Monday, August 16, 2021

The ariline industry looks competitive

See Air Travel Prices Have Barely Budged in 25 Years. (It’s True.) by Scott McCartney of The WSJ. Excerpts: 

"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 U.S. has gotten much cheaper. That 1996 ticket in today’s dollars would be $482"

"But history suggests that inflation in airline tickets ends quicker than your last vacation. Over time, prices have fallen, even after the industry consolidated to four giant airlines commanding a large share of the marketplace.

Competition is a constant in the airline business. If prices in markets get high, another airline swoops in, sensing opportunity. Technology has helped airlines cut costs on a massive scale over the past two decades. It’s also made it easy for consumers to comparison-shop, keeping prices down.

Even pre-pandemic, when demand for air travel was strong, prices were a bargain. Domestic tickets in the fourth quarter of 2019 were 26% cheaper than the same period of 1995 in today’s dollars."

"add-on fees now generate a lot of airline revenue that might have previously been priced into tickets. In 2019, baggage fees totaled $5.8 billion for U.S. airlines, according to BTS. Those fees were 2.9% of operating revenue. And that doesn’t count fees for seat assignments, early boarding and other services.

John Heimlich, chief economist at Airlines for America, the industry’s Washington, D.C., lobbying organization, says even if fees were included, “the trajectory is the same. There is not a big difference between the average fare with or without fees. A lot of people don’t pay fees.”"

"Cheap airline tickets have driven a boom in air travel. Far more people travel today than in past decades.

Those tickets have also, in the eyes of many travelers, cheapened airline service to barely acceptable levels. Many feel compelled to pay extra for adequate legroom or even first-class seats—and that’s exactly the strategy airlines have pursued."

"Because competitors match prices, the impact of Spirit and other ultra-low-cost carriers like Frontier, Allegiant and Sun Country extends to travelers who never fly them.

“They have pricing power way beyond what their size would project,” says Scott Nason, a former American Airlines pricing and technology executive who now is president of SDN TT&H Consulting, based in the Dallas area."

"the share of domestic passengers carried by the ultra-low-cost carriers increased from 4% in 2009 to 11% in 2019."

"Those carriers were up to 15% market-share in 2020."

"After the big 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 large carriers enjoyed record profits. The four had 80% of the U.S. market, and capacity—or, the number of available seats around—was stable.

As demand rose, so did prices. From $302 in the second quarter of 2009, the average domestic ticket price jumped to $402 in the same period of 2014. Then airfares started descending again. By the second quarter of 2018, the average price was down to $349. The comfort zone big airlines had found was already eroding."

Related posts:

Is The Airline Industry An Oligopoly? (from 2014)

It seems like airlines are not passing along all of the increased fuel costs to consumers (from 2018)

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