It’s official: Airfares drop 9%, likely to fall further: Iata

It’s official. According to global aviation body International Air Transport Association (Iata), airfares dropped nearly nine per cent in US dollar terms and are expected to drop further with oil prices remaining low.

Average global fares in reported US dollar terms (excluding taxes, fees and surcharges) have fallen by around nine per cent year-on-year so far this year (latest data to end-March),” Iata said, adding that “adjusting for the impact of earlier gains in the dollar, we estimate that airfares fell by around five per cent in constant exchange rate terms in early-2016.”

However, given the sharp fall in the dollar in recent months, the distortions caused by its prior strength will ease over the months ahead.

“Airfares are expected to decline further in the near future as prior declines in jet fuel prices feed through. That said, with oil prices now up more than 80 per cent since their January low, the stimulus to demand from lower airfares is likely to fade in the second half of 2016,” the global aviation body said.

Premium fares have held up better than those in economy on many of the key premium routes.

In fact, premium’s share of revenues has increasedslightly on the key North Atlantic market (which accounted for 25% of industry-wide premium revenues in 2015).

In the current environment of downward pressure on yields, the high-yielding premium segment offers an important buffer for overall airline financial performance.

Earlier this month, Iata revised its 2016 financial outlook for global air transport industry profits upwards to $39.4 billion (from $36.3 forecast in December 2015). That is expected to be generated on revenues of $709 billion for an aggregate net profit margin of 5.6%. 2016 is expected to be the fifth consecutive year of improving aggregate industry profits.