As weary holidaymakers and business travellers finally make their way home after a week of disruption following the eruption of Iceland's Eyjafjallajokull volcano last week, the big question remains: Will air ticket prices go up?
Certainly, airlines have a lot to make up for. The International Air Transport Association (IATA) has estimated the industry has lost a gob-smacking $1.7 billion in revenues as a result of having airlines' planes grounded.
Meanwhile, airlines are fighting hard to prevent those losses from rising, from having to pay for the accommodation expenses of customers who were stranded abroad, with little hope that insurers will step in to shoulder those expenses. The IATA is urging governments to rethink their requirements on compensating passengers, given the unprecedented situation, and also demanding relief of their own from State funds.
To compound the situation, volcanologists are now watching Eyjafjallajokull's neighbour, Katla, amid fears that it too could erupt soon.
“I am the first one to say that this industry does not want or need bailouts,” said Mr Giovanni Bisignani, Director-General of IATA. “But this crisis is not the result of running our business badly. It is an extra-ordinary situation exaggerated with a poor decision-making process by national governments.”
However, chances of gaining that compensation aren't necessarily great. While the US Government did compensate airlines for the shutdown of airspace following the 9/11 terror attacks, no such compensation was offered by European governments to its airlines.
“This is not a happy situation, given that we had already forecast the industry could lose around $5.6 billion this year,” said Mr Laurie Price, director of aviation strategy at consultants Mott MacDonald, who believes the crisis will propel even more consolidation in the industry. In the meantime, travellers should expect higher prices for short- and long-haul flights, says Mr Bruce Fair, UK Managing Director of price comparison Web site Kelkoo.
“We anticipate that coupled with higher running expenses, and a decrease in flights booked over the past seven days, airlines may have to increase pricing in order to fill that hole,” he said, adding that on the Web site there had been a significant surge in holidays involving other forms of transport (for even beyond the immediate couple of months). “We think that in 2010 people will go for the least risky option, and that may involve a lot of domestic travel.”
However, not everyone is convinced that the impact on pricing will be dramatic. Mr John Strickland, aviation expert at JLS Consulting, believes airlines will have to balance the need to recoup costs with having to keep prices attractive enough to keep people flying.
“The industry has faced problems of this magnitude before whether it was people not flying because of the fear of terror attacks, bird flu or a lack of funds,” he said.
At most it will accentuate the already-existing trend of add-on charges – whether it is for food, checking in baggage, or choosing seats in advance of the flight, a standard practice among low-cost carriers in the US, and which was recently taken up by British Airways, he says. A spokesman for British Airways, which has estimated that it lost as much as £20 million a day in revenues, said it was too early to tell what the impact on ticket pricing would be.
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