The death of cheap tickets? Four factors to watch!

Are the days of bargain pricing over? There’s a lot of pessimism around this issue. After getting smacked around in 2008 and 2009, this year has been a good one for air carriers, and USA Today reports: “Airfares are on the rise again and unlikely to fall again anytime soon.” Yet, a travel industry recovery comes with advantages, as more people want to fly, and they tend to be willing to stomach higher prices. So, what’s the deal? Are we going to pay more (happily), or will 2011 means continued a continued prowl for cheap tickets, particularly online?

There’s no doubt that the airlines are getting more of our wallets. The U.S. Department of Transportation says that the average domestic ticket surged 13 percent – from $301 to $341 – from the second quarter of 2009 to the second quarter of 2010. That’s the fourth quarter in a row domestic fares rose.

Now, airlines are price-takers, not price-setters. What does this mean? They respond to what consumers are willing to pay … they don’t set the tone for the market (e.g., the way a luxury goods manufacturer would). So, if fares are shooting up year over year, a consumer willingness to pay is certainly implied.

Individual airline fare increases are pretty interesting, with United Airlines up 25 percent on average for is period and discounter Southwest adding 15 percent, on average, to every ticket.

According to USA Today, airfares are climbing for three reasons:1. Tension between capacity and demand: during the recession, airlines cut capacity in an effort to lower operating expenses and keep their margins from getting throttled. Available seat miles plunged more than 12 percent from the fourth quarter of 2007 through the end of 2009, according to the Air Transport Association. But, travelers are coming back. Demand is up, and there isn’t as much supply on hand. That pushes prices higher, even as airlines scramble to add capacity. Yet, available seat miles are up only 1.5 percent over the past year.


Airlines have been burned by market forces before when adding capacity too quickly. USA Today explains:

Having learned a bitter lesson by adding back too much capacity, airlines are exercising greater caution and restraint this time around. Additionally, bankruptcies and consolidations during the past few years helped contain capacity. Brands like Aloha, EOS, MAXjet, Midwest, Northwest, Skybus and ATA Airlines have disappeared as a result of consolidation or financial calamity and AirTran and Continental Airlines will soon follow suit.

2. Oil won’t go down: oil has been on the rise for a decade, moving from below $20 a barrel to above $90 a barrel, some of which came from the 2008 market shock. Someone has to pay for this of course … and it isn’t necessarily you. That’s the problem with being a price-taker: you can’t pass along all your expected or unexpected price increases to consumers. Now that market pressures are being eased, airlines can start to recapture some of these expenses.

3. The business is changing: according to USA Today, “so called ‘low-cost’ airlines look more like network airlines every day” – as a result of carrier merger activity. And, the increase in maturity comes with higher expenses. For example, these airlines are “rapidly expanding into larger hub airports or building their own”: that cost cash. It has to come from somewhere. It can also come with long-term costs that aren’t always easy to forecast:

Hub airports are often plagued with congestion, resulting in increased flight delays which can wreak havoc on aircraft turnaround times and utilization schedules, further raising operating costs. In recent years, Southwest has expanded into some of the most congested airports in the country, like Boston Logan, New York LaGuardia and Washington Reagan National.

4. There’s more to spend: the fact that there are expense pressures on airlines doesn’t mean that you’re going to have to foot the bill. The oil price factor, for example, has been around for a while, and it wasn’t enough to protect carriers from price declines. The fact that you probably have more discretionary income – or at least less perceived employment risk – means that you aren’t going to wince when you see a higher price. You’ll book with less lead time. It’s easier for you to spend.

What will be interesting to see is the extent to which consumers will be more willing to open their wallets. Even though having more cash comes with a bit of comfort in using it, memories may not be as short following this recession as they were in previous economic downturns. The recession kicked off by the global financial crisis in 2008 hurt. A lot. Unemployment was severe – and continues to be. People may not be as willing to pay big fares as they were in the past. Does this leave more market opportunities for online discounts – such as those offered by online travel agencies? That remains to be seen.

What do you think? Leave a comment to let us know! There’s no crystal ball on this one, and I’d love to get your thoughts.

[photo by atomic taco via Flickr]

Turkey-nomics: Five reasons airline fees irritate OpenSkies CEO this Thanksgiving

We’re all fed up with just about every aspect of air travel. The seats are cramped, the employees are rude and the TSA is trying to feel us up. We’re told that fares are cheaper than ever, but nobody seems to care about the high rates of unemployment and under-employment that have come to characterize our economy … meaning that these “cheap tickets” have a proportionately higher impact than appearance would dictate.

Meanwhile, the extra fees being tacked on haven’t been a big hit with most consumers, leading to an additional dose of animosity this holiday travel season. Well, one air carrier is fighting back. Dale Moss, CEO of OpenSkies, seems to be pretty fed up with the situation. In response to a report by the Consumer Travel Alliance, he took the time on the OpenSkies blog to remind his customers that his airline doesn’t charge extra fees for anything.

So, what got Moss all charged up? The Consumer Travel Alliance did some digging into the issue of hidden airline fees and found some disturbing (and downright bizarre) data:

1. Turkey equivalents: appalled at how much your Thanksgiving bird cost you this year? Well, Americans will buy the equivalent of 12.6 million of these gobblers when paying the extra fees associated with air travel during the holiday.

2. The big number: in case you aren’t tuned in to turkey economics, that adds up to $167 million in additional fees paid by consumers.

3. The small number: it’s based on the average cost of a 12-pound turkey this year: $13.25.

4. The profundity: the airlines could use this extra cash to buy a 12-pound turkey for every household in California.

5. The affected: according to the Air Transport Association, 24 million Americans will take to the skies during the 12-day Thanksgiving holiday travel season.

“Feathers are flying over hidden airline fees, because Americans are justifiably angry that they can’t see the true costs of air travel, nor compare the price of different flights against one another,” said Charles Leocha, director of the Consumer Travel Alliance. “Airlines expect consumers to dig through thousands of words of gobble-gobbledygook to find even the most basic fees. We say stuff that. It’s time to talk turkey and show consumers what their tickets will cost with all the fixings included.”

[photo by richcianci via Flickr]

Five reasons Thanksgiving travel will be miserable (by the numbers)

You may have gotten a break last year, but the 2010 Thanksgiving holiday will be a return for the norm. Fares are increasing, and traffic is following, as more passengers take to the skies thanks to a recovering economy. The Air Transport Association puts year-over-year Thanksgiving travel growth at 3.5 percent. This is enough to show the tide has turned, but it still doesn’t compensate for the ground lost to the recession.

With more people flying, you will probably find yourself fighting for the armrest, sitting next to someone in that middle seat (unless you’re the unlucky passenger) and struggling to cram your carry-on into the overhead bin.

Let’s take a look at five data points that point to an unpleasant Thanksgiving flying season, with information reported by Reuters:1. 24 million people will fly during the 12-day period around Thanksgiving (November 25, 2010)
2. Daily volumes will range from 1.3 million to 2.5 million
3. Planes will be running close to capacity, with load factors approaching 90 percent
4. Fares are headed up to 18 percent higher than last year (according to Rick Seaney, CEO of FareCompare)
5. There are fewer seats, with capacity down 10 percent from 2008 levels

Click here for six rules for air travel during the holiday season >>

[photo by Augapfel via Flickr]