Airfares’ 56.8% hike in past 12 months postpones travel plans in Brazil

RIO DE JANEIRO, BRAZIL – Widespread inflation has weighed on the aviation sector. Over the past 12 months, airline tickets have increased by 56.81%, second only to 4 items, 3 of them in the food group, in addition to ethanol.

The difference is considerable if compared to the general 12-month accumulated inflation index, which stood at 10.25%, the highest since February 2016.

The data released by the Brazilian Institute of Geography and Statistics (IBGE) on Friday help confirm the sentiment of those in search of an affordable flight, but not finding prices that fit in their budgets. This is the case of systems analyst Suellen Gonçalves Guimarães, 35.

Since June, she had been looking for a destination where she and her family could enjoy the January school vacations. Living in Brasília, she thought about traveling to Salvador (Bahia), but a trip for 4 people would cost R$5,200 (US$940) in air fares alone. Even 8 months in advance, the amount is considered very high by the family.

Suellen tried other destinations, but the cost was still unfeasible. The systems analyst managed to travel to Fortaleza (Ceará) at the start of the year with her husband and 2 daughters. Suellen’s parents did not travel due to the pandemic. Now, with the progress of vaccination, they were planning to go. But the plans were frustrated due to the price of the tickets.

“We are trying the strategy of traveling in July 2022. I am monitoring the tickets, but there is not much difference. The price is still too high,” Suellen says.

The rise in fuel prices is directly linked to these high fares, another nightmare for Brazilians. The domestic airline industry is extremely sensitive to this product, because aviation fuel is one of the main costs for companies.

A report by the National Civil Aviation Agency (ANAC) highlights this burden. In the average of the second quarter, the cost of a liter of aviation kerosene was 91.7% higher than in the same period in 2020.

The economic reopening and the increase in demand due to the progress of vaccination are other factors behind the increase in ticket prices. The search for destinations is not always matched by sufficient supply by airlines.

ANAC points to an increase in ticket prices in the months of April, May and June. In relation to the same months last year, the increase in the average price of domestic flights reached 21.7%. The variation can also be explained by the drop in the average ticket in the second quarter of 2020, when the pandemic caused the number of flights to plummet by over 90%.

DYNAMIC FARE

When asked about the increase that IBGE pointed out, the Brazilian Association of Airlines (ABEAR) says that ANAC’s survey is the one that “best portrays the behavior of airfares,” since it considers all the tickets sold in a certain period. The IBGE’s IPCA (Extended National Consumer Price Index), on the other hand, considers a specific selection of dates and the most visited destinations.

In a note, ABEAR highlights that in the second quarter this year the average domestic fare fell 19.98% compared to the same quarter in 2019, before the pandemic. “The average ticket price was R$388.95, down from R$486.10. The ‘airfare yield’ (amount paid by the passenger per kilometer flown), in turn, declined by 32.3% in the second quarter this year compared to the same period in 2019,” it states.

The report sought the main Brazilian airlines to comment on the issue. All three highlight that pricing is based on a number of factors. Azul points out that the rise in the dollar and fuel prices, which has been occurring systematically, also influences the figures.

Gol says its flights are available 330 days before departure, enabling those who plan ahead to buy cheaper tickets. In a note, LATAM points out that to define the price of the ticket, it needs to consider that 65% of the company’s costs are in dollars and that aviation fuel represents approximately 35% of costs.

TREND

When analyzing airfare inflation, the Ministry of Infrastructure’s National Secretary of Civil Aviation Ronei Glanzmann lists as justification the high dollar and oil prices, the progress of vaccination and greater pressure on the domestic air market, as well as the trend of margin adjustments by companies.

Glanzmann said that Brazilians should expect a busy high season with high prices. Although the Ministry prefers to work with ANAC data, and not with IBGE’s – which estimates based on a specific ‘basket’ of destinations – the Secretary recognizes that the IPCA calculation signals more expensive tickets. “I believe that ANAC’s figures will signal the same direction. Those buying flights are realizing this. So, in fact, there is a trend toward price hikes,” he says.

Glanzmann foresees a normalization of prices throughout 2022, when the airlines’ networks return to the pre-pandemic level. However, this may change depending on macroeconomic variables, such as exchange rates and oil. The high dollar and fuel are among the main drivers of air ticket prices.

Another factor is the airlines’ trend to increase their profit margins. With vaccination advanced and the expectation that the airline market return will not be temporary, companies are seizing the opportunity to partially offset the losses incurred during the pandemic. “As they come from a long and gloomy winter, then, in fact, there is a trend for an increase of margins,” the Secretary says, noting that the tool to control these margins is flight offerings.