Prices of airline tickets are booming

According to the 2019 Second Quarterly Report from the Prices Observatory, airline ticket prices in Belgium have risen by nearly 30% since 2010. The price increase goes hand in hand with a strong increase in demand. 

At a time when there is a lively debate about the prices of plane tickets and kerosene tax in the fight against climate change, the Pricing Observatory in its second quarterly report 2019 focuses on an analysis of the air transport sector in terms of price trends and demand for plane tickets, market instruments to reduce CO2 emissions from air traffic and existing taxes in European countries.

In the period 2010-2018, consumer prices for passenger transport by air in Belgium increased by 29.4%, which was stronger than the increase in total cumulated inflation (+15.6%). Inflation for airline tickets was also high in the second quarter of 2019 (+7.0%). Air travel to European destinations, in particular, has become more expensive in recent years, where far-off travel has just fallen in price.

As for neighbouring countries, airline tickets rose even more sharply in the Netherlands in the period 2010-2018 (+38.4%), while the increase was less pronounced in Germany (+21.3%). In France, on the other hand, ticket prices remained more or less at the same level in 2018 as in 2010 (-0.1%).

Strong increase in demand

The price increase is accompanied by an increase in demand. The demand for airline tickets indeed increased sharply in the period 2010-2018, both in Belgium (+50.0%) and worldwide (+62.3%). The increase in the number of passengers is partly due to the increase in the number of low-cost flights. In 2017, 31.7% of the total number of flights were low-cost flights, compared to 28.6% in 2014 and barely 13.7% in 2005.

The high number of passengers in the summer months of July and August translates into a higher consumer price for airline tickets. The statistical analysis shows that flights in July and August are on average about 20% more expensive than in the rest of the year.

Prices and sustainability are closely linked

The increase in air traffic naturally has a significant impact on CO2 emissions. In 2016, the aviation sector accounted for 3.6% of total EU greenhouse gas emissions and 13.4% of greenhouse gas emissions from the transport sector.

Externalities related to air traffic (not only CO2 emissions, but also air pollution and noise pollution) can be compensated by emission allowance trading systems, or taxed (as is the case for other polluting factors such as air pollution and noise pollution) by the government and/or airports.

The impact of emission trading systems on the prices of airline tickets is still rather limited since the purchase of emission allowances amounted to approximately 0.3% of the operating costs of airlines in 2017. This is partly due to the free nature of 82% of the allowances reserved for the aviation sector.

Countries can also individually decide to charge for the externalities associated with air traffic in the (cost) price. This is often done in the form of taxes on airline tickets. Six countries currently charge ticket taxes in the EU, including Germany, Austria and the United Kingdom, but they do not have the specific purpose of reducing certain externalities. However, France and the Netherlands have decided to introduce an environmental tax in the coming years.

Airport managers have also introduced charges for certain external effects. For example, Brussels Airport charges noise-related fees for the use of runways. Airlines that use loud aircraft pay more for the use of runways, while night flights are more expensive than day flights. The main airports in France and the Netherlands also impose noise-related allowances, and the main airports in Germany charge both emission and noise-related allowances.

Within the European Union, the aviation sector is exempt from VAT (with the exception of domestic flights in specific countries) and excise duties on fuel.