Air carriers will raise ticket prices.. but still, continue to go broke

2021-01-11

The system is killing itself

Airfare prices are predicted to continue rising after April. According to one expert in the field, current prices “do not provide profitability.” So.. they need to be raised! However, it remains unclear who will buy the tickets. The paying capacity of the population has already been dropping significantly and because of the pandemic, it has decreased even more. Raising prices during such conditions means reducing demand and going broke. Not to raise means to bear costs and go broke.

Executive Director of the AviaPort agency – Oleg Panteleev, spoke about the trends in pricing. His comment is as follows:

“Generally speaking, the current level of prices does not ensure the profitability of air transportation. Therefore, airlines must either cut costs (there are practically no reserves left) or stop price-dumping.”

At this moment, it is still possible to find air tickets with more favourable prices than train tickets to destinations within the Russian Federation. However, this dumping policy does not spur demand very much, since real incomes of Russians are constantly falling. At the same time, prices are rising due to the coronavirus pandemic.

Obviously, air carriers will not want to work at a loss and will start raising prices. This, in turn, will cause an outflow of potential passengers who will choose the railroad, intercity buses or other options. Carriers’ hopes can only be built on those citizens who can afford overpriced tickers or due to some circumstances, have no alternative and will be forced to take tickets at any price.

The crisis in air travel will lead on to further impoverishment of the population. After all, a collapsing business will force entrepreneurs to reduce costs in every possible way, which includes cutting salaries. On the other hand, this will lead to monopolization of the industry, since not all carriers will be able to survive such a difficult period. The result will be a
narrowing of the market and a decrease in the number of players, which will allow an additional increase in prices in order to obtain a “monopoly rent”. The gap between effective demand and prices will grow even more, which will result in a new market spasm. We predict that this will be evident in almost all sectors of the economy.

Capitalism is not just unable to cope with crises and recessions. Worse, the spontaneous pursuit of profit by each owner constantly provokes situations that ultimately cause a deterioration in the situation for all market participants. The system spins itself to its own destruction.