Why Airfares Haven't Changed Much in 25 Years
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Here's your Money Briefing for Wednesday, August 11th. I'm J.R. Whelan for The Wall Street Journal. It seems like the cost of flying keeps going up. If you've tried to book a flight in the past few months, you've probably noticed that prices have risen dramatically from last year when we were in the throes of the pandemic. But a deeper look into the numbers reveals a surprise. Airfares actually haven't moved all that much in the past 25 years.
The important thing to remember is it is a highly competitive business. Most people are very price sensitive and eventually prices end up staying in a very narrow range.
So why does it feel like we're paying more to fly the friendly skies? Our Middle Sea columnist Scott McCartney has been doing the math. He'll join us with some insights after the break.
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A lot has changed in the airline industry over the past few decades. Higher security, less legroom, more perks and rewards programs, just to name a few. But what hasn't changed all that much is airfare. Believe it or not, average prices have barely budged in the past 25 years, according to the Department of Transportation. It might seem like there's some fuzzy math involved here. So we asked our Middle Sea columnist, Scott McCartney, to come onto the show to explain.
Why do average airfares appear unchanged over the past 25 years?
Scott, thanks for joining us.
Good to be with you, JR.
So Scott, just to set the stage, how do airlines set their fares? What factors go into them? And, you know, it seems like prices for everything have gone up, but not airfare. Why is that?
Well, airlines, it's all supply and demand in the airline business. It's not a business where you can say, well, it costs this much to fly a seat, and so we're going to have a 10% profit margin, so we're going to price it accordingly. Everybody on the airplane pays a different price, and that's because everyone on the airplane has a different price they're willing to pay. And so airlines have really cheap seats for people who are very price sensitive and would only fly if they could find a cheap seat. And then there are more expensive seats that business travelers or others are willing to pay more for more convenience or closer in bookings or essentially a different product.
And so you're right that that's kept airfares relatively low. But, Scott, how can that be? I mean, I've definitely seen prices higher than the last time I looked.
Well, prices have been higher compared to pre-pandemic levels. And we've seen higher prices this summer because there's been great demand for air travel. The supply of seats has been constrained some by bringing airplanes out of the desert storage and getting crews back online. And people have wanted to go. So the same pricing patterns have held through all of this. It's all about supply and demand. But the important thing to remember is it is a highly competitive business. Most people are very price sensitive and eventually prices end up staying in a very narrow range.
Okay. But besides the airfares, are there other ways you wind up paying more than you once did?
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