Irrational expectations in the world of airfare pricing


I’m often intrigued by the information I can glean from Twitter chats. I tend to avoid them more than participate in them but a chat this past Friday hosted by @JohnnyJet and @CJMcGinnis piqued my curiosity so I tuned in. The chat was about summer travel and used the #TravelSkills tag for tracking the conversation. The two hosts didn’t waste any time getting in to what is often a touchy subject: How much is a reasonable price for airfare?

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My answer was actually easy to come up with. For summer travel I’ll spend up to 100,000 points for a business class trip to Europe. And I’ve been quite successful in finding those when and where I want them over the years. But that’s just me. What was interesting to me were some of the other responses I saw to the inquiry. Seems that a lot of people think that $1000 is an reasonable upper limit, with many believing that even lower fares are "fair" for such a trip.

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Some responses based the price on where they’d end up:

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And some considered where in the USA they were starting as part of the thought process:

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Every single one of the numbers tossed out as being "fair" was actually below the average cost to operate the flight which would carry the passenger on the trip (based on published average cost data from the airlines). So, with the exception of some bargain fares on oneworld carriers to Dusseldorf (and even those are ~$900 from the east coast), it seems that many of the chat participants are going to be disappointed. Chris points out that average fares are in the $1200-1500 range already and there are no signs of those dropping much anytime soon.

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Fares are higher on average than they have been the past few years; there is no doubt about that. Even off-season fares are higher. That mostly comes from less competition, less capacity and a desire by the airlines to actually make some money. Absolute fares are at or near all-time highs, while inflation-adjusted fares are still quite reasonable according to DoT analysis (note that the DoT data is for domestic, not international, but the trends are similar):

Not adjusted for inflation, the $367 third-quarter 2012 average fare is the fifth-highest average fare for any quarter since BTS began collecting air fare records in 1995. The highest was $385 in the second quarter of 2012.  The previous third-quarter high was $361 in 2011.  Third-quarter 2012 fares were $243 in 1995 dollars, down 18.1 percent from the average fare of $297 in 2000, the inflation-adjusted high for any third quarter (Tables 1 and 2).

Here’s another bit of analysis from Airlines for America, the industry trade group in the USA. It uses DoT data to track overall international fares since 1990 (a subset shown here).

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These are overall averages for all international travel, not just peak season transatlantic. Still, the numbers make it hard to believe that getting peak season airfares at below average rates is going to work out well very often.

There was one slightly off-topic aside in the conversation which was also rather entertaining:

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Apparently relatively normal airfares are, in some cases, shocking.

Don’t get me wrong – I don’t like paying very much for airfare and when the fare is too high I either don’t travel or I go somewhere else. But I also go in to the transaction knowing what to expect and being able to tell if I got a good deal or not rather than just expecting that fares are always so low. At the end of the day I guess I’m just surprised how low some people think airfare should be to be considered reasonable.

No wonder the airlines are struggling to eke out profits. For too long passengers have become used to the cheap fares offered as a result of excess capacity and increased competition. Mergers and ATI deals have cut almost all of that out of the system. And with the impending US Airways/American Airlines merger and Delta/Virgin Atlantic ATI request working their way through the regulators the competition is going to decrease. It is good for consumers that the airlines are able to remain in business. But that will mean higher fares, more crowded planes and fewer choices, all of which make for not-so-happy passengers.

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Seth Miller

I'm Seth, also known as the Wandering Aramean. I was bit by the travel bug 30 years ago and there's no sign of a cure. I fly ~200,000 miles annually; these are my stories. You can connect with me on Twitter, Facebook, LinkedIn and .

18 Comments

  1. Everyone’s expectations are indeed way off. For summer travel to Europe, I’d expect to pay over $1000 per ticket (and more like $1200+) and would consider myself lucky to get anything in a three figures range. I paid just over $1000 for a super-discount fare back in 2001 when I did my post-college tour of Europe and thought it was fair. Why would I expect things to cost the same or even less 12 years later?!?!

  2. How much of it is unrealistic expectation vs. a difference between cost and personal value? There’s a price point where I’d gladly fly off to Europe whenever the mood strikes, another that I’d gladly pay for trips of great importance, and a sliding scale in-between. The cost to the airline in delivering the product doesn’t really change this. $1k is also a nice big emotional number.

    Maybe this is just an indication that either there’s not much money to be made on most leisure travelers, or there’s an untapped market for really cheap fares if those pesky economics could just be made to work.

  3. Granted this a small sample but could this be more indicative of the sentiment of the general population in that most people have not seen their incomes rise over the past decade and thus their general expectation of prices is the same as they saw a decade ago?

    I would think a majority of people don’t track airfares on a regular basis and receive sticker shock after not checking for multiple years. I think you can say the same thing for many people who look at car prices, home prices, prices for white goods and any other item that is purchased on an infrequent basis.

  4. I wonder if the cost of buying cheap business class fares(both through miles promos and some of the crazy sales we have been seeing) is hurting the expectations of a reasonable economy fare. Are the airlines making any money with all those crazy Europe/South America C sales over the last few months? It seems counter productive to put economy fares at near cost price and offering deeply discounted business class unless you think you are going to fill Y seats regardless and think you can get the less price conscious to pay a bit more for a much better experience.

  5. Seth, great analysis and post as always (btw, i missed meeting you at the meetup two days ago since I came really late but hope to meet you someday!)
    Quick question though. Do award chart pricing fluctuate as well? I always thought flight award redemption pricing are fairly constant, even in the summer. I ask because you stated you don’t spend more than 100,000 miles on a transatlantic business class roundtrip flight in the summer.

  6. If you take the question at face value, “What is the most you’d pay,” any answer would be correct. Lots of people responding don’t intend to fly to Europe but would if there were unrealistic bargains.

  7. I agree with DaveS. The question asked matches the answers given. These folks with answers lower than the typical winter fare to Europe will be staying home. They should have asked instead something like ‘what would you expect to pay to travel transatlantically this summer?’

    1. I agree that some people may have been answering to the question of at what point they would be induced to buy a ticket. But there were a few who indicated the price point at which they believe it would be a “fair” fare. That’s a very different sort of response.

  8. I think it would be a good idea to keep out the word ‘fair’ entirely when asking questions about airline fares 🙂 I just purchased a fare for a route that used to $X two-three years ago. Now it runs typically $X+200. I bought it when I saw it $X+100. I didn’t buy it because I thought it was fair at $X+100. I bought it because I didn’t think that I’d get better than that given the way things have been going.

  9. I laugh when people give numbers for “fair” prices that are below cost. At the end of the day, high cost does not equal high price. Airlines have done a great job of lowering costs through BK, labor, outsourced flying, fuel efficiency and hedging, more seats on a plane, etc.

    So many leisure/unprofitable customers complain about every detail because “$300” is so expensive, regardless of whether it is profitable for the airline, and they chose it over the $310 fare on VX or B6 or WN….

  10. Very nice job here. I’m admittedly shocked at some of the opinions I hear on airline pricing from friends and colleagues. For me, a “fair” fare is what is available when I want to go. Admittedly, the price tends to be a bit more than it was a few years ago each time I check.

  11. But award space is actually pretty decent, especially for July. Try searching SFO-FRA. Hawaii prices are also a bit more this summer. $700+ from the west coast is standard if you need to go weekend to weekend. Book ’em if you haven’t yet because prices probably won’t go down.

  12. I can’t read the screen caps very well on my phone, were the questions and answers focused on coach or premium, or both?

    I have only bought cash tickets.TATL on mistake fares/FDs, using miles for other times. Interesting chat though!

  13. It’s all about expectations, skill, and flexibility, I guess. I have only once paid more than $1,000 to go to Europe, and it was for a charter flight. But I’m well aware of what it actually costs. I realize I am trading my time to save money, and that’s okay because I have more time than money right now. At the same time, I’m willing to cancel my trip if I can’t find a fare I like. I’ll go somewhere else I can afford.

  14. First off, nice to see some actual data on fares and costs. These conversations usually involve statements that “costs are down” or “fares are up” without actual numbers.

    I’m someone who’s definitely been dealing with sticker shock the last 12 months or so. If it’s true that airfares are not up substantially (at least in inflation adjusted terms) I think what’s happened is that airlines have gotten better at eliminating cheap fares around the margins, where I must have been booking.

    Three summers ago, I was still able to fly my family of four to Barcelona for $500 in August. An annual trip I make to Italy in May/June has gone from $500 four years ago to $800 the next year and then to $1400 last year and this.

    It seems to me that until fairly recently, regardless of the prevailing fares, it was always possible to find a bargain fare to SOMEWHERE that I wanted to go. Those bargain fares don’t seem to be around too much anymore — only in the form of one or two day fare sales and the occasional mistake.

  15. I’m still stunned that prices are just now approaching the ~$400 I paid in 1989 for transcon. And back then that was ‘fair’ for me; it’s amazing that airlines can function at current fares.

    I’m pricing a trip for my mother from the west coast to Italy and am accepting that $1400 is the median she’ll get. But she’s not flexible on travel dates so she also accepts paying that. And it’s not a terrible fare as it is…

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