2009 has been one of the worst years in history for the commercial aviation industry, with revenues plummeting on the back of worldwide recession. While this has been bad news for stockholders and employees, it can mean ridiculously low airfares for those passengers who can still afford to travel.
The airline only has to sell the last 100 seats for more than $20 each to make it worthwhile.
Traditionally, airlines have used complicated price structures based on historical demand and time of booking. In general, booking early was the best course for those who had specific travel plans as, more often than not, the price would increase as the departure date got closer. Those who were flexible in both time and/or destination could hang on and pick up a bargain at the last minute.
But the game has changed recently. Unlike the slumps that followed Gulf War I and September 11th, this time people are afraid of the bailiffs, not fanatics. Passenger figures are down because of the financial uncertainty that has gripped even the rich. The airlines know this, but they also know that it won’t last forever. The industry is cyclical in nature and, barring another kick in the teeth, the chances are it will be profitable again before too long.
In order to take advantage of this anticipated recovery, they first have to survive. If they can do this while maintaining, or even increasing, their market share, then all the better. The rules still apply to popular routes, such as LHR-JFK, but forward bookings to some destinations are poor. As the airlines are reluctant to cancel these routes (their competitors would pick them up in a flash), it seems that many have adopted a “bums on seats” pricing policy.
Here’s how it works. Say, for example, a 747 with 350 seats is on a 12-hour flight. If the airline has managed to sell 250 of those seats at normal price it won’t be too far from breaking even. However, as the flight was going no matter how many tickets were sold, all the services – baggage handlers, crew, etc – are already paid for. This means that the only extra ‘costs’ of carrying more passengers are fuel and catering. In-flight meals are dirt cheap (no surprises there) and, at July ’09 prices, the additional fuel required to carry 200lbs more weight is about $15 worth.
Therefore, the airline only has to sell the last 100 seats for more than $20 each to make it worthwhile. This is why taxes and charges often outweigh the actual fare on discounted routes, and why full service carriers can be cheaper than their low cost rivals. Of course, this is a very simplistic example and break-even loads depend upon the original ticket prices and operating costs. But, with patience, flexibility and a strong mouse finger, there are some fantastic deals out there, especially on long haul flights where premium seats are being heavily discounted.
This state of affairs won’t last forever though – as soon as demand for travel picks up, so will ticket prices. If for some reason the demand doesn’t pick up then a lot of companies will run out of cash charging these prices. The reduction in capacity as they go bust will have the same effect on airfares.
In the meantime, if you do manage to find bargain flights, keep it to yourself. Chances are the person sitting next to you paid a lot more!
