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How Increasing Gas Prices Will Affect the Airline Industry
Since 1995, airfares have shown a steady decline in price. “What?” you ask, “I thought they had gone up!” Of course, this might look correct if you look at your current ticket stub from one hand while looking at a ticket stub from a few years ago. However, all is not as it seems. There are a few things to consider to be fair:
- When comparing airline ticket prices to past years, inflation must be taken into account so that prices can be linked using the same index. In other words, put the prices of past years in today’s dollars so that a true valuation can take place.
- A trend, in this case, is a statistical method that shows the general direction of data over time (for math geeks, it’s called “linear regression”). It’s mathematically robust – the numbers don’t lie.
When you combine points 1 and 2 above, you get an indisputable trend that shows that airline fares have been gradually decreasing over the past 17 years. In 2011 dollars, these ticket prices are more than $50 cheaper today than in the past.
That being said, even though the general trend shows a decline in prices, the last three years show a reversal of this trend – which coincides with the recent upward trend in gasoline prices. In addition, the average price of baggage fees has also increased in recent years – perhaps to offset the cost of fuel for airlines.
Unfortunately, airlines can’t do much about gas prices – if they go up, they have to either absorb that cost or pass it on to the consumer. In the past, most of them have tried to pass the cost on to passengers; it works when low-cost carriers also raise airfares, but sometimes fails if not all airlines are “on board”.
Moreover, the number of airlines has decreased in the same time frame, giving them more leverage to control the cost of flying. Down from 22 airlines in 2007, there were only 17 in March 2012. Fewer choices, higher fuel costs, fewer routes mean airfares will likely continue to rise.
Will ticket prices reach the levels seen at the start of the downtrend? It’s hard to say since this recent trend is only 3 years old. If nothing changes in the contributing factors, it won’t be long before the flight becomes quite expensive. However, there is a price range that airlines have to meet to attract enough customers, so we’re probably pretty sure in the short term.
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