A few months ago, I was speaking with the folks from Singapore Airlines and we ended up talking about the public perception of the cost of airfare. Everyone is always looking for the cheapest flight. And while there are ways to get cheaper airfare, the age of rock bottom prices are simply over. If you’ve been flying for at least the past few years, you might have noticed ticket prices, even the cheapest ones, seem to be going up and up. Save some flash sale or price war, consumers are simply paying a lot more than they used to. If you really want rock bottom prices, you’ll need to invent a time machine and go back ten years. (Don’t forget to take me with you!)
But that conversation inspired me to sit down and write this post. Since ticket pricing is complicated, I want to take some time out to explain why the hell your airline ticket costs so goddamn much as well as let you know a few tricks to making it cheaper.
Why Have Prices Increased?
Ticket prices are high today for a number of reasons. For starters, the industry has consolidated a lot over the last few years. Less competition means less need for cheaper prices. Thanks to bankruptcies and mergers now there are only 4 major airlines in the US (soon to be three when American merges with US Airways). In Canada, you have 2. In Europe, KLM and Air France are now one company, and Lufthansa has its hands in many smaller airlines. (While budget airlines keep prices cheap within Europe, once you leave the continent, those 10 Euro prices disappear!) As airlines have partnered up, merged, or gone bankrupt, there is little incentive or need to create low fares to win your business.
Secondly, the price of airline fuel has increased tremendously. Back in 1996, airline fuel cost 55 cents per gallon. Now, it’s $2.97 per gallon. Airlines can’t absorb all of that increase, so they pass some of that on to the consumer, leading to higher fares.
Additionally, airline taxes and security fees have also increased, adding a lot of money onto your base fare. Currently, the following fees are added to the cost of your ticket:
- September 11th Security Fee of $2.50 (up to a maximum of $10 per round-trip).
- Passenger facility charges of $4.50 per segment (up to a maximum of $18 per round-trip).
- US Federal Domestic Segment Fee of $3.70 per segment.
- US Travel Facilities Tax of $8.20 per direction (only applicable to flights to/from Alaska and Hawaii and the 48 contiguous US states or between Alaska and Hawaii);
- US Immigration User fee of $7.
- US Customs User fee of $5.50.
- US APHIS User fee of $5, US International Transportation Tax of $16.30 per arrival or departure; and Foreign Government security/tourism/airport/international transportation taxes and fees of up to $290 (varies widely by destination and fluctuates with exchange rates).
That’s a hell of a lot of fees! And it’s not just the United States. Ever fly into London? Half the price of the ticket is made up of the fees and taxes!
Moreover, following 9/11 and the recession, demand fell and to compensate, airlines reduced both the number of routes they offered and the frequency of their flights. They did this to save money and fly fuller planes. Fuller planes mean more passenger revenue and fewer costs for the airline. It’s why if you live far from a major city you’ve seen fares go up and the number of flights go down. Planes fly close to full now and airlines are quite happy about that.
With fewer planes, less competition, and higher capacity, airlines can charge a lot more for tickets. There’s nothing to stop them and they don’t need to lower prices. United CEO Jeff Smisek said that only now are airfares priced appropriately. When you have a CEO say something like that, it means prices are not going to go down anymore, but only up.
According to Rick Seaney of farecompare.com, “Before 2008, things were in the favor of the passengers. After the 2009 crisis, the scale of justice tipped towards the airlines.”
Why Do Prices Fluctuate?
Prices go up and down for many reasons. No one can really predict when or if a price is going to go up or down. Only the airline knows that. But there are four things that drive prices: competition, supply, demand, and oil prices. The first and last items are the ones that really affect prices the most.
Together, those four things all affect a lovely thing called load factor. Airlines want to fill their planes and maximize profits, and they do this by calculating a plane’s load factor. Essentially, this is the percentage of seats sold on a flight. They want this number to be as high as possible.
Airlines tend to manage their load factor by constantly changing the price of tickets to fill the plane and get maximum revenue. On a U.S. domestic ticket, a flight might have 10-15 different price points, according to Rick Seaney.
If the load factor is low and demand is low, an airline will increase the availability of cheap fares. If the load factor is high and demand is high, the airline will raise prices.
In the airline industry, there are two types of passengers: business travelers and leisure passengers. Business travelers are flexible on price (the boss is paying) but not on dates. Leisure travelers aren’t flexible on price (the cheaper the better) but are on dates.
Airlines are constantly trying to strike a balance between these two types so they can make a profit. Why fly a plane full of cheap fares when you can get people to pay more?
Airlines know that a certain number of people will book far in advance if they can find a decent price. Airlines also know that they need to hold a certain number of seats for business travelers who will book last-minute and pay more.
Ticket prices jump up and down based on the demand for seats on a plane from these two types of passengers.
As Scott Mayerowitz, airline reporter for the Associated Press, says, “To maximize their profit, airlines developed sophisticated computer systems that constantly compare booking trends to past sales history. If tickets are selling faster than in the past, the price rises. If a competitor raises fares, the airline will probably raise theirs too.”
How Do You Get Cheap Fares?
I remember the days when I got excited over roundtrip fares for $500 to Europe. Now, with prices typically around $1,000, I get excited over a $750 round trip fare. (Yay! I say sarcastically.)
It’s not impossible to find a cheaper ticket. Am I going to find that $500 roundtrip fare to Europe? Maybe if I get extremely lucky but typically not. Heck, you can sometimes fly to Asia for the price it costs to fly to London!
One trick to not being the person who paid the most for your ticket is to be flexible. As I said, airlines are constantly changing prices and trying to balance leisure and business travelers; they’ll do their best to avoid having customers pay the lowest price point.
“About three months before, airlines start to manage those bottom price points,” Rick says. That means airlines begin to look at historical trends and current seat sales to figure out whether they will release those really rock bottom fares or keep prices high.
If you are booking inside a month, you are playing into the airline’s hand. As Rick pointed out to me, the bulk of the tickets are sold within 30 days of departure. Booking that late is a bad idea. At that point, airlines know they have you. When your dates are no longer flexible, you’ll pay whatever they charge.
To quote Scott again: “The days of routinely flying from New York to San Francisco for $99 each way are long gone. That said, there are occasional fare wars when airlines like Virgin America or Spirit enter a new market. Airlines will also still deeply discount flights when traffic is low, such as winter flights to Europe. The catch is: travelers need to be flexible about when they fly. ITA Software’s airfare search provides a calendar of the lowest fares on given routes. It’s a great way to find the best fares, if you have some flexibility.”
(For more from Scott, check out my interview with him from last year.)
And, while there are many other tricks to reduce the cost of your ticket, the main two are flexibility and flying when demand is low. That means avoiding flying on Monday, Friday, or Sunday, flying mid-week, and taking early morning or really late flights.
The days of cheap airfares are long over. They aren’t coming back and the prices you see now are the new normal for airline tickets. They are simply going to cost a lot more, especially if you don’t find the sweet spot when prices are their lowest. But by understanding how tickets are priced, you can avoid being the person who paid the most.
Now that you know why flights are expensive, learn how you can get cheaper flights than the person sitting next to you: