I thoroughly enjoy long drives. I mean, I will drive 15 + hours to go on vacation. Why, you ask? I enjoy the solitude and the adventure, but also the price of a plane ticket can be ridiculously expensive. And when I say “can be”, I mean it usually is. For me, there is something romantic about a road trip alone. If its a family vacation, I need the alone time to mentally prepare myself in anticipation of my arrival and then decompress on my way home. However, the last part could be achieved through flying, but like I said, it’s extremely expensive. Don’t get me wrong, I love the idea of being able to pack a bag (or several as it may be in my case), and head to the nearest airport. But it’s not always financially feasible.
So why is it so expensive to fly these days? It essentially boils down to competition. Or, in this case, lack thereof. According to a fortune.com article from 2016, five airlines make up more than 80% of the U.S. travel market. Meaning your options are limited if you want to fly anywhere. And does the service really differ between these five? My guess is that it doesn’t. Or at least not in any way that would make you want to pay more for that particular airline. Maybe we lack options in other markets as well, but the difference is that regardless of the number of airlines offering flights, the price of oil is relatively low. So the cost to fly should be reflective, right?
Nope. While there is competition between airlines, it seems that they may be in a bit of a price war. Kind of like the two gas stations at the end of your street. When one increases or decreases the price of gas, the competitor will do the same. In a typical market, the price of a commodity is based on supply and demand. The case for oil (or gas, or jet fuel) is no different necessarily. But what seems to happen from an airline perspective is that one applies for an increase in ticket prices, and then the others follow suit. If airline “x” is going to be able to charge more for flights, why wouldn’t airline “y” take advantage of that as well? Airlines are able to make more money, however, the consumer is the one that gets hurt. (This might be illegal?)
As of February 13, 2017, the price of a barrel of crude oil is $53.44, which is an increase from a year ago when it was $29.01. I don’t want this to be a lesson in economics, or even history, but that is about 1/3 of the price that it was in 2008 when oil was about $150 a barrel. And yet, the price for a plane ticket have either remained relatively unchanged, or gone up in price. But that doesn’t make sense… and yet it does. Like your local gas station, in the middle of a price war, so are these airlines.
I am not a conspiracy theorist by any stretch, but it’s hard not to make the leap that maybe something is going on that the average consumer doesn’t know about. Especially when, as I mentioned, the price of oil is low. Not an all time low, but definitely at a reasonable rate, from a consumer perspective. Fortune.com reported on the possibility of collusion between some of these airlines in late 2016. The airlines deny it, and maybe this isn’t the case. Maybe the cost of operating an airline has increased so much over the years that the only way to continue operating is to pass that cost onto consumers?
In other industries people would start to boycott the product or the service. But they can’t when it comes to oil. We are so reliant on it for every day items and tasks, that it would be very difficult for the average consumer to just stop using it. I drive a lot for work and I wouldn’t be able to function from a professional perspective without driving. And many business rely on air travel. In fact, I know of two people close to me who are travelling this week for work. Both flying. What I’m getting at is that even if consumers who are travelling for personal reasons were to stop flying, it wouldn’t make a difference because of the vast number of people who need to travel for work.
It doesn’t seem to make a lot of sense, to be honest. The price of oil is relatively low, but the cost to travel is relatively high. While consumers aren’t likely to stop flying completely, I suspect that the number of people travelling by air has decreased over the last few years. I am not against flying, but the math just doesn’t add up. Maybe its more wear and tear on my car, but I’m still paying insurance and I have to pay for a hotel or other accommodations when I get there. So why would I add a costly flight to that trip, and then still have to figure out transportation when I arrive? I also suspect that more people are starting to think like me. Which, I fear will lead to further increases for air travel consumers. Sorry guys!