Airfare wars: Europe for under $1000 but where will prices go now

It's never been cheaper to see the Colisseum, but the sun might be going down on the 'cheap flight' party. Photo/`123RF.

Promotional return economy fares to Europe have dropped below $1000 for the third time in less than a year, the latest deals luring record numbers of customers at the weekend, but there are signs standard fares are edging up.

Flight Centre says the wet weather may have helped attract a 15 per cent increase in the number of customers at its Auckland expo and during a ''crazy busy'' day and a significant rise in bookings compared to last year. But the agent says this may be as good as it gets for fares for a while, especially for regular fares.

The future for airfares

What's been pushing down prices?

While the number of new airlines hasn't increased at the same rate as a year ago, there remains a record number of international seats to fill so airlines and agents are in a cut-throat battle. Air New Zealand, which carries the most traffic to and from this country is boosting capacity to a number of Pacific Rim destinations so that hot competition will continue. A mainland Chinese carrier is investigating a route from another secondary city and Air Canada is understood to be scoping this market. Record airline capacity is driven mainly by inbound tourism and this shows no signs of dropping off. Airlines with new-generation aircraft that burn less fuel such as the Boeing 787-9 Dreamliners operated by Air New Zealand can tolerate current increases in fuel prices - now at persistently elevated levels - far easier than in the past. Airlines' adoption of booking and customer technology, mergers and reduced staff numbers mean they are more nimble and able to compete on price.

What's the outlook?

Cloudy. If all the existing carriers keep flying here expect more great promotional deals. But airlines with less efficient aircraft or with options to fly more lucrative routes could review their operations. Macquarie research just out says Air New Zealand, which operates a more efficient fleet than most of its competitors, would have to lift long-haul fares by up to 5 per cent to cover increases in spot fuel prices. Emirates' withdrawal of flights across the Tasman from Auckland in March will mean around 4 per cent fewer seats overall and could push up prices. Flight Centre's general manager product Sean Berenson said airline yields had stabilised at the end of last year with regular fares stabilising or heading up. And while the current financial market gyrations have happened despite largely strong world economic performance, any deep and prolonged drop in confidence can affect discretionary spending on travel, especially by businesses.

What's pushing up fuel prices?

Jet fuel prices are now 20 per cent higher than they were a year ago. An agreement by Organisation of the Petroleum Exporting Countries and non-OPEC countries to curtail supply has lasted for longer than what is customary. Global economic growth has fueled demand for oil. The rising fuel price has added about US$28 billion ($39b) to the industry's US$130b fuel bill during the past year. However, the fracking in the United States to squeeze hydrocarbons from rock becomes more attractive when oil is at elevated levels and this acts as a governor on prices.