Why Are Airline Tickets So Expensive?
There are numerous factors that make it costly to purchase an airline ticket.
To begin with, it is worthwhile to remind that airlines are a business and require making enough money to cover operating cost and make a profit. Some of the major factors that contribute to the high prices of airline tickets include:Some of the major factors that contribute to the high prices of airline tickets include:
Fuel Costs Airline operations have many costs that vary depending on many factors, but arguably the most significant is the cost of jet fuel. Trends in fuel costs are volatile over the short term and have the potential to have significant direct effects on an airline's net income. That is because when the prices of oil increase, the airlines are unable to operate without reflecting those costs by increasing ticket prices.
The cost of fuel is in the range of operating cost of an airline and it can make up about 20–30% of the total cost.
Airport Fees Airline companies are also subjected to charges fees in airports, whether they are city-based or not. These fees enable airports to meet costs like maintenance, operation, renovations, etc Every time airports upgrade or construct new terminals, these costs are recovered from the airlines through a higher landing fee, terminal rental fees, etc. These costs are then recovered from the customers by an increase in ticket prices.
Equipment Costs Airlines invested a lot of cash to acquire new airplanes. Boeing 777 is one of the largest commercial airplanes, and the basic model with the latest technology costs more than $ 300 million when purchased directly from Boeing. When leasing planes, it can also cost millions of dollars in a month, therefore the leases. Most airlines require the cost of washing their equipment to be recovered through ticket sales over a number of years. Other factors favorable for the establishment of fares include newer, more fuel-efficient planes.
Crew Costs Apart from equipment, which they would require for purchase, maintenance, and overhaul, airlines must pay, accommodate and feed all the crew, like pilots, flight attendants, etc. on each flight. Crew expenses are the salaries, their accommodations, meals, travel, training, etc.
These are huge costs that are recovered from ticket charges.
Service and Amenities Full-service airlines are more equipped than low-cost airline companies in terms of services and features. Services such as IFE, connectivity, electric outlets, personal entertainment screens, and fully flat seats all involve considerable initial and recurrent investments to offer. Some airlines transfer some of these costs to the passengers through offering tickets on these flights at a higher price than those in no-frills flights.
Overhead Costs The overhead expenses that airlines hold are indeed enormous for them to fund their daily operations. Employees´ wages, telephone and other communication, airport facilities, promotion, and technology investments are some of the costs that make the final total. Some of these types of overhead cost include the following: Although large networks enable Telecommunications players to spread their fixed overhead costs over the large volumes, it is funny that these same costs accumulate and contribute to high ticket prices.
Regulations and Taxes Aviation is a specialized sector that has strict limitations and rules in place. Airlines are also subjected to bear other costs in relation to safety regulation, labour laws, etc. These are costs such as meeting the maintenance standards of aircraft, pilot flying hours, flight attendant ratio and the list goes on and on. Let's look at the ticket taxes. On an average of $300 for ticket, $50-$100 is for taxes and government fees. These fees go to fund operations such as TSA, airport infrastructure, and FAA air traffic
Demand Fluctuations Flight tickets are not homogeneous in terms of price; they float in the market depending on the market forces of demand and supply. If many people need to travel on a given route at such a time of the year, then the prices go up due to limited demand for the seats. On the other hand, when sales are slow, the airline may offer the seats at lower prices in an effort to make sales. Dynamic pricing is quite useful to the airline industry as it enables the firm to obtain higher revenue from willing buyers during the peak seasons.
Limited Competition Thus, the airline industry is oligopolistic because the barriers to entry are large. Initially, establishing an airline involves buying aircrafts on lease, obtaining licenses and hiring crews, among other factors which are capital intensive. There is often only one or at most two airlines offering to fly directly on many routes, which means they can charge higher fares since there is no competition. This means that there are few competitors to wage low price wars against the larger and dominant companies.
Profitability Struggles While there are complaints that airfares are very high, it is, however, true that margins are very thin in the airline businesses. Further, eventuality such as mechanical failure of the airplanes or unfavourable weather conditions can influence future sales. However, it is seen that when planes aren't full, it can greatly reduce the income for the airline or company operating the airplanes. Fare sales leads to an increase in passenger traffic, thus increasing the company's popularity but it also brings down the overall income per head. The airline business requires sufficient cash to be prepared for poor situations on the market. When is profitable, such as airline, this earnings would be channeled towards enhancing the services.
Loyalty Programs Frequent flyer programs are very popular but come with major costs that are very hard for the airlines to handle. Carriers spend hundreds of millions to provide such programs every year. These costs have to be incorporated when formulating fare structures and ticket prices for every flight. In the meantime, though, the free™ trip awarded to a loyal customer is paid for by other passengers through ticket spend.
Travel Agent Commissions Companies like Expedia offer tickets and get them from the airlines; they even take a cut of the turnover from 10% to 25% on orders made through them. These are intermediary costs that cannot be shunned by players such as airlines since they are a major distribution channel. Finally, commissions paid to third-party sellers cost the fare up and result in higher fares.
In conclusion, there are dozes of complicated and interconnected line items in the form of expenses that an airline has to juggle with in an environment that is unpredictable, such as fuel, catering, and facility rents. Due to low margins, carriers have high debts and unsteady breakeven on investments; therefore, they set ticket prices higher to cover costs and risks in this industry that has high fixed costs. However, LCCs cut glamour and avoid expenses such as commissions in order to advertise extremely low prices once in a while. However, full-service network carriers deliver the connectivity and frequency that many passengers desire, though this gives a superior network at a higher cost.