Discovery Bank and Visa have identified two major reasons that drove steep increases in flight prices in 2022 – high aviation fuel prices and reduced flight capacity.
Discovery Bank and Visa put together a presentation that looked at spending trends from 2019 to 2022, with a focus on trends that are here to stay.
The presentation found that South Africans are spending significantly more on travel than in 2019 – a trend driven by high flight prices.
The price of jet fuel increased by 82% and domestic flight capacity fell by 41% virtually overnight in 2022 after the close of Kulula and BA operator Comair.
Reduced supply of seats and fuel price increases, together with greater demand for travel, have resulted in South Africans paying 30% to 55% more for local flights than they did in 2019.
1. Increased aviation fuel price
Reuters reported that aviation fuel prices hit record levels at the start of 2023 owing to a surge in demand from lifting the Chinese travel ban and U.S. refinery outages.
Discovery Bank said the jet fuel price had increased by 82% in 2022 when compared to 2021.
The International Air Transport Association said that fuel bills for airlines across the world accounted for 30.1% of operational expenses in 2022.
They have forecasted this to come down to 29.5% in 2023. Jet fuel usually accounts for 20-25% of operational expenditure.
2. Reduced domestic flight capacity
Discovery Bank CEO Hylton Kallner said South Africa’s flight capacity was reduced by 134,000 seats per week for domestic flights following the suspension of Comair flights on Kulula and British Airways. Comair stopped operations on 1 June, which spiked ticket prices.
Comair went into business rescue and failed to raise the funding required to restart its operations.
“Reduced capacity due to airline liquidations during Covid-19 removed ~40% of domestic airline capacity virtually overnight,” said the Discovery Bank and Visa report.
Lift CEO Jonathon Ayche wrote in an opinion piece on BusinessDay that domestic passenger numbers had recovered to around 75% of the level they were at by October.
He said Lift is on track to increase its available seat capacity from 370,000 to 1.5 million in 2023.
The following graph provides a summary of the fuel price increase and the capacity hit, as well as the effect that had on ticket prices:
Pinching the purse
Appetite for travel continues to grow, according to Discovery Bank and Visa. Pent-up demand from the restrictions on travel through the Covid-19 pandemic also contributes to the demand.
Discovery Bank expects more domestic rather than international travel owing to the tough local economic climate.
“This trend may inadvertently be a boon for local tourism,” said Discovery Bank and Visa.
Expenditure on travel has increased by 11% as a share of total spending, largely due to flight cost increases.
The proportion of domestic travel spend allocated to flights has increased by 12%. Members of the Vitality travel platform, which offers Discovery Bank clients discounted flights, are spending an average of 14% less on flights than they were in 2019.