Why Are Airline Tickets So Expensive?

If you were flying over the Christmas holidays from the West Coast to the midwest you may have seen an airfare for over $1,000.  This probably made you ask the questions ‘Why are airline tickets so expensive?’.  There may be several reasons why you may think so:

  • Planes are huge flying machines that are expensive to maintain
  • There are hundreds of people working at airports.  Think of the salaries!
  • Airports are expensive to build and keep up (they are huge!)
  • It’s Christmas and the airlines know you want to travel really bad
  • Look at the cost of jet fuel
  • They are greedy

Well, maybe these are all minor factors but if you examine them closely (fuel prices are down but not airfares) you will find that these are not the main reason.  Why are airline tickets so expensive?  Why do the airlines charge  for checked bags and many other incidentals that were once free?  Because they can.  And there is good reason they can.

This reason can be found in this article from Slate. It seems that many of the airlines share the same investors.  Here is an excerpt:

Although we think of airlines as independent companies, they are actually mostly owned by a small group of institutional investors. For example, United’s top five shareholders—all institutional investors—own 49.5 percent of the firm. Most of United’s largest shareholders also are the largest shareholders of Southwest, Delta, and other airlines. The authors show that airline prices are 3 percent to 11 percent higher than they would be if common ownership did not exist. That is money that goes from the pockets of consumers to the pockets of investors.

So you can see that it is not int the best interest of these companies to compete against themselves.  They want prices high across the board and a price war is the last thing on their minds.

To put it another way, what we have is collusion among the major airlines.  An article from The Jamaican Gleaner outlines this.  It says:

The United States government is investigating possible collusion among major airlines to limit available seats, which keeps airfares high, according to a document obtained by The Associated Press.

The civil antitrust investigation by the Justice Department appears to focus on whether airlines illegally signaled to each other how quickly they would add new flights, routes and extra seats.

And it goes on to say:

Thanks to a series of mergers starting in 2008, America, Delta, Southwest and United now control more than 80 per cent of the seats in the domestic travel market. They have eliminated unprofitable flights, filled more seats on planes and made a very public effort to slow growth to command higher airfares.

So in other words there is really no competition between major airlines anymore, in effect creating a monopoly.  The same investors own all of the airlines and call the shots while the smaller airlines have gone out of business.  Only a few remain and offer deals but they are not major players.

Also remember that the airlines are corporations and are in business to make money.  They don’t care whether you can afford to fly or not as long as they are still packing the airplanes.  As Frank Werner, an associate professor of finance at Fordham University’s business school says:

“As for people who can’t afford to fly, the airlines really are not interested any more than Daimler-Benz is worried that many people cannot afford to purchase a Mercedes

What can we do?  Unfortunately not much.  We can refuse to fly but that is not practical.  We can call our congressman but the airline lobbies are some of the most powerful lobbies in Washington so it will be difficult to get them to listen to you.

It’s not hopeless though.  Fly the smaller guys if you can.  Talk to people and make them aware.  Start a social media campaign.  The more public awareness and outrage that happens the more the powers that be will notice.

And be smart when you fly.  This is the system we have today so try to work it the best you can by doing your research when you must fly. Technology can help travelers find the lowest available airfare.  Use it to your advantage.  Be flexible.  These can all help you save

However, if the airlines are in fact colluding with each other to keep fares high, they are certainly not making it easy for everyone to fly the friendly skies.

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