As flight prices are predicted to rise. Are vouchers for future travel a false promise?

In this COVID-19 world, airlines (and most other travel businesses) need a regular supply of profitable bookings to survive. Deposits and pre-payments for advance travel was and still is the norm (an up-front commitment in exchange for an advance discount).

For Airlines, a plane needs to operate at 65-70% full to break even and near full to make profit. Anything less is uneconomical.

Most long haul carriers (BA, Lufthansa etc) rely on travellers (mostly business) paying a premium for flexible fares and/or premium cabins with economy passengers filling up the remainder of the plane. Short haul needs a high percentage of profitable seats too, the low cost seats previously sold early at rock bottom prices are likely long gone (no more bargains under £30).

As flights are being cancelled, airlines are forcing/encouraging customers to take vouchers. This behaviour is understandable as the airline wants to protect their revenue and you’re able to support the airline you booked with. However this voucher may be a false promise, this voucher is for a value, not a replacement ticket.

60% of recent travellers anticipate a return to travel within one to two months of containment of the COVID-19 pandemic but 40% indicate that they could wait six months or more

IATA Commissioned survey

Business travellers will initially travel less (businesses will have seen the opportunity for remote working and will no doubt reduce expense budgets to recover their losses), less premium travel will occur, resulting in less high revenue seats sold. The net result; an overall average cost increase across the board to bring the flight to a break even point and above.

For an airline to cover its costs, the price of the ticket will have no choice but to increase. For the next 6 months there will be fewer people flying, reduced seat capacity (for social distancing) and less premium cabins sold. This restart is going to be one of the airlines biggest challenges, especially low cost airlines (who will most likely struggle as their main consumers will likely have a ceiling price limiting what they can afford to pay).

For the world economies to restart, people need to make and spend money and travel plays a role in that. Passengers wont travel if it’s un-safe, and especially if their insurance doesn’t cover them for medical costs. The restoration of air travel to levels in 2019 will take time (most likely years) and this is mostly associated with consumer confidence and affordability.

My Advice: If you have travel arrangement booked and you can change your date to next year (for little or no fare difference), you are likely to be better off moving your flight now vs converting to a voucher (or cash) and waiting. If you already have a voucher, use it as soon as you can, don’t wait.

Prices wont suddenly sky rocket so high that its only affordable for only the elite! There will be deals, but those low low fares will be a bit higher. If you were lucky enough to buy a ticket at £45, this might be £60-90. That business fare you could occasionally get for £1050 may be £1250.

Note: Under normal conditions airlines have a change fee (a fee + fare difference) and cancelation fee (which on discounted fare is often 100%), by changing your flight you are entering into a new agreement. It’s not advisable to just pick a date assuming you can change it again later. Airlines have temporarily relaxed their conditions to help consumer confidence. Take care if you re-book, only really do so if you intend to travel on the revised date.

This is a really challenging time. Aviation relies on volume, without volume airlines cannot offer discounted fares without running at a loss. Perhaps the airlines need to offer some assurances for those who previously booked to provide a guarantee of some kind. Without this guarantee it’s likely those vouchers will trigger yet more refunds in 12 months time for vouchers which couldn’t be used.

Further Reading

economics of aviation –