The formerly troubled airline industry has rebounded to record profits, but don’t expect that to bring down the price of your next roundtrip ticket.
The average round trip airfare ticket within the United States, including taxes, reached $509.15 in the first six months of this year, up nearly $14 from the same period last year. Domestic airfare continues to outpace inflation, rising 2.7% compared to the 2.1% gain in the Consumer Price Index.
Airfare has increased 10.7% in the past five years after adjusting for inflation, according to an Associated Press analysis of data from the Airlines Reporting Corp., which processes ticket transactions for airlines and more than 9,400 travel agencies, including websites such as Expedia and Orbitz.
The formula for rising fares seems simple, but it eluded the airlines for years: Match the supply of seats to passenger demand.
“Airlines have reduced the number of seats while more people want to fly because of the economic recovery. All this leads to higher airfares,” says Chuck Thackston, managing director of data and analytics at Airlines Reporting Corp. “This trend in airfares is likely to continue for the near future, as the economy continues to grow.”
Most fliers are traveling for work. And when the economy is strong, they fly more often. Data released by the government last week shows that economic growth bounced back after a brutal winter, businesses are creating jobs at a steady pace and consumer spending is on the rise.
The airfare figures don’t take into account the slew of fees travelers now face for checking bags, getting extra legroom, boarding early or purchasing a pair of headphones. Those fees now bring in $3.3 billion a year for U.S. airlines and have helped them return consistent annual profits for the last four years.
On low-cost carriers, like Spirit and Frontier, extra fees make up a big part of the airline’s revenues, and major carriers like American and Delta are following suit. Airlines’ revenue from extra fees increased from $2.45 billion to $31.5 billion — increasing more than 12 times — between 2007 and 2013, according to the industry firm IdeaWorks.
Baggage fees and some others were introduced in 2008 to offset losses from rising fuel prices. However, this year airlines are actually paying less for fuel — $2.96 a gallon so far, 7.2% less than last year, when adjusted for inflation.
Passengers aren’t seeing any of those savings. One reason is that airlines no longer need to entice fliers with lower fares. There are simply fewer choices today.
A wave of consolidation that started in 2008 has left four U.S. airlines — American Airlines, Delta Air Lines, Southwest Airlines and United Airlines — controlling more than 80% of the domestic air-travel market. Discount airlines such as Allegiant Air and Spirit Airlines have grown at breakneck speed but still carry a tiny fraction of overall passengers.
That control of the market has enabled the bigger airlines to charge more for tickets and not worry about being undercut by the competition. Those higher fares, in turn, have led to record profits. In April, May and June of this year, the four largest U.S. airlines earned a combined $2.9 billion. Airlines are earning so much money that they are starting to pay investors dividends — something unheard of in an industry that just a decade ago was struggling with a wave of bankruptcies.
Airlines for America, the industry’s U.S. trade and lobbying group, says passengers should blame the government, not the carriers, for higher fares. Last month, increased fees linked to the Transportation Security Administration took effect. Fliers will now pay a flat fee of $5.60 each way, up from $2.50 each way for nonstop flights and $5 for trips with connections.
But taxes and government fees still remain a small portion of what passengers pay. On a $500 roundtrip ticket between New York and Seattle, they make up 12% of the price.
Additional reporting by Mashable
Read more: http://mashable.com/2014/08/04/airfares-going-up/
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