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General Airline Industry Trends (Ticket Prices)  
User currently offlineLonghornmaniac From United States of America, joined Jun 2005, 3277 posts, RR: 45
Posted (4 years 1 month 3 days 22 hours ago) and read 3194 times:

Hello all,

I got into a fairly heated debate with my mother this evening about the role of consumers vs. management regarding the recent changes in the airline industry (a la carte pricing, basically everything the consumer is complaining about nowadays). I was curious as to different perspectives regarding this.

Is the consumer at fault for unrealistic expectations regarding ticket prices?

Is the management at fault for creating these expectations?

Ideally, I envision this evolving into a mega-thread where people share their viewpoints on trends in the airline industry, past, present, and future.

A couple of talking points between my mother and I that were interesting, and that might spur discussion in here.

-How have ticket prices changed over the years (adjusted for inflation)?
-How has the VALUE of a ticket changed over time (i.e. what do we get for what we pay then vs. now)?
-What role has deregulation played in this?
-Who are the main players regarding the current industry "problems" (high costs, low revenue etc...)?
-What are the ways out?

Obviously, this is generally geared at the issues in the United States, but I'd love to hear about issues in other parts of the world.

Suffice it to say, this is a very broad topic, and can go whichever way we want to take it. I'd love to hear perspectives from both average consumers (what is important to you when buying a ticket?) and management (what efforts were/are being taken to increase profits/reduce costs?), related to different time periods.

Honestly, anything goes as far as I'm concerned (not sure what the mods will think about this!  ), but as always, remember that opinions will differ, and to keep it respectful.

I'm just trying to learn more about the industry I love so dearly.

Thanks!   

Cheers,
Cameron

16 replies: All unread, jump to last
 
User currently offlineDCA-ROCguy From United States of America, joined Apr 2000, 4488 posts, RR: 33
Reply 1, posted (4 years 1 month 3 days 20 hours ago) and read 3128 times:

Dear Cameron,

Essentially, you have offered this week's version of the Deregulation thread, with some good questions thrown in to help frame and direct the discussion. Deregulation is, IMO, really the issue in discussions of the direction of the industry. The responses will boil down essentially to these:

--Consumers who would like, or if they were around then, liked, regulation. These folks prefer a smaller, more government-protected industry that caters more to the convenience of better-heeled travelers. A few complain about families on planes for good measure. This group generally was happy with higher ticket prices and a more limited clientele on their planes. They would prefer a higher fare and many things that are now a-la-carte be included in the ticket price.

--Consumers who like Deregulation (me). These folks prefer a larger, more free-market industry where all the parties involved help set the costs and value of the industry, more people can afford to fly, and problems like congestion, etc., are very much worth the benefits. We tend to believe that the market should set the prices, and that there is no such thing as "unrealistic consumer expectations" regarding fares. It's management's job to set fares; if anyone thinks fares are too low, talk to them or investors. And write the airline a check, or use PayPal, to give them some extra money to meet the higher price you think you should pay. We seem to have various perspectives on a-la-carte pricing; some people are OK with paying for some things that way, others think more things can economically be included.

--Union airline employees who would like regulation restored in some form, because in the government-protected system the market did not value either the cost of tickets or much affect the compensation of employees. Some of them will refer to the government-protected regulation system as "the cost of flying," when in fact that proposition is very dependent upon how the industry is being valuated. They may think "passengers don't pay the cost of flying," and may argue that consumer expectations about fares are unrealistic. Some lament what they see as a harmful effect of LCC's for good measure.

--Folks with happy memories of all the cool old airlines, planes, and airport terminals (that would be me too, though I was a child when Deregulation happened). I always enjoy some memories thrown into these threads! There's always plenty of controversy, so some fun is welcome. Who here remembers United's 70's stars livery?  

I may have missed some of the regular arguments, but after participation in the weekly deregulation threads for many years now, I think these categories will more or less describe many of the responses you'll get.

Jim

[Edited 2010-06-22 21:19:59]

User currently offlinethegreatRDU From United States of America, joined Mar 2006, 2310 posts, RR: 4
Reply 2, posted (4 years 1 month 3 days 20 hours ago) and read 3107 times:

Quoting Longhornmaniac (Thread starter):
-Who are the main players regarding the current industry "problems" (high costs, low revenue etc...)?

-Definetly unions i'm not trying to bash but let's look at it for what it is....example AA's AFA FAs, they want their pay back to 2003 levels how is that feasible given the current state of the industry?
If the airlines break some of the unions the future will get brighter...
-Senseless government regulation...this guy Ray LaHood is a nutcase... a peanut free zone?
Quoting Longhornmaniac (Thread starter):
Is the consumer at fault for unrealistic expectations regarding ticket prices?

Of course no doubt...part of it is mostly the leisure travelers flying once or twice a year....you see it all the time on tv...think (Kate Hanni) maybe they should just stick to WN and B6   
The typical shuttler business traveler has a set of different expectations that are more sensible....
The airlines job is to get you from A to B safely and on time...
"You don't walk into a McDonald's expecting a filet mignon."- Ben Baldanza
"You payed €10 for your ticket go away....no we don't care if your grammy died non refundable is non refundable."- MOL



Our Returning Champion
User currently offlineflyfree727 From United States of America, joined Jul 2007, 657 posts, RR: 0
Reply 3, posted (4 years 1 month 3 days 19 hours ago) and read 3077 times:

Quoting thegreatRDU (Reply 2):
-Definetly unions i'm not trying to bash but let's look at it for what it is....example AA's AFA FAs

Its APFA F/As

AA ORD


User currently offlinethefuture From , joined Dec 1969, posts, RR:
Reply 4, posted (4 years 1 month 3 days 19 hours ago) and read 3060 times:

Obviously, from looking at those airlines who are making profits & those that aren't, the future looks like ...

RYANAIR
maybe EASYJET
AIR ASIA
AIR ASIA X
SOUTHWEST
ALLEGIANT
JETBLUE
AIRTRAN
TIGER
JETSTAR
EMIRATES (1000 seater A380's)
ETIHAD

& who else ?


User currently offlineBurkhard From Germany, joined Nov 2006, 4384 posts, RR: 2
Reply 5, posted (4 years 1 month 3 days 18 hours ago) and read 2997 times:

Let me discuss from a pax situation here in Germany.

There are three types of passengers:
a) passengers who get their tickets fully paid by their employers because they fly for doing their job.
b) passengers, mostly self employed, who can subtract ticket costs from income tax as dispense, so basically get 50% of their ticket paid by the tax payer
c) passengers who pay their ticket themselves, without get anything back - typical for private flying.

And there is a special case of passenger who fly a) and or b) and can use miles for c).

Discussing a):
My employer has a contract with one travel agency, which does all ticket booking. In this contract they are obliged to book the cheapest ticket within 24 hours time frame. If this means FR I will get an FR ticket. I can book a ticket myself - in this case the agency will check the cheapest price, and I will get the cheapest price minus a fee - not more.
If I get miles through a flight done for my employer, I'm not allowed to use them for anything but another flight for the employer. Usage of miles for private purposes is considered a theft and will lead to being fired immediately. In addition, using miles obtained as a benefit from the employer for private purpose without declaring them prior in the tax declaration is considered a tax crime hereover. If the employer would allow private usage of the miles, all employees would have to tax the miles as a "geldwerter Vorteil" - even if they never use them.
In this role, I prefer all inclusive prices and don't mind if it is 10€ more - basically because the coffee in this case is paid by my employer. Inside Europe, the agency is going to ensure though that it is likely without coffee included.

Discussing b):
Again, this group does not mind ticket prices too much, as long as they are all inclusive. If a coffee on board costs 3€, they are happy the ticket is 5€ more, because the tax payer pays €2.50 of it - and will not pay them the coffee. b) and also a) even prefer better classes - this is a luxary they get from their employer resp. the tax payer they do not have to tax - in the end most economic decisions just are based on the question "how can I get a personal advantage and avoid to pay taxes for it".

Discussing c):
This is the only group that is really price sensitive. This sensitivity does not start at ticket purchse, it starts at travel planning. I ask the question: How much am I willing to spend for this journey/visit/vacation. Then I check for available ticket prices, accomendation, other costs, add it up, and compare the expected cost with what I'm willing to pay. Then there is a yes/no decision - or an optimisation process if timing can be changed. So it is not that I buy the cheapest ticket - I decide IF I go or not based on serveral inputs, ticket prices as one important of them. Practically none of the flights I made on FR ( or on LH with €99 tickets ) I would have made with full fare tickets.


User currently offlineNorthstarBoy From United States of America, joined Jun 2005, 1825 posts, RR: 0
Reply 6, posted (4 years 1 month 3 days 13 hours ago) and read 2927 times:
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to put things in perspective cost wise:

If i bought a plane ticket for 350 dollars in 1997 i got:
The seat of my choice, assuming i booked far enough in advance
Dinner
two free bags

For the same 350 dollars today i get:
A seat

If i want dinner i pay 7 dollars, if i want to check my bag i pay 25 dollars, and if i want a seat that not at the back of the bus on some airlines i pay 30 dollars, so, i'm paying 412 dollars for the same service i paid 350 dollars for in 1997.



Why are people so against low yields?! If lower yields means more people can travel abroad, i'm all for it
User currently offlinemariner From New Zealand, joined Nov 2001, 25004 posts, RR: 85
Reply 7, posted (4 years 1 month 3 days 13 hours ago) and read 2922 times:
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Quoting thegreatRDU (Reply 2):
Of course no doubt...part of it is mostly the leisure travelers flying once or twice a year.

No airline has to chase those passengers.

mariner



aeternum nauta
User currently offlinemovingtin From United States of America, joined Oct 2006, 183 posts, RR: 0
Reply 8, posted (4 years 1 month 3 days 13 hours ago) and read 2919 times:

Quoting NorthstarBoy (Reply 6):
to put things in perspective cost wise:

and how much did your house cost in 97? your car? gas?
Is your salary the same as 97?

why shouldn't an airline charge more 13 years later? are they somehow exempt from inflation?

Why should airline employees be required to work for 97 wages to support your tickets at 97 prices!

in reality your $350 ticket should be $550+, So $412 is a bargain!!


User currently offlinejerseyguy From United States of America, joined Oct 2005, 1951 posts, RR: 0
Reply 9, posted (4 years 1 month 3 days 10 hours ago) and read 2868 times:
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Quoting movingtin (Reply 8):
in reality your $350 ticket should be $550+, So $412 is a bargain!!

the $350 ticket with inflation really cost you $465 in todays money. So while $412 is a deal lets not over do it with $550+

[Edited 2010-06-23 06:23:48]


Frontier Early Returns Ascent Status| Webmaster of an unoffical TTN page see profile for details
User currently offlinePSU.DTW.SCE From United States of America, joined Jan 2002, 7521 posts, RR: 28
Reply 10, posted (4 years 1 month 3 days 10 hours ago) and read 2856 times:

Quoting NorthstarBoy (Reply 6):
If i bought a plane ticket for 350 dollars in 1997 i got:
The seat of my choice, assuming i booked far enough in advance
Dinner
two free bags

For the same 350 dollars today i get:
A seat

In 1997 I remember paying $500-$600 to fly DTW-DEN roundtrip.
In 2010 I paid $280 to fly DTW-DEN roundtrip.


User currently offlinejerseyguy From United States of America, joined Oct 2005, 1951 posts, RR: 0
Reply 11, posted (4 years 1 month 3 days 10 hours ago) and read 2829 times:
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Quoting PSU.DTW.SCE (Reply 10):
In 1997 I remember paying $500-$600 to fly DTW-DEN roundtrip.
In 2010 I paid $280 to fly DTW-DEN roundtrip.

In order to evaluate that we need to know in 1997 was $500-600 the cheapest price from DTW-DEN, was it a same day trip. How far in advance was your 1997 trip and how far in advance was your 2010 trip?



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User currently offlinethegreatRDU From United States of America, joined Mar 2006, 2310 posts, RR: 4
Reply 12, posted (4 years 1 month 3 days 9 hours ago) and read 2787 times:

Quoting mariner (Reply 7):
Quoting thegreatRDU (Reply 2):
Of course no doubt...part of it is mostly the leisure travelers flying once or twice a year.

No airline has to chase those passengers.

They don't...when's the last time you saw an AA commercial with vacationers?



Our Returning Champion
User currently offlineDCA-ROCguy From United States of America, joined Apr 2000, 4488 posts, RR: 33
Reply 13, posted (4 years 1 month 3 days 6 hours ago) and read 2748 times:

Cameron, I gave my own speech but never directly answered your questions.   FWIW, here's how I see them:

-How have ticket prices changed over the years (adjusted for inflation)? --Everything I have read indicates that they have dropped substantially, adjusted for inflation.

-How has the VALUE of a ticket changed over time (i.e. what do we get for what we pay then vs. now)? --I'd be interested to see studies, but IMO I would say the value is better. We don't get as many included benefits like hot meals, magazines and newspapers, etc., but we are getting the most important thing, what ThegreatRDU mentioned: getting from point A to point B safely and reliably.

That costs less, adjusted for inflation, than it used to, and that's improved value. Those who want to pay more and fly first class are free to do so, and fortunately legacies seem to be accommodating this market with more regional a/c with first class.

-What role has deregulation played in this? --Well, I did answer that question.  -Who are the main players regarding the current industry "problems" (high costs, low revenue etc...)? I would say the main problems are the 1) weakness of major economies; 2) the volatility of oil prices; 3) infrastructure-limits due to NIMBY's and finances, and 4) (in Europe) increased taxation due to environmental extremism.

1) I suspect that the current economic crisis is actually a restructuring, and austerity will be the name of the game for a much bigger percentage of the business traveling clientele on an ongoing basis. Airlines will need to structure their costs to accommodate this reality.

2) Oil prices are oil prices. Nothing airlines can do about oil-price volatility except plan as best they can for it. I for one doubt that oil prices can possibly be sustained at any level at any level above $85 /bbl or so for any length of time, because the world's economies will simply discipline them through contraction, as they did in 2008. I've never been able to prove it, but the sudden sucking of hundreds of billions of dollars from more-developed economies in the 2008 oil spike surely must have helped bring on the economic crisis.

3) Airlines seem to accommodate themselves to infrastructure issues, but those major markets that can actually add capacity or have several parallel runways will be long-term hub winners. ORD's finally getting even one of the projected new runways is already helping. DTW, MSP, ATL, DFW, DEN, IAH are likely long-term hub winners. In Europe, LHR, IMO, will see bleed as enviro-extremism and NIMBYs will prevent a third runway. FRA, AMS, CDG and MAD will be long-term growth hubs.

4) Environmental extremism (by that I mean going beyond covering costs to actual ideological attacks on air travel) doesn't seem to be a problem in the US, but in Europe it seems to be a real issue, and airlines probably need to plan for a certain amount of cost burden. The market will probably discipline the cost burden to some extent with enplanement drops if taxes get too high.

-What are the ways out? I'm not sure, but have some suggestions for the USA.
--Legacies need to get used to moderate business / walkup-fare yields, and moderate-low yields, on domestic travel (with very few exceptions like JFK-LAX PS service, etc.). Good Y+ will be more important, though. UA's got the right idea, as does WN with its pay-for-early-boarding feature for business travelers.

Higher yields are, as is widely known, to be found on transoceanic. I don't think we're going to see a big push by Ryanair or Southwest on transoceanic, however much they talk about it. I don't know how their cost structures would deal with it. An international product that is competitive with Europeans and Asians is vital for US legacies. The proportion of Y/ Y+ and J will probably be higher, though, and F lower, than it was in the last decade. A good Y+ product for business travelers will be increasingly important, IMO.

--Hedge now. $70-$85/ bbl is probably life from now on, get what you can. The blessed drop into the high 50's last winter (or was it the winter before? time flies) was a nice break but it probably won't be a norm.

--Lobby hard regarding infrastructure and taxes. To paraphrase Scripture, cash-strapped governments are like a roaring lion looking for revenue to devour. Canada already unfairly uses aviation as a cash cow. I wouldn't put it beyond the crisis-debt-laden US or its state and local gov'ts to try to do so at some point. They are desperate.

--Employee unions need to adjust to the reality that the productivity and compensation levels of the regulation era, or even pre-2003-2005 restructuring, are not coming back. This is why I do not list labor as a major problem--the US legacies (excepting AA who didn't go to court) have gotten the adjustments they can reasonably expect and have hope of profit.

It is reasonable to want minimal raises from the current general levels, and unions will probably get them, but the economic structures of both the industry and the world have changed. The jury is very much out about negotiations at various carriers in the next few years. But any union that tries a strike will likely find its carrier will need to shut down, and IMO fairly quickly.

On a personal note, and I haven't seen DOT numbers, fares seem to me to be up dramatically this year. From the very competitive DC market, with three airports, no one dominant legacy, and lots of LCC competition, I'm paying anywhere from 20-50 percent more on most routes this year than in 2009--and that's before fees.

Jim

[Edited 2010-06-23 11:07:37]

User currently offlineMD-90 From United States of America, joined Jan 2000, 8502 posts, RR: 12
Reply 14, posted (4 years 1 month 3 days 6 hours ago) and read 2722 times:

Quoting Burkhard (Reply 5):
b) passengers, mostly self employed, who can subtract ticket costs from income tax as dispense, so basically get 50% of their ticket paid by the tax payer

This attitude regarding taxes seems strange to this American. Saving 50% on an airline ticket because it's a tax deduction for your work to me is not a subsidy by Euro taxpayers. That viewpoint seems to be saying that the state owns all wealth, owns its citizens, and when an individual gets a tax break, he's subsidized by the state.

I believe it's far freer and much healthier to regard your income as your own, and to take advantage of every tax break possible. You know how to spend your own money better than the state knows how to spend it on others.

Other than that I totally agree with your post, Burkhard.


User currently offlineFlyDeltaJets87 From , joined Dec 1969, posts, RR:
Reply 15, posted (4 years 1 month 3 days 5 hours ago) and read 2708 times:

Quoting Longhornmaniac (Thread starter):
-How has the VALUE of a ticket changed over time (i.e. what do we get for what we pay then vs. now)?

I think price has become so important in the decision to buy an airline ticket because to the average consumer, flying DL is no different than UA, US, etc. You get the same lousy seat in Y, a small beverage, and a bag of peanuts. The hard products are virtually identical. So if the products are the same in the consumer's eyes, what becomes the deciding factor? Price. Why pay $200 more for the same product? To say consumers only decide on price is simply not true. If it were true, everyone would eat off the McDonald's and Taco Bell Value menus. Yet there are a wide variety of restaurants, that cater to a wide range of customers offering varying levels of service and food quality for varying price. I believe there is a market for airlines that are willing to provide a little more service at a higher fare. The catch is that this airline won't be as large as the execs want it to be. Many airlines now have a hybrid, with almost a 4 class product - First, Business, Y-Plus, and Y, with Y-Plus meaning everything from just additional seat space (such as UA's Economy Plus or JetBlue's seats with more legroom up front) to a different service level than the standard Y cabin. I can say, that as someone who is 6'4, I have been grateful to pay the additional $$$ per leg when possible to get more legroom.

The other thing - airlines are more concerned with market share than with profit. Airlines don't seem to understand that the two are not always directly related, and that you can have a huge piece of the market share and still operate at a loss.

My    for now.


User currently offlinemariner From New Zealand, joined Nov 2001, 25004 posts, RR: 85
Reply 16, posted (4 years 1 month 3 days 5 hours ago) and read 2689 times:
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Quoting thegreatRDU (Reply 12):
They don't...when's the last time you saw an AA commercial with vacationers?

Theu don't need commercials. They chase them by having the low fares available, because they want to fill the seats on the plane.

Fewer seats - higher fares.

mariner



aeternum nauta
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