Airline Fees vs. Airfare Hikes – The Game of Airline Ticket Prices

Finding Cheap Airline Tickets: The Game Starts Here

You want to know why airlines set their ticket prices the way they do? Think of it as a game with two distinct ground rules, one for each player – the airline and the passenger.

The rules:

  • For the airline: Get the most money for each seat on every single flight
  • For the passenger: Pay the least amount for each seat on every single flight

And the game is on…

The Airfare Game’s Playing Field

The boundaries of the game are set. Don’t look for airline or passenger expansion.

That’s because U.S. domestic air travel is not a growth business anymore; during the go-go years from 1978 to the turn of this century, we saw explosive growth, but in the past decade a good chunk of that growth was cast aside as the market matured.

Sure, a company like Apple can sell 25 million new iPads this year, but the airlines won’t sell 25 million new seats. So how to please investors who like companies with growth potential? For the airlines, it’s a matter of making more money off the seats they already have.

FareCompare CEO Rick Seaney shed more light on airfare hikes as he chatted with editor Anne McDermott; take a listen.

Airline Strategy Number One: Airfare Hikes

So, airlines play the game with a two-pronged revenue-enhancing strategy. The first prong: raising ticket prices.

We have seen small, successful airfare hikes this year, but nothing radical – even though some passengers say, “Quit nickel-and-diming us with fees, just raise your prices!” They may say that, but when the airlines do raise prices substantially, passengers stay home.

Airline Strategy Number Two: Airline Fees

Airline fees are generally universally disliked, but as the airlines point out, most are not mandatory. Pay what you like, for the services you want.

And this strategy is working:

  • Average Customers: Little blowback; resentment against fees hasn’t kept many away
  • Best Customers: Exempt from most fees as frequent flyers and/or as airline-branded credit card holders

Airline Fees are Here to Stay

Airline fees are not going away. We are now in the midst of the “airline fee generation” so get used to it. Besides, fees are good for airlines besides just making money. The services or “products” fees provide help differentiate one airline from another and airlines yearn to stand out from the pack.

More Fees: Helping Airlines Stand Out in the Crowd

I suspect airlines may well envision themselves as the new-and-improved Target of a few years back – remember the 2005 “Target-only ads” issue of the New Yorker magazine? In essence, a few name designers helped the discount chain stand out.

Instead of designers, the airlines hope fee-based products do the same for them such as United’s “Premium Seating” or American’s “Boarding and Flexibility Package” or seatback TVs and WiFi offerings. These mostly for-fee services may help the airlines get one-up on the competition (or so the airlines devoutly hope).

When Airline Fees and Airfare Hikes Collide

Fee-based services are at the heart of American’s dispute with Orbitz and Expedia, and why the airlines want shoppers to come to its own AA.com website to buy.

Actually there are two good reasons why any airline wants shoppers to come directly to them:

  • To entice shoppers to spend more on fees for airline products
  • So shoppers won’t see if a competitor has lower airfares

Will more airlines pull out of online travel agencies as American did? Let’s hope not.

For Cheap Flights, Shoppers Must Compare Prices

The dawn of the internet age was good news for airfare shoppers; finally there were sites (including FareCompare) where shoppers could see precisely which airlines offered the cheapest airfare.

The future of airfare shopping: airfare shopping could get a lot more complicated and this may become the “new normal.” It may be increasingly difficult to see which airline have the best bottom-line prices.

However, one thing you’ll always be able to count on: FareCompare will always show you the best available prices – plus, give you solid, practical advice you can trust – so you can make the smartest airfare purchasing decisions every time you shop.

Learn more about FareCompare and the cheapest days to fly and best times to buy airline tickets for year-round savings.

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Published: July 21, 2011