Last updated: 01:30 PM ET, Mon July 18 2016

Report: Airfares Should Remain Low in 2017

Airlines & Airports | Josh Lew | July 18, 2016

Report: Airfares Should Remain Low in 2017

Travelers got some good news when the Global Travel Price Outlook report was released recently by the Global Business Travel Association.

The study suggests that, worldwide, airfares will rise in 2017, but only by about 2.5 percent on average. In some parts of the world where certain variables will continue to keep fuel prices low and exchange rates favorable, fares could actually fall. 


Biggest fare increases in North America

Unfortunately, for fliers in North America, prices are projected to rise more than they will in other parts of the world. Travelers will pay about 3.7 percent more to fly next year. This is because airlines are slowing down their capacity growth and focusing their expansion efforts on the most lucrative international and high traffic routes. Fewer seats should cause demand to inch up and, with it, airfares. 

The good news is that low cost carriers will continue to affect the market in the United States.

One of the most important trends in recent times is that LCCs are being seen as more mainstream. This is especially the case with business travelers. Carriers like JetBlue, Virgin America and Southwest are driving down fares on major business travel routes. This should help keep price hikes in check for the time being. 

READ MORE: Will Current Record-Low Airfares Last?


Quality matters

When it comes to business travel, airlines are starting to compete on quality as much as they are on price. According to Global Travel Price Outlook report, airlines are taking extra steps to compete for a larger share of the business travel market by offering better service and better in-flight experiences.

“Airlines are also standing strongly behind their operational performance with guarantees being offered to corporate customers that offer a financial incentive for the airline to get travelers to their destinations on time, with baggage and minimal service interruptions. The terms of such guarantees and the customers offered them vary, but they have been well received given a long-standing request for service level guarantees in the industry.”

US carriers are also reinvesting their record profits from 2015. United is upgrading its business class, and American in creating more lounges, for example. JetBlue’s major cabin revamp is making it an industry leader when it comes to in-flight entertainment. These upgrades may help soften any fare increases that do take place over the next year. 


What about the rest of the world?

The GBTA’s report suggests that fares will actually fall by 1.1 percent, on average, in the Asia Pacific region. Intense competition, savvy growth strategies, improving exchange rates and continued low fuel prices will serve to keep prices down on many routes. 

Fares in Western Europe will inch up by 0.5 percent, but Eastern Europe’s prices could jump by as much as four percent because of limited competition. In the Middle East, fares are projected to increase by a modest two percent, which is not surprising given the way the well funded Gulf carriers are competing. 

Finally, continued economic weakness is causing fewer people to travel for business or leisure in Latin America. Capacity is increasing and the economic outlook is improving slightly, but not enough to cause any price spikes when it comes to air travel. According to the report, fares are expected to decrease in South and Central America by nearly two percent. 


What could change these projections?

Some important variables could affect the cost of travel in 2017. The effects of Brexit on the global economy and the airline industry should become more apparent next year, and other geopolitical factors such as conflicts could also play a role in how airlines perform. The biggest wild card for the airline industry, as always, is the oil market. Airlines are caught between the idea of hedging to lock in relatively low price or going unhedged in order to take advantage of current low prices. If they get it wrong and oil prices rise unexpectedly, fares could also increase or fuel surcharges could come back into the picture. 

Overall, it appears that leisure and business travelers alike will be able to enjoy relatively low fares in 2017. 


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