Post-Pandemic demand and aircraft shortage fuel airfare surge: Is regulatory intervention needed?

The soaring cost of air travel has led Olivier Jankovec, the Director-General of ACI Europe, to call on regulatory bodies to review airline ticket pricing mechanisms. Despite the economic malaise, airfares have witnessed a staggering 30% increase year-on-year across Europe, driven by unprecedented demand following the lifting of pandemic restrictions and an acute shortage of aircraft.

While Jankovec clarified that his call did not include price capping on airfares, he opined that it was 'legitimate' to compare the situation with the capping of landing fees at many major airports. In contrast, airlines have free rein to price their services. Regulatory agencies such as the UK's Civil Aviation Authority, tasked with ensuring consumer protection in the industry, have intervened in situations like the recent travel disarray and the slow pace of passenger refunds for cancelled flights amid the pandemic. However, these authorities do not have a say in airfare determination.

One official from a European regulatory body admitted that regulating ticket prices might prove to be a 'challenging' undertaking. Despite this, Jankovec highlighted the airlines' ongoing complaints about airport landing charges, which are eventually passed onto consumers, while they concurrently wield 'massive pricing power' by escalating ticket prices.

The Airlines for Europe trade group, representing notable carriers such as easyJet, Ryanair, and British Airways, responded by emphasizing the competition among airlines. This competition, it claims, has consistently driven airfares down, making air travel more affordable for millions across Europe.

The group also highlighted the necessity for stricter regulation of airports, especially larger ones, labeling them as 'natural monopolies.' In the post-pandemic landscape, tensions between airlines and airports have been prevalent. For instance, Heathrow airport has been a battleground, with airlines like British Airways and Virgin Atlantic successfully thwarting a bid to increase the airport's fees by 90% in the pandemic's aftermath.

ACI Europe reported on Tuesday that European airports collectively netted a profit of €6.4bn in 2022, marking the sector's first profitable year since 2019. However, this turnaround was partly attributed to significant cuts in capital investments. The organization also pointed out a 16% decrease in the number of cities connected by air travel since 2019, indicating that airlines have been focusing on busier and more profitable routes. Consequently, the choices available to travelers flying from European airports have dwindled.