Why Do Airlines Raise Prices?
As an airline passenger, you may have noticed that airfares constantly fluctuate, making it challenging to plan and budget for travel. However, have you ever asked yourself why airlines raise their prices? Several factors come into play. This blog post will explore some of the reasons why airlines increase their fares.
The Cost Of Fuel
One of the most significant expenses that airlines incur is fuel costs. Aircraft engines use a significant amount of fuel, and as oil prices fluctuate, so do the costs of fuel. High oil prices result in high aviation fuel prices, which means airlines must charge more for customers to cover their costs.
According to the International Air Transport Association (IATA), fuel costs account for approximately one-sixth of an airline’s total operating cost. Airlines must factor these costs into the prices that they charge for their tickets. For instance, in 2019, oil prices increased by nearly 25%, leading to a corresponding rise of fuel prices by 17%.
Another reason why airlines raise prices is due to seasonal demand. Typically, during peak travel periods, such as holidays, summer breaks and festivals, the demand for air travel surges. As a result, airlines charge more, knowing that there are enough people willing to pay the higher fares.
For example, Christmas and New Year’s holidays are a busy period for the travel industry. During this period, airlines increase their prices, making it costly for people to fly during this season. As the demand decreases, so do the prices.
Airlines incur several costs in running their operations, such as wages, maintenance, rent, and taxes. All these costs are factored into the prices charged for a ticket. For example, airlines have to pay landing fees and rent for using airport facilities. These expenses are crucial in determining the cost of a ticket. Any hike in operational costs means an increase in airfares.
Competition has a considerable impact on airfares, and airlines adjust their prices to remain competitive. When a new competitor enters a market, the established airlines may reduce their prices to keep their customers. On the other hand, when a competitor leaves a market, the remaining airlines have a near monopoly, and they may raise their fares since they have less competition.
Supply and Demand
Airlines charge more when demand is high, and supply is low. They also offer reduced fares when the demand is low, and the supply is high. This is a strategy to attract more passengers, and it’s referred to as yield management.
For example, airlines may reduce their prices when there are unsold seats on a particular route. Instead of leaving the seats empty, they offer them at lower prices to attract passengers. Conversely, when demand is high, airlines may charge more to maximize profits.
Taxes and Fees
The aviation industry is heavily taxed, and taxes and fees make up a significant percentage of airfares. Governments levy taxes on air travel, such as departure taxes, passenger facility charges, and security fees. Each country has different taxes and fees, but all of them add up to the overall cost of a ticket.
Several factors influence why airlines raise prices. Fuel costs, operating costs, seasonal demand, competition, supply and demand, and taxes and fees are some of the reasons. While it can be frustrating to see airfares increase, it’s essential to understand the reasons behind the increases. You can save money by being flexible with your travel dates, booking in advance, and signing up for airline newsletters or loyalty programs to receive deals and alerts on airline sales and promotions.
By understanding the causes of airfare fluctuations, you can make informed decisions when planning your air travel and ensure that you get the best value for your money.