Airline ticket prices set to rise due to carbon mitigation

05-05-23

According to the consulting firm Bain & Company, this is due to the cost of airlines mitigating carbon emissions. On the other hand, they estimate that demand for travel between Europe and North America could increase by 20%.

A study of the airline industry by Bain & Company highlights that the effect of the pandemic on the airline industry has already diminished. However, inflation and reduced disposable income are factors that are limiting the sector's long-term growth. Meanwhile, the impact of the costs of reducing CO2 emissions has already started to change demand in the medium to long term.

For its part, air travel demand remains on track to exceed 2019 levels next year, with the long-term trajectory depending on CO2 costs, market-specific competitive pressures and macroeconomic growth. Inflation, geopolitical uncertainties and the low growth environment are most likely to dominate demand until 2025.

Looking ahead to 2030, demand is expected to vary significantly between geographic regions. Travel between Europe and North America could increase by around 20% over 2019 demand volumes in the baseline scenario, while intra-regional travel in Asia could soar by 60%.

The cost of carbon mitigation by airlines is also expected to lead to a significant increase in ticket prices from 2026 onwards. By 2030, these costs will reduce demand by 3.5% on average across all regions.

As far as airlines are concerned, European carriers have less scope to lower prices to stimulate demand, given cost inflation, competition from low-cost carriers and tighter carbon regulations. As a result, this regulatory environment is expected to reduce demand for long-haul flights to and from Europe.

As far as Asia is concerned, there is a big unknown regarding the evolution of carbon regulation in each country. The continent clearly has a stronger long-term disposable income growth outlook, and low-cost airlines also continue to accelerate their growth. Finally, the outlook for short-haul flights in North America, even beyond its recent strong recovery, remains considerably better than in Europe and presents fewer downside risks.