Saturday, September 29, 2012

After a quick glance at the chart on the left, one could quickly figure out why a road trip could potentially cost less than a flight.  Oil prices have been on the rise for many years, and airlines have failed to adjust their prices accordingly.  Scott McCartney of the Wall Street Journal reported that in 1958 a round trip airline ticket from New York to Los Angeles was $208.  I could fly this same route in late October 2012 for $280.  Fifty-four years have passed, and the price of the ticket has barely changed.  If the 1958 price was adjusted for inflation, the ticket price today would be $1570.  The price of oil has changed dramatically and heavily influences the price of gasoline.  The price of gasoline in the 1950s was $0.27 per gallon according to CNN.  Our national average is currently $3.79 per gallon.  Oil companies are posting huge profits year after year.  They continue to raise their prices, and WE continue to pay them.  The cost of driving to a destination is sometimes more than flying to that destination because of the increase in fuel for our cars.  Airlines have not followed the same business model.  Instead, airline ticket prices remain low, not reflecting the price of fuel.  I feel the airlines could raise their prices without making flying commercially less accessible to the general public.  Increasing airfare 20%-30% would probably not change the plans of many people.  However, if only one airline changed it's prices, it would probably go out of business unless it found a way to offer a unique or special service.

It is difficult trying to answer the following questions:  "Should the ability to take a commercial flight on an airline to get from point A to point B be affordable to most of the public? Or, should it be a luxury?"  An airline ticket should cost what it costs....  What in the world does that mean?

Businesses are able to charge whatever they want for a service.  If the prices for a service are unreasonable, people will do without or buy those services from a different business.  A reputable company will charge enough for a service to cover its expenses and produce a profit.  If a company is purposely pricing a service to discriminate against people with lower income, the company is not breaking any laws, but is acting extremely unethically.  This applies even more to the topic of air travel.  This is an industry that relies heavily on tax money, and that tax money doesn't only come from airline tickets.  Portions of property tax, income tax, and sales tax all help fund aviation.  Even though airlines are private companies, they could not operate without the public support.

Fortunately this has not become a problem.  The airlines have done the opposite, and priced airfare low.  They should increase their prices enough to consistently make a profit.  If there is ever a day where airfare is grossly overpriced, intentionally making it too expensive for the general public, the industry would be very different.  There would be negative feelings from the public, wondering why they help pay for a system they could not afford to use.  There would probably be hatred for the airlines from the public, and the lack of volume would eventually put more airlines out of business.

The industry is currently heading in a good direction.  There is variety to choose from when looking for air travel.  People can pay the price they want to make the trip what they want it to be.  Both low cost carriers, such as Spirit Airlines, and airlines that offer a bit more, such as Delta Airlines, are able to run a successful business.  This is a great direction for the industry.

4 comments:

  1. I just paid $3.95 at the pump. I'm not feeling very nationally average. But I pay the price so I can drive my car. The point is, if there was excess demand for the supply of airplane seats, the prices would go up and the airlines wouldn't have to compete so much. I think the current price point is determined largely by the number of airplanes flying.

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  2. I don't think the airline's intentions would ever be to raise prices to intentionally discriminate - the motivation would be to increase prices to more appropriately accommodate their costs.

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  3. I agree that the airlines should price their tickets in order to make a consistant profit. However, I feel that this cannot be done by one airline but has to be done by all airlines in order for it to stay.

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  4. Interesting how you say that if only one airline were to raise their prices that they would probably go out of business. But really, is there any way that it could be organized that all the airlines would raise their prices at the same time? It would never happen!!!

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