- In post-deregulation, airlines had one goal, to sell tickets.
- Over the years, base fares have decreased due to competition and alternate revenue streams.
- One of the main reasons fares remain is because flights are fully sold, maximizing profitability.
- Visit Business Insider's homepage for more stories.
The following is a transcript of the video
Narrator: Sixty years ago, air travel was far too expensive for the masses. Book a flight between New York and London on Pan Am in 1960, and you'd be paying somewhere around $300, or about $2,600, adjusted for inflation. But in 2019, you can catch the same flight for almost a tenth of the price. It looks like flying has never been cheaper, but is that the real story? And how did we get here? The first scheduled commercial flight took place in 1914. It had one passenger and was piloted by this guy, Tony Jannus. The flight was from St. Petersburg to Tampa. What would have been a 12-hour train ride became a quick 23-minute trip. The flight proved that there was demand for scheduled aviation as transportation. Jannus is largely credited with laying the groundwork for the modern aviation business, which has grown into a multibillion-dollar industry. In 2018, there were an estimated 45 million flights worldwide, and the average fare for a domestic flight in the US was $350. Now, $350 is hardly considered cheap, but take a look at this graph. Average ticket prices have been steadily decreasing since 1980. In fact, tickets are close to their lowest prices ever. But from 1950 to 1980, flying was different. Before 1978, fares and routes in the US were closely regulated by the federal government, and many routes had fixed minimum prices.
Scott Mayerowitz: What ended up happening is you got into a highly regulated industry where the federal government set the various routes that you could fly, set how much prices could be, and the airlines were raking in the dollars.
Narrator: The story across Europe was slightly different, as most airlines were state-controlled and air travel was treated as a public service. But in 1978, everything changed. Then President Jimmy Carter signed the Airline Deregulation Act, and the aviation industry was open for business. Free from government regulation, airlines now had one goal: to sell tickets.
Mayerowitz : What really happened after deregulation was just this massive fight. Airlines were doing everything to get market share and not really looking at profitability. The theory was, the more people we can get onto a plane, the more we can dominate the market, the more we're winning. But they didn't really look at it as a business where you needed, at the end of the day, to make a profit. And as soon as you had one little economic hiccup, a bit of a recession or a spike in oil prices, that's when airlines really start to fail.
Narrator: At the same time, aircraft technology was also advancing, which made the planes more efficient. New wing technology was implemented, such as winglets, which made planes more aerodynamic and reduced flight times. Computer systems began to replace older cockpit technology, making the planes less reliant on pilots. Shortly after planes got computers, so did people, and pricing began to get even more competitive. Websites like Expedia and Priceline, launched in the late '90s, began to catalog all of the lowest prices. Budget-airline models were able to thrive because of this, as consumers would regularly click the cheapest prices. For many airlines, this competition was unsustainable. Over the years, a lot of companies folded, merged, or absorbed one another. And today, the four largest US airlines control 80% of the market. One of these four, Southwest, has a fleet of 753 planes, each of which has an average of six flights per day. That's about 4,000 flights a day. And while that may sound like a lot, that frequency is decreasing across America. This is because something called load factor is increasing.
Mayerowitz: One of the key metrics for the airlines is called load factor, and this is basically your occupancy. How many seats do you have available and what percentage of those are being sold or occupied by passengers.
Narrator: Basically, that means aircraft are flying at full capacity, or close to it, more often. And this is good for airlines. And for flyers, sort of. Airlines are able to keep fares low because most of the seats have been sold. Which isn't always great for passengers. Ever been the last one on the plane and there's no more overhead luggage space? Or had no room for your legs because the seats are so close together? There are tons of budget airlines around the world. Some of the more notable ones are Ryanair, Norwegian, Spirit, and Frontier. These companies usually charge extra for traditionally included amenities, like reserving your seat, while cutting costs wherever they can.
Mayerowitz: This issue of cramming more passengers onto planes is happening all across the world. You look at a discount carrier like Ryanair, based in Ireland but flies all over Europe. They're looking at putting 200 people on a Boeing 737. This is a plane that some airlines are still flying with 150, 160 passengers. That's really, really crowded. But it maximizes profit. And when you fly in an airline like Ryanair, you know exactly what you're getting.
Narrator: So, take that $320 flight on Norwegian from New York to London. Need anything other than one small piece of hand luggage? The fare jumps to $490. Want a refundable ticket and two checked bags? Suddenly you're at $1,379. That's about $100 more than the inflation-adjusted 1977 price, which came with all those extras included as standard and more legroom, too. And non-budget airlines have seen the potential profit in this budget model. More and more airlines are beginning to charge hidden fees on top of the ticket price, from checking baggage to just choosing your seat. Find the right deals, though, and flying can be cheaper than ever, but that original price you saw advertised may be misleading, and the experience that you get these days might not be the most pleasant, as manufacturers continue to cut costs. But the world of bargain-budget fares may not last. Aviation emissions are predicted to possibly triple by 2050, and many countries have begun implementing stricter environmental taxes for flights.
Mayerowitz: Overall, there's little that the industry can squeeze out of airfare right now. They're gonna get much more efficient with aircraft, and that's gonna mean less fuel burning. But the cost of labor is probably not gonna go down. You still need good, quality people to fly an airplane and be your flight attendants and be there for your safety.