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August 11, 2022

Higher airfares may discourage the middle-class from travelling

Travellers have already been hit by Europe's increasing cost of living, which has reduced their discretionary income.

By Globaldata Travel and Tourism

Airfares have risen at a time when the European travel market has become increasingly price sensitive due to the rising cost of living, potentially deterring the middle class from carrying out their vacation plans.

IATA forecasts that airfares will rise by 5.6% this year globally. Ryanair Group Chief Executive Michael O’Leary also stated he expects summer fares in 2022 to be between 7% and 9% higher than compared to before the pandemic. Increases in airfares will impact travel sentiments for the European middle class that is now feeling the financial pinch back at home.

The rising cost of living is taking its toll

Travellers have already been hit by Europe’s increasing cost of living, which has reduced their discretionary income. Now that tourism demand is rebounding and the cost of jet fuel is ever-expanding, the airline industry has raised ticket prices. This has created negative sentiment around vacation plans, which may compel the middle-class to revise, delay, or even cancel their arrangements. As per GlobalData’s Q2 Consumer Survey, when asked “How concerned are you about the following factors?”, for “The impact of inflation on my household budget”, 66% of Europeans were quite or extremely concerned about this. This demonstrates that customers are already anxious about their levels of disposable income dwindling, and increased airfares will potentially exacerbate this issue.

Affordability is a major decision maker for price-sensitive consumers

Many middle-class consumers in Europe were put to the ultimate test in their money management abilities during the pandemic, when a significant portion of their income was reduced, forcing them to dip into their savings, with this impact lasting even after Covid-based limitations were lifted. According to GlobalData’s Q3 2021 consumer survey, when asked “Which factor helps you decide where to go on holiday?”, 55% of European respondents said they consider “Affordability” as the main deciding factor when choosing their destination. This represents the fact that travellers are price sensitive and increasing airfares will be a challenging factor for them to decide what to do with their travel plans.

As the tourism industry has started to recover, stakeholders are now expecting to see the European tourism industry reach pre-pandemic levels by 2025. However, several factors like the increasing cost of living, inflation, and the rising cost of fuel have acted as a matter of concern. This has affected both the consumer and the service provider; the airlines are dealing with the rising cost of fuel while the consumers are dealing with the rising cost of living, deterring both to reach each other’s expectations.

Governments must step in to provide some type of solution to the rising cost of living and fuel crisis to make sure consumers and tourism businesses fulfil each other’s requirements. Until then, price-sensitive consumers may be discouraged to carry out their travel plans, with rising airfares spurring their decision.

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