Airfares may fall further this year on the back of lower oil price, the International Air Transport Association (IATA) has said in a report.
“Further fall in air fares are likely to be seen in 2016 as hedging contracts unwind and the decline in oil prices seen towards the end of last year feeds through,” said the IATA report.
Oil prices are “still around 30% lower than this time in 2015”, IATA noted.
Moreover, with storage levels remaining very high for this time of year, the overriding market sentiment for oil prices is “lower for longer”, points out the Montreal-based IATA, which is the trade association of the world’s airlines.
Indeed, according to the latest futures contracts, the market expects oil prices to remain below $50/b until late-2019.
“Crude oil prices gained in March, but the market expects them to remain lower for longer,” IATA said.
Crude oil prices rallied in late-February and early March, driven by market expectations of a possible freeze in production levels. The price of a barrel of Brent crude oil ended March almost 10% higher than it stood
at the end of February, IATA said.
Average global fares in reported dollar terms fell by around 12% in 2015 compared to the previous year (excluding taxes, fees and surcharges)
The strong appreciation in the dollar seen over the period exaggerated the downward trend in airfares: adjusting for the currency effect, global fares were approximately 4.5% lower than in 2014.
“The distortion from the dollar is likely to ease in the coming months,” IATA said.
Competitive pressures within the industry mean that the declines in oil prices seen around the end of last year and into 2016 are likely to translate into further declines in fares as fuel hedges unwind.
Exchange rate-adjusted fares fell by 6.2% year-on-year in January 2016, it said.
The latest airline financial results from the fourth quarter, 2015, further cemented the picture of a strong end to 2015, driven by carriers in North America, IATA said.
Financial performance improved in all regions relative to the fourth quarter, 2014, except Latin America, it said.
While the leap year may have flattered things, the global air passenger market is enjoying a strong start to 2016.
Passenger loads have slipped in recent months, though, which will require monitoring, IATA said.
Air freight volumes in the first two months of 2016 fell by 1.5% year-on-year, although the comparison is complicated by the one-off boost last year from disruption at US west coast seaports.
The freight load factor in January and February combined was well below average for the time of year, keeping cargo yields under pressure.
Annual growth in global passenger traffic accelerated to 8.6% in February.
“The outcome was helped by the fact that 2016 is a leap year, but the bigger picture is that the upward trend in seasonally-adjusted traffic, which allows for the extra day in February, remains very strong,” the report said.
Air freight volumes, IATA said, fell by 5.6% year-on-year in February, although the comparison is complicated by the one-off boost to air freight in the same month last year during the disruption at seaports on the US west coast.
“Looking across January and February combined, air freight volumes were 6.3% higher than at the start to 2014, which translates into a reasonably solid growth rate by air freight’s recent disappointing standards,” IATA said.