outlook this year, which should have a positive impact on yields.
…now more in line with other LCCs' expectations
However, Ryanair's previous expectations for its fares this summer were above those of some of its low cost competitors.
easyJet has said that its unit revenues booked so far for the quarter ending in Jun-2024 are up at a low single digit rate.
Norwegian has indicated that its fares for the northern summer period May to August in 2024 will be up by a low single digit rate.
In late Apr-2024 Jet2.com said that booked-to-date pricing for Summer 2024 was showing "a modest increase", but pricing had become more competitive recently.
Ryanair's revised outlook for summer fares brought it more in line with guidance given by other European LCCs. Moreover, its outlook still represents positive growth in fares versus 2023.
Ryanair expects 20%-30% growth in fares over the next five years
Mr O'Leary continues to expect that Ryanair fares will increase in the medium term, perhaps by EUR10-15 over the next five years.
Its YTD average fare in the nine months to Dec-2023 was EUR53, and will likely be a little lower for the financial year to Mar-2024 (since the northern winter quarters are typically weaker).
Based on this, his outlook translates into an approximately 20%-30% increase over the next five years.
However, Ryanair's fares will still be at a significant discount to almost every competitor.
The legacy groups have been more circumspect on the unit revenue outlook
Among the leading legacy airline groups, only Lufthansa has given an outlook for unit revenues.
The group guided to a low single digit decline in RASK for both 2Q2024 and for FY2024. In 1Q2024 Lufthansa Group's RASK fell by 6.3%, and its yield fell by 2.5%, adversely affected by strikes and disruption.
Air France-KLM achieved passenger unit revenue growth of 2.1% in 1Q2024, and IAG's passenger unit revenue was up by 4.4%.
Neither has commented on the outlook for fares or unit revenue.
Finnair said that it expects revenue growth in 2024 to be slower than its planned ASK growth of c10% - meaning a fall in RASK this year.
Prices in Mar-2204 vs Mar-2019 were up by 57% in the UK and 45% in the EU
Given the still broadly positive outlook from many airlines, the modest fall in fares in the UK in Mar-2024 may prove to be a brief anomaly.
Conversely, the UK decline could be pointing the way for the EU. Air fare inflation in the UK had been stronger for longer compared with the EU, since 2019.
Prices for passenger air travel in the UK in Mar-2024 were 57% higher than in the equivalent month of 2019 - which was an even greater hike than the 45% increase in the EU.
Consumers have been happy to pay these higher fares, but at some point - given the magnitude of the increases - it seems likely that prices will start to fall, and maybe the UK figure for Mar-2024 is the start of a new trend.
Air travel price inflation is well past 2022 peaks
The air travel inflation data, both for the EU and the UK, always show a fair amount of volatility from one month to the next. This means it is not easy to extrapolate from the most recent data for Mar-2024.
Nevertheless, it seems clear that price rises are well past their 2022 peaks for both markets.