Why is your flight ticket so expensive?

I have been traveling for almost twenty years. The aviation industry has changed a lot during that time. The use of points and miles has become commonplace, round-the-world airfares have become less dodo-like, airlines have merged and budget carriers have exploded.

Air ticket prices have increased steadily in recent years. They are getting more and more expensive, and their prices often seem illogical.

Since airfare pricing is a mysterious and misunderstood topic, I wanted to take some time to explain why your airfare is priced the way it is.

Aviation Industry Overview

Ticket prices have continued to rise over the past decade for a number of reasons. First, the industry has consolidated significantly over the past few decades. Due to bankruptcies and mergers, the United States now has only three major alliance airlines left (American Airlines, Delta Air Lines, and United Airlines). And, with the recent bankruptcy of Spirit Airlines and the merger of Alaska Airlines and Hawaiian Airlines, there’s even less competition outside of the Big Three.

In Canada, there are only two major airlines – WestJet and Air Canada.

In Europe, Air France-KLM, British Airways IAG and Lufthansa control most of the market. (Thankfully, though, there are plenty of budget airlines to choose from in Europe.)

As airlines team up, merge or go bankrupt, there is little incentive to offer low fares to win business. After all, airlines know you don’t have many options when there are only one or two airlines operating a route. Less competition means higher prices.

Secondly, aviation fuel prices have increased significantly. Back in 2017, jet fuel cost $1.37 per gallon. In 2024, the price will be $6.49 per gallon! Airlines simply passed on a fivefold increase to consumers.

Third, aviation taxes and security fees have increased a lot, increasing the cost of air tickets. Ever flown to London? Half of the ticket price is made up of fees and taxes!

Finally, demand fell after the 2008 recession, and airlines reduced the number of routes and frequency of flights to compensate. A wider range of aircraft means increased passenger revenue and lower costs for airlines.

This trend has accelerated significantly during the COVID-19 pandemic. When the coronavirus pandemic disrupted global travel, airlines mothballed many older planes and laid off many employees. When travel restrictions are lifted and more people start flying again, they won’t have enough planes or crews to resume pre-COVID schedules. The reduction in flight supply, coupled with a surge in travel demand, means airlines have little incentive to lower prices.

Rick Seaney of Farecompare.com said, “Before 2008, things were good for passengers. After the 2009 crisis, the balance of justice tilted in favor of the airlines.”

All in all, a consolidated airline industry facing greater costs is unlikely to offer lower fares generally.

How airlines determine pricing

There are many reasons why prices rise and fall. The four main factors driving prices are competition, supply, demand and oil prices.

These four things together affect what is called the “load factor.” Airlines want to fill their planes and maximize profits, and they do this by calculating the load factor of their planes. Essentially, this is the percentage of seats sold on a flight. They want that number to be as high as possible.

In order to obtain the highest possible passenger load factors, airlines will constantly adjust prices according to the above four categories to attract people to buy tickets.

Airlines use dynamic pricing models and artificial intelligence (AI) to calculate the maximum value they can get for each seat. Have you ever wondered why airlines seem to ruthlessly increase prices after major events spur demand? They are not. Artificial intelligence is. All it sees is extremely high demand and it adjusts accordingly based on its programming. More demand = higher prices.

These advanced computer systems continuously compare booking trends to past sales history, major events, concerts, sporting events, weather and competitor behavior. They can look at consumer search and booking behavior, process large amounts of data and change prices on the fly (no pun intended) in hopes of getting the best price possible.

All of this is why a flight might cost $100 one day, $400 the next, and back to $100 the day after that. When people buy seats on a flight, airlines raise prices, and when demand drops (at a certain price point) they lower prices until there are fewer seats available, then they raise prices again. It’s a delicate balance designed to ensure revenue is maximized. That’s why flights are cheapest at 5am, more expensive during the holidays, and soar during peak seasons or when there’s a big sporting event in town.

After all, you can’t add more seats to a plane, so all they can do is raise ticket prices to increase revenue!

This is also why prices can change within seconds. This is not because they are tracking your cookies, but because the artificial intelligence is responding to real-time changes in seats. Think about it. How many ticket booking companies are there in the country? a lot of! Everyone is reserving seats. Millions of people fly every day, and with limited routes making it easier to fill planes, AI doesn’t need to discount tickets as much as it did in the past.

On domestic US flights, there are probably 10-15 different price points. If load factors are low and demand is low, airlines will increase their supply of cheap fares. If load factors are high and demand is high, airlines will raise prices.

As Rick said, airlines have an advantage now.

But it’s not impossible to find cheap flights. There are many, many ways to find cheap flights. To avoid being the one with the highest ticket price, the most important thing is to stay flexible.

Airlines are constantly adjusting prices to increase revenue, hoping to get people the highest prices possible. “About three months ago, airlines started managing these rock-bottom price points,” Rick said. This means airlines are starting to look at historical trends and current seat sales to determine whether they will unleash those true rock-bottom fares or keep prices high.

If you book a flight within a month, you’re playing right into the hands of the airlines. When your dates are no longer flexible, you will pay any fees they charge.

To learn how to navigate the system and get cheap flights, check out these articles I’ve written:

Gone are the days of cheap air tickets. They’re not coming back, and the prices you’re seeing now have become the new normal for air tickets. They’ll only cost more, especially if you can’t find the sweet spot when prices are lowest.

But by understanding how tickets are priced, you can avoid being the one paying the most.

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