Why Airline Tickets So Expensive?
There are several factors that are attributed to the high fares that people are charged when purchasing airline tickets. Airlines are fundamentally a business organization, and it has to generate enough revenue to support its operation and make profits.
Some of the major factors that contribute to the high price of airline tickets include:
Fuel Costs Probably the most costly item of direct expenditure in the operation of an airline is jet fuel. Fuel is one of the largest expenses in an airline business and there is sharp and unpredictable volatility in its prices. It simply means that any time oil prices are on the rise, the airlines will be forced to increase the fares to accommodate for the increased fuel cost. In the cost structure of an airline, fuel is one of the most significant cost factors and it may constitute between 30 and 40% of the operating cost.
Airport Fees Airline companies are expected to deposit certain amount of money for their use of airports' runways and offices, among other amenities. These fees have risen over the years, and particularly over more recent decades, as airports have invested additional funds in terminals and facilities. They recover these costs by increasing the charges for tickets from their consumers.
Labor Crew in an airplane flight includes the pilots, flight attendants, mechanics, airport staff, reservation agents, etc. Wages and benefit costs of airline employees are another factor that forms a huge portion of operating expenses. Air transport is also very much dependent on labor and therefore, average operating labor costs can range from 20 to 30% of overall operating expenses of an airline.
Maintenance For this reason, the maintenance of aircraft is not a simple process that requires simple tools and technicians, but rather it needs complex equipment and skilled mechanics. Maintenance and inspection are inevitable for any business aircraft, regardless of the number of flights flown. Age is a sure sign that aircraft require frequent repairs and some additions, mostly because they are worn out. These substantial maintenance costs, when accumulated, end up raising ticket prices.
Insurance Insurance costs are a major cost for airline companies, especially because they have to insure their aircrafts worth millions besides insuring the crew and passengers for their liabilities. After the 9/11 tragedy, there was a rise in the premiums and they can vary greatly. It is estimated that insurance could be taking anywhere between 3% and 5% of an airline operating costs.
Aircraft Purchases Airliners are very costly fixed assets, sometimes exceeding 100 million of dollars for the wide-body type. It is for this reason that new planes are more fuel efficient and more equipped to provide for passengers™ needs but they come at the expense of massive capital costs for airlines. These are capitalized and incorporated into escalations of the airline ticket costs over time.
Route Competition Some routes are very competitive; they are cheap, but others are not competitive at all and only one airline is used, hence very expensive fares. It depends on the availability of carriers or the supply of the routes as well as the demand for those routes, which may be influenced by the perceived attractiveness of the route as well as its profitability. Loss-making routes meant that frequencies on more lucrative ones with which airlines can command high fares were reduced.
Extra Fees As the ticket prices have gone down in some markets, to compensate for this, airlines now implement the unbundled™ services where customers are charged extra for things like checked luggage, pre-assignment of seats, meals, entertainment, and anything else you can think of. This makes it possible for these airlines to adjust the costs and make their customers who use these services pay for the costs.
First vs. Economy Class One of the reasons behind the differences in prices is that airlines began to carve markets by levels of comfort and luxury. Such a high value of money is achieved because first- and business-class tickets have significantly higher margins than economy ones due to increased service and additional amenities. This helps to offer lower economy fares in a bid to accommodate the larger populace by making air travel accessible for as many people as possible.
Route Lengths Flights that take a long time have to include extra fuel, more crew members, especially in the cabin, and other connotations of moving across borders entail high airport taxes and fees. In the case of short hops, it becomes unprofitable because one would have to overcharge to get to the breakeven point. Concisely, the route structures are involved in ticket price determination through ticket pricing models.
Frequent Flier Programs These are some of the issues facing the airlines by offering, managing, and administering frequent flier programs. Reward seat redemptions also remove the potential for revenue since the seats are given away for free. For these impacts, costs are far from being directly attributable to any particular fare but are distributed equally among all the passenger fares.
Distribution Costs Some of the costs incurred during the ad process include the cost of advertising airfares, the cost of processing ticketing transactions, and the cost of commission for third-party sales. Travel agents work on commission basis and get their share of commissions from each airline ticket sold. Apart from customers, online booking platforms also take a commission on the bookings they make for various airlines. These distribution expenses are also responsible for high costs and this, in turn, results in high prices.
Regulations and Taxes There are numerous taxes and regulatory fees that lie beyond the control of airlines at the moment. For instance, a federal sales tax of 7.5% is imposed on all domestic flights. International flights also attract other taxes and charges as well, depending on the carrier's policy. Many security charges are reflected to the consumer after the dreadful September 11 incident and these go for several dollars for each flight leg. Of the above assessments, all have implications on ticket prices.
Business Travel Subsidies Most of the airlines rely on corporate sales, which book high-yielding corporate tickets with enough margins to cover all costs. This enables them to introduce cheaper leisure fares throughout the whole network. Such airlines are effectively subsidizing their frequent business travel customers with additional services and more accommodation of flight timings.
Route Monopolization Where there are few, if any, alternatives, prices are notably higher In table 2 below, we can see that the more limited the choice of options is, then the higher the price is going to be. However, these low-cost carriers are causing disruption to the competitive markets unlike before. However, air travel has been experiencing high consolidation, meaning less competitive options and options for tourists in many destinations. High-flying dominant airlines are not under pressure to charge high fares for certain non-competitive routes many consumers use.
The structure of the airline products is still very intermingled, with costs spread across all the diverse products and services offered in the many markets that they serve, making ticket pricing a challenging task. But it comes down to the fact that airlines have to address rising operating expenses and, at the same time, be able to make a decent profit, as well as address more general economic issues and balance competitive pressures. When the additional costs required to cover fixed overheads are added to the prevailing market prices, what you are offered is the freedom of today's air transport.