What's caused the recent rise and fall in flight prices?
Flight prices rose sharply during the Iran conflict, but the picture is changing. We explain what caused the increase, what is happening to airfares now, and what it means if you’re planning a holiday to Australia or New Zealand.
Why did flights get so expensive?
There were two key factors that drove airfares higher – oil prices and refining costs. The Strait of Hormuz was closed in early March, and this introduced panicked buying of oil immediately thereafter. This spiked oil prices for immediate delivery to around 150 USD per barrel. It drove mid-term oil delivery contracts (2-4 months) upwards to 100-120 USD per barrel. However, there was something else at play that didn’t get much reporting on.
Normally one tonne of jet fuel costs around 100 USD to refine. In March and April, this jumped to almost 1000 USD per tonne, or a 10x increase. This cost spike, combined with the oil price doubling, drove airlines that hadn’t bought oil for the future (when prices were low) to be faced with massive spikes in costs for short-term deliveries.
This meant lots of airlines adjusted their fares and fuel surcharges drastically upwards in March and April, and they cut flights that wouldn’t be profitable at this cost spike. This of course, made the media headlines.
What is happening now with airlines?
We see all-in-airfares dropping quite substantially across many airlines.
Jet fuel refining costs are returning back to normal, and, in the past 2 weeks, we have also seen a substantial reduction in oil prices of circa 20%.
Together this is great news for travellers. Prices are getting substantially closer to what they were before the conflict started.
We expect them to continue to decrease further over the year ahead as oil decreases, but at a slower rate as the decreasing oil and refining costs are already reflected in ticket prices.
What about flight availability?
We see many of our key airlines such as Singapore Airlines and Cathay Pacific actually adding capacity right now across their networks, including Europe, due to high demand.
These airlines have high confidence on their routes from Europe via their home bases in Singapore and Hong Kong and onwards to Australia and New Zealand.
In Australia, airlines did cut high-frequency flights for travel in April-August that weren’t full or trimmed routes where demand wasn’t very high. This hasn't significantly affected our clients aside from slightly adjusted flight times.
So what is the flight availability situation right now?
The reality is you have far more options today than you had in the years after Covid, when there was a staff shortage across the airline industry, which meant flight capacity was about 50-60% of what it is today.
There are, in many cases, almost twice the seats available today compared with 2022-2024. For those booking far in advance there is plenty of choice, and if you have a little flexibility on dates, there are very attractive options available.
For those booking short-term, the extra flights that have been introduced offer plenty of extra capacity.
Thus in short, prices are down and availability is up because oil and refining costs dropped and airlines are confidently adding capacity.
