Airfares Take a Dive 

Have you booked your 2016 holiday yet? If the answer is “no” you may benefit from a price war started by Dublin-based carrier Ryanair a week ago. Boss Michael O’Leary suggests the cost of flights will reduce by 7% in summer 2016 and up to 12% in winter.

This comes on top of reports from the International Air Transport Association that fares to and from European destinations already fell by 11.4% in the first quarter of 2016, compared to the same period last year.

So why are airfares falling? 

Well firstly the cost of oil has reduced by about 70% since June 2014 so that is a big saving to airlines that can in turn be passed on to the customer. It has been said that an airline such as Ryanair should save around £154 million over 2016.

And there is a definite dip in demand – Thomas Cook reports it has taken 5% less bookings for the summer holiday season compared to last year. This reluctance to travel has come about following various events such as the terror attacks in France and Brussels; flight cancellations following air traffic control strikes in France, Italy, Greece and Belgium; economic uncertainty ahead of the Brexit referendum; and then there was the EgyptAir jet that crashed in the Mediterranean Sea on its way from Paris to Cairo on May 19th this year. 

Airlines such as Ryanair can still make money on in-flight food and beverages and seat reservations so in spite of these fare reductions they still predict a profit of 13% for 2017. However, if this trend continues, 2018 will be another matter.

Putting Pressure on the Competition

EasyJet maintains it will not be reducing fares, saying its flight prices are already cheap enough. EasyJet is the largest airline in the United Kingdom based on numbers of passengers carried.

And British Airways, owned by parent company IAG (International Airlines Group), has announced it will be giving discounts of up to 50% on 80 of their routes. These proposed discounts will provide great value for money for the 80% of leisure travellers that fly economy all year round. BA’s announcement is in competition to the no frills airlines but customers will still be able to enjoy the traditional complimentary food, drinks and entertainment. British Airways is the largest airline in the UK based on fleet size, international flights and international destinations.

Other airlines may follow the trend but Michael O’Leary maintains “If there is a fare war in Europe, then Ryanair will be the winner”. 

The Brexit Effect

Ryanair have offered flight tickets at 19.99 euros for expats wishing to vote in the Brexit referendum if they fly on the 22nd or 23rd June. (They were being investigated under the Bribery Act 2010 after a complaint was made by the ‘Vote Leave’ campaign but it was found they are simply following their business formula of offering cheap flights).

An estimated 5.5 million British citizens live outside the UK, with almost 22% of them living in other EU countries, but only a fraction are on the electoral roll. Anyone who was registered in a UK constituency during the past 15 years is entitled to vote in British elections, but many British expats are not aware of this fact.

It has been asked whether air fares will rise again if the UK leaves the EU but the response is mixed. If the UK does exit, then the value of the pound is likely to depreciate. Fuel is purchased in dollars so that currency depreciation would add to operating costs. BA has said the EU vote will not affect business, but EasyJet say that being part of the EU is what made the low fares possible in the first place.