A few weeks ago, I delivered an overview of the airline revenue management function to a group of coworkers. To kick off the presentation, I decided to correct some common misconceptions by including this quiz:
Which of the following goods/services has had their prices increase relative over the last fifteen years, relative to the consumer price index?
b) NFL tickets
c) Single-family homes
e) Air travel
The surprising answer is: all of the above, except air travel! Here’s some data to back up that seemingly unbelievable claim:
This data comes from 2014 – after which point fuel prices fell while airline ticket prices remained steady… so I understand why there’s been a bit of an uproar from the American public. If fuel prices are falling, then why aren’t ticket prices? But I think the above data provides the exact background story of why. Until 2014, the price of air travel had decreased significantly relative to the price of fuel. So while everyone is complaining about how fuel prices are dropping and yet ticket prices aren’t, that’s because the increases in fuel prices were dramatically outpacing increases in ticket costs – so the drops are just allowing a bit of a catch up in margin. (Note that no airlines in the US have gone bankrupt since 2014, despite that being an all-too-common occurrence from 2000-2010.)
I know we’ve all heard about the fuel hedging that allows airlines to pay a cheaper price for fuel than what you pay at the pump. But don’t forget that when you hedge you have to take the good with the bad – so for some airlines, they actually aren’t seeing the benefits of lower fuel costs just yet.
But don’t take my word for it – last month, the US Department of Transportation released quarterly numbers revealing that the average price for an airline ticket in Q3 2015 was the absolute lowest it’s been in six years. Check out this great coverage from the Skift that tells the full story.
Is the airline industry perfect? No, but I can’t think of an industry that is. The infrastructure behind airlines is expensive (which is why you don’t own a jetliner or an airport), and air travel isn’t a god-given right. Instead, I prefer to look at the airline industry as nothing short of miraculous, allowing us to travel the world and see people and places our ancestors couldn’t have imagined. I love being a part of it!