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Budget flights R.I.P.

End of cheap flights boom as airlines raise fares in line with oil prices

Jul 27, 2008

More than five million British passengers could be priced out of the budget holiday market as airlines raise their fares, bringing the era of cheap travel to an end.

Holidaymakers preparing for the traditional summer getaway this week may find that when they come to book their next break the fares have become unaffordable.

Ticket prices are expected to rise by 10 per cent this year and next as the cost of oil pushes up airline fuel bills.

The dramatic increase in the price of oil, which has doubled in the past year, will almost certainly lead to radical changes in the airline industry once this summer season ends. Carriers will raise fares, cut the number of flights they offer and some well-known names will go out of business.

The fare increases will be a particular shock to holidaymakers who are accustomed to cheap flights on low-cost carriers or budget airlines, such as Ryanair and easyJet.

The budget carrier concept, which was imported from the United States about 15 years ago, has altered the way people travel in Europe. Flights, costing from just £1, made weekend breaks to cities such as Barcelona or Dublin almost impulse purchases.

Traditional national, or legacy, carriers, have withered under the fierce competition from budget airlines, who have used their relentless cost-cutting to produce low prices. Passengers have been happy to forgo small luxuries such as meals, free drinks and assigned seats in return for cheap fares.

Budget flights combined with increased use of the internet to book hotels has encouraged many families to plan their own holidays rather than buy a package from tour operators.

The popularity of the budget carriers has allowed them to grow rapidly, in only a few years Ryanair has become the largest airline in Europe, carrying nearly twice as many passengers as British Airways. The rapidly rising price of oil, however, means that many airlines are losing money.

Douglas McNeill, a transport analyst at Blue Oar, a City stockbroking firm, said: ‚ÄúFares are clearly going up and will continue to do so for the foreseeable future.‚ÄĚ

According to analysts a 10 per cent increase in fares typically leads to a 6.5 per cent fall in passenger numbers. Budget airlines carry an estimated 45million British passengers a year. If fares rise by 20 per cent over two years, passenger demand looks set to fall by more than five million.

Martin Ferguson, business travel correspondent at Travel Trade Gazette, a specialist publication, said: ‚ÄúThere's been talk for a while in business circles about the end of the ¬£1 flight. It's undoubtedly true. Everything depends on the price of oil.‚ÄĚ

Budget carriers will achieve fare increases by charging extra for checking baggage and priority boarding.

Doug McVitie, aviation analyst at Arran Aerospace, a consultancy, said: ‚ÄúPassengers will have to get used to paying more for less. Budget airlines will introduce more charges to cover their costs and it is probably only a matter of time before some joker suggests charging for using the toilet. The whole experience of flying budget will become even more unpleasant.‚ÄĚ

British Airways, Lufthansa and Air France are increasing their fares through fuel surcharges, paid on top of the standard fare. BA's surcharge has risen three times this year and is now £218 return for its longest flights.

Another strategy open to the airline industry will be to reduce the number of flights they operate and cancelling unprofitable routes. Ryanair announced two weeks ago that it would ground eight planes at Stansted and a further four in Dublin this winter. EasyJet said last week that it would cut its capacity by 10 per cent overall and 12 per cent out of Stansted.

Reduced capacity could be bad news for second-home owners in France and Spain who bought their properties assuming that they would be able to commute using budget airline flights.

The larger legacy carriers will also cut capacity, particularly on short-haul European routes. The middle tier of airlines, the small, national carriers such as Alitalia, will be squeezed hardest by rising oil prices. Analysts expect them to be pushed into bankruptcy or be bought by larger rivals.

Mr McVitie said: ‚ÄúThe largest legacy carriers will survive because of their long-haul routes and the big budgets will survive because they will still be more affordable than other short-haul operators. Everyone in the middle is in real trouble. This industry will look very different in a couple of years.‚ÄĚ


- Be flexible with your flight dates and times. Try flying midweek rather than at weekends

- Consider booking early. You will generally get a cheaper fare

- Be flexible with your airport. Check travel costs to and from it. Flying to or from a nearby airport can save you money

- Consider alternative, but similar destinations. If you are looking for a warm coastal destination to relax by a pool check out non-euro countries such as Tunisia

- Check the one-way fares. In some cases, you can find a cheaper flight by booking two one-way destination tickets. This is usually the case for shorter breaks

End of cheap flights boom as airlines raise fares in line with oil prices
David Robertson and Helen Nugent

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