A 19% increase in airfares in five years is in line with Canada’s inflation rate, a top aviation expert told Open Jaw.
As reported earlier this week, StatsCan said Canadians are paying roughly 19% more for plane tickets than they did in 2019. StatsCan said prices rose 2% in June and 4.5% in May.
It sounds substantial, but Robert Kokonis, president of Toronto-based AirTrav Inc., says it’s really not.
“The five-year straight line average for domestic air fares, at +3.8%, is not much more than the five-year straight line national CPI average of 3.5%,” he said in an email to Open Jaw.
Jet fuel costs also play a role in airline prices.
“Typically, the highest or second highest operating cost for airlines (it was highest for AC in 2019 and highest so far in 2024)” is fuel, Kokonis said. Spot jet fuel prices in USD, which is what Canadian airlines use to buy their fuel, are up 35.2% in the last five years. On top of that, the Canadian dollar has fallen 2.3% since 2019
“So, one could say that, yes, the five-year straight line average domestic air fare of +3.8% is slightly ahead of CPI inflation, which has averaged 3.5% in the same period. But the 3.8% domestic air fare average has not kept pace with aircraft fuel costs (converted to CAD), which have averaged 7.7%” on a yearly basis.
Kokonis also said domestic airfares for this fall are tumbling.
“Too many seats chasing passengers,” he said. “Demand has been holding up reasonably, but it looks like we’re hitting a wall, and something has to give. Airlines can drop air fares in the short-term but may need to start taking seat capacity off domestic routes.”
Kokonis said Delta Air Lines is already experiencing this and that Delta’s second-quarter earnings last week showed yield (passenger revenue per mile) falling “due to too many seats chasing demand.”
He also noted that passenger yields and average ticket prices are trending downwards for Air Canada, trends he expects to see in the airline’s next quarterly financial report.
Similar trends appear to be taking place in the U.S. In a story posted on the Yahoo Finance website, one U.S. analyst noted that United Airlines has too many available seats.
“There's just too much capacity right now and we're at a peak demand season. And it's weighing on the revenues outlook," said analyst Peter McNally from Third Bridge.
