Airline Pricing Compared To Other Modes Of Travel

skyguyB727 · Sat Oct 06, 2007 8:17 am

After looking at the following real life scenario, it's not hard to understand why airlines are often unprofitable.

All information is current as of 04 October, 2007.

Crude oil price: $81.44 (source: www.wtrg.com)

Cost to travel one way from Detroit, MI to Orlando, FL:
--Amtrak: $124 with bus and transfer at Toledo and Washington, DC (source: www.amtrak.com)
--Amtrak: $151 with transfer at Chicago and Washington, DC (source: www.amtrak.com)
--Greyhound bus: $146 with two transfers (source: www.greyhound.com)
--Various airlines: $59 (source: airline reservation computer)

Travel times for the various means of transportation are:
--Train: 41 hours
--Bus: 29 hours
--Plane: 2.5 hours

Factored for inflation, the current $59 airfare would have been approximately $33.22 in 1987 (source: www.oregonstate.edu). Anyone can easily see how unrealistic such a pricing structure is.

dstc47 · Sat Oct 06, 2007 8:52 am

Not necessarily.

While it is indeed true that operating an airline has been a good way to lose money in many countries and periods, train and (less so) bus operators have not been stellar successes either. I think it was Warren Buffet who said that the Wright Brothers had done a great deal of damage to investors everywhere.

The keys to airline profitability can be seen in the balance between costs and revenues, and several differing mixes can ensure that. Singapore airlines and Ryanair are very different, but both are profitable. SQ offered me a fare to Australia last year, where the per mile cost was lower than the per mile cost of the city bus operator here - which is lightly subsidised. In case you doubt it, there is no meal service or AVOD on the bus.

AlexPorter · Sat Oct 06, 2007 10:32 am

Quoting SkyguyB727 (Thread starter):
Factored for inflation, the current $59 airfare would have been approximately $33.22 in 1987

Interesting comparison, but what does 1987 inflation have to do with anything? Just wondering because I couldn't find out why you did the inflation thing.

Leskova · Sat Oct 06, 2007 2:40 pm

The comparison isn't all that reaslistic - not sure how the Greyhound and Amtrak pricing structures look, but if I recall correctly, the first to last seat will usually cost the same.

That is not the case for airlines.

While you'll get the first couple of seats at that low price you mentioned, the last couple of seats will be far more expensive. Some will pay those $89, some will pay somewhere between $100 and $200, the next couple of people might already pay around $300, and some might end up paying $500 or more, for the same seat on the same flight.

It's a mixed calculation - sure, the lowest fares will normally not be profitable, but if customers didn't at least have the (often completely unrealistic) impression that they'll always be able to fly for less than $100, they'd start looking at alternatives more seriously.

EXAAUADL · Sat Oct 06, 2007 2:50 pm

I think both greyhound and amtrack use revenue management systems so the first and last seats do not cosgt the same...also dotn forget if you get a berth on a train that is like a hotel room, so you pay for that too

Clipper136 · Sat Oct 06, 2007 4:00 pm

Quoting SkyguyB727 (Thread starter):
Factored for inflation, the current $59 airfare would have been approximately $33.22 in 1987 (source: www.oregonstate.edu). Anyone can easily see how unrealistic such a pricing structure is.

For the airline business the reverse is true.

Because of Deregulation and increased "open market" competition, the cost of air travel has gone down considerably in most markets.

Using your own example.

If you want to take a train, you have only one choice - Amtrak
If you want to take a bus, you have only one choice - Greyhound

Both of which are Government Subsidised forms of transportation.

If you want to fly you have 4 different air carriers with direct service, and several others with indirect service.

Do the trains and busses compete with the airlines?? On shorter routes, Yes (i.e BOS-NYC, WAS-NYC)
But not on longer routes like DET-ORL. The Bus has 50?? seats, the train 150?? seats. The direct flights have 1200?? seats.

AsstChiefMark · Sat Oct 06, 2007 4:21 pm

You can buy a nationwide 30 day pass on Amtrak for $469.00 (non-US citizens) and $709.00 (US citizens). Thirty days of continuous travel anywhere in the contiguous states. I dare you to find an airline that can beat that.

futurecaptain · Sat Oct 06, 2007 5:43 pm

Detroit, MI - Orlando, FL.
1162.59 miles driving according to mapquest.
I get 37mpg highway.
31.4 gal of gas @ $3/gal.
Drive myself the distance for $95 and don't have to rent a car when I get there. Smile

18 hours driving.

Tango-Bravo · Sat Oct 06, 2007 5:55 pm

Quoting Futurecaptain (Reply 7):
Drive myself the distance for $95 and don't have to rent a car when I get there.
18 hours driving.

And given the non-reliablity of airline schedules in the U.S., there is an all-too-real possibility that the drive from Detroit to Orlando may take no more time overall -- perhaps even less -- than it will take to fly the same distance Wink

FreequentFlier · Sat Oct 06, 2007 5:59 pm

The joke, "How do you become a millionaire? Start with a billion dollars and invest in airlines" seems appropriate here.

Viscount724 · Sat Oct 06, 2007 11:24 pm

Quoting Clipper136 (Reply 5):
Because of Deregulation and increased "open market" competition, the cost of air travel has gone down considerably in most markets.

The service has also gone down considerably which means major cost reductions. Before deregulation even many 1-hour flights had full meal service and almost all fllights had about twice as many flight attendants as on the typical US domestic flight today. And as others have mentioned, it's highly unlikely every seat on your flight is being sold at $59. On major carriers, there are probably as many if not more seats sold at $500. But $59 is better than am empty seat.

Quoting Futurecaptain (Reply 7):
Detroit, MI - Orlando, FL.
1162.59 miles driving according to mapquest.
I get 37mpg highway.
31.4 gal of gas @ $3/gal.
Drive myself the distance for $95 and don't have to rent a car when I get there.
18 hours driving.

Gas isn't the only cost of driving. Wear and tear on your car and resulting increased repair costs (tires, brakes etc.) have to be considered.

[Edited 2007-10-06 16:51:35]

AlexPorter · Sat Oct 06, 2007 11:46 pm

Just a comparison here: October 30 - November 6, Phoenix to Minneapolis
Airfares: $281 r/t n/s, on either Northwest, US Airways, or Sun Country, who seem to have matched their fares on these particular days. All one-stop or more itineraries cost more.
Bus: $148 r/t on Greyhound, transfer in Tulsa on the outbound leg, and in Oklahoma City on the return.
Train: Trip not possible, at least not without overnighting in Chicago or doing some circuitous route up the west coast. Amtrak isn't very direct in the west except in California, maybe.

Driving in a 2000 Ford Taurus will cost
1856 miles with 25 mpg highway uses 74 gallons of gas, at $2.77/gallon (national avg) costs $205, plus two nights of hotel cost a minimum of $77, probably with tax on it it's more like $85, which all adds up to $290.

In this particular case, the bus is the cheapest. It's also probably the worst service - the airlines get you there fast and at least sell you food, while in the car you can go where you want and eat when you want, but on the bus you just sit there, and try to get food in whatever town they stop in for ten minutes. I've never taken Greyhound, but my mom has a horror story from when she took it from Minneapolis to Phoenix back in 1983. I'm sure things have changed a bit since then, but I can't imagine that service is very high.

grantcv · Sun Oct 07, 2007 12:20 am

Just for comparison, in 1985 I went home to Cleveland for Christmas - my first Christmas where I lived away from my family, The best roundtrip fare i could find was $368. Last year, 21 years later, it cost me $348. I don't know of any other expense that is cheaper now than back in 1985.

AlexPorter · Sun Oct 07, 2007 5:13 am

Quoting AlexPorter (Reply 11):
Driving in a 2000 Ford Taurus will cost
1856 miles with 25 mpg highway uses 74 gallons of gas, at $2.77/gallon (national avg) costs $205, plus two nights of hotel cost a minimum of $77, probably with tax on it it's more like $85, which all adds up to $290.

Whoops, I did this wrong earlier. This is a one-way price. A round trip is actually like $580 for the car, $281 for the flight, and $148 for the bus.

Of course, the price for the car is total and gets reduced when traveling with others who can split the cost. With flying or taking the bus, those prices are per person. So, driving is only cheaper than flying when traveling in a group of at least three, and only cheaper than the bus when traveling in a group of four.

737DAB320 · Sun Oct 07, 2007 5:18 am

Quoting Grantcv (Reply 12):
Just for comparison, in 1985 I went home to Cleveland for Christmas - my first Christmas where I lived away from my family, The best roundtrip fare i could find was $368. Last year, 21 years later, it cost me $348. I don't know of any other expense that is cheaper now than back in 1985.

wow...you must have a pretty good memory to remember the exact price for a ticket you paid 21 years ago.

jbernie · Sun Oct 07, 2007 6:04 am

Personally the real life scenario doesn't factor in the "cost" to the traveler when the journey takes so much longer by the non airline modes. Given many people in the USA dont have paid vacations or have limited amounts of it in comparison to many countries, the cost of the travel can also need to include potential loss of income for one or more days travel.

In 02 i needed to travel to south Texas from Denver with my partner for a friends wedding. We did cost comparison of air travel vs driving. I worked at a company that provided decent vacation time, my partner had 10 days per year. Factoring in a good 3 days of driving time round trip plus time at the wedding and events, we decided that the overall cost of flying to Austin and driving to San Antonio was the best option. We then enjoyed an extra day in San Antonio and reduced the trip by two days.

Obviously we all have different priorities, but unless you are travelling a short distance or the speed of journey is not a factor, the time reduction for flying is a big factor. Unless of course the bus or train is the only real way to get to your destination

skyguyB727 · Sun Oct 07, 2007 8:15 am

Quoting Grantcv (Reply 12):
Just for comparison, in 1985 I went home to Cleveland for Christmas - my first Christmas where I lived away from my family, The best roundtrip fare i could find was $368. Last year, 21 years later, it cost me $348. I don't know of any other expense that is cheaper now than back in 1985.

That was my whole point in factoring the airfare for inflation. Several published reports have said that, factored for inflation, airfares are approximately 50% lower now than they were 20 years ago.