Last year, the price of an airline ticket slid to its lowest level since 2010. What is behind the plunge?
Airline ticket prices have continued to head south, the federal government’s latest data show.
The U.S. Department of Transportation’s airfare report for the fourth quarter of 2015, which was released Wednesday, shows that the average domestic airfare:
- Decreased from $396 in the fourth quarter of 2014 to $363 in that period last year (8.3 percent) — the lowest fourth-quarter level since 2010.
- Decreased for the year from $392 in 2014 to $377 last year (3.8 percent) — the lowest yearly level since 2010.
These figures are adjusted for inflation and are based on round-trip ticket values unless a customer did not purchase a return trip. They do not reflect any additional taxes or fees, such as baggage fees.
CNN Money reports that the decline in ticket prices is largely due to declining oil prices, although the two aren’t directly related.
Jeff Klee, chief executive of CheapAir.com, explains in CNN’s report:
“Airlines don’t set their prices based on their costs to fly the planes; they set them to maximize their revenue. No matter how high or low their costs are, they will sell their seats for the highest that the market will bear.”
When oil is cheap, it boosts airline profits. The airlines then use the added profits to expand their companies by buying better planes and adding new routes, CNN reports.
Buying more fuel-efficient planes reduces flying costs. Adding new routes puts pressure on other airlines to decrease their prices to compete, which is how consumers indirectly benefit from falling oil prices.
George Hobica, founder of Airfarewatchdog.com, tells CNN that major airlines are now matching the low prices of budget airlines that have been adding new routes:
“It’s a pretty good time to fly.”
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