Growing travel demand and soaring fuel prices ‘a perfect storm’ for airline tickets and cruise prices

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Prices for flights, vacation packages and cruises are expected to rise due to soaring energy costs and pent-up demand for travel amid easing COVID-19 restrictions.DARRYL DYCK/The Globe and Mail

If you are planning a vacation, you may want to finalize your reservations soon.

Soaring energy costs and the unleashing of pent-up travel demand amid easing COVID-19 restrictions are likely to drive up prices for flights, vacation packages and Cruises.

“I call it a perfect storm,” said Martin Firestone, president of travel insurance brokerage Travel Secure Inc. The combination of these two factors, he added, will likely push prices “to through the roof”.

While the costs of flights, hotels and other travel services fluctuate frequently, in some cases it is already evident that there is an upward price trend.

Richard Vanderlubbe, president of Tripcentral.ca, an Ontario-based travel agency that focuses on international travel, said price increases for vacation packages his company was monitoring began to outpace daily price drops in late January.

In mid-February, when Ottawa announced it would ease major restrictions on international travel by the end of the month, price increases outnumbered decreases 14 times, he said.

In the weeks that followed, travel restrictions began to fall, as promised. On February 28, the federal government dropped its recommendation to Canadians to avoid international travel for non-essential purposes. At the same time, it changed a number of pandemic rules, including one that required travelers to take expensive molecular tests for COVID-19 before entering the country. (They can now opt for cheaper antigen tests.)

The government has also scrapped its requirement that children under 12 traveling with vaccinated adults must wait 14 days before going to school or camps after returning from international travel.

The rule changes sparked a surge in bookings for March and April from Canadians who saw a chance to escape winter with trips to sunny destinations, Vanderlubbe said.

Like package tours, airfares are also becoming more expensive. International flight prices for Canadians rose 36% on average in early March, compared to the same period in 2019, according to an analysis of online searches by travel research website Kayak.

And comparison with pre-pandemic airfares reveals staggering price increases for some popular international routes, according to data from Kayak. For example, the average price of a flight from Vancouver to New Delhi, India was 83% higher than in 2019. The price of a flight to Toronto was 60% higher.

In Canada, prices for domestic flights were up only 6% compared to 2019. Many popular routes were still significantly cheaper than before the pandemic.

The average price of a flight from Toronto to Vancouver, for example, was almost 40% lower than it was three years ago, the data showed.

Mr. Vanderlubbe offered two possible explanations for the lack of price increases for domestic flights: Canadian leisure travel demand typically doesn’t begin to pick up until later in the spring, and domestic business travel demand has yet to recover from the pandemic.

Yet even on domestic routes, bargains may not last long as airlines face rising costs due to soaring fuel prices.

Following the decision of several countries to impose sanctions on Russian oil exports, the price of jet fuel jumped 27% last week, to more than 141 dollars a barrel. Compared to a year ago, the price has almost doubled, according to S&P Global Commodity Insights.

The spike has already prompted airlines like Emirates and Malaysia’s AirAsia to introduce fuel surcharges or increase existing ones.

Air Canada declined to discuss how fuel costs might affect its prices. WestJet said it has not implemented fuel surcharges and made no changes to its pricing system in response to rising fuel costs.

Paul Jacobs, general manager and vice president of Kayak North America, said it could be a few months before the impact of rising fuel costs affects prices.

Another sector of the travel industry that will suffer financially from high fuel costs is the cruise industry, which is beginning to see demand return after luxury liners became hotbeds of COVID-19 contagion. Canada eased its rules for cruise ship travel on March 7, although the government continues to advise people to exercise caution when traveling on ocean liners.

Royal Caribbean Group said it would not charge increases in the refueling costs for its ships. Carnival Corporation did not respond to a request for comment on the possible impact of rising fuel prices.

In general, the extent to which Canadians will see price increases on travel will likely depend on when and where they travel, Firestone said. Worries over the war in Ukraine could weigh on travel demand in Europe, he noted.

He said there was no doubt in his mind that cruise lines, airlines and tour operators will eventually have to pass the higher costs onto consumers.

The question, he added, is when.

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