Bogotá — Airfares in Latin America and the Caribbean have suffered significant fluctuations in recent years and this year will likely not be the exception due to factors ranging from the high price of fuel, which could be exacerbated by the war in Israel, and other operating costs that airlines have to deal with in the midst of inflation, as well as the economic situation in the region and the regulatory landscape.
The prices of air tickets to the main destinations of Latin America have seen both increases and declines. While routes such as Buenos Aires-Cancún went up by 5% for travel in the next three months, and Mexico City-Medellín saw an increase of 16%, other routes such as São Paulo-Santiago are 13% cheaper, according to figures from the price comparison platform Viajala provided to Bloomberg Línea.
Interviewed in Colombia by this media, Carlos Roncancio, a lawyer and airline industry expert, said that among the factors that are particularly affecting the increase in airline tickets are fuel prices and other airline operating costs.
“So far in 2023, jet fuel has maintained high prices, and in the face of geopolitical uncertainty, this factor may be accentuated, affecting air ticket prices, which in the end will also be mediated by the behavior of supply and demand,” JetSmart Airlines CEO & founder Estuardo Ortiz told Bloomberg Línea.
Jet fuel prices play a determining role, representing between 30% and 40% of airline costs, according to industry sources.
According to the latest report of the Latin American and Caribbean Air Transport Association (ALTA), throughout July “the price of jet fuel had a slight increase compared to the average price in June ($94.50 per barrel), reaching a maximum price of $108.70″.
Different sources have warned that oil prices could skyrocket if the war between Israel and Hamas spreads to Iran, which allegedly had prior knowledge of the attacks, and which would impact the cost of jet fuel.
The biggest concerns center on the global oil supply. Iran is OPEC’s fourth-largest oil supplier, behind Saudi Arabia, Iraq and the United Arab Emirates, according to Bloomberg.
After soaring on Monday, the price of Brent crude oil fell 2.03% to $85.82 on the London futures market. On the other hand, the price of a barrel of Texas crude oil fell 2.3% to $83.49.
“Fluctuations in the price of oil can affect the cost structure of airlines and, ultimately, ticket prices,” said Roncancio.
Romain Maciejewski, an industry specialist and spokesman for Viajala, told Bloomberg Línea that since a large part of airline costs are paid in US dollars, such as aircraft maintenance, spare parts, fuel and fleet leasing costs, non-dollarized Latin American markets are highly dependent on the fluctuation of that currency.
Also, the economic situation in Latin America in general may affect airline ticket prices amid still strong inflation in several of the largest markets, as the US dollar has also begun to strengthen.
“We have a number of other macroeconomic reasons impacting fare increases, such as inflation possibly closing in double digits for the year (in markets such as Colombia), as well as the increase in jet fuel tied to oil price volatility,” Colombian airline Wingo told Bloomberg Línea.
However, despite long-term challenges, overall the outlook for commercial aviation growth in Latin America is positive.
According to ALTA, a total of 87.2 million passengers were transported in the region in the second quarter of 2023, 1% more than in the same period of 2019, before the pandemic.
The travel and tourism industry will generate close to 17 million jobs in the region in 2023.
In addition, this industry could contribute a total of US$319 billion to Latin America and the Caribbean, which would represent 7.9% of total GDP (+1.2% vs 2019), according to the World Travel & Tourism Council.
Roncancio also stated that economic stability, indeed, may influence flight costs.
Other ingredients outside of the economic situation that may affect air ticket prices are government policies and aviation regulations.
These include changes in taxes and duties, bilateral air transport agreements and other regulations that may have an effect on prices.
Wingo cited the particular case of Colombia to refer to the change in tax and regulatory matters: “This year in particular, we have had two events that have a direct impact on fares. Firstly, the return of VAT on airline tickets to the usual rate of 19%; and secondly, increases in operating costs that are tied to the annual CPI, which was 13% for this year.”
“In Latin America, high fuel costs and interest rates, together with the high cost of airport services and, in the specific case of Colombia, the VAT on airline tickets (which increased from 5% to 19%), are factors that require permanent monitoring and adjustments to maintain high operational efficiency, productivity and cost control, and thus mitigate the impacts generated by these factors,” added Estuardo Ortiz.
Other elements also play a role, such as the travel season and the popularity of destinations, as well as airline promotional campaigns.
“The aviation industry is highly dynamic and subject to unforeseen changes, such as pandemics, extreme weather events and economic crises. Therefore, expectations may vary depending on the evolution of these factors,” said Roncancio.
He also believes that if the economy remains stable and travel demand continues to recover, “it is possible to see more competitive prices and a greater supply of flights in the region, which could benefit travelers in terms of lower fares”.
However, “it is always advisable to closely monitor market trends and compare prices before purchasing tickets to get the best deals”, he added.
The region’s GDP is projected to grow and annual commercial traffic is expected to increase, creating opportunities for low-cost airlines.
The variety of business models in the airline industry is leading to the offer of more flights at lower prices.
“These forecasts lead to greater opportunities for companies to enter into a low-cost strategy. Scheduled airlines face the challenge of competing with low-cost carriers in short-haul markets. In response, what they are doing is using their short-haul flights for long-haul passengers through their own airports at route connection points,” Roncancio said.
This benefits passengers and stimulates the growth of commercial aviation in the region, the specialist noted.
According to Viajala, this has been the dynamic of air ticket prices in the most sought after international destinations from the main cities of Latin America.
Some examples of prices, for return air tickets:
- Buenos Aires-Cancún, roundtrip. The average price found in September for travel in the following three months from Buenos Aires to Cancun is $496.90, 5% more expensive than the average price found in August for travel in the following 3 months.
- Buenos Aires-Florianopolis roundtrip. The average price found at the end of September for travel from the Argentine capital to Floripa beach (Brazil) in the following three months is $209, 3% lower than the average price found in August for travel in the following 3 months.
- São Paulo-Cancún. The average price found in September for travel to Cancun from Brazil’s main airport in the following three months is $594, 9% more expensive than the average price found in August.
- São Paulo-Santiago. The average price found in September for travel in the following three months is $235.02, 13% cheaper than the average price found in August.
- Mexico City-Havana, $446.80, 6% more expensive than the average price found in August.