Airlines are expensive; why isn’t airfare?

Your correspondent has opined before in this space that air fares need to go up drastically in order for airlines to survive as an industry. I have tended (perhaps unfairly) to place the blame on the airlines—and their reluctance to hazard market share by making ticket prices reflect the actual costs of operating their flights.  We’ve seen what a similar denial of reality can produce—witness the insurance industry’s artificially low premiums before (and panicky soaring rates after) September 11th, 2001, for example.

Chris Manno—retired Air Force pilot, current American Airlines captain, and proprietor of the usually funny and always interesting JetHead blog—draws the linkages between five major factors that are conspiring to ruin air travel for all of us.  Here is Conspirator #2:

2. Alfred E. Kahn. Known as “The Father of Airline De-Regulation,” economist Alfred E. Kahn was Jimmy Carter’s Chairman of the Civil Aeronautics Board. His blueprint for airline de-regulation was based on a flawed economic model, and was as misguided as economist John Kenneth Galbraith’s assurance to Lyndon Johnson that the Viet Nam war would be short and wouldn’t affect inflation. Kahn proposed complete de-regulation of airline routes and fares, positing that the marketplace forces would drive down ticket prices and provide the American public with cheap and plentiful airline seats.

What he failed to consider in his economic model is the fact that not only is the product—an airline seat—not inexpensive to produce, it is also linked to energy costs which are both volatile and unpredictable. “Cheap airfares” for the public are incredibly expensive to produce, forcing in the progressive “unbundling” of the airline product: now passengers must pay for each component of the flight—a checked bag, food, beverage, amenities like a pillow or a hard-copy ticket—and the revenue still only marginally covers the price of the product, with the airline industry losing billions nonetheless. Consumers insisted on paying less for an airline ticket, so now they can cough up for food and drink at airport prices between flights. Everything must yield revenue or there is no airline, and nothing with revenue potential on board can be simply given away.

— Manno, Chris.  “The Big 5 Conspire To Ruin Your Air Travel.” JetHead, 18 March 2010.

It’s worth reading the whole thing.  You’ll laugh but you’ll also cry, because things are going to get a whole lot worse before they get any better.

Category: Aeronautics  Tags: ,
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