Even with baggage fees, the ‘miracle of flight’ remains a real bargain; average 2011 airfare was 40% below 1980 average
Q: Especially considering all of the added baggage fees and other fees that airlines have been charging recently, is it more expensive or less expensive to travel by air today compared to ten years ago?
A: I think most people would answer “more expensive,” but they would be wrong. It was actually less expensive to travel by air in 2011 than in 2001, 2000, 1999 and every year before that back to 1979, see details below.
The top chart above shows average airfares in the U.S. (adjusted for inflation in 2011 dollars) for domestic travel on annual basis back to 1979 (the year that airlines and airfares were deregulated) based on data from Airlines for America, both with fees (blue line) and without fees (red line). Even with fees that averaged $21.77 last year for: a) baggage ($12.77) and b) reservation change fees ($9.00), the average total fare of $365.23 in 2011 was more than 40% below the 1980 airfare peak of $611.76. Despite an increase in fares and fees that averaged $16.46 in 2011 and $26.29 in 2010 (from the all-time low fare in 2009 of $322.48), the average fare last year of $365.23 with fees was still slightly below the fare ten years ago in 2001 of $373.44, and 23.5% below the average fare 20 years ago of $477.11 and 39% below the average fare 30 years ago of almost $600. And considering that oil prices increased by an average of 29% in 2010 and almost another 20% in 2011, those increases in fuel costs dwarfed the small increases in airfares of 8% in 2010 and 5% in 2011.
The data from Airlines for America also reveal that the average number of miles flown per round-trip journey has increased by more than 20% over the last 30 years, from 1,947 miles in 1979 to an all-time high of 2,351 miles in 2011. Therefore, the inflation-adjusted cost-per-mile traveled has gone down even more than the 40% reduction in the average air fare since the peak in 1980. The bottom chart below shows the downward trend in real cost per mile traveled (including fees), and compared to 1980 ($0.323 per mile), the cost in 2011 was 52% cheaper ($0.155 per mile). Note that driving the average trip distance of 2,351 miles by car would have taken about 40 hours of driving time, and would have cost about $330 for gas (at the average price of $3.50 per gallon in 2011, and assuming 25 miles per gallon), just slightly less than the average airfare of $365. Additional costs of driving would include toll charges, wear-and-tear on your vehicle, the costs of overnight stays at hotels during your 20 hour road-trip each way, etc.
As much as consumers like to complain about rising fees for baggage and other services, the “miracle of flight” is still close to the lowest cost in history, and air travelers today are getting a great bargain, especially compared to the airfares of the 1980s and 1990s and compared to the sharply rising costs for other services like college education and medical care. Considering that the average flier today is saving about $150-200 per flight compared to the cost of flying during the 1980s, and is flying longer distances than ever before, those average baggage fees of $12.77 last year should seem like a real bargain.
Update: Airlines for America also provides annual operational and financial results for U.S. airlines back to 1948 (data here), here are a few interesting facts:
1. The “passenger load factor” (PLF) has been gradually increasing over time and has been above 80% for the last three years (2009-2011). Ten years ago the PLF was 70% in 2001, twenty years ago it was 62.6% in 1991, and thirty years ago it was 58.6%. There were a few years in the early 1970s when the PLF was below 50%.
That probably helps explain why the flying experience is less pleasant today than in the past – we no longer have the luxury of flying on planes with one-half or one-third of the seats empty.
2. U.S. airlines have been profitable in the last two years (2010 and 2011), but just barely – the profit margin in 2011 was just 0.8%, down from 2.1% in 2010. Over the last 11 years, the industry has lost money in seven of those years, with losses totaling more than $84 billion. Airline were profitable in the year 2006, 2007, 2010 and 2011 and earned a total of $31 billion in those years, resulting in net losses of $53 billion for the industry from 2001-2011.
Bottom Line: The airline industry is extremely competitive and airlines as a group have only been able to earn positive profits in half of the years since 1981. For the last two years airlines have been able to earn a small profit on very thin profit margins, and the higher PLFs and higher baggage fees have probably helped. The airline industry today is probably closer to a sustainable competitive model than in the past, when we got spoiled with free food and flying on planes with plenty of empty seats. Overall, consumers have reaped significant benefits from the deregulation of airlines in 1979, and have saved billions of dollars in lower fares. Like any industry, the airline industry is evolving over time, and consumers have to adjust to the changes.