January 28, 2023

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How Increasing Gas Prices Will Affect the Airline Industry

Since 1995, airline fares have shown a steady decrease in price. “What?” you ask, “I thought they had gone up!” Sure, that may seem correct if you look at your current ticket stub in one hand while looking at a ticket stub from a few years ago. However, not all is at it seems. There are a couple of points to consider to be fair:

  1. When comparing airfare prices to years past, inflation should be taken into account so that the prices can be related using the same index. In other words, put the prices from years past into today’s dollars so a true evaluation can take place.
  2. A trend, in this case, is a statistical method which shows the general direction of data in relation to time (for the math geeks, it’s called ‘linear regression’). It is mathematically robust – the numbers don’t lie.

When you combine #1 and #2 above, you get an indisputable trend which shows that airline fares have been gradually decreasing for the past 17 years. In 2011 dollars, these ticket prices are over $50 cheaper now than in years past.

That being said, even though the overall trend shows a decrease in prices, the last three years are showing a reversal of that trend – which happens to coincide with the recent trend of gas prices going up as well. In addition, the average price of baggage fees has also increased in recent years – perhaps as a way to offset the cost of fuel for the airlines.

Unfortunately, there isn’t much the airlines can do about gas prices – if they go up, they either have to eat that cost or pass it along to the consumer. In the past, most of them have tried to pass the cost along to the passengers; this works when the low-cost carriers also boost air fares, but sometimes will fail if not all of the airlines are “on board.”

Further, the number of airlines has decreased in the same time frame, which gives them more leverage in controlling the cost of flying. Down from 22 air carriers in 2007, there are only 17 as of March 2012. Less choice, higher fuel cost, fewer routes means air fares will probably continue to increase.

Will ticket prices reach levels found when the decreasing trend started? That is hard to say since this recent trend is only 3 years old. If nothing changes in the contributing factors, it won’t take long for flying to become rather expensive. However, there is a price range that the airlines have to adhere to in order to attract enough customers, so we’re probably pretty safe in the short-term.