I have been on the road for almost twenty years. The airline business has seen significant development throughout that time. Points and miles are now widely used, round-the-world tickets are obsolete, airlines have merged, and low-cost carriers have proliferated.
The price of airline tickets has increased considerably during the past few years. Their prices frequently seem irrational, and they get more and more costly.
I want to take a moment to explain why the price of your airline ticket is what it is because ticket pricing is a complicated and misinterpreted topic.
A Look at the Airline Industry
Over the past ten years, ticket prices have gone up for a number of reasons. To begin with, during the past few decades, the industry has undergone significant consolidation. There are currently just three major alliance airlines in the US (American, Delta, and United) as a result of bankruptcies and mergers. There is even less competition outside of the Big 3 as a result of Spirit is recent bankruptcy and Alaska and Hawaiian’s merger.
WestJet and Air Canada are the only two significant airlines in Canada.
The majority of the European market is dominated by British Airways IAG, Lufthansa, and Air France–KLM. (Thankfully, there are several low-cost airlines throughout Europe.)
There is no incentive for airlines to offer inexpensive fares in order to gain your business because they have merged, partnered, or gone bankrupt. After all, airlines are aware that you have few options when only one or two airlines are operating a route. Prices rise when there is less competition.
Second, the cost of airline fuel has skyrocketed. Jet fuel was $1.37 per gallon back in 2017. The price per gallon is $6.49 in 2024! Simply put, airlines have transferred that fivefold gain to the customer.
Thirdly, the cost of your ticket has increased due to significant increases in airline taxes and security costs. Have you ever taken a plane to London? Fees and taxes account for half of the ticket price!
In order to make up for the decline in demand that followed the 2008 recession, airlines cut back on both the number of routes they operated and the frequency of their flights. More passengers and lower airline expenses result from fuller aircraft.
During COVID, the trend significantly accelerated. Airlines laid off a large number of employees and mothballed several of its older aircraft when COVID shut off international traffic. They did not have enough aircraft or personnel to go back to a pre-COVID timetable after travel restrictions were eased and more people began traveling. Airlines have little motivation to cut costs because of the decline in flight supply and the increase in travel demand.
“Prior to 2008, everything were in favor of the passengers,” says Rick Seaney of Farecompare.com. The balance of justice shifted in favor of the airlines following the 2009 catastrophe.
Taken together, a consolidated airline industry that is facing more costs is simply less likely to generally offer lower fares.
How Airlines Determine Pricing
Prices fluctuate for a variety of reasons. Competition, supply, demand, and oil prices are the four main factors that influence prices.
When combined, those four factors have an impact on “the load factor.” Airlines determine a plane’s load factor in order to fill their aircraft and increase earnings. This is basically the proportion of seats sold on a flight. They want this figure to be as high as they can.
Airlines will continuously adjust rates based on the four aforementioned categories in an effort to maximize load factor and encourage ticket purchases.
To determine the highest value they can obtain for each seat, airlines employ artificial intelligence (AI) and dynamic pricing models. Have you ever pondered why, following a major event that increases demand, airlines appear to ruthlessly boost their prices? They are not. It is the AI. It only observes extremely high demand and modifies its programming accordingly. Higher prices are the result of increased demand.
These sophisticated computer algorithms continuously analyze booking patterns in relation to historical sales data, competitive behavior, significant events, concerts, athletic activities, and weather. In an attempt to achieve the greatest deal possible, they may examine how customers search and make reservations, process a ton of data, and instantly adjust rates.
Because of all of this, a flight could cost $100 one day, $400 the next, and then $100 the following day. Airlines raise rates as passengers purchase seats on a flight; when demand declines (at a certain price point), they drop prices until less and fewer seats are available, at which time they raise prices once more. The careful balance is intended to provide the most possible revenue.
For this reason, flights at five in the morning are the cheapest holidays are more costly and large sporting events or high season cause prices to skyrocket.
Since a plane cannot accommodate additional passengers, the only way to increase revenue is to raise fares! Prices may fluctuate in a matter of seconds for the same reason.
It is because the AI is reacting to seat changes in real time, not because they are monitoring your cookies. Consider it. What is the number of booking firms? Lots! They are all making reservations for seats.
The AI does not need to reduce rates as much as it used to because millions of people travel every day it is easier to fill aircraft with fewer routes.
There may be ten to fifteen different price points on a domestic flight inside the United States. An airline will boost the availability of affordable fares if both the load factor and demand are low. The airline will increase fares if both the load factor and demand are high.
The airline is now in a better position, as Rick mentioned.
However, finding an inexpensive ticket is not impossible. Finding inexpensive airfare is possible in a plethora of ways. The most important thing to do is to be adaptable in order to avoid becoming the person who paid the highest price for their ticket.
In an effort to boost profits, airlines are always adjusting their rates in an effort to draw customers into the most expensive price ranges. According to Rick, “airlines start to manage those lowest price points about three months before.” In order to choose whether to provide those extremely low rates or maintain high costs, airlines start examining past patterns and present seat sales.
You are giving the airline an advantage if you make your reservation within a month. You will pay whatever they charge after your dates are set in stone.
