Passengers embark on a flight to Dubai in a terminal at Krabi International Airport, Thailand. AFP
Passengers embark on a flight to Dubai in a terminal at Krabi International Airport, Thailand. AFP
Passengers embark on a flight to Dubai in a terminal at Krabi International Airport, Thailand. AFP
Passengers embark on a flight to Dubai in a terminal at Krabi International Airport, Thailand. AFP

Airfares likely to remain high in 2024 amid aviation's green push and strong demand


Deena Kamel
  • English
  • Arabic

If you thought you paid eye-watering prices for flight tickets this year, think again.

Airfares, which soared during the post-pandemic travel boom, are likely to remain high in 2024 and for several years, according to industry analysts and executives.

Airlines' higher operational costs, use of expensive sustainable aviation fuels, inflationary pressures, geopolitical tensions and supply chain bottlenecks are likely to keep fares high, experts said.

“Specific routes and regions may see higher fares due to increased travel demand, limited capacity, or geopolitical instability,” Linus Bauer, founder and managing director of Bauer Aviation Advisory, told The National.

“For example, long-haul international routes will experience higher fares compared to domestic or regional routes.”

Real return fares per passenger are estimated to reach $288 in 2023, up from $284 in 2022, $231 in 2021 and $216 in 2020, but still below the pre-Covid levels of $315 in 2019, according to data from the International Air Transport Association (Iata).

An economy-class one-way ticket, non-directionally averaged and excluding taxes and fees, from the Middle East to North America cost $544 in September 2023, up 1.5 per cent compared to $536 in September 2022, according to the latest available data by Cirium.

For travel departures from the UAE, airfares on average are up 6 per cent in the fourth quarter of 2023 compared to pre-pandemic levels, amid strong travel demand in winter, Hugh Aitken, Skyscanner's flights expert and vice president of strategic relations and development, told The National.

Drivers of high fares

But as the worst of the Covid-19 pandemic has receded, countries have reopened their borders and airlines are reporting record profits, why are ticket prices expected to remain high?

1. Greener travel

First, airlines are facing a multi-trillion dollar bill to decarbonise their operations.

A whopping $5.1 trillion of capital investments may be required to bring the global aviation industry to its goal of net-zero emissions by 2050, with most of that to be channelled into the production of sustainable fuels and renewable electricity generation, consultancy McKinsey & Company said in a report.

Sustainable aviation fuel (SAF), a biofuel that produces lower carbon emissions than traditional jet fuel, is expected to account for 65 per cent of aviation’s carbon mitigation in 2050, according to Iata.

However, SAF as a portion of all renewable fuel production will only grow from 3 per cent this year to 6 per cent in 2024, Iata said. Aviation needs between 25 per cent and 30 per cent of renewable fuel production capacity to be allocated for SAF.

The currently small allocation limits SAF supply and keeps prices high.

SAF is roughly three times more expensive than conventional jet fuel and airlines will inevitably pass on some of that additional cost to passengers, industry executives say.

“Obviously that will be added to the price of travel and there is always a cost associated in any industry when you want to go green and to reduce your CO2 emissions and this is no different,” Kamil Al-Awadhi, Iata's regional vice president for Africa and the Middle East, said this month.

The aviation industry is estimated to consume between 450,000 and 500,000 tonnes of SAF at $2,500 per tonne (or 2.8 times the price of jet fuel), which will add $756 million to its fuel bill in 2023, Iata said.

SAF production could rise to 0.53 per cent of airlines’ total fuel consumption in 2024, adding $2.4 billion to next year’s fuel bill, it said.

2. Limited capacity

Fares have been rising as travel demand has outpaced seat capacity. This is due to delays in new aircraft deliveries worldwide as plane makers Boeing and Airbus struggle with persistent supply chain problems. Labour shortages at their subcontractors have dampened the pace of production.

Production issues on some plane models and engine types have also delayed aircraft deliveries, resulting in limited capacity expansion and fleet renewal.

3. Strong demand

The aviation industry benefited from a travel boom this year and demand is expected to remain strong in 2024.

In a YouGov survey of more than 24,000 people across 30 markets, 71 per cent of respondents said they plan to take a holiday domestically or abroad in the next 12 months, according to its report in December.

Consumers in the UAE (85 per cent) and Saudi Arabia (82 per cent) showed the highest levels of travel intent for 2024, with more than four in five respondents saying they plan to travel domestically or internationally, the survey showed.

Skyscanner's latest Travel Trends 2024 report shows that UAE residents are continuing to prioritise travel with more than half (56 per cent) budgeting to spend more on travel in 2024 compared to 2023, while 31 per cent will spend the same.

India is also a market where travel interest is expected to increase in 2024, with more than three-quarters of respondents saying they plan to travel next year, according to YouGov.

Globally, some 4.7 billion people are expected to travel in 2024, a historic high that exceeds the pre-pandemic level of 4.5 billion recorded in 2019, according to Iata.

“Despite higher living costs, ongoing conflicts, and environmental concerns, the demand for air travel will remain strong, driven by a pent-up desire for travel in the post-pandemic era,” Mr Bauer said, adding that business travel will continue to recover slower than leisure trips.

“However, any new developments in the global political or economic landscape could influence this trend significantly.”

4. High oil prices

Consumers can expect airfares to “continue to track rising costs”, particularly oil, Iata said in its latest industry report on December 6.

Fuel price is expected to average $113.8 per barrel in 2024, which will translate into a total fuel bill of $281 billion for airlines, accounting for 31 per cent of all operating costs.

High crude oil prices are expected to continue to be further exaggerated for airlines as the crack spread, or the premium paid to refine crude oil into jet fuel, is expected to average 30 per cent in 2024, Iata said.

5. Gaza and Ukraine wars

Global geopolitical instability, including the Israel-Gaza war and the Russia-Ukraine war, could negatively impact the aviation sector, Iata warned, especially due to their effect on oil prices.

Iata forecasts that in 2024, oil prices will remain high between $85 and $90 per barrel, depending on the development of the geopolitical situation in the Middle East, and the production decisions of Opec.

“If it [Opec] decides to increase its output targets to meet the growing demand, the price could drop. Clearly, a sharper decline in global GDP [gross domestic product] growth could also push the price lower,” Iata said.

6. Staff shortage

The global aviation industry was hit by about $200 billion in cumulative losses during the pandemic and cut millions of jobs as revenue withered and planes were grounded. With the travel rebound well under way, the industry is now racing to re-recruit adequately to meet growth.

However, many aviation workers had decided to switch careers entirely to take up more stable jobs in other industries. This means fewer trained aviation workers and longer periods to train new staff.

Staff shortages resulted in significant disruption during the peak Northern Hemisphere summer period last year. While the situation started to stabilise this year, a tight labour market and persistent inflation are putting upwards pressure on wages.

“For air transport, we expect that the labour and skill shortages observed in 2023 will gradually dissipate next year. Nonetheless, wages will rise with the higher cost of living, and the industry will have to keep up with the employment needs dictated by the strength of the demand for air transportation,” Iata said.

Some softening of prices

To be sure, there will be routes with softening prices and periods of seasonal discounts on airfares.

“Airfares may soften as further capacity is restored, though this is likely to be limited as both large manufacturers [Airbus and Boeing] continue to experience delivery delays,” aviation consultant John Strickland told The National.

On business travel routes, airfares are set to stabilise or even drop on some destinations, in 2024, according to new forecasts by American Express Global Business Travel (Amex GBT).

For example, prices are to rise for flights between destinations in the Middle East by 2.7 per cent on business class and 1.5 per cent on economy class, according to the report.

But ticket prices from the Middle East to Europe will dip 0.9 per cent in business class and drop 2.2 per cent in economy class, it said.

Wizz Air Abu Dhabi is aiming to keep its fares flat by controlling costs, adding capacity and using more fuel-efficient aircraft, Johan Eidhagen, its managing director, said in December.

Financial outlook

Global airlines' profits will largely stabilise in 2024 with net profits expected to reach $25.7 billion on a 2.7 per cent margin, according to Iata. That's slightly above the forecast of $23.3 billion net profit on a 2.6 per cent margin for 2023.

However, airline profitability is expected to be well below the cost of capital in both years.

“Industry profits must be put into proper perspective,” Willie Walsh, Iata's director general, said in the December report.

“On average airlines will retain just $5.45 for every passenger carried. That’s about enough to buy a basic ‘grande latte’ at a London Starbucks.”

Risks to the industry's fragile profitability include high interest rates in response to persistent inflation, tight labour markets and geopolitical tensions.

Industry financial recovery
Industry financial recovery

On the regulatory front, the industry could face rising costs of compliance, and additional costs of passenger rights policies and regional environment initiatives, Iata said.

A continued shortage of critical parts is also impacting both plane production and repairs, Richard Brown, managing director of Naveo Consultancy, said in a November report.

2023: A year of soaring profits and jet orders

These projections come on the back of a strong year for the airline industry marked by soaring profits and significant plane orders. It also remained resilient in the face of tough challenges including two wars, oil price volatility and elevated interest rates.

Emirates, the world's biggest long-haul airline, posted a record first-half profit in its current financial year as it increased capacity to meet strong international travel demand.

Its profit stood at Dh9.4 billion ($2.6 billion) in the April to September period, up 135 per cent from the same period last year.

In the same month, Emirates placed orders for 110 additional aircraft worth $58 billion at list prices during the Dubai Airshow, positioning the airline for future growth.

Down the road, Etihad Airways moved to its new hub at Abu Dhabi International Airport's new Terminal A last month.

The airport is a crucial part of its 2030 growth plan to triple the number of passengers carried to 33 million and double its fleet to 150 planes.

“Etihad Airways achieved significant milestones. We proudly served over 13 million customers and expanded our fleet by welcoming 16 more planes, investing billions in new generation aircraft,” Antonoaldo Neves, Etihad Airways chief executive, told The National, in reflecting on 2023.

This not only improved our customer proposition for seamless connectivity but also further elevated Abu Dhabi as a desirable destination for a stopover break or a holiday.”

Ten tax points to be aware of in 2026

1. Domestic VAT refund amendments: request your refund within five years

If a business does not apply for the refund on time, they lose their credit.

2. E-invoicing in the UAE

Businesses should continue preparing for the implementation of e-invoicing in the UAE, with 2026 a preparation and transition period ahead of phased mandatory adoption. 

3. More tax audits

Tax authorities are increasingly using data already available across multiple filings to identify audit risks. 

4. More beneficial VAT and excise tax penalty regime

Tax disputes are expected to become more frequent and more structured, with clearer administrative objection and appeal processes. The UAE has adopted a new penalty regime for VAT and excise disputes, which now mirrors the penalty regime for corporate tax.

5. Greater emphasis on statutory audit

There is a greater need for the accuracy of financial statements. The International Financial Reporting Standards standards need to be strictly adhered to and, as a result, the quality of the audits will need to increase.

6. Further transfer pricing enforcement

Transfer pricing enforcement, which refers to the practice of establishing prices for internal transactions between related entities, is expected to broaden in scope. The UAE will shortly open the possibility to negotiate advance pricing agreements, or essentially rulings for transfer pricing purposes. 

7. Limited time periods for audits

Recent amendments also introduce a default five-year limitation period for tax audits and assessments, subject to specific statutory exceptions. While the standard audit and assessment period is five years, this may be extended to up to 15 years in cases involving fraud or tax evasion. 

8. Pillar 2 implementation 

Many multinational groups will begin to feel the practical effect of the Domestic Minimum Top-Up Tax (DMTT), the UAE's implementation of the OECD’s global minimum tax under Pillar 2. While the rules apply for financial years starting on or after January 1, 2025, it is 2026 that marks the transition to an operational phase.

9. Reduced compliance obligations for imported goods and services

Businesses that apply the reverse-charge mechanism for VAT purposes in the UAE may benefit from reduced compliance obligations. 

10. Substance and CbC reporting focus

Tax authorities are expected to continue strengthening the enforcement of economic substance and Country-by-Country (CbC) reporting frameworks. In the UAE, these regimes are increasingly being used as risk-assessment tools, providing tax authorities with a comprehensive view of multinational groups’ global footprints and enabling them to assess whether profits are aligned with real economic activity. 

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Marie Byrne, a counsellor who volunteers at the UAE government's mental health crisis helpline, said the ordeal the crew had been through would take time to overcome.

“It was worse than a prison sentence, where at least someone can deal with a set amount of time incarcerated," she said.

“They were living in perpetual mystery as to how their futures would pan out, and what that would be.

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Updated: December 26, 2023, 9:44 AM