Even with Fees, The Miracle of Flight Still a Bargain

Great post by Mark Perry of "Carpe Diem"

WALL STREET JOURNAL -- "Structurally, the airline business is capital-intensive, labor-intensive, highly leveraged and fiercely competitive. It is also vulnerable to external shocks, including terrorism, oil-price spikes, waning consumer confidence and high taxes. Even though the industry generates billions of dollars in annual revenue, it rarely is able to cover its huge expenses, much less show a decent return on invested capital.

Passengers love to accuse the airlines of gouging, and a dizzying array of fares adds to the outrage. A new raft of fees for better seats, expedited security lines and meals on board only makes passengers angrier. But airlines, caught between a steady decline in fares and rising costs, have no choice but to look for every nickel they can find. Passenger tickets now account for just 71% of U.S. airlines' total passenger revenue, down from 88% in 1990, according to the DOT. The rest comes from fees it charges for, among other things, reservation changes, standby service, checked luggage, in-flight food service and transporting pets."

MP: The chart above shows average annual U.S. airfares for domestic travel back to 1979 (data here), both with fees (blue line) and without fees (red line). Even with fees that averaged $21.66 last year for baggage ($13.78) and reservation charges ($7.88), the average total fare of $337.97 in 2010 was 43% below the 1980 peak of $592.55, and 16% below the $401.27 average fare in 2000. Without fees, the average fare of $292.25 in 2009 was the lowest average annual airfare in history. In 2010, the average airfare without fees of $316.31 was below the 2008 average of $323.32 and about the same as the average in the years from 2004-2007, so inflation-adjusted airfares have been basically flat for the last 7 years or so.



As much as consumers complain about rising fees for baggage and other services, the "miracle of flight" is still close to the lowest cost in history, and travelers today are getting a great bargain, especially when compared to the fares of the 1980s and 1990s. Considering that the average flier today is saving about $200 per flight compared to the average cost during the 1980s, those average baggage fees of $14 don't seem so bad.



Update: As Jet Beagle pointed out in the comments, the average miles flown per round-trip journey has increased by more than 20% over the last 30 years (data here), from 1,947 miles in 1980 to an all-time high of 2,345 miles in 2010. Therefore, the cost-per-mile traveled has gone down even more than the 43% reduction in the average air fare since 1980. The chart below shows the downward trend in real cost per mile traveled, and compared to 1980 ($0.2878 per mile), the cost in 2010 was 50% cheaper ($0.1441 per mile).