Seat 2B By Joe Brancatelli
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The Goldilocks Syndrome of Airfares
May 7, 2015 --How do you want your airfare news this week? Factual, truthful or delightfully anecdotal? It's the merry month of May, so how 'bout I give you everything.
Here's a fact: The U.S. government last week said that 2014's average airfare, $391, was down an eyebrow-raising 16.2 percent from the year 2000 inflation-adjusted high of $467. Another fact: the federal Bureau of Transportation Statistics reported inflation-adjusted fares have dropped 10.8 percent since 1995 as overall consumer prices have risen by 55.4 percent.
Now here's some truth: As I explained a year ago, comparing today's airfares to yesteryear's prices is a shell game. Airlines have stripped so many items from the basic price and so corrupted the coach travel experience that it's pointless to compare "fares." The government's own statistics prove it: In the third quarter of last year, airlines collected only 71.2 percent of their revenue from airfares compared to 87.6 percent in 1990. That 16.4-point gap is all about ancillary fees, which the government said added a startling $6.5 billion to the airfares we paid last year.
How much is $6.5 billion? Most of the U.S. airline industry's net profit in 2014, which the government pegged at $7.5 billion in 2014.
Now the anecdote: My father, a retailer whose business travel consisted of walking five New York City blocks to work every day, had an unbreakable rule whenever he asked me to help him plan a vacation: Anything more than $69 to fly to Florida was too much and a transcontinental flight to California could never cost more than $99 one-way.
The point of these facts, truths and paternal penny-pinching? The cost of flying is a slippery concept and, in the end, it all comes down to your personal mindset.
For lack of a better metaphor, call it the Goldilocks Syndrome. Only you can make the call on what's too much, too little or just the right amount to pay to fly. It's your money and how much of the porridge you're willing to fork over to airlines is the stuff of fairy tales. (Yes, you're better off using a spoon for porridge, but big picture, please...)
Still, I believe an informed Goldilocks not to mention business travelers with no locks at all makes better decisions, so here are some of the most useful bits of pricing porridge from the government's latest data dump.
The lowdown on high fees The mainstream media harps on baggage fees as the extra charge that dings fliers the most. But business travelers often avoid bag fees thanks to their elite status or credit card tied to their chosen carrier. And the government report showed that nearly half of the $6.5 billion in ancillary airline revenue comes from ticket-change fees. Most carriers charge around $200 for a domestic ticket change and $400 or more to change an international fare. The partial solution: Southwest Airlines doesn't charge change fees or, for that matter, fees for the first two pieces of checked luggage.
What we're paying for Energy and labor continue to be the two largest expense lines on airline balance sheets. Of the industry's $154.7 billion in operating expenses in 2014, $43.4 billion (28 percent) were oil charges and $40.8 billion (26.4 percent) involved labor. That 28 percent hit for oil is down substantially from the nearly 40 percent bite energy was taking when crude prices reached the all-time high of $147 a barrel in 2008. And the $43 billion spent is lower than what the airlines paid in 2011 and 2012, too. Meanwhile, if you're wondering why your prices on Southwest Airlines aren't as low as you remember, consider: the one-time "low-fare leader" now pays the highest wages among the major U.S. carriers. Nearly 35 percent of its costs are labor-related compared to approximately 25 percent at Delta, United and American airlines.
Cold comfort for Cincinnati For years, airfares to and from Cincinnati were the highest in the nation no thanks to the "fortress" hub maintained by Delta Air Lines in the Queen City. But as Delta has collapsed its hub there, fares have declined, too. Cincinnati's average fare in the fourth quarter was $484.98. That's still around $100 above the national average, but Cincinnati is only the third most costly place in the nation. Fares are now slightly ($488.78) higher in Newark, a fortress hub of United Airlines. America's most expensive place to fly? Madison, Wisconsin, where the average fare in the fourth quarter was $504.75, 4.6 higher than the same period in 2013.
Where fares flew higher Madison is the only American city with average airfares above $500, but there were other notable losers among the nation's 100 busiest airports. Fares in Norfolk, Virginia, jumped 12.7 percent year over year. The reason? AirTran Airways, which was finally folded into Southwest Airlines last year, pulled out of Norfolk. Its successor, the revived People Express, lasted only a few weeks. Year-over-year fares jumped 15 percent in Dayton, Ohio, and north of 10 percent in both Albuquerque, New Mexico, and Jackson, Mississippi. The reason for most of those price jumps? Southwest withdrew or reduced service to redeploy aircraft for last year's big buildup at Love Field in Dallas.
Forget it, Ohio While it was no fun to fly out of Cincinnati or Dayton last year, the city with the largest year-over-year decline in fares was Cleveland. Average prices there dropped 10.6 percent in the fourth quarter of 2014 to $413.09. The reason? United Airlines closed its Cleveland hub and, as often happens when a city loses a hub, prices plummet. And speaking of airline hubs, Ohio is now the most populous state in the union without one. Besides the loss of Cleveland and Cincinnati, Dayton (Piedmont) and Columbus (America West and Skybus) once had hubs, too. Throw in Akron, where AirTran once had a large nexus of flights, and it's pretty hard going for Ohio's 11.5 million residents. They can't even drive over the Pennsylvania border to nearby Pittsburgh anymore since the one-time Steel City lost its US Airways hub a decade ago.