Why are Airline Tickets So Expensive?

  • Why are Airline Tickets So Expensive?

    You may have wondered this yourself, why do I have to pay so much just to fly across a country? With the level of technology available to us today why are we subject to such high prices?

    As a supplier of transport services to the aerospace industry, and because (ironically) we end up flying many of our drivers to get in position for an expedited (team) shipments, we feel especially qualified to answer this important question.

    At the risk of going off-topic, there are some social norms that have affected the way that we view service industries. Simply put, we want things now. Today is good, yesterday is better and tomorrow is too late. The mere fact that I can drive 20 minutes, jump on a direct flight and end up in a different continent 2 hours before I left is mind boggling, yet we seem to take this for granted.

    Remember the recent “controversy” surrounding the new iPhone 6 launch? People are losing their minds because it bends in their skinny jeans. I’m not going to get into critiquing people’s fashion choices, but let’s just file this one under “first world problems.”

    You may wonder where we are going with this, the point being made is that we simply don’t understand, or care, what goes into making a plane fly safely and land safely. We just want it to work and we don’t want to wait.

    Before we get into what it takes to operate an aircraft, did you know that the cost of flying on an airplane has dropped 50% in the past 30 years? Because of the privatization of airlines, prices have dropped considerably due to increased competition. Believe it or not, in inflation adjusted dollars a flight between NYC and LA in 1974 was a mandatory $1442 per seat. I just looked on Expedia and found one for $280.

    Airfare Rate Graph

    Consider the following statistic: your odds of dying in a plane crash are about 1 in 11 million (0.00001%). Compared to the odds of dying in a car crash which is 1 in 5000. So you are far more likely to die on the way to the airport than you are once you leave the ground.

    Why is this? Considering an airplane is enormously more complicated than your average road vehicle. They carry hundreds of pounds of explosive liquids and are hurtling through the air at speeds of 485 mph (780 km/h) at around 30,000 feet above the ground. On top of that we rely on automatic navigation systems and radar to keep these missiles from running into each other or high terrain elevations. So much more can go wrong, yet it is still safer than going through the Starbucks drive-through in the morning (or Tim Hortons).

    Part of the reason is the strict standards that all planes must adhere to in order to be considered “air-worthy.” Every single component of an aircraft, down to the rivets holding it together have to be stress tested and pass a wide variety of other examinations before even being considered certified for transporting passengers or other cargo. How many times have you left the mechanics shop knowing there is something important on your car that needs to be fixed still?

    The tolerances are so sensitive on some components of an aircraft that the slightest interference, unusual sound or drop in fluid pressure results in an immediate grounding until the problem can be located and addressed. When transporting an aircraft engine, the slightest bump can result in a mandatory $250,000 diagnostic and inspection before the engine will be certified air-worthy.

    Consider the costs behind an AOG (aircraft on ground) event. There are wages for all mechanics and engineers involved, the cost of replacing or refurbishing the component, the transportation costs and all of the OT costs for customer service personnel in the airline. On top of that you have lost revenue to consider if refunds for passengers are required and sometimes even food and lodging if another plane can’t be re-directed until the next day. IMT was involved in an AOG event that cost an airline a total of $2 million, which was just the figure they released to us, in reality it was probably much higher and this was in the span of one week.

    Beyond the costs of just keeping an aircraft flying (keep in mind the cost of fuel, maintenance and other consumables on the aircraft), airline pilots are some of the most well-trained professionals in the world. That type of on-going training is not cheap, but necessary to ensure the safety of the thousands of passengers airlines move daily.

    If the average driver was trained to the same extent as an airline pilot, maybe the odds of being in a car crash would be better than 1 in 5000.

    We also haven’t mentioned ground support equipment and personnel, right down to the baggage handlers, all of which cost a staggering amount of money.

    What the average passenger does not realize is that the majority of airlines in North America are operating at a loss. With operating costs going up and online ticket sales keeping prices down, operating an airline requires massive amounts of debt financing.

    So the next time you hear someone complaining about the flight costs, remember that they are flying on a hundred million dollar aircraft that costs millions each year to operate, and the cost of your seat is pennies in the face of the capital it takes to operate the plane.

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