Why ticket prices on long-haul flights have plummeted

IF YOU HAVE booked a flight recently and been surprised by how cheap your ticket was, you are not alone. Airfares have been falling for years. Between 1995 and 2014 they halved in real terms, according to the International Air Transport Association (IATA). But in 2014 that descent became a nosedive. In the following two years, the average airfare dropped by nearly a quarter.

Curious passengers will find no public record of average prices paid on international routes. However, Expedia, a bookings firm, has given The Economist data for tickets sold on its platform for some popular itineraries. The biggest price falls have been on lengthy journeys. Routes longer than 5,000km (3,100 miles) have generally seen price drops of 30% on economy-class seats, approaching 50% on some transatlantic tickets. Fares on most trips shorter than 5,000km have fallen by less than 10%.

What explains the sharp drop on long flights? One factor has been the price of jet fuel, which makes up a higher share of costs on such routes. It fell from $0.81 per litre to $0.22 between 2014 and 2016.

But falling costs alone do not always lead to lower prices. The fuel slump coincided with increasing long-haul competition from low-cost carriers. Budget airlines swarmed onto regional routes in Europe and America 20 years ago. Now, with help from more fuel-efficient planes, they have turned their sights on longer journeys that were once out of reach. On transatlantic routes, Norwegian has crammed customers into sparkly new Boeing Dreamliners, offering return tickets from London to New York for as little as £260 ($330). Incumbents have had to cut their prices to protect their market share.

In Asia state-owned Chinese carriers have also undercut their rivals, because of hefty subsidies and a threefold increase in passengers in the past decade. Those cheap tickets mean that China is starting to rival the Gulf as a convenient hub for European visitors flying on to the rest of Asia.

But the downward spiral has stalled. Despite a recent sell-off, fuel prices have doubled since early 2016. Other costs are rising by 5% a year, notes Chris Tarry, a consultant. IATA expects profits to fall by 11% in 2018. That gives airlines less scope to cut fares, which have been flat for a year. After a long descent, prices have levelled out.

Sources: Expedia; Chris Tarry (CTAIRA); CapStats; S&P Global Platts