Will airfares come down this year? Yes, but just slightly say reports

The airline industry’s dramatic climb from the depths of the pandemic may be ending soon.

A review of multiple reports shows stabilization across several key metrics, as rapid growth ends and a new era of normalcy begins.

“2024 is expected to mark the end of the dramatic year-on-year increases that have been characteristic of the recovery in 2021-2023,” a December report by the International Air Transport Association said.

Global flight capacity is expected to be restored, with some 40 million flights (up from 38.9 million in 2019) projected to carry a record 4.7 billion people (up from 4.5 billion people in 2019), according to IATA.  

As leisure travel demand softens and “revenge travel” ends, supply and demand in the commercial airline industry is hitting an equilibrium, which will help stabilize airfares in 2024, according to AMEX GBT Consulting.

Global airfares are expected to rise between 3%-7% next year, as airlines grapple with high fuel costs, sustainability changes and fleet upgrades, according to the FCM Consulting’s “Global Trend Report” for the third quarter of 2023.

However, several other reports expect flight prices to soften.

The travel arrangements company BCD Travel expects global fares to drop next year, but just slightly — less than 1% compared to 2023 — with a more pronounced drop in airfares to and from Asia (3% for business class, nearly 4% for economy), according to its “Travel Market Report 2024 Outlook.”

“After recent rises in fares, we should expect a modest price correction in some markets in 2024, although underlying pricing should generally remain strong,” it said.

However, AMEX’s “Air Monitor 2024” is expecting only international airfares to drop in 2024 — notably for flights between North America and Asia. The report states regional fares will remain stable or slightly increase.

Travelers in the U.S. may see some savings. The travel company Hopper expects fares in the U.S. to drop — at least for the first six months, according to its “2024 Travel Outlook” report.

Overall, passengers shouldn’t expect much change in 2024, says John Grant, chief analyst at the travel data company OAG.

“There will be a continuation of the status quo, with only minor fluctuations in fare prices,” he said. “Although we may see a slight shaving of fares as demand softens in the very low season, the fundamentals of a high operating costs base remain [plus] increased salaries, oil prices etc. suggest that we will not see much of a shift.”

Commercial airlines in three regions are expected to be profitable in 2023, according to IATA:

• North America: remains the “standout region” and first to return to profitability in 2022
• Middle East: strong financial performances expected in 2023 and 2024
• Europe: a strong end expected for 2023 despite ongoing war and conflict in Ukraine and Gaza

IATA projects that one more region will become profitable in 2024:

• Asia-Pacific: despite the full return of international Chinese travelers, domestic travel in the region, especially in India and China, remain strong

And two are expected to remain “in the red” at the end of 2024:

• Latin America: held back by economic and social turmoil, despite a strong showing from Mexico
• Africa: thwarted by financial, infrastructure, and connectivity issues

Many airlines reported record earnings in 2023 but “the landscape could look less favorable in 2024,” according to AMEX’s Air Monitor 2024.  

Global economic growth last year, in the face of high inflation and high interest rates, may have occurred due to a delay, rather than a lack, of market reaction, according to BCD Travel’s report.

“The transmission into the wider economy of the subduing effects of policy tightening has simply taken longer than economists had expected,” it states.

The report outlined other pressures facing the industry, including geopolitical problems, supply chain issues, staffing shortages, and rising fuel and labor costs.

However, several tailwinds may bolster the industry this year, including the long-awaited return of business travel, which is expected to pick up in 2024.

Projections by IATA show industry revenues and profits are expected to increase in 2024.

The association expects global revenues to reach a record-making $964 billion dollars next year, with net profits of $25.7 billion, it said.

This would be a 2.7% net profit margin — a slight increase from the 2.6% profit margin expected for 2023, the report said.

However, IATA also stated that the industry faces considerable challenges, from customer competition and high operating costs to government regulations.

“People love to travel and that has helped airlines to come roaring back to pre-pandemic levels of connectivity,” IATA’s Director General Willie Walsh said in the report.

However, “industry profits must be put into proper perspective. While the recovery is impressive, a net profit margin of 2.7% is far below what investors in almost any other industry would accept.”