Supply and Demand Shocks in Airfare Pricing during the Post-Pandemic Recovery Phase

Marketing Team

May 21, 2020

As corporate air travel gradually resumes, two scenarios emerge, with the possibility of fluctuations between them. One scenario entails supply outstripping demand, while the other involves demand surpassing supply, each with its nuances leading to significant price fluctuations in air pricing.

Demand-side Factors

The resurgence of demand for air travel is already underway, driven not only by necessity, but also influenced by government travel restrictions, duty-of-care policies, and trends in the leisure travel sector. Fluctuations in government flight restrictions, such as those observed in country blocks like New Zealand and Australia, as well as bilateral restrictions, like those renewed by the United States and Canada, can significantly impact the recovery of air travel.

Supply-side Factors

Air travel supply, typically consistent, faces disruption due to factors such as mothballed aircraft and limited engineering capacity. Bringing fleets back into operation at a pace that matches air travel demand, poses a significant challenge. There is a possibility of supply outstripping demand by reinstating fleets too early or failing to match demand, thereby driving up prices in the short term. Additionally, middle-seat restrictions and enhanced cleaning protocols may further limit supply and impact pricing dynamics.

The Effect on Pricing

Airline pricing is expected to remain volatile, exacerbated by the need to recover losses and manage significant volumes of unused tickets, vouchers, and converted soft dollar accounts. Oversee currently observes approximately 4% airfare savings for clients using its fare auditing tool, Faresaver. However, with market prices experiencing higher and lower lows, price assurance products like Faresaver Air Price Assurance can capitalize on this uncertainty. The proliferation of flexible fare rules also provides more options for rebooking at lower market prices.

Ensure optimal airfare savings with Faresaver Air Price Assurance. By leveraging rate fluctuations, you can instantly access guaranteed savings on all your air travel expenses.

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