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European Airfares Expected to Rise Because Airlines Need Money

European airfares are expected to rise at least 5% to make up for losses earlier this month because of volcanic ash delays. While the British Centre for Economics and Business Research said this rising oil costs are also to blame, most know that European carriers anticipate a $3 billion deficit from the week-long delays. Someone has to answer to shareholders, and without aid from their country of origin, that someone is definitely going to be the passengers who will pay more for tickets this summer.

Siium Kallas, the European Union transport commissioner cautioned against giving money to airlines but instead proposed other easements. From the New York Times:

Seeking ways to help airlines without giving one carrier an advantage over others, Mr. Kallas said that airlines should be allowed to expand their use of night flights to ensure that stranded passengers were returned home and backlogs of freight could be delivered.

He also proposed temporarily easing the rules governing the way takeoff and landing slots were allocated at airports. Airlines are worried that the weeklong shutdown would affect the formula that is used to determine when an airline should lose a slot because it had failed to use it enough. . . . But Mr. Kallas also warned European governments against doling out excessive amounts of emergency aid to air carriers that already were flailing before the crisis. "Any support must respect a level playing field," he said. Financing "must be granted on basis of uniform criteria," he said, adding that the competition authorities in Brussels would scrutinize such aid.

In many ways, not accepting the dole out would mean smaller or struggling airlines would go belly-up, a plus for more established airlines. So what's an airline to do if it only wants to help itself and not its competitors? The answer is boosting ticket prices. Even just after the crisis, tickets in April rose slightly, according to Bing Travel.

The situation is projected to only get worse in the next couple of years. Bruce Fair, managing director of travel website Kelkoo UK, reported:

"Based on the impact of oil prices, economic growth, and inflation on air travel it is expected that cost pressures and constraint profitability will lead to an average rise in fares of 5.2% in 2010 across Europe, increasing to 11.5% by 2012."
In an interesting aside, budget carriers like Ryanair and EasyJet have been less affected financially by the downed airlines. Perhaps it's because the ticket prices were already so low and the companies were less agreeable to providing hotels or meals to passengers (despite EU regulations.)

Raising ticket prices is the simple solution for European carriers. It raises money to make up for losses, so shareholders don't see too much disruption in their returns. It also enables stronger airlines to avoid a bailout so their struggling comrades will be the only ones in need of a fix -- and per EU aid guidelines, governments can't do that. Europe's airlines may be poised to recoup losses and get rid of competition -- all with just a 5% rise in ticket prices, which won't stop anyone from flying. Touche!

Photo: ~PaulG~

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