Monday, September 9, 2013

Looking through the prism of history at cheap airline tickets

A quick fact: the average air ticket prices have drop by 50% over the last three decades. Sounds untrue, right? But it's a hard fact that is confirmed by year-to-year price analysis starting with the early 1980s until now. The prices have really dropped and in some areas they have propped more than a half. The average cost of flight per mile was around $0.32 in 1980 and now it's only about $0.14, allowing over 50% of US citizens to take round-trip flights at least once a year today compared to only 20% of all Americans who attended a flight at least once in their lifetime in 1978. Feel the difference, right? But why do people still complain about not getting cheap air tickets? And what is the overall trend in air ticket prices and the market in general to expect in the near future? Why the prices dropped and no one noticed it? The quick answer to why the prices have dropped so drastically regardless of the ever increasing fuel costs and inflation is deregulation. Thanks to the liberalization of the airline market in 1978 when the government has stepped away from controlling every nook and cranny in the industry the laws of competition have rapidly brought down the prices and created a very crowded market. In the following decades dozens of companies have come and gone, each contributing to the high level of competition and people obtained the opportunity to fly more at more affordable prices. The minimum regulated airfare for a New York to Los Angeles flight in 1978 was around $1,400 (in current prices) but now you can easily take the same flight for less than $300. But still there are people who complain about finding it hard to get cheap air tickets. Why is that? The complexity of pricing policies Although it was certainly a great thing to deregulate there was a price to pay for doing this. And the pricing policy that each company could employ and adjust without needing to consult the authorities was one of the elements of this price. You probably know that the prices tend to vary a lot depending on when you book the flight and there can sometimes be up to three or even four times the difference in price for the very same flight. To give you a sense of the complexity, an average airline usually has several million prices at any given moment in their system depending on the flight, seat, date, departure hour, extras and so on. Add up the currently common practice of making all the extra features payable and you get an even more complex system of pricing, which is controlled by computers. So despite the possibility of getting cheap air tickets for just any flight, people often finding it hard to get the right price due to the very complex nature of the pricing for all flights. So they just get the first ticket they think is the cheapest and think that it's the best way to save money. That's exactly why we usually have people paying $200 and $650 sitting next to each other at the same flight. Future forecast for cheap air tickets Everyone forgot that fuel prices have sky-rocketed over the last few decades, and that the price of fuel makes up about a third of the airfare due to the crowded market of airlines. The large number of bankruptcies and mergers in the industry that has happened since 2001 seems to make people aware of the fact that they are actually travelling on a very scarce resource the price of which will only rise in the future. That's why today its' still possible to get cheap air tickets, but it won't be like that all the time. Unless, of course, new technologies and fuel will be introduced to make the industry independent of the scarce resources it's tied to at the moment.

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