Advito: Lower Oil Prices Soften Projected 2015 Airfare Increases

Lower fuel costs this year have helped temper the airfare hikes in several global regions that BCD Travel's Advito projected last year, and the consultancy on Tuesday issued a new forecast that calls for 2015 airfares in most locales to remain fairly flat year over year or even to decrease.

"In our December update, we called on airlines to lower or remove fuel surcharges," according to Advito's new forecast. "We're pleased to report that some airlines are at last responding to falling oil prices."

In North America, regional economy fares now are predicted to decrease 1 percent year over year, a significant shift from the 4 percent increase originally forecast in September 2014. For intercontinental flights, Advito now projects business fares to increase 1 percent (versus the original 3 percent forecast) and economy fares to decrease 1 percent rather than remain flat.

Revised forecasts for Europe also show fare hikes lower than previously predicted, but not as much as in North America. Advito now projects 2015 regional economy fares in Europe to remain flat year over year rather than increase 2 percent. Both European regional and intercontinental business fares are projected to increase 2 percent year over year instead of 3 percent.

In response to weaker global demand and a strong supply of oil, Advito lowered its oil price assumption from $95 per barrel to $65. The consultancy indicated that while lower oil prices make it challenging for airlines to raise fares, the decreased cost could encourage carriers to add capacity.

The rapid growth of low-cost carriers has helped to drive down airfares in both the Asia and Middle East regions, according to Advito. In Asia, 2015 regional economy fares now are forecast to drop 5 percent year over year instead of 2 percent, and regional business fares are expected to drop 3 percent instead of 2 percent. Asian intercontinental business fares, which Advito last year projected to increase 2 percent year over year, now are anticipated to remain flat.

In the Middle East, Advito projects regional economy rates to drop 5 percent year over year instead of 4 percent.

Owing to concern about Latin America's economic outlook, Advito lowered its regional economy fare-growth forecast there from 2 percent to zero, according to the forecast.

The consultancy's predictions for average daily hotel rate increases remain largely unchanged from its January forecast update, with the exception of Asia. Once predicted to see 2 percent to 4 percent ADR growth, Advito now projetcs the region's average rate to grow 1 percent to 3 percent. Advito attributed the change to a weakened economic outlook and decreased demand.