Impact of Social Distancing on Your Airfares As Borders Open
With the outbreak of COVID-19, many governments implemented strict social distancing requirements to help limit the spread of the virus. Some governments have applied similar measures to air travel, including that airlines should leave empty seats between passengers in the aircraft.
When such policies are pursued, the seat load factor of an aircraft is artificially capped.
Will airfares be high or low as borders open?
Usually fares set to stimulate demand but restrictions will raise costs
If restrictions on New Zealand domestic travel are lifted under LEVEL 2 guidelines, Air New Zealand will be looking for any further guidance around spacing between passengers.
The announcement could trade-off a relaxation of the domestic leisure travel ban with the continued requirement to keep space between travellers.
The International Air Transport Association (IATA) says continued requirements to maintain at least one metre of space between passengers will push up fares around the world in the longer term.
In the first few months of restart demand will be low
Return to work & VFR generate some demand, but consumers cautious (the chart shows new COVID-19 cases & year on year change in bookings).
Currently significant overcapacity in the market
With fixed costs to pay the incentive will be to bring back into service
Competition potential to be fierce as markets open up
Despite consolidation 80% seats on routes with 2 or more airlines
The largest variable cost, fuel, will be lower than before
Excess supply of oil should keep fuel unit costs low as restart begins
As markets open, airlines will try to stimulate demand
Air fares were cut 40% as China’s domestic market re-opened
Social distancing on aircraft would challenge viability
Leaving seats empty raises unit costs and could reduce unit revenues. Depending on the aircraft type and the seat configuration, social distancing could reduce the available seat capacity by 33-50%.
For example, with the popular 3-3 seat configuration, social distancing could mean leaving the middle seat empty on both sides of the aisle. In contrast, for turboprop aircraft with a 2-2 seat configuration, it could imply filling only one seat per row on each side of the aisle.
If the entire global fleet of aircraft is considered, we estimate that such social distancing would reduce the bookable seat capacity to 62% of normal capacity.
The physical distancing on planes will reduce loads on average to about 62 per cent.
Of a sample of 122 member airlines, only four were able to make money on those loads – which effectively leaves the middle seat empty – in the past year.
To break even while selling fewer seats, airlines would need to increase fares.
Leaving the middle seat empty on an Airbus A320 would increase costs per passenger by 50 per cent while physical distancing on a Boeing 777 would add 67 per cent to costs. Air New Zealand flies both aircraft models.
Maximum load factor falls to 62% with other aircraft
Social distancing removes higher proportion of seats vs narrow-body
With social distancing on aircraft few airlines break even
In 2019 only 4 airlines had breakeven load factors less than 62%. The proportion of seats filled on an aircraft (load factor) is an important driver of airline financial performance.
Based on a sample of 122 airlines, on average, airlines break even at a load factor of 77%. Only 4 airlines in the sample could break even at load factors below 62%. The remaining 118 airlines would, with their current pricing policies, become loss-making at load factors below 62%.
Fares 43-54% higher to get breakeven if 62% seats limit
Unit costs would rise sharply with fewer seats. Zero profits assumed.
It is also debatable whether airlines would be able to achieve the full 62% load factor when the bookable capacity is capped. Due to seasonality of demand, achieved load factors can rarely average at higher than 80-85% of the bookable capacity.
Even if a large number of aircraft are grounded currently and airlines have some possibility to optimize their fleet allocation between flights, we estimate that airlines could fill on average about 85% of 62%, i.e. 53% of their seats. Under this assumption, only two charter carriers in the sample would break even.
Fares low initially, but air travel could become costly
Restrictions on seats and aircraft utilization will increase unit costs. In order to cover the costs of a flight with fewer passengers on board, airlines would likely need to increase air fares just to break even (i.e. without generating any profit).
However, raising air fares in an environment where demand is expected to be weak and slow to recover is unlikely to be possible, at least initially. More information on this analysis can be found
If fuel prices stayed low that would help airline economics but IATA says demand would be subdued because of nervousness over travel and less spending power due a widespread recession.
The association says it supports the wearing of face coverings for passengers and masks for crew while onboard aircraft.
The move was a critical part of a layered approach to biosecurity to be implemented when people return to travelling by air.
In addition to face coverings, IATA recommends a number of temporary biosecurity measures, including the temperature screening of passengers, boarding and deplaning processes that reduce contact with other passengers or crew and limiting movement within the cabin during flight.
More frequent and deeper cabin cleaning might also reduce risks.
Evidence suggests that the risk of transmission onboard aircraft is low, the association said.
Mask-wearing by passengers and crew would reduce the already low risk, while avoiding the steep cost increases to air travel that onboard social distancing measures would bring, said IATA chief executive Alexandre de Juniac.
Source: IATA, NZ Herald
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