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US air fares still a bargain, despite increases. The 'lost decade' for US airlines

29-Jul-2010
ATA President and CEO, James May
ATA President and CEO, James May

The US airline industry immediately responded to the Department of Transportation report that air fares are rising, saying they should be kept in perspective. It was a clear attempt to derail any more criticism being heaped on the industry at a time when mergers and fees have become the focus of much Washington ire.

The ATA statement came after the US Bureau of Transportation Statistics issued its first quarter fare report, saying average domestic air fares increased to the second highest January-to-March level since 2001, rising 4.7% from the first quarter of 2009. However, the ATA countered that saying while BTS data shows the average first-quarter domestic one-way fare in 2010 (net of taxes and fees) was USD154.91 and airfares did rise from 2009, fares have only returned to 1999 levels when the average one-way fare was USD153.88. Compared to 2008 pre-recession levels, fares grew only 0.4%, easily trailing the 2.3% jump in the US Consumer Price Index during that same period.

Positive sign for the economy

ATA President James May called it additional proof of the industry’s lost decade, adding that the industry encountered one crisis after another from the dot.com bust to 9/11, the oil price spikes and then the recession that closed out one of the worst decades on record. He said that airfares seemed to be stabilising.

“This is a positive sign for recovery, not just in the airline sector, but across the broader economy as well,” May said, further emphasizing that “today’s news about increasing fare levels should  be kept in perspective; not only are the airlines nowhere near recovering from devastating losses, airfares have not come close to keeping pace with inflation.”

May went on to explain. “Travelers certainly appreciate a bargain, and today’s airline customers are getting just that – a bargain,” he said. “They continue to benefit from low airfares, especially considering the rising costs of food, energy and other goods purchased by U.S. consumers. For airlines to add jobs and develop new and improved service, it is critically important that they return to profitability.”

Even BTS agreed noting the fluctuations in the last decade. It said the 5.6% decline in 1Q2010 air fares since 1Q2001, comes at the same time as an overall increase in consumer prices of 23.5% during that period. In the 15 years from 1995, the first year of BTS records, air fares rose 10.5% compared to a 43.7% inflation rate. In 1995 dollars, the average air fare in the first quarter of 2010 was USD228, compared to USD297 in 1995 and USD301 in 2000.

May was reiterating what US Airways President Scott Kirby said during a recent speech. Airline fares are the best bargains out there. If you compared the fares from 1980, today’s fares are about 55% below where they were in 1980 in real terms. 

Still that is unlikely to stop the headlines and howling that airlines are charging too much, something the entire industry – and BTS – would rebut with gusto.

BTS, a part of the Research and Innovative Technology Administration, reports average fares based on domestic itinerary fares, round-trip or one-way for which no return is purchased. Fares are based on the total ticket value which consists of the price charged by the airlines plus any additional taxes and fees levied by an outside entity at the time of purchase. Fares include only the price paid at the time of the ticket purchase and do not include other fees, such as baggage fees, paid at the airport or onboard the aircraft. Averages do not include frequent-flyer or “zero fares” or a few abnormally high reported fares.

The USD328 first-quarter 2010 average fare was down 8.3% from the all-time high, not inflation-adjusted, of USD358 in the third quarter of 2008. Adjusted for inflation, 1Q2010 fares were down 25% from 1999, the inflation-adjusted high for any first quarter since 1995. The 1Q2010 average fares were up 8.9% from the post-9/11 fourth quarter low of USD301.39 in 2005. BTS air fare records reach back to 1995.

One interesting note is the impact of the Frontier-Southwest-AirTran competition at Milwaukee which drove fares down 16%.

1st Quarter Average Fares 1995-2010 Compared to Inflation Rate

 

Average Domestic 1Q Fares ($)

Percent change from previous year

Percent change from 1995

Average Fares (1Q to 1Q)

Inflation (Mar from previous Mar)*

Cumulative Average Fares (1Q 1995 to 1Q of each year)

Cumulative inflation rate (Mar of each year from Mar 1995)*

Average Fare in 1995 dollars

1995

297

       

297

1996

284

-4.4

2.8

-4.4

2.8

276

1997

283

-0.2

2.8

-4.5

5.7

268

1998

305

7.5

1.4

2.6

7.1

284

1999

332

8.9

1.7

11.7

9.0

304

2000

340

2.6

3.8

14.6

13.1

301

2001

348

2.2

2.9

17.1

16.4

299

2002

320

-8.0

1.5

7.8

18.1

271

2003

319

-0.3

3.0

7.5

21.7

262

2004

320

0.3

1.7

7.9

23.8

259

2005

301

-5.9

3.1

1.5

27.7

236

2006

323

7.3

3.4

8.9

32.0

245

2007

318

-1.7

2.8

7.1

35.6

234

2008

333

4.9

4.0

12.3

41.0

236

2009

313

-6.0

-0.4

5.5

40.5

223

2010

328

4.7

2.3

10.5

43.7

228

Quarterly Change in Average Domestic Airline Fares: Percent Change by Quarter

 

Average Domestic Fares

Avg Fare* ($)

Pct. Change from Previous Quarter

2Q 2008

346

3.8

3Q 2008

358

3.4

4Q 2008

345

-3.7

1Q 2009

313

-9.1

2Q 2009

301

-3.8

3Q 2009

306

1.7

4Q 2009

319

4.2

1Q 2010

328

2.8

Highest and Lowest US Domestic Average Itinerary Fares 1st Quarter 2010: Top 100 Airports* Based on 2009 U.S. Originating Domestic Passengers

Rank

Origin

1st Quarter 2010 ($)

 

Highest Average Fares

 

1

Huntsville, AL

500

2

Charleston, SC

443

3

Knoxville TN

441

4

Memphis, TN

433

5

Newark-Liberty, NJ

423

 

Average Fare at All Airports

328

 

Lowest Average Fares

 

1

Atlantic City, NJ

188

2

Long Beach, CA

208

3

Burbank/Glendale/Pasadena, CA

241

4

Orlando, FL

245

5

Dallas Love, TX

248

Top 5 Increases/Smallest Decreases and Top 5 Decreases in US Domestic Average Itinerary Fare, 2009-2010: Top 100 Airports* Based on 2009 U.S. Originating Domestic Passengers

Rank

Origin

1st Quarter 2009 ($)

1st Quarter 2010 ($)

Percent Change

 

Largest Increases/Smallest Decreases

     

1

Charleston, SC

382

443

16.1

2

Detroit, MI

300

349

16.0

3

Manchester, NH

279

323

15.7

4

Atlantic City, NJ

163

188

15.2

5

Albany, NY

315

361

14.6

 

Average Fare at All Airports

313

328

4.7

 

Largest Decreases

     

1

Milwaukee, WI

300

250

-16.6

2

Cincinnati, OH

446

404

-9.3

3

Des Moines, IA

403

388

-3.8

4

Boston, MA

342

332

-3.0

5

Grand Rapids, MI

418

406

-2.9

Top 5 US Domestic Average Itinerary Fare Increases and Decreases, 2001-2010: Top 100 Airports* Based on 2009 U.S. Originating Domestic Passengers

Rank

Origin

1st Quarter 2001 ($)

1st Quarter 2010 ($)

Percent Change

 

Largest Increases

     

1

Dallas Love, TX

189

248

31.7

2

Lubbock, TX

230

302

31.6

3

Burbank/Glendale/Pasadena, CA

185

241

30.6

4

Reno, NV

223

288

29.1

5

Houston Hobby, TX

219

275

25.2

 

Average Fare at All Airports

348

328

-5.6

 

Largest Decreases

     

1

White Plains, NY

606

291

-51.9

2

Denver, CO

452

291

-35.8

3

Long Beach, CA

321

208

-35.1

4

Milwaukee, WI

383

250

-34.5

5

Richmond, VA

494

326

-34.0

Percent Changes to 2010 in Domestic Average Itinerary Fares and the Inflation Rate* by Year Since 1995 (1st Quarter to 1st Quarter for fares; March to March for inflation)

Since 1st Quarter...

Duration in Years

Average 1Q Itinerary Fare ($)

1st Quarter 2010 Average Fare Compared to Previous Years (% change)

Inflation Rate to Mar 2010

2010

 

328

   

2009

1

313

4.7

2.3

2008

2

333

-1.6

1.9

2007

3

318

3.2

6.0

2006

4

323

1.5

8.9

2005

5

301

8.9

12.6

2004

6

320

2.5

16.1

2003

7

319

2.8

18.1

2002

8

320

2.5

21.7

2001

9

348

-5.6

23.5

2000

10

340

-3.6

27.1

1999

11

332

-1.1

31.9

1998

12

305

7.7

34.2

1997

13

283

15.8

36.0

1996

14

284

15.5

39.8

1995

15

297

10.5

43.7


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