With all the changes in air travel over the past 25 years – shrinking bus space, mergers, elite benefits, reimbursements on benefits – is anything unchanged?
The ticket price.
In the first quarter of 1996, the average domestic airline ticket cost $284, according to the Transportation Department’s Bureau of Transportation Statistics. Twenty-five years later – the first quarter of this year – the average domestic ticket cost? $260.
Adjusted for inflation, air travel in the US has become much cheaper. That 1996 ticket in today’s dollars would be $482, BTS says, or 85% more than the recent pandemic-depressed average price.
Yes, prices rose sharply in June when travel was hot again compared to June 2020. And that was a key part of the rise in the consumer price index, fueling inflation concerns even more. The figures for July will be released this week. Economists will keep a close eye on airfares.
But history suggests that inflation in airline tickets ends faster than your last vacation. Over time, prices have fallen, even after the industry has consolidated into four giant airlines that dominate much of the market.
How is this possible?
Competition is a constant in the aviation industry. When prices in the markets get high, another airline pops up and sees opportunities. Technology has helped airlines cut costs on a massive scale over the past two decades. It has also made it easy for consumers to compare, keeping prices low.
Even before the pandemic, when the demand for air travel was strong, prices were a bargain. Domestic tickets were 26% cheaper in the fourth quarter of 2019 in today’s dollars compared to the same period in 1995.
For 26 years, BTS has been tracking based on a 10% sample of tickets, tickets were in a pretty narrow range of $300 to $400, unadjusted for inflation. You probably bought tickets for about $350 years ago. And somehow those tickets continue to cost about $350.
Of course, surcharges now generate a lot of revenue from airlines that were previously priced into tickets. According to BTS, baggage costs in 2019 were $5.8 billion for US airlines. Those fees were 2.9% of operating income. And that doesn’t apply to seat assignment, early boarding and other services.
John Heimlich, chief economist at Airlines for America, the industry’s lobbying organization in Washington, DC, says that even if the fees were factored in, “the trajectory is the same. There’s not a big difference between the average fare with or without surcharges. Many people don’t pay dues.”
Despite the sharp increase in airline prices this year, current prices are still below 2019 levels, notes fare watcher Bob Harrell of New York-based Harrell Associates, which tracks both leisure and business travel rates on a weekly basis. In addition, prices started to fall in August from peaks in July, he says. While rates are volatile from week to week, that could be the result of a combination of dwindling demand in late summer, concerns about the Delta virus and a lack of business travel this fall.
Cheap airline tickets have led to a boom in air travel. Far more people travel today than in decades past.
Those tickets have also, in the eyes of many travelers, reduced airline service to barely acceptable levels. Many feel compelled to pay extra for ample legroom or even first-class seats – which is exactly the strategy that airlines have followed.
Basic Economy tickets offer uncomplicated travel for someone who is only interested in the cheapest fare. Since many are only interested in the cheapest fare, prices have remained low, forcing airlines to continually cut costs and push harder to maximize revenue.
That push came to an end this summer, as some airlines tried to maximize their schedules to use all the planes and crews they were supposed to help recover from massive financial losses last year. When summer storms and outages like computer problems hit — as always — some airlines had little capacity to recover — fewer crews on reserve status than in previous summers and fewer reserve planes to help recover after schedules went haywire.
one of the main drivers of low tariffs in the US, saw the pandemic as an opportunity to expand. But the airline has miscalculated widely: It has canceled thousands of flights, stranded customers and canceled vacations in the past week.
As competitors match prices, the impact of Spirit and other ultra-low-cost airlines such as Frontier, Allegiant and Sun Country extends to travelers who never fly with them.
“They have pricing power far beyond what their size would predict,” said Scott Nason, a former American Airlines pricing and technology manager who is now president of SDN TT&H Consulting, based in the Dallas area.
Mr Heimlich says the share of domestic passengers carried by the ultra-low-cost airlines has risen from 4% in 2009 to 11% in 2019. And they have pushed hard to expand amid the pandemic, when the kind of cheap leisure travel has begun. what they specialize in, including visiting friends and family, was hot. These carriers had a market share of no less than 15% in 2020.
After major airline mergers—Delta and Northwest combined in 2008, United and Continental in 2010, Southwest and AirTran in 2011, and American and US Airways in 2013—the remaining major airlines achieved record profits. The four controlled 80% of the US market and capacity – or the number of available seats nearby – was stable.
As demand increased, so did prices. From $302 in the second quarter of 2009, the average domestic ticket price rose to $402 in the same period of 2014. Then airfares began to fall again. By the second quarter of 2018, the average price had fallen to $349. The comfort zone that major airlines had found was already eroding.
“I don’t think being happy is the nature of the airline industry,” says Nason. “Someone will see an opportunity and grow in someone’s market.”
As for immediate inflationary pressures, Mr Nason noted that the recent price increases could easily be reversed. Airlines are still removing planes from storage. “When all capacity is back and business travel isn’t back, pricing power is gone,” he says.
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