Post-coronavirus discounting of air fares poses further threat to profit, says IATA

Airlines cut domestic fares by an average 23 per cent last month as traffic picked up from April lows, global industry body IATA said on Wednesday, warning that post-coronavirus discounting posed a further threat to profitability.

Domestic passenger traffic rose 30 percent globally in May from a very low base in April, when much of the industry was brought to a near-standstill by the COVID-19 pandemic, IATA said in an online presentation.

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But the uptick came at the price of fare cuts that airlines can ill afford on top of extra health measures and other new coronavirus-related costs.

“Airlines need cash because of the crisis and they’re seeking to encourage passengers into seats by offering low fares,” IATA Chief Economist Brian Pearce said.

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“The challenge (is) that unit costs will have been increased by a number of restrictions that have been put in place,” he said, predicting “quite a difficult time for airlines” as flights gradually resume.

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A return to profitability remains a distant prospect for many carriers, and the crisis may cost the industry $314 in lost revenue, IATA predicts.

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In Europe, low-cost airlines including Wizz Air and Ryanair have said they expect to win business from full-service rivals in a discount-driven recovery.

Asian markets, among the earliest hit, are now improving steadily, IATA said - with Chinese, South Korean and Vietnamese domestic traffic back within 25 percent of year-earlier levels.

Northern hemisphere summer bookings that typically ramp up from March onwards showed only the beginnings of an improvement in May, and Google searches for air travel are still 60 percent below their January level, the organization said.