 E-MAIL JOE
 PRINT
 2014 COLUMNS
 ARCHIVES
 SEARCH ARCHIVES
DON’T BELIEVE THE SPIN: FLYING COSTS ARE SKY HIGH By Joe Brancatelli May 8, 2014 --The airline industry's trade group wants you to believe airfares are plunging. A government data dump last month claimed fares may be 15 percent lower than 20 years ago. The truth, of course, is the exact opposite. The real price of flying has risen sharply since the dawn of deregulation and far outpaces the inflation rate of the last 40 years. Of course, we expect nothing less than obfuscation from Airlines for America, which thought a name change from Air Transport Association would fool flyers into thinking that the lobbying group is anything but a front for the interest of the nation's carriers. And, remember, Airlines for America is behind the Transparent Airfares Act, which every objective observer agrees would make prices more opaque and hide the real cost of flying from travelers. The government's data come from the reliable Bureau of Transportation Statistics (BTS), but suffer from outdated methodology that ignores the airline industry's relentless drive to strip products and services from the published airfare. In fact, a deeper dive into the BTS report claiming fares are lower than in 1995 reveals that it covers just 70 percent of the revenue airlines now derive from passengers. And a separate BTS study released on Monday says that airlines last year collected more than $6 billion in checked-luggage charges and ticket-change fees, which represents roughly half of the industry's 2013 operating profit. The "fare" you pay today isn't an accurate reflection of your true cost of flying. The airline industry doesn't even care about fares when making financial judgments. Airline executives rely instead on PRASM--passenger revenue per available seat--a statistical measure that more completely represents the total amount you now pay to fly. In fact, comparing today's stripped down "fare" to the all-inclusive "fare" of years past is a fool's errand. Airlines have hived upwards of a dozen items from the basic fare and now charge separately for them. Everything from a comfortable coach seat to an in-flight meal has been "unbundled" and is now sold a la carte. This paradigm shift has lately brought the airlines record profit, but it also masks the genuine cost of flying in 2014 and makes it nearly impossible to do apples-to-apples comparisons. To level the playing field and give business travelers a fair look at today's flight costs versus historic prices, I've put together a pair of charts. They adjust for inflation and show what you pay today for the same airline product a business traveler purchased in 1975. I chose a popular route, Los Angeles to Chicago's O'Hare Airport, because, then and now, it is a high-traffic market popular with both leisure and business fliers. Then and now, United and American Airlines dominate at O'Hare and have substantial flight operations at LAX. And the Los Angeles-Chicago market remains extremely competitive because Southwest Airlines flies nonstop between Los Angeles and its hub at Chicago's Midway Airport. Back in 1975, things were simple. All fares were refundable and bundled with a plethora of services. According to a contemporary edition of the OAG North American Edition, the cheapest unrestricted one-way flight on American Airlines cost $138 including taxes. Adjusted for inflation, that's the equivalent of $600 today. One perk included with today's prices that didn't exist in 1975 is frequent flier credit, so I added $28 to cover the value of the 1,745 American AAdvantage miles you'd earn today. Total cost of a 1975 unrestricted one-way fare in today's dollars: $628.
On Monday, the cheapest LAX-O'Hare one-way refundable fare sold by American Airlines was $508. But now come the extras. Want to book your ticket via American's call center, as you would have in 1975? That's a $25 charge. Want the kind of boarding privileges you'd get back in 1975? That's another $25. Back in 1975, American Airlines flew between Los Angeles and Chicago with widebody DC-10s and seats were wider with more legroom. To approximate the same comfort on the Boeing 737s that American flies today, you must pay $68 to book a seat in the Main Cabin Extra premium-economy section. An inflight meal was included in 1975's fare, but that'll cost you $10 today. Then there's luggage. In 1975, your $138 fare included two checked bags that could each weigh 70 pounds. Today, checked bags are an a la carte affair. The first is $25 and the second is $35. But those bags can't weigh more than 50 pounds. Want to check 1975's load? You'll also pay an excess-bag fee of $100 each. Add it all up and you come to $896. Simply put, you'll pay $896 today to approximate the full value you received in 1975 for an unrestricted coach flight between Los Angeles and Chicago. That's 30 percent more than the inflation-adjusted 1975 fare of $628. But let's fly on the cheap and see what happens. As you can see by chart two, the lowest fare in the Los Angeles-Chicago market on American in 1975 was $97 one-way based on a round-trip purchase. Add in the premium for frequent flier miles you receive today and adjust for nearly 40 years of inflation and you're talking about the 2014 equivalent of $450. What'll you pay today? Buy the same services unbundled from American that you received in 1975 and it's $867. Buy a partially bundled fare product that American calls Choice Plus and you'll pay $622. But subtract $14, the value of a mileage bonus you receive when you purchase a Choice Plus fare, and it's $608. That's still a 26 percent premium above the inflation-adjusted 1975 fare of $450. But there's an important caveat: 1975 fares, even the cheapest ones, were fully refundable. Today's cheapest fares aren't. Your only alternative is to spend another $50 or so to purchase trip-cancellation insurance from a third party--and even that doesn't guarantee a full refund. If you really want to finagle the numbers and get 2014's cheapest LAX-O'Hare price down, you can make your reservations online and save the $25 telephone-reservation fee. Keep your baggage to the new normal of 50 pounds and you can save the $200 excess-bag fee. On that bundled fare of $608, that brings you close to the 1975 inflation-adjusted price, but only assuming you ignore the nonrefundable nature of today's comparable tickets. Bottom line: As usual, never believe an airline or its deceptively named trade group when they claim they offer a bargain you haven't seen in 40 years. They're lying. And the government is still casting about for ways to make 1975's apples compare to 2014's oranges. NOTES ON THE CHARTS CHART ONE: In 1975, airfares were refundable, so this chart compares lowest available refundable fares then and now. The comparison is for a nonstop, one-way flight on June 16 between Los Angeles and Chicago/O'Hare on American Airlines. The 1975 fare was published in the OAG North American Edition. The current fare was available as of May 5 on AA.com. Unbundled fees are published on AA.com or flight-specific rates offered during the booking process. The 1975 fare included two checked bags that each could weigh 70 pounds. Current charges for checked bags are for 50 pounds; 70-pound bags incur a $100 excess-baggage fee. There were no frequent flyer programs in 1975, so I calculated the value of a mile at 1.6 cents since a restricted-award ticket between Los Angeles and Chicago costs 25,000 miles for a trip worth $408 roundtrip at current prices. The 335% inflation rate was calculated by InflationData.com. In 1975, American flew LAX-ORD with DC-10s. Today, it uses Boeing 737s. To match 1975's comfort levels on today's flights, passengers would have to purchase seats in AA's Main Cabin Extra. That's a $68 upcharge on this route. CHART TWO: The comparison between lowest available fares in 1975 and today is skewed because even the lowest fare in 1975 was refundable. Current lowest fares are nonrefundable. The fares listed are one-way based on a roundtrip purchase. The "unbundled" 2014 fare is American's "Choice" fare while the bundled price is American's "Choice Plus," which includes a free checked bag (50 pounds), priority boarding and waiver of ticket-change and same-day standby fees. Choice Plus fares also includes a 50 percent mileage bonus, which I have deducted from the bundled fare at the 1.6-cents-per-mile rate. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
ABOUT JOE BRANCATELLI Joe Brancatelli is a publication consultant, which means that he helps media companies start, fix and reposition newspapers, magazines and Web sites. He's also the former executive editor of Frequent Flyer and has been a consultant to or columnist for more business-travel and leisure-travel publishing operations than he can remember. He started his career as a business journalist and created JoeSentMe in the dark days after 9/11 while he was stranded in a hotel room in San Francisco. He lives on the Hudson River in the tourist town of Cold Spring. THE FINE PRINT This column is Copyright © 2014 American City Business Journals. All rights reserved. Reprinted with permission. JoeSentMe.com is Copyright © 2014 by Joe Brancatelli. All rights reserved. |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||