The Golden Age for Affordable Flying and Air Travel

Pan American Airways started flying from New York to London in 1959 and a round trip cost in economy class back then with inflation adjusted fees would be equivalent to ~$4000 - that's how much the air travel market has changed - now, more than half a century later, Pan Am is long gone and newcomer Norwegian Air Shuttle ran a special promotion with $65 one-way tickets on 10 new routes from New England to Ireland/ Scotland - these fares sold out in less than a day. This is a signal that with new low cost carriers spreading their wings across the US, the Atlantic and the Pacific, we're heading into a new golden age of affordable air travel.

There are many stories to talk about the US economy in the last 30 years but getting the government to get out of the business of regulating skies has led to a remarkable collapse in airline prices wherein airfares have fallen by about 50% since 1980, even with the inclusion of the recent uptick in airline fees. So, why have times been really good for flyers and why aren't we able to appreciate this? The two-word answer to this is 'Deregulation worked'! Before 1978, airlines played by the rules put forth by Washington and the federal government determined whether a new airline could fly to a certain city, charge a certain price, or even exist in the first place. With limited competition, airlines were guaranteed a profit and they lavished flyers with expensive services paid with expensive airfares - the silver and cloth came at a predictable price - the vast majority of people couldn't afford to fly. With prices skyrocketing during the energy crisis in the 1970s, a team of senators and economists decided that Washington should get out of the business of coddling the airlines. In California and Texas, where fares were unregulated, they were much lower - SFO to LAX was about half when compared to the regulated BOS-DCA route - and an intra Texas airlines boasted that farmers who used to drive across the state could fly for lesser money and it could carry chicken coops for free! Three decades, the lesson from Texas - if you deregulate the skies, the ticket prices will fall - has been applied all over the US. As a result, by 2000, about 50% of the US took at least 1 round trip flight a year and the number of air passengers more than tripled. I share the view that flying is neither a life necessity like tuition, milk, or medicine nor is it addictive - when you have intense competition for a product that is price sensitive, you have falling prices.


In the showdown between airlines and flyers, both sides wielded a formidable weapon - airlines use computers to move prices and we use computers to find the lowest price. It's a multi-billion dollar game of cat and mouse played out between competing machines - when the doors of an airplane close, each empty seat is lost money - so, the price of a ticket should fall as we approach takeoff right? Wrong! As you know, airfares rise in the final hours - this is because last-minute flyers tend to be desperate people or business people expensing to their companies - so the airlines have designed a system that fulfills the following goal - sell as many seats as possible, sell them at a profit but also leave some empty for desperate travelers. That explains why the life-cycle of an airfare resembles a roller-coaster - a seat is a seat is a seat - but a ticket sold three months out isn't worth the same to the buyer as a ticket sold the same day. So you can pay $200 to fly to Chicago and sit next to somebody who paid $600 for the same amenities that you have. While airlines have worked to make low prices impossible to pin down, the Internet made finding the lowest price easier than ever.

In the late 1990s, Expedia and Priceline launched technologies that trawled the Web for flight and organized them by price and what this has done to airlines is obvious - transparency accelerated the competition for the lowest prices and airlines now still compete on schedules, routes and services - it has allowed cheaper airlines like Spirit/ Frontier/ Jet Blue to enter the market and grow. Just as regulation came at a price (fewer flyers), deregulation and low airfares have created their own complications - spartan service, bankrupt airlines and a brave new world of fees. Flyers hate fees, but we can learn to like them if they are thought as savings - after deregulation, airlines wanted to guard their slim profits in an online world of transparent prices. One solution was to offer cheap basic fares and tack on fees later for amenities that most customers would demand. Today, airline fees have grown into a $6 billion side-pot - quadrupling in the last 5 years. There are now fees for bags, WiFi, food, headsets, unaccompanied minors, the emergency row, and practically everything that cannot be simply described as one adult sitting with a back-pack in one middle seat. Why do we hate fees if they keep basic prices low? It's the American way to want a product approaching first-class for a price approaching zero - cultural selfishness however cannot explain it all - bargain-hunters experience a dopamine rush when they find great prices.

If flying is so cheap, why do we think it's expensive? When US Airways and American Airlines announced their mega-merger, it set off national hysterics as flyers claimed the new behemoth would painfully raise prices as a result of becoming a monopoly - the reaction seemed unaware of the fact that consumers enjoyed an amazing and unsustainable three decades in cheap flying while the price of fuel (accounting to 1/3 of airfare costs) has gone up by more than 250% since the turn of the century. Between falling prices, 9/11 and fuel inflation, there have been 47 airline bankruptcies since 2001 - some companies dies, others merged and others survived with leaner contracts. Through attrition and consolidation, a less crowded marketplace for flying was inevitable. Why don't we appreciate this heyday in bargain flying you may ask? The most obvious answer is that flying through the air in a big machine powered by a scarce resource will always cost high and your average family expends very little energy adjusting big numbers for inflation. If you buy a round trip ticket from Sacramento to say Phoenix every year between 1990 and 2019, would you suddenly realize after 30 years that the real price of your ticket had dropped by exactly 50%? Probably not - you'd probably just think that flying to Phoenix costs a certain amount. Sometimes, the average consumer doesn't recognize what a plane ticket should ideally cost - the cost to buy some products like milk, Cheetos/ Lays hardly change - their constancy anchors expectations - Americans are shoppers, not mathematicians - they only look for cheap prices and they don't care about the true cost to something or the adjustment for inflation.