Airline ticket prices take off

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Just as Scandinavian Airlines (SAS) is promoting its orders for new jets for long-haul routes comes news that neither SAS nor its rival carriers are likely to advertise: Ticket prices have been going up. New figures from state statistics bureau SSB (Statistics Norway) show that ticket prices for leisure travel have already risen 23 percent during the past year.

SAS decided this week to challenge a ban on frequent flyer programs on domestic routes in Norway. The government and regulators responded quickly, in an effort to enforce the ban. PHOTO: SAS

SAS has ordered 12 new extra wide-body jets from Airbus, with options for more, as the airline renews its fleet amidst a rise in leisure travel ticket prices. PHOTO: SAS

Newspaper Dagens Næringsliv (DN) reported on Monday that both SAS and airline analysts think ticket prices have been “abnormally low” in recent years. Now they’re climbing back to more “normal” levels, they say.

“There has been a change in competitive behaviour in the market the past two years,” Preben Rasch-Olsen, an analyst at securities firm Carnegie, told DN. “SAS has realized it can’t beat (rival low-fare carrier) Norwegian on price, so they’re competing in other areas.”

SAS, for example, stresses how all passengers can check a bag, get seat assignments and even a cup of coffee on board at no extra charge, while Norwegian charges for all such extras. Meanwhile, average total airfares at both carriers, and at others, are higher than they were in 2010 and 2011.

SSB’s numbers show a 23 percent increase in the price index for airline tickets from the first quarter of 2012 to the first quarter this year. Competition prior to 2012 was unusually tough, “and both SAS and Norwegian are probably glad that the worst price competition is now over,” Rasch-Olsen told DN. SSB’s figures are based on domestic fares within Norway and on fares to six destinations abroad.

Passenger growth has continued, an indication that there’s a willingness in the market to pay higher airfares. Some passengers also have grown weary of bare-bones service and may be willing to pay more for a more comfortable flight. Interestingly enough, the numbers show that while economy leisure ticket fares have risen, fares for flexible travel aimed at the business market have declined. Passengers aren’t as willing to pay such a huge premium for business class travel, and there are indications those fares have quietly been reduced.

The ticket price increase for leisure travel comes as SAS is ordering 12 new Airbus A350-900 jets for long-haul travel, despite the airline’s economic turbulence of recent years. SAS needs to renew its fleet and chose the Airbus “extra wide-body” jets over Boeing’s 787 Dreamliner. The new jets will cost around NOK 1.5 billion each, but SAS has secured rebates and delivery beginning in 2015. The huge purchase, valued at around NOK 20 billion, will be financed with export credits along with sale and lease-back agreements.

The new order will also help SAS compete directly against Norwegian’s new long-haul service using the Dreamliners that have been both troubled and delayed. The new Airbus jets also are expected to allow SAS to offer new long-distance routes or expand those it has that are popular and usually fully booked.

“We chose Airbus because this is a top modern aircraft with 30 percent lower fuel consumption and therefore cheaper to operate than our current fleet,” SAS chief executive Rickard Gustafson told Aftenposten last week. “Reducing our cost base makes it possible to open new long-distance routes, also from Norway.”

SAS’ long-struggling stock rose more than 4 percent on the news of the deal, which some analysts equated to a “vitamin injection” for SAS, which also secured an option for six more of the Airbus jets.

Views and News from Norway/Nina Berglund

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