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To anyone other than an airline bean counter, airfares make absolutely no sense. They have no relation to the distance flown or the duration of your journey —in fact, the cheapest tickets often send you off on multiple, time-wasting detours. There’s little transparency in the process of how airlines arrive at their prices, and they’re in a constant state of flux. Indeed, the industry worldwide logs more than 3.9 million fare changes every single day, according to the Airline Tariff Publishing Company (APTCO), an industry data provider.
Economists would point out that’s precisely what happens in a deregulated market. “Price is the mechanism that balances supply and demand,” says Ed Perkins, contributing editor of Airfarewatchdog.com and a former editor-in-chief of Consumer Reports Travel Letter. “There are a lot of things at work here, including whether an airline is flying out of its fortress hub, and whether it’s facing competition from industry disruptors, like Spirit.”
Still, some prices seem so out of whack that even in today’s laissez-fare climate, you have to wonder what’s going on. So is there a way to measure just how bad a deal you’re getting? Actually, yes—and according to Perkins, it’s pretty simple: “Back when the government was regulating the airlines, they came up with something called the standard industry fare level,” Perkins says. “It set a benchmark for how much the airlines could charge per mile—that’s what’s known as ‘yield’—and allowed for a reasonable return,” he said, of around 12 percent. That went out the window once airlines were deregulated in 1978, but using yield—that is, what the airlines are getting from you per mile—is as valid a measure as any, and it can help shine the light on some of the more egregious outliers.
But what would make an airfare a true rip-off is where the yield would be way out of line with the costs per mile; in other words, where the price you’re paying is a huge mark-up from what it’s costing the airline to transport you. (Think of it as the airline industry’s version of a fancy hotel bar that turns a 100 percent profit on its bespoke cocktails.) No one’s suggesting airlines shouldn’t make money, of course—it’s just that we don’t expect to be robbed.
At Traveler’s request, Bob Harrell of Harrell Associates, an airline pricing consultant, crunched some data on airfares in a recent two-week period in January. For our purposes, he stuck to what he calls “average leisure airfares,” meaning restricted, and usually nonrefundable, prices. Based on the per-mile yield passengers were paying, the absolute worst deals based on distance were the shuttle flights between New York and Boston and Washington, which had average yields for coach fares of between $1.60 and $1.88 a mile—which sounds like peanuts, until you consider the average yield for a restricted air ticket is about 19 cents. And what’s the total damage to your wallet? I did my own fare search, and a two-day trip from New York to Boston in mid-February on Delta would set me back $928 round-trip. (That's nearly double the price of what it would cost from the U.S. to Italy on this flight deal.) “For a family, or really, anyone other than a business traveler on an expense account, it probably makes more sense to jump in the car,” for the 250-mile trip, Perkins says.
Of course, the airlines operating the shuttles—American and Delta—would argue that passengers on these flights are primarily business travelers paying for the convenience of frequent service and a classier in-flight experience, which is more expensive to provide than a long-distance flight on a widebody plane. A closer look at the shuttle trips, however, shows that many of these flights are via smaller regional planes operated by commuter partners, offering pretty basic service—in contrast to the over-the-top frills in the days when Pan Am and Trump Air plied the route. True, those smaller planes aren’t as cost-efficient as larger jets, but their crews are paid significantly less than the majors’, too. Other above-average yields for mid-January popped up in flights out of fortress hubs—like United’s redoubt in Newark, and Delta’s Atlanta base.
Averages don’t tell the whole story, of course, but Harrell’s data showed some other disparities; outside the shuttle, the route with the highest yields was Philadelphia to Pittsburgh, at 75 cents per mile, and fares into Minneapolis got the Super Bowl bump, and were among the highest of any domestic route for that week, with yields of more than 50 cents per mile.
So how to calculate whether the airline ticket you’re about to buy is a good or bad deal? You can figure out pretty easily how much you'll pay per mile, but it’s less obvious how much it costs the airline to fly you from point A to B, although airlines do report their systemwide costs per available seat mile on their balance sheets. And then, and most importantly, is how competitive a market is. And that’s why, as Perkins notes, “airlines that control a very high percentage of a market tend to be able to set above-market fares.”
At an airline like Delta, the operating costs per seat, per mile, recently ranged from 10 to 14 cents a mile, but that’s spread over their entire system. According to Henry Harteveldt, travel analyst and founder at Atmosphere Research, the northeast air shuttles do cost more to operate: “The shorter the flight, the higher the costs of that flight,” he notes. “And in the northeast, you’ve got air traffic congestion and bad weather, which pushes up expenses.” But still, he says, “ there’s no reason why it should cost an airline any more to operate those flights than any other flights of a similar length.”
So what’s really at work here? “Airlines aren’t playing fare war games like they used to in the 1990s, when they’d charge $19 one-way just to steal market share,” he says. Those days are long gone, and today prices are often a reflection of—in Perkins’ words—“what they can get away with.”
For instance, airports that have severe limits on flight volume, like New York’s JFK, San Francisco, and others, can often have higher-than-normal fares, even if they aren’t dominated by a single carrier. And airports where service dropped sharply after an airline merger—take Pittsburgh, St. Louis, or Memphis—are often more expensive to fly into. But still, airlines can’t get too greedy, says Harteveldt. That will just invite what they dread most—a leaner, more agile rival who can steal away their customers with lower fares.