Cheap airline seats knock wind out of travel sector

The travel sector is being squeezed by airlines forced to make discounts as they feel the effects of a glut of seats.

Saudi Arabia’s Al Tayyar Travel, for example, reported a sharp fall in its quarterly profit last week as airlines reduced ticket prices to retain customers.

The company’s net income dropped by 32 per cent year on year during the third quarter to 144.7 million riyals (Dh112.3m) compared with 215m riyals a year earlier.

The company’s revenue slipped by 6.8 per cent to 2.03 billion riyals from the year-earlier 2.18bn riyals.

The drop was attributed to a “decrease in sales of the traditional travel sector and domestic tourism as well as lower average ticket prices during the current year as compared to the previous year due to massive discounts given by the airlines”, Al Tayyar said.

Its annual net profit decreased by 28.9 per cent to 826m riyals last year, down from 1.16bn riyals a year earlier.

The British travel company Thomas Cook also experienced a fall in average selling prices by 1 per cent for the current winter season compared with a year ago because of “the competitive environment in the airline sector”.

The company’s Germany-based Condor Airlines unit reported a year-on-year loss of £7m (Dh31.9m) during the three months to December 31 last year, attributing it to “overcapacity in the short-haul market and weak demand”.

The drop in airline ticket prices has also led to poor earnings for regional and international airlines.

“The continued drive to add capacity by a slew of airlines, coupled with expanded route networks of low-cost carriers, has forced airlines all around to re-price fares to attract passengers,” said Saj Ahmad, an analyst at StrategicAero Research in London.

Discounting was heavy last year and major airlines, including Emirates, Turkish Airlines, Singapore Airlines and easyJet, reported a decline in profits.

The year ahead is likely to be a tough one as overcapacity continues to be the norm in the airline industry.

“Discounting is here to stay for at least the next couple of years,” Mr Ahmad said. “Whether we see a drive towards consolidation or an uptick in either airplane retirements or new order deferrals, the continued ingestion rate of new airplanes means capacity won’t be going down and profits won’t be bursting up either.”

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