2 Charts Explain Why Flying Is Cheaper But Airlines Are More Profitable Than Ever
REUTERS/Dadang Tri
According to new numbers from the Department of Transportation, the average fare charged by U.S. carriers is far below what it was in the 1990s.
In constant 2013 dollars, the average third quarter fare in 1995 was $439. By 2009, it had dropped to $333. It has since climbed back to $390.
So if airlines are charging less to fly, why does the International Air Transport Association (IATA) predict the global airline industry will bring home an all-time high net profit of $19.7 billion in 2014?
Factors include more efficient jets, a small drop in jet fuel prices, and airline consolidation (like the mega-merger of American Airlines and US Airways).
But the bigger answer is in a DOT table that shows how much money airlines actually make off passengers fares, as a percentage of total revenue.
In 1990, it was nearly 90%. After two decades of dropping it's now barely above 70%. Simply put, airlines aren't as dependent on fares as they once were:
DOT
Airlines are less dependent on fares because they're making up the money on ancillary fees — the things you pay extra for, like checking a bag, extra leg room, or changing a reservation. "Without ancillaries," an IATA forecast says, "the industry would be making a loss from its core seat and cargo products."
An IATA table shows how ancillary fees — once nearly worthless — are making up for lost fare revenue:
IATA
So fares can keep dropping, and airlines will continue to make up the difference by charging for everything they can think of.
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